<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GROUP MAINTENANCE AMERICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TEXAS 1711 76-0535259
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
RANDOLPH W. BRYANT
SENIOR VICE PRESIDENT, GENERAL COUNSEL
1800 WEST LOOP SOUTH, SUITE 1375 AND SECRETARY
HOUSTON, TEXAS 77027 1800 WEST LOOP SOUTH, SUITE 1375
(713) 626-4778 HOUSTON, TEXAS 77027
(ADDRESS, INCLUDING ZIP CODE, AND (713) 626-4778
TELEPHONE NUMBER, INCLUDING (NAME, ADDRESS, INCLUDING ZIP CODE,
AREA CODE, OF REGISTRANT'S PRINCIPAL AND TELEPHONE NUMBER,
EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
Copies to:
GARY W. ORLOFF JOHN J. KELLEY III
BRACEWELL & PATTERSON, L.L.P. KING & SPALDING
711 LOUISIANA STREET, SUITE 2900 191 PEACHTREE STREET, N.E.
HOUSTON, TEXAS 77002-2781 ATLANTA, GEORGIA 30303
(713) 223-2900 (404) 572-4600
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE REGISTRATION FEE
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<S> <C> <C>
Common Stock, $0.001 par value........ $132,480,000 $40,145
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</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED AUGUST 21, 1997
7,200,000 SHARES
LOGO
[Logo of Group Maintenance America appears here]
GROUP MAINTENANCE AMERICA CORP.
COMMON STOCK
-----------
All of the 7,200,000 shares of Common Stock, par value $0.001 per share
("Common Stock"), offered hereby (the "Offering") are being sold by Group
Maintenance America Corp. ("GroupMAC" or the "Company").
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price per share of
Common Stock will be between $14.00 and $16.00. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price of the Common Stock. Application has been made for listing of the Common
Stock on the New York Stock Exchange ("NYSE") under the symbol " ."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............................. $ $ $
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Total(3)................................... $ $ $
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</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $4,000,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,080,000 additional shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered severally by the Underwriters named
herein subject to prior sale when, as and if received and accepted by the
Underwriters, subject to their right to reject orders, in whole or in part, and
to certain other conditions. It is expected that delivery of the certificates
will be made against payment therefor at the office of The Robinson-Humphrey
Company, Inc., Atlanta, Georgia, on or about , 1997.
THE ROBINSON-HUMPHREY COMPANY, INC.
WILLIAM BLAIR & COMPANY
ABN AMRO CHICAGO CORPORATION
, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION
MAINTAINED BY THE UNDERWRITERS IN THE COMMON STOCK, AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The Company has acquired 11 companies (the "Pre-Offering Companies") and has
entered into definitive agreements to acquire an additional 13 companies (the
"Offering Acquisition Companies" and together with the Pre-Offering Companies,
the "GroupMAC Companies") upon the closing of the Offering. The following
summary is qualified in its entirety by reference to, and should be read in
conjunction with, the more detailed information and the financial statements,
including the related notes thereto, appearing elsewhere in this Prospectus.
Unless the context otherwise requires, (i) the "Company" or "GroupMAC" refers
to Group Maintenance America Corp. and the GroupMAC Companies, as well as to
the business and operations of their predecessors, (ii) the information in this
Prospectus assumes that the Underwriters' over-allotment option has not been
exercised and the Offering price is $15.00 per share and (iii) all information
in this Prospectus relating to the number of shares of Common Stock and per
share amounts reflects the 1-for-2.5 reverse stock split effected prior to the
date of this Prospectus. References to fiscal year financial information of the
Company refer to the fiscal year ended February 28 or 29 of the relevant year
or the respective fiscal year ends of the individual GroupMAC Companies, and
references to pro forma financial information of the Company or combined
financial information of any group of the GroupMAC Companies refer to a year
ending December 31 of the relevant year. After completion of the Offering, the
Company's fiscal year will be the calendar year.
THE COMPANY
The Company was founded in 1996 to create the leading nationwide provider of
heating, ventilation and air conditioning ("HVAC"), plumbing and electrical
services to residential and commercial customers. Since inception, the Company
has acquired 11 companies (the "Pre-Offering Companies") totaling $138.8
million in combined 1996 revenues and has definitive agreements to acquire an
additional 13 companies (the "Offering Acquisition Companies") upon the closing
of the Offering. After the Offering, the Company believes it will be one of the
largest diversified providers of HVAC, plumbing and electrical services in the
United States with operations in 37 cities in 21 states. The market for these
diversified services is approximately $100 billion. The Company's pro forma
1996 revenues and income from operations were $307.5 million and $20.9 million,
respectively, and combined historical revenues of the GroupMAC Companies grew
at an annual rate of 14.3% from 1994 through 1996.
The Company offers a comprehensive range of services to residential and
commercial customers in both the new installation and the maintenance, repair
and replacement segments of the HVAC, plumbing and electrical service
industries. The Company's services include installing and maintaining,
repairing and replacing central air conditioning systems, furnaces, heat pumps
and plumbing and electrical systems. Approximately 74%, 23% and 3% of the
Company's pro forma 1996 revenues were derived from HVAC, plumbing and
electrical and other services, respectively. Approximately 59% of pro forma
1996 revenues were derived from residential services and 41% from commercial
services, while 54% of pro forma 1996 revenues were from the new installation
segment and 46% were from maintenance, repair and replacement services. Through
Callahan Roach and United Service Alliance, L.C. ("USA"), the Company also
provides consulting services and sells products to over 1,400 independent HVAC
and plumbing service companies. The Company believes that its broad service
offerings and geographic diversity provide several advantages, including the
ability to offer its customers a single source for a range of services, to
consolidate purchasing power with vendors, to capture business from customers
that operate on a regional and national basis, to mitigate the effects of
seasonality and to balance local or regional economic cycles.
The Company believes that it can maximize its long-term growth and
profitability by participating in both the new installation and the
maintenance, repair and replacement segments of the HVAC, plumbing and
electrical service industries. The new installation business is generally
characterized by higher volume sales to homebuilders, commercial developers and
other large customers. The maintenance, repair and replacement business
generally
3
<PAGE>
produces higher margins from services provided to a broader customer base. The
Company intends to focus on growing its maintenance, repair and replacement
business, to capitalize on the higher margins and the more predictable nature
of revenues associated with this segment and to target a revenue mix of
approximately 60% maintenance, repair and replacement and 40% new installation
over time. The Company derives considerable profits and strategic value from
its new installation business, as this segment generates a database of
potential customers for maintenance, repair and replacement services. The
higher volumes associated with consolidating a number of new installation firms
provide purchasing economies of scale that increase the competitiveness of both
the new installation and the maintenance, repair and replacement segments.
The Company believes that growth through acquisition is important and that
profits can be maximized through the efficient integration of acquired
companies. In order to provide the Company with integration, internal training
and management development capabilities, the Company acquired two leading
national HVAC consulting organizations, Callahan Roach and USA, in July 1997.
Callahan Roach serves HVAC and plumbing service companies across the United
States in such areas as advertising, marketing, business valuation, pricing
strategies, management information systems, acquisition planning and
integration and general consulting. Callahan Roach maintains relationships with
over 1,300 HVAC and plumbing service companies, principally in the residential
market. The Company estimates that aggregate revenues for these Callahan Roach
customers are in excess of $2 billion annually. USA provides training and other
products and services to 105 independent commercial HVAC service companies
across the United States. The Company estimates that aggregate revenues for
these USA customers are in excess of $1 billion annually. Of the 24 GroupMAC
Companies, 12 were clients of Callahan Roach and/or USA prior to their
acquisition. The Company intends to utilize these complementary customer bases
to advance its national marketing strategies and believes that these companies
will be a source of future acquisition prospects.
Available industry data indicate that the Company's markets are large and
fragmented. The HVAC service market is estimated to be in excess of $64 billion
in annual revenue, with some 40,000 service providers. Approximately $26
billion of the total is represented by the residential market, with the
commercial market representing the balance. The plumbing service market is
estimated to be $19 billion and the electrical service market is estimated to
be $16 billion. The plumbing and electrical service markets each have over
30,000 participants. The vast majority of participants in the HVAC, plumbing
and electrical service industries are small, owner-operated businesses with
limited financial resources and limited access to capital for expansion. The
Company believes there is a significant opportunity for a well-capitalized,
nationwide provider of these services to consolidate a large number of
independent companies.
The Company is implementing operating and acquisition strategies to maintain
and expand its position as a leading national provider of comprehensive HVAC,
plumbing and electrical services to the residential and commercial markets.
Key elements of the Company's operating strategy are to:
. achieve operating efficiencies through volume purchasing, the
implementation of "best practices" and the development of strong
internal training capabilities;
. operate on a decentralized basis to allow entrepreneurial management to
continue to capitalize on local market knowledge and existing customer
relationships;
. attract, develop and retain high quality technicians to assure superior
customer service; and
. establish national market coverage to provide full service to regional
and national accounts.
Key elements of the Company's acquisition strategy are to:
. acquire companies across multiple market segments to provide a balanced
mix of revenues and foster internal growth through cross-selling of
services;
4
<PAGE>
. expand geographically by acquiring core businesses in new markets and
"tucking in" smaller companies;
. utilize Common Stock to retain and provide incentives to the management
and employees of acquired companies; and
. leverage its industry reputation and relationships to make future
acquisitions.
The Company is a Texas corporation with its principal executive offices
located at 1800 West Loop South, Suite 1375, Houston, Texas 77027, and its
telephone number is (713) 626-4778.
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered.................................. 7,200,000 Shares
Common Stock to be Outstanding after the Offering (1). 19,466,850 Shares
Use of Proceeds....................................... To redeem or repay
outstanding warrants,
preferred stock and
indebtedness used to
acquire the Pre-Offering
Companies, to fund the
cash portion of the
consideration for the
Offering Acquisition
Companies, to repay
indebtedness of the
Offering Acquisition
Companies and for other
general corporate
purposes including
working capital and
future acquisitions. See
"Use of Proceeds."
Proposed NYSE Symbol..................................
</TABLE>
- --------
(1) Includes 2,584,216 shares to be issued in connection with the acquisition
of the Offering Acquisition Companies concurrently with the Offering, but
excludes 607,097 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants issued in connection with certain
acquisitions, 378,800 shares of Common Stock issuable upon exercise of
outstanding stock options held by employees of the Company and 2,336,022
shares reserved for issuance under the Company's stock plans at August 1,
1997. See "Management--Option Grants" and "--Stock Awards Plan."
RISK FACTORS
An investment in the shares of Common Stock involves significant risks that a
potential investor should consider carefully. See "Risk Factors" beginning on
page 9 for certain information that should be considered by prospective
purchasers of the Common Stock offered hereby.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The Company has previously acquired the Pre-Offering Companies and will
acquire the Offering Acquisition Companies simultaneously with the closing of
the Offering. The first and largest acquisition made by the Company was that of
Airtron, Inc. ("Airtron"). For accounting purposes, this transaction was
accounted for as a reverse acquisition, as if Airtron acquired the GroupMAC
Parent (Group Maintenance America Corp. parent only), because the former
shareholders of Airtron owned a majority of GroupMAC Parent's common stock upon
consummation of the transaction. As such, the summary historical financial data
set forth below as of and for the three-year period ended February 28, 1997
have been derived from the financial statements of Airtron, which have been
audited by KPMG Peat Marwick LLP, independent public accountants. The financial
statements of GroupMAC Parent and the Pre-Offering Companies are included in
the Financial Statements from their respective dates of acquisition. The
historical balance sheet data as of June 30, 1997 include A-ABC Appliance, Inc.
("A-ABC") and A-1 Air Conditioning and Appliance, Inc. ("A-1" and, together
with A-ABC, "A-ABC/A-1"), Hallmark Air Conditioning, Inc. ("Hallmark") and K&N
Plumbing, Heating and Air Conditioning, Inc. ("K&N"), which were acquired
effective June 1, 1997, and Charlie Crawford, Inc. (d/b/a Charlie's Plumbing)
("Charlie's"), Costner Brothers, Inc. ("Costner"), AA JARL, Inc. (d/b/a Jarrell
Plumbing) ("Jarrell") and the assets of Way Service, Inc. ("Way"), which were
acquired effective June 30, 1997.
The summary pro forma financial data of the Company as of and for the six
months ended June 30, 1996 and 1997 and the year ended December 31, 1996 are
derived from the Unaudited Pro Forma Combined Financial Statements of the
Company that appear elsewhere in this Prospectus. The pro forma financial data
listed below present certain information for the Company, as adjusted for (i)
the effects of the acquisitions of the GroupMAC Companies and (ii) the effects
of certain pro forma adjustments to the historical financial statements of the
GroupMAC Companies which are directly related to these acquisitions. The pro
forma as adjusted financial data give effect to consummation of the Offering
and the application of the net proceeds therefrom. The pro forma financial data
of the Company do not purport to represent what the Company's results of
operations or financial position actually would have been had these events, in
fact, occurred on the date or at the beginning of the period indicated, nor are
they intended to project the Company's results of operations or financial
position for any future date or period.
The data presented below should be read in conjunction with the Selected
Historical and Pro Forma Financial Data, Management's Discussion and Analysis
of Financial Condition and Results of Operations, the Financial Statements and
the related notes thereto and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere herein.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
------------------------------
FISCAL YEARS ENDED SIX MONTHS ENDED
FEBRUARY 28 OR 29, JUNE 30,
-------------------------- DECEMBER 31, ------------------
1995 1996 1997 1996(2) 1996(2) 1997(2)
------- ------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(1):
Revenues................ $72,226 $73,765 $81,880 $307,507 $151,396 $157,941
Gross Profit............ 21,766 21,091 23,374 71,596 33,479 36,582
Selling, General and
Administrative
Expenses(3)............ 20,282(4) 17,615 19,811 48,953 24,068 26,978(5)
Goodwill
Amortization(6)........ -- -- -- 1,791 896 896
------- ------- ------- -------- -------- --------
Income from Operations.. 1,484 3,476 3,563 20,852 8,515 8,708
Interest Income
(Expense), Net......... 76 68 89 154 39 181
Other Income, Net....... 140 246 256 297 240 508
------- ------- ------- -------- -------- --------
Income Before Income Tax
Provision.............. 1,700 3,790 3,908 21,303 8,794 9,397
Income Tax Provision.... 911 1,651 1,572 9,237 3,876 4,117
------- ------- ------- -------- -------- --------
Net Income.............. $ 789 $ 2,139 $ 2,336 $ 12,066 $ 4,918 $ 5,280
======= ======= ======= ======== ======== ========
Net Income Per Share.... $ .61 $ .25 $ .27
======== ======== ========
Weighted Average Shares
Outstanding(7)......... 19,668 19,668 19,668
======== ======== ========
OTHER DATA:
EBITDA(8) $ 1,853 $ 3,960 $ 4,027 $ 26,061 $ 11,132 $ 11,843
======= ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------
PRO PRO FORMA
ACTUAL FORMA(2) AS ADJUSTED(2)
-------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents.................... $ 5,875 $ 10,214 $ 12,747
Working Capital.............................. 7,425 (13,359) 32,593
Total Assets................................. 64,644 170,270 172,606
Total Debt................................... 31,045 46,022 2,107
Preferred Stock.............................. 17,121 19,271 --
Shareholders' Equity......................... (11,296) 21,454 117,894
</TABLE>
- -------
(1) Concurrent with the Offering, the Company intends to change its fiscal year
end from February 28 to December 31.
(2) Pro forma financial data give effect to the completed and pending
acquisitions that are described in Unaudited Pro Forma Combined Financial
Statements, as if they had occurred at January 1, 1996 for the Income
Statement Data and on June 30, 1997 for the Balance Sheet Data. Pro forma
as adjusted data give effect to a reduction in interest expense as a result
of reductions in indebtedness upon application of a portion of the net
proceeds to the Company from the Offering and the redemption of preferred
stock.
(3) Reflects a decrease of $11.1 million, $4.2 million and $5.2 million for the
year ended December 31, 1996, six months ended June 30, 1996 and 1997,
respectively, for pro forma reductions in salaries, bonuses and benefits to
former owners of the GroupMAC Companies to which they have agreed
prospectively.
(4) Includes $2.4 million for compensation expense resulting from revaluation
of warrants.
(5) Includes $2.4 million of expenses for the formation and build-up of
corporate management and infrastructure.
(6) Consists of amortization recorded or to be recorded as a result of the
acquisition of GroupMAC Companies over a 40-year period and computed on the
basis described in the Notes to the Unaudited Pro Forma Combined Financial
Statements.
(7) Computed on a basis described in Note 4 of Notes to Unaudited Pro Forma
Combined Financial Statements.
(8) Represents earnings before interest, taxes, depreciation and amortization.
EBITDA is not a calculation based upon generally accepted accounting
principles; however, it is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
EBITDA should not be considered by a prospective purchaser of Common Stock
as an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
7
<PAGE>
SUMMARY INDIVIDUAL GROUPMAC COMPANIES FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR(1) JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Group Maintenance America
Corp. and Subsidiaries
(Formerly Airtron)(2)
Revenues.................... $ 72,226 $ 73,765 $ 81,880 $ 37,127 $ 38,676
Gross Profit................ 21,766 21,091 23,374 10,209 10,863
Income from Operations...... 1,484 3,476 3,563 739 1,039
MacDonald-Miller
Revenues.................... $ 39,534 $ 45,508 $ 66,059 $ 36,382 $ 38,836
Gross Profit................ 7,278 8,581 9,686 4,792 5,385
Income from Operations...... 1,190 1,243 2,054 1,086 1,597
Masters
Revenues.................... $ 30,327 $ 35,160 $ 39,826 $ 18,279 $ 19,318
Gross Profit................ 2,309 3,414 3,972 1,640 1,861
Income from Operations...... 645 1,041 1,488 631 664
K&N(2)
Revenues.................... $ 21,458 $ 22,709 $ 24,279 $ 11,893 $ 12,355
Gross Profit................ 2,615 2,359 3,574 1,460 1,693
Income from Operations...... 340 (119) 936 111 88
Other Residential Services (11
companies)(2)(3)
Revenues.................... $ 38,481 $ 43,216 $ 48,964 $ 23,255 $ 24,886
Gross Profit................ 13,084 15,679 18,336 8,493 10,087
Income from Operations...... 1,652 1,469 1,830 411 1,810
Other Commercial Services (9
companies)(3)
Revenues.................... $ 33,208 $ 38,476 $ 46,499 $ 24,460 $ 23,870
Gross Profit................ 9,434 10,863 12,654 6,885 6,693
Income from Operations...... 1,765 1,734 2,287 2,182 1,495
GroupMAC Parent(4)
Revenues.................... $ -- $ -- $ -- $ -- $ --
Gross Profit................ -- -- -- -- --
Income from Operations...... -- -- (724) -- (2,406)
Total
Revenues.................... $235,234 $258,834 $307,507 $151,396 $157,941
Gross Profit................ 56,486 61,987 71,596 33,479 36,582
Income from Operations...... 7,076 8,844 11,434 5,160 4,287
Pro Forma Income from
Operations................. 20,852 8,515 8,708
</TABLE>
- -------
(1) Several of the individual GroupMAC Companies have fiscal year ends that
differ from December 31, which is the year end all of the Group MAC
Companies will use concurrent with the Offering.
(2) The operating results of A-ABC/A-1, Hallmark and K&N include the activity
of each of these companies for the six months ended June 30, 1997, although
these companies were acquired, for accounting purposes, by Airtron on June
1, 1997. A-ABC/A-1 and Hallmark results are included in the Other
Residential Services group. Airtron results include Airtron on a stand
alone basis without inclusion of the results of any acquired companies.
(3) The remainder of the GroupMAC Companies are classified by their primary
revenue generating category.
(4) GroupMAC Parent's operating results include the six months ended June 30,
1997, although the company was acquired, for accounting purposes, by
Airtron in May 1997.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers of the Common Stock offered hereby should consider carefully the
following factors before deciding to invest in the Common Stock. To the extent
any of the information contained in this Prospectus contains a "forward-
looking statement" as defined in Section 27A(i)(1) of the Securities Act of
1933, as amended (the "Securities Act"), the risk factors set forth below are
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those in the forward-looking
statements.
ABSENCE OF COMBINED OPERATING HISTORY
The Company has conducted limited operations to date. See "The Company."
Prior to their acquisition by the Company, the Pre-Offering Companies operated
as separate, independent businesses. Further, the Offering Acquisition
Companies have operated, and will continue to operate prior to the closing of
the Offering, as separate, independent businesses. The Company will rely on
the separate systems of the GroupMAC Companies for the foreseeable future.
There can be no assurance that the Company will be able to integrate the
operations of the GroupMAC Companies successfully or to institute the
necessary systems and procedures, including accounting and financial reporting
systems, to manage the combined enterprise on a profitable basis. The
Company's management group has been assembled only recently, and a significant
number of the Company's management group has not worked in the HVAC, plumbing
and electrical service industries prior to joining the Company. There can be
no assurance that the management group will be able to manage the combined
entity or to implement effectively the Company's operating strategy, internal
growth strategy and acquisition program. The pro forma and combined historical
financial results of the GroupMAC Companies cover periods when the GroupMAC
Companies were not under common control or management and may not be
indicative of the Company's future financial or operating results. The
inability of the Company to integrate and manage the GroupMAC Companies and
such additional businesses as the Company may acquire as a cohesive, efficient
enterprise or to eliminate unnecessary duplication may have a material adverse
effect on the business, financial condition and results of operations of the
Company.
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The Company intends to grow primarily by acquiring residential and
commercial contracting businesses that install or maintain, repair and replace
HVAC, plumbing, electrical and other systems and equipment in existing homes
and commercial buildings and in homes and commercial buildings under
construction in its existing and new markets. The Company's acquisition
strategy presents risks that, singly or in any combination, could materially
adversely affect the Company's business, financial condition and results of
operations. These risks include the possibility of the adverse effect on
existing operations of the Company from the diversion of management attention
and resources to acquisitions, the possible loss of acquired customer bases
and key personnel, including service technicians and managers, possible
adverse effects on earnings resulting from amortization of goodwill created in
purchase transactions and the contingent and latent risks associated with the
past operations and other unanticipated problems arising in the acquired
businesses. The success of the Company's acquisition strategy will depend on
the extent to which it is able to acquire, successfully absorb and profitably
manage additional businesses, and no assurance can be given that the Company's
strategy will succeed. The increasing competition for suitable acquisition
targets could limit the Company's ability to locate suitable acquisition
targets and could increase the cost of purchasing such acquisition targets.
See "Business--Acquisition Strategy."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH
The Company historically has financed capital expenditures and acquisitions
primarily through the issuance of equity securities, secured bank borrowings
and internally generated cash flow. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock for all or a
9
<PAGE>
substantial portion of the consideration to be paid. If the Common Stock does
not maintain a sufficient market value, or if potential acquisition candidates
are otherwise unwilling to accept Common Stock as part of the consideration
for the sale of their businesses, the Company may be required to utilize more
of its cash resources, if available, in order to initiate and maintain its
acquisition program. The Company will have little, if any, net proceeds of
this Offering remaining for future acquisitions and working capital after
payment of Offering expenses, any indebtedness incurred or assumed by the
Company and the cash portion of the purchase price for the Offering
Acquisition Companies. There can be no assurance the Company will be able to
raise sufficient capital at reasonable rates, if at all. If the Company does
not have sufficient cash resources, its growth could be limited unless it is
able to obtain additional capital through debt or equity financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
EXPOSURE TO DOWNTURNS IN HOUSING STARTS OR NEW COMMERCIAL CONSTRUCTION
A substantial portion of the Company's business involves installation of
HVAC and/or plumbing systems in newly constructed residences and commercial
buildings. The extent to which the Company is able to maintain or increase
revenues from new installation services in the residential market will depend
on the levels of housing starts from time to time in the geographic markets in
which it operates and likely will reflect the cyclical nature of the housing
industry. The housing industry is affected significantly by changes in general
and local economic conditions, such as employment and income levels, the
availability and cost of financing for home buyers (including the continued
deductibility of mortgage interest in determining federal income tax),
consumer confidence and housing demand. The level of new commercial
installation services is similarly affected by fluctuations in the level of
new construction of commercial buildings in the markets in which the Company
operates, due to local economic conditions, changes in interest rates and
other similar factors. Downturns in the levels of housing starts and/or new
commercial construction could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Seasonal and Cyclical Nature of Business."
FLUCTUATION IN QUARTERLY OPERATING RESULTS
The Company's operations are subject to economic cycles and seasonal
variations. General and local economic conditions can cause fluctuations in
demand for the Company's services. Except in the Southeastern and Southwestern
United States, the demand for new installations of HVAC systems can be
substantially lower during the winter months. Demand for HVAC services,
especially in the residential sector, is generally higher in the second and
third calendar quarters. Commercial HVAC maintenance, repair and replacement
service is subject to seasonality as well. The Company expects that its
revenues and operating results generally will be lower in its first and fourth
calendar quarters. The HVAC, plumbing and electrical service industries are
also subject to fluctuations caused by periods of inclement weather. Prolonged
climate or weather conditions may cause unpredictable fluctuations in
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonal and Cyclical Nature of
Business."
AVAILABILITY OF TECHNICIANS
The Company's ability to provide high-quality HVAC, plumbing and electrical
services on a timely basis requires an adequate supply of skilled technicians.
Accordingly, the Company's ability to increase its productivity and
profitability will be limited by its ability to employ, train and retain the
skilled technicians necessary to meet the Company's service requirements. From
time to time, there are shortages of qualified technicians, and there can be
no assurance that the Company will be able to maintain an adequate skilled
labor force necessary to operate efficiently, that the Company's labor
expenses will not increase as a result of a shortage in the supply of skilled
technicians or that the Company will not have to curtail its planned internal
growth as a result of labor shortages. See "Business--Centralized Support
Systems--Employee Screening, Training and Development."
10
<PAGE>
RISKS ASSOCIATED WITH DEVELOPMENT, IMPLEMENTATION, AND INTEGRATION OF
OPERATING SYSTEMS AND POLICIES
As a rapidly growing provider of HVAC, plumbing and electrical services, the
Company is faced with the development, implementation and integration of
Company-wide policies and systems related to its operations. The Company plans
to implement and integrate certain information and operating systems and
procedures for the GroupMAC Companies including, but not limited to,
accounting systems, employment and human resources policies, uniform
purchasing programs and certain centralized marketing programs. Each of the
GroupMAC Companies and companies to be acquired in the future may need to
modify certain systems and policies they have utilized historically to
implement the Company's systems and policies. The Company may experience
delays, complications and expenses in implementing, integrating and operating
such systems, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Operating Strategy."
FACTORS AFFECTING INTERNAL GROWTH
The Company's ability to increase the revenues of the GroupMAC Companies and
any subsequently acquired company will be affected by various factors,
including demand for HVAC, plumbing and electrical services, the level of new
construction, the Company's ability to expand the range of services offered to
customers of individual GroupMAC Companies and other acquired businesses, the
Company's ability to develop national accounts and other marketing programs in
order to attract new customers and the Company's ability to attract and retain
a sufficient number of qualified technicians and other necessary personnel.
Many of these factors are beyond the control of the Company, and there can be
no assurance that the Company's operating and internal growth strategies will
be successful or that it will be able to generate cash flow adequate for its
operation and to support internal growth. Furthermore, there can be no
assurance that management can integrate acquired companies and reduce overhead
expenses. See "Business--Operating Strategy."
VALUATION OF ACQUISITIONS
The initial public offering price will be determined based on negotiations
between the Company and the representatives of the Underwriters, and the
factors which will be considered in determining such price include, in
addition to prevailing market conditions, the expected results of operations
of the Company, estimates of the business potential and earnings prospects of
the Company and the economy as a whole. See "Underwriting." The valuation of
the Company has not been established on a company-by-company basis, and no
third party appraisals of the GroupMAC Companies were obtained by the Company
for purposes of the Offering nor has a fairness opinion been obtained. A
valuation of the Company determined solely by appraisal of the individual
GroupMAC Companies would likely result in a different valuation of the Company
than that reflected by the initial public offering price of the shares of
Common Stock offered hereby. There can be no assurance that the consideration
paid or to be paid by the Company for the GroupMAC Companies accurately
reflects the value of the assets of these companies or that the percentage of
Common Stock of the Company owned by the former owners of the GroupMAC
Companies reflects the value of the assets of the GroupMAC Companies.
PROCEEDS OF OFFERING PAYABLE FOR EXISTING OBLIGATIONS AND TO AFFILIATES
The Company will use the net proceeds of the Offering to repay indebtedness
incurred to fund the cash portion of the consideration paid to acquire the
Pre-Offering Companies, to redeem warrants and preferred stock issued in
connection with the acquisition of the Pre-Offering Companies, to repay debt
assumed and certain obligations resulting from the acquisition of the GroupMAC
Companies and to fund the cash portion of the consideration to be paid to
acquire the Offering Acquisition Companies. Only a small portion, if any, of
the net proceeds of the Offering will be available to meet the Company's cash
requirements following the closing of the Offering. In connection with the
closing of the purchase of the Offering Acquisition Companies, the Company
will pay, subject to adjustment, approximately $28.9 million in cash for the
stock of the Offering Acquisition Companies. The Company will also use $32.5
million to repay bank debt incurred to finance the acquisition of the Pre-
Offering Companies, approximately $19.3 million to redeem warrants and
preferred stock
11
<PAGE>
issued in connection with the acquisition of the Pre-Offering Companies and
approximately $12.4 million to repay debt assumed and certain obligations
resulting from the acquisition of the GroupMAC Companies. Some of the warrants
and preferred stock redeemed with the proceeds of the Offering and the stock
or assets purchased with the proceeds of the Offering are beneficially owned
by individuals who are or who may become directors of the Company and/or
executive officers of GroupMAC Companies. See "Use of Proceeds," "The
Acquisitions" and "Related Party Transactions."
COMPETITION
The HVAC, plumbing and electrical service industries are highly competitive
and are served principally by small, owner-operated private companies. Certain
of these smaller competitors have lower overhead cost structures and may be
able to provide their services at lower rates than the Company. The Company
believes the HVAC, plumbing and electrical service industries are subject to
rapid consolidation on both a national and a regional scale. Three companies
have completed initial public offerings, have begun consolidation efforts and
have entered into some of the Company's markets. Other companies, including
unregulated affiliates of electric and gas public utilities and HVAC equipment
manufacturers, may enter the industry. These consolidators and other entrants
may have greater financial resources and name recognition than the Company and
may be willing to pay higher prices than the Company for the same
opportunities. Consequently, the Company may encounter significant competition
in its efforts to achieve its growth objectives. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's operations depend on the continuing efforts of its executive
officers and the senior management of the GroupMAC Companies, and the Company
will depend on the senior management of significant businesses it acquires in
the future. The business of the Company could be affected adversely if any of
these persons does not continue in his or her management role with the Company
or an acquired business and the Company is unable to attract and retain
qualified replacements. See "Business--Centralized Support Services--Employee
Screening, Training and Development."
REGULATION
HVAC systems are subject to various environmental statutes and regulations,
including, but not limited to, (i) laws and regulations implementing the
federal Clean Air Act, as amended (the "Clean Air Act"), relating to minimum
energy efficiency standards of HVAC systems and the production, servicing and
disposal of certain ozone depleting refrigerants used in such systems and (ii)
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), which can impose strict, joint and several liability on past and
present owners or operators of facilities at, from, or to which a release of
hazardous substances has occurred, on parties who generated hazardous
substances that were released at such facilities and on parties who arranged
for the transportation of hazardous substances to such facilities. In
connection with its entry into new markets, the Company may become subject to
compliance with additional regulations, and there can be no assurance that the
regulatory environment in which the Company operates will not change
significantly in the future. Various local, state and federal laws and
regulations, including, but not limited to, laws and regulations implementing
the Clean Air Act impose licensing standards on technicians who service
heating and air conditioning units. While the installers and technicians
employed by the Company are duly certified by applicable local, state and
federal agencies and have been able to meet or exceed such standards to date,
there can be no assurance that they will be able to meet future standards. In
some states, warranties provided for in the Company's service agreements may
be deemed insurance contracts by applicable state insurance regulatory
agencies thereby subjecting the Company and the service agreements to the
insurance laws and regulations of such state. See "Business--Governmental
Regulation and Environmental Matters."
12
<PAGE>
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Upon the closing of the Offering, the executive officers, directors and
certain founding shareholders of the Company will beneficially own in the
aggregate approximately 31.5% of the outstanding Common Stock. Accordingly,
such persons will have substantial influence on the Company, which influence
might not be consistent with the interests of other shareholders, and on the
outcome of any matters submitted to the Company's shareholders for approval.
In addition, although there is no current agreement, understanding or
arrangement for these shareholders to act together on any matter, these
shareholders may have economic and business reasons to act together, and would
be in a position to execute significant influence over the affairs of the
Company if they were to act together in the future. If these persons were to
act in concert, they might, as a practical matter, be able to exercise control
over the Company's affairs, including the election of the entire Board of
Directors and (subject to Article Thirteen of the Texas Business Corporation
Act (the "TBCA") which applies to transactions between the Company and certain
interested persons) any matter submitted to a vote of stockholders. See
"Security Ownership of Certain Beneficial Owners and Management."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon the closing of the Offering, 19,466,850 shares of Common Stock will be
outstanding. The 7,200,000 shares sold in this Offering (other than shares
that may be purchased by affiliates of the Company) will be freely tradable.
Due to the high number of beneficial owners in the employee stock ownership
plan of MacDonald-Miller Industries, Inc. ("MacDonald-Miller"), the Company
registered under the Securities Act 600,193 shares in connection with the
acquisition of MacDonald-Miller. The remaining shares outstanding may be
resold publicly only following their effective registration under the
Securities Act or pursuant to an available exemption (such as provided by Rule
144 following a holding period for previously unregistered shares) from the
registration requirements of the Securities Act. The holders of those
remaining shares have certain rights to have their shares registered in the
future under the Securities Act (see "Shares Eligible for Future Sale"), but
have agreed with the Company that they will limit the exercise of certain
demand registration rights. In addition, such holders have agreed with the
Company that they generally will not sell, transfer or otherwise dispose of
any of their shares for one year following the date of acquisition of such
shares and for one additional year will limit sales to no more than 36% of
their holdings. Sales made pursuant to Rule 144 must comply with its
applicable volume limitations and other requirements.
Upon the closing of the Offering, the Company also will have outstanding
options and warrants to purchase up to a total of 3,321,919 shares of Common
Stock, of which only warrants and options to purchase 707,631 shares will be
exercisable immediately after the Closing. The Company intends to register all
the shares subject to these options and warrants under the Securities Act for
public resale.
The Company, its directors and executive officers and certain other
shareholders have agreed not to offer or sell any shares for a period of 180
days following the date of this Prospectus without the prior written consent
of The Robinson-Humphrey Company, Inc., except that the Company may issue
Common Stock in the Offering, in connection with acquisitions generally, and
pursuant to the exercise of warrants and options.
The Company intends to continue to acquire companies using Common Stock as
part of the consideration. Accordingly, the Company intends to register
7,000,000 additional shares of Common Stock under the Securities Act during
the fourth quarter of 1997 for its use in connection with future acquisitions.
These shares generally will be freely tradable after their issuance by persons
not affiliated with the Company unless the Company contractually restricts
their resale.
The effect, if any, of the availability for sale, or sale, of the shares of
Common Stock eligible for future sale on the market price of the Common Stock
prevailing from time to time is unpredictable, and no assurance can be given
that the effect will not be adverse.
13
<PAGE>
RESTRICTIONS ON DIVIDENDS; DEPENDENCE ON SUBSIDIARIES
The Company will conduct its operations through subsidiaries, including
substantially all of the Pre-Offering Companies and the Offering Acquisition
Companies, and is therefore dependent upon the cash flow of and the transfer
of funds by those subsidiaries to the Company in the form of loans, dividends
or otherwise to meet its financial obligations. Each GroupMAC Company and any
future subsidiary of the Company will be distinct legal entities and will have
no obligation, contingent or otherwise, to transfer funds to the Company. The
Company's ability to pay dividends on the Common Stock is restricted by the
terms of the $60 million bank credit facility (the "Bank Credit Agreement")
and could be restricted by the terms of subsequent financings and subsequent
series of Preferred Stock that may be issued in future transactions. See
"Description of Capital Stock" and "Description of Capital Stock--Common
Stock." Additionally, the ability of the GroupMAC Companies to pay dividends
to the Company is limited by the terms of the Bank Credit Agreement. See
"Description of Bank Credit Agreement."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, no public market for the Common Stock has existed,
and the initial public offering price, which will be determined by negotiation
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the
Offering. See "Underwriting" for the factors considered in determining the
initial public offering price. The Common Stock is expected to be approved for
listing on the NYSE, subject to official notice of issuance, but no assurance
can be given that an active trading market for the Common Stock will develop
or, if it developed, that it will continue after the Offering. The market
price of the Common Stock after the Offering may be subject to significant
fluctuations from time to time in response to numerous factors, including
variations in the reported financial results of the Company and changing
conditions in the economy in general or in the Company's industry in
particular. In addition, stock markets generally experience significant price
and volume volatility from time to time which may affect the market price of
the Common Stock for reasons unrelated to the Company's performance.
POTENTIAL ANTI-TAKEOVER EFFECTS
Provisions of the Company's Articles of Incorporation and Bylaws and the
TBCA may have the effect of delaying, discouraging, inhibiting, preventing or
rendering more difficult an attempt to obtain control of the Company by means
of a tender offer, business combination, proxy contest or otherwise. These
provisions include the authorization in the Company's Articles of
Incorporation of preferred stock having such preferences, powers and relative,
participating, optional and other rights (including preferences over the
Common Stock respecting dividends, distributions and voting rights) as the
Board of Directors may determine, classification of the Board of Directors, a
TBCA restriction on the ability of shareholders to take actions by written
consent and a TBCA provision imposing restrictions on business combinations
with certain interested parties. See "Description of Capital Stock."
IMMEDIATE, SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $12.62
per share and (ii) may experience further dilution in that value from
issuances of Common Stock in connection with future acquisitions. See
"Dilution."
14
<PAGE>
THE COMPANY
The Company was founded in 1996 to create the leading nationwide provider of
HVAC, plumbing and electrical services to residential and commercial
customers. The Company has completed the purchase of 11 Pre-Offering Companies
and has definitive agreements to acquire an additional 13 Offering Acquisition
Companies upon the closing of the Offering. The initial capitalization of the
Company was provided through private equity capital and a $35 million
acquisition and working capital borrowing facility. This initial financing
allowed the Company to acquire the Pre-Offering Companies, including Airtron,
a residential HVAC service company with new installation and maintenance,
repair and replacement services in 14 cities in six states. The Company
believes Airtron, with revenues in fiscal 1996 of $81.9 million, was the
largest independent residential HVAC service company in the United States. The
combined 1996 revenue of the Pre-Offering Companies was $138.8 million. With
the purchase of the 13 Offering Acquisition Companies, the Company will have
approximately 2,860 employees at operations in 37 cities in 21 states, with
combined 1996 revenues of $307.5 million, and will be among the largest
providers of HVAC, plumbing and electrical services in the United States.
For a description of the transactions pursuant to which the businesses of
the Pre-Offering Companies were acquired and the Offering Acquisition
Companies will be acquired, see "The Acquisitions." The GroupMAC Companies are
described below.
<TABLE>
<CAPTION>
1996 REVENUES YEAR
PRE-OFFERING COMPANIES: ($ IN 000'S)(1) FOUNDED HEADQUARTERS SITE PRIMARY SERVICES
- ----------------------- --------------- ------- -------------------- ---------------------------------------------
<S> <C> <C> <C> <C>
Airtron(2)....... $81,880 1970 Dayton, OH Residential & Commercial HVAC
K&N(2)........... 24,279 1978 Arlington, TX Residential Plumbing & HVAC
A-ABC/A-1(2)..... 8,546 1976 Dallas, TX Residential HVAC & Plumbing
Sibley........... 6,962 1974 Memphis, TN Commercial HVAC
Hallmark(2)...... 6,516 1951 Houston, TX Residential & Commercial HVAC
Charlie's........ 3,058 1979 Houston, TX Commercial & Residential Plumbing
Costner.......... 3,042 1985 Rock Hill, SC Residential HVAC & Electrical
Callahan
Roach(2)(3)..... 1,867 1989 Colorado Springs, CO Residential Training, Products & Publications
Jarrell.......... 1,236 1957 Houston, TX Residential Plumbing
USA.............. 763 1988 Lakewood, CO Commercial Training & Member Services
Way.............. 659 1977 Houston, TX Residential HVAC
--------
Total........... $138,808
--------
OFFERING ACQUISITION COMPANIES:
- ---------------------------------
MacDonald-Mill- $ 66,059 1965 Seattle, WA Commercial HVAC, Plumbing & Electrical
er(2)...........
Masters(2)....... 39,826 1986 Gaithersburg, MD Residential Plumbing & HVAC
Linford(2)....... 11,305 1960 Oakland, CA Commercial HVAC
Yale............. 10,065 1939 Minneapolis, MN Commercial HVAC
Central Caroli-
na(2)........... 8,161 1967 Greensboro, NC Residential & Commercial HVAC
Willis........... 6,781 1954 Cincinnati, OH Residential HVAC
Paul E. Smith.... 5,573 1967 Indianapolis, IN Residential Plumbing
Southeast Mechan-
ical............ 5,282 1979 Hollywood, FL Commercial HVAC
Van's............ 4,289 1965 Delray Beach, FL Residential HVAC
Arkansas
Mechanical(2)... 3,337 1988 Little Rock, AR Commercial HVAC
Mechanical(2).... 2,900 1993 Little Rock, AR Commercial HVAC
All Service...... 2,826 1990 Jacksonville, FL Commercial & Residential Electrical
Evans............ 2,295 1901 Birmingham, AL Residential Plumbing & HVAC
--------
Total........... $168,699
--------
Pro Forma Com-
bined........... $307,507
========
<CAPTION>
SOURCE OF 1996 REVENUES
-------------------------
MAINTENANCE,
NEW REPAIR AND
PRE-OFFERING COMPANIES: INSTALLATION REPLACEMENT
- ----------------------- ------------ ------------
<S> <C> <C> <C>
Airtron(2)....... 81% 19%
K&N(2)........... 89% 11%
A-ABC/A-1(2)..... 0% 100%
Sibley........... 0% 100%
Hallmark(2)...... 0% 100%
Charlie's........ 0% 100%
Costner.......... 0% 100%
Callahan
Roach(2)(3)..... N/A N/A
Jarrell.......... 0% 100%
USA.............. N/A N/A
Way.............. 0% 100%
Total...........
OFFERING ACQUISITION COMPANIES:
- ----------------------------------------
MacDonald-Mill-
er(2)........... 41% 59%
Masters(2)....... 100% 0%
Linford(2)....... 0% 100%
Yale............. 28% 72%
Central Caroli-
na(2)........... 17% 83%
Willis........... 59% 41%
Paul E. Smith.... 61% 39%
Southeast Mechan-
ical............ 0% 100%
Van's............ 4% 96%
Arkansas
Mechanical(2)... 0% 100%
Mechanical(2).... 14% 86%
All Service...... 14% 86%
Evans............ 0% 100%
Total...........
Pro Forma Com-
bined........... 54% 46%
============ ============
</TABLE>
- -------
(1) Several of the individual GroupMAC Companies have fiscal year ends that
differ from December 31, which is the year end all of the GroupMAC
Companies will use concurrent with the Offering.
(2) Operates through multiple locations.
(3) Includes Callahan/Roach Products & Publications, Inc. ("CRPP") and
Callahan/Roach & Associates ("CRA" and, together with CRPP, "Callahan
Roach").
15
<PAGE>
The Pre-Offering Companies (other than Costner and Way) were acquired using
a combination of cash, warrants and preferred stock and 5,994,122 shares of
Common Stock. The preferred stock will be redeemed for cash at the closing of
the Offering. The Offering Acquisition Companies and Costner and Way are being
acquired for a combination of cash and approximately 2,762,966 shares of
Common Stock, before anticipated Subchapter S distributions. The aggregate
consideration that was paid or will be paid by the Company to acquire the
GroupMAC Companies consists of (i) approximately $61.6 million in cash, (ii)
8,645,505 shares of Common Stock, (iii) 17,557,973 shares of preferred stock
and warrants to purchase 1,713,622 shares of preferred stock issued to the
Pre-Offering Companies which will be redeemed for an aggregate of $19.3
million in cash with proceeds of the Offering and (iv) warrants and options
for 607,097 shares of Common Stock. In addition, the Company has assumed or
will assume $14.9 million of indebtedness of the GroupMAC Companies. See "Use
of Proceeds." Shareholders of several of the GroupMAC Companies have the
opportunity to receive additional amounts of purchase price, payable in cash
and Common Stock in 1997 and 1998, contingent upon the occurrence of future
events. The Company believes this amount will be approximately $5 million.
Prior to the closing of the Offering, certain of the Offering Acquisition
Companies that are corporations which have elected to be taxed under
Subchapter S of the Internal Revenue Code ("S Corporations") may distribute
cash and certain non-operating assets to their shareholders in an amount not
to exceed the balances of their respective accumulated adjustment accounts.
The consideration paid or to be paid by the Company for each GroupMAC
Company was the result of arm's-length negotiations between representatives of
the Company and representatives of that company and was based generally on the
Company's evaluation of such company's operating results, assets and
capitalization. Certain shareholders and key managers of the GroupMAC
Companies were required to enter into employment agreements containing, among
other things, confidentiality and non-competition provisions.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering are estimated to be approximately $96.4 million ($111.5
million if the over-allotment option is exercised in full) after deduction of
underwriting discounts and Offering expenses payable by the Company. The
Company plans to use $19.3 million to redeem all the outstanding warrants for
and shares of preferred stock issued in connection with the acquisition of the
Pre-Offering Companies, $28.9 million to fund the cash portion of the
consideration to be issued in connection with the acquisition of the Offering
Acquisition Companies, $32.5 million to repay bank debt incurred to finance
the acquisition of the Pre-Offering Companies and $12.4 million to repay other
debt assumed and certain obligations resulting from the acquisition of the
GroupMAC Companies, with any remaining proceeds being used for general
corporate purposes, including working capital and future acquisitions. Any net
proceeds received from the exercise of the Underwriters' over-allotment option
will be used for future acquisitions and for working capital purposes. See
"The Acquisitions," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Bank Credit Agreement."
16
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of June 30, 1997, (ii) the pro forma capitalization of the Company
as of June 30, 1997, giving effect to the acquisition of the GroupMAC
Companies, and (iii) the pro forma capitalization of the Company as of June
30, 1997, giving effect to such acquisitions and related financings, as
adjusted to reflect the application of the net proceeds from the Offering. For
a description of the adjustments, see Notes to Unaudited Pro Forma Combined
Financial Statements included elsewhere herein. This presentation should be
read in conjunction with the historical and pro forma combined financial
statements of the Company and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
(IN THOUSANDS)
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
Short-Term Debt, Including Current Maturities... $ 4,577 $14,608 $ 2,107
======= ======= ========
Long-Term Debt, Net of Current Maturities....... $26,468 $31,414 $ --
Preferred Stock: $1.00 par value, 50,000,000
shares authorized; 17,121,133 issued and
outstanding; 19,271,595 shares issued and
outstanding, pro forma........................ 17,121 19,271 --
Shareholders' Equity:
Common Stock: $.001 par value, 100,000,000
shares authorized; 8,707,998 shares issued and
outstanding; 12,266,850 shares issued and
outstanding, pro forma; and 19,466,850 shares
issued and outstanding, pro forma as
adjusted(1).................................... 9 12 19
Additional Paid-in Capital...................... 14,011 46,758 143,191
Retained Earnings (Deficit)..................... (25,316) (25,316) (25,316)
------- ------- --------
Total Shareholders' Equity...................... (11,296) 21,454 117,894
------- ------- --------
Total Capitalization............................ $32,293 $72,139 $117,894
======= ======= ========
</TABLE>
- --------
(1) Excludes (i) 607,097 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants issued in connection with certain
acquisitions, (ii) 378,800 shares of Common Stock issuable upon exercise
of outstanding stock options held by employees of the Company, and (iii)
an aggregate of 2,336,022 shares of Common Stock subject to options to be
granted upon consummation of the Offering at an exercise price equal to
the initial public offering price. See "Management--Option Grants" and "--
Stock Awards Plan."
DIVIDEND POLICY
The Company has not paid a dividend on Common Stock since its incorporation
and does not anticipate paying any dividends on Common Stock in the
foreseeable future because it intends to retain earnings to finance the
expansion of its business, to repay indebtedness and for general corporate
purposes. Any payment of future dividends will be at the discretion of the
Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
relevant factors. The Bank Credit Agreement restricts the payment of
dividends. See "Description of Bank Credit Agreement."
17
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company at June 30,
1997 was approximately $50.2 million, or $4.09 per share, after giving effect
to the completion of the purchase of the GroupMAC Companies and the related
financings therefor but before giving effect to the Offering. Pro forma net
tangible book value per share before the Offering represents the amount of the
Company's pro forma shareholders' equity as of June 30, 1997, less intangible
assets as of that date, after giving effect to the completion of the purchase
of the GroupMAC Companies and the related financings, divided by 12,266,850
shares of Common Stock outstanding (the pro forma number of shares of Common
Stock outstanding as of such date, after giving effect to such matters but
before giving effect to the Offering). Net tangible book value dilution per
share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering. After giving effect to the sale of 7,200,000 shares of Common
Stock by the Company in the Offering and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
June 30, 1997 would have been $46.2 million or $2.38 per share. This
represents an immediate increase in pro forma net tangible book value of $6.47
per share to existing shareholders and an immediate dilution in pro forma net
tangible book value of $12.62 per share to purchasers of Common Stock in the
Offering. The following table illustrates the dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $15.00
Deficit in pro forma net tangible book value before the
Offering..................................................... $(4.09)
Increase in pro forma net tangible book value attributable to
the Offering................................................. 6.47
Pro forma net tangible book value after the Offering............ 2.38
------
Dilution per share to new investors............................. $12.62
======
</TABLE>
The following table shows, after giving effect to the Offering, the
difference between existing shareholders and new investors with respect to the
number of shares purchased from the Company and the total consideration and
average price per share paid to the Company, before deducting the underwriting
discounts and estimated Offering expenses (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
SHARES
PURCHASED PURCHASE
-------------- TOTAL PRICE PER
NUMBER PERCENT CONSIDERATION SHARE
------ ------- ------------- ---------
<S> <C> <C> <C> <C>
Existing shareholders.................... 12,267 63.0% $(50,202) $(4.09)
New investors............................ 7,200 37.0 108,000 15.00
------ ----- --------
Total.................................. 19,467 100.0% $ 57,798
====== ===== ========
</TABLE>
The foregoing tables assume no exercise of outstanding options and warrants.
As of the date of this Prospectus, there are 471,897 shares of Common Stock
issuable upon the exercise of stock options at an average exercise price of
$4.33 per share and warrants to purchase 514,000 shares of Common Stock at an
average purchase price of $17.50 per share. See "Management--Option Grants"
and "--Stock Awards Plan."
18
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The Company has previously acquired the Pre-Offering Companies and will
acquire the Offering Acquisition Companies simultaneously with the closing of
the Offering. The first and largest acquisition made by the Company was that
of Airtron. For accounting purposes, this transaction was accounted for as a
reverse acquisition, as if Airtron acquired the GroupMAC Parent, because the
former shareholders of Airtron owned a majority of GroupMAC Parent's Common
Stock upon consummation of the transaction. As such, the selected historical
financial data set forth below as of and for the three-year period ended
February 28, 1997 have been derived from the financial statements of Airtron,
which have been audited by KPMG Peat Marwick LLP, independent public
accountants. The financial statements of GroupMAC Parent and the Pre-Offering
Companies are included in the Financial Statements from their respective dates
of acquisition. The selected historical financial data set forth below as of
and for each of the four month periods ended June 30, 1996 and 1997 were
derived from the financial statements of Airtron. In addition to reflecting
the transaction discussed above, the historical balance sheet data as of June
30, 1997 include A-ABC/A-1, Hallmark and K&N, which were acquired effective
June 1, 1997, and Charlie's, Costner, Jarrell and the assets of Way, which
were acquired effective June 30, 1997. The operations of all of these
companies have been included in the historical income statement data from
their respective dates of acquisition. In the opinion of the Company's
management, the selected historical financial data of the Company as of and
for the four months ended June 30, 1997 and 1996 include all adjusting entries
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein. The results of operations for the four
months ended June 30, 1997 should not be regarded as indicative of the results
that may be expected for the full year.
The selected pro forma financial data of the Company as of and for the six
months ended June 30, 1996 and 1997 and the year ended December 31, 1996 are
derived from the Unaudited Pro Forma Combined Financial Statements of the
Company that appear elsewhere in this Prospectus. The pro forma financial data
listed below present certain information for the Company, as adjusted for (i)
the effects of the acquisitions of the GroupMAC Companies and (ii) the effects
of certain pro forma adjustments to the historical financial data statements
of the GroupMAC Companies directly related to those acquisitions. The pro
forma as adjusted financial data give effect to the consummation of the
Offering and the application of the net proceeds therefrom, as if they had all
occurred on the first day of each respective period. The pro forma financial
data of the Company do not purport to represent what the Company's results of
operations or financial position actually would have been had these events, in
fact, occurred on the date or at the beginning of the period indicated, nor
are they intended to project the Company's results of operations or financial
position for any future date or period.
The data presented below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Financial Statements and the related notes thereto and the Unaudited Pro Forma
Combined Financial Statements and the notes thereto included elsewhere herein.
19
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL PRO FORMA AS
FISCAL YEAR ENDED FEBRUARY 28 OR 29, AS ADJUSTED(2) FOUR MONTHS ENDED ADJUSTED SIX MONTHS
(1) YEAR ENDED JUNE 30, ENDED JUNE 30,
------------------------------------------ DECEMBER 31, ------------------- ----------------------
1993 1994 1995 1996 1997 1996 1996 1997(3) 1996(2) 1997(2)
------- ------- ------- ------- ------- -------------- ---------- ------- ----------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues......... $54,552 $66,281 $72,226 $73,765 $81,880 $307,507 $25,957 $31,086 $151,396 $157,941
Gross Profit..... 15,565 18,977 21,766 21,091 23,374 71,596 7,031 8,399 33,479 36,582
Selling, General
and
Administrative
Expenses(4)..... 12,648 15,760 20,282(5) 17,615 19,811 48,953 5,461 6,158 24,068 26,978(6)
Goodwill Amorti-
zation(7)....... -- -- -- -- -- 1,791 -- 31 896 896
------- ------- ------- ------- ------- -------- ------- ------- -------- --------
Income from Oper-
ations.......... 2,917 3,217 1,484 3,476 3,563 20,852 1,570 2,210 8,515 8,708
Interest Income
(Expense), Net.. 152 127 76 68 89 154 (17) (259) 39 181
Other Income,
Net............. 114 33 140 246 256 297 23 3 240 508
------- ------- ------- ------- ------- -------- ------- ------- -------- --------
Income Before In-
come Tax Provi-
sion............ 3,183 3,377 1,700 3,790 3,908 21,303 1,576 1,954 8,794 9,397
Income Tax Provi-
sion............ 1,332 1,300 911 1,651 1,572 9,237 634 800 3,876 4,117
------- ------- ------- ------- ------- -------- ------- ------- -------- --------
Net Income....... $ 1,851 $ 2,077 $ 789 $ 2,139 $ 2,336 $12,066 $ 942 $ 1,154 $ 4,918 $ 5,280
======= ======= ======= ======= ======= ======== ======= ======= ======== ========
Net Income Per
Share........... $ .61 $ .25 $ .27
======== ======== ========
Weighted Average
Shares
Outstanding(8).. 19,668 19,668 19,668
======== ======== ========
OTHER DATA:
EBITDA(9) $ 3,074 $ 3,417 $ 1,853 $ 3,960 $ 4,027 $26,061 $ 1,665 $ 2,408 $ 11,132 $ 11,843
======= ======= ======= ======= ======= ======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29, JUNE 30, 1997
--------------------------------------- -------------------------------------
PRO PRO FORMA
1993 1994 1995 1996 1997 ACTUAL(3) FORMA(2) AS ADJUSTED(2)
------- ------- ------- ------- ------- --------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equiva-
lents.................. $ 700 $ 186 $ 650 $ 1,774 $ 4,339 $ 5,875 $ 10,214 $ 12,747
Working Capital......... 3,633 3,473 4,561 3,285 6,337 7,425 (13,359) 32,593
Total Assets............ 12,438 15,221 23,528 28,282 27,153 64,644 170,270 172,606
Total Debt.............. -- -- -- -- 1,290 31,045 46,022 2,107
Preferred Stock......... -- -- -- -- -- 17,121 19,271 --
Shareholders' Equity.... 3,257 2,175 5,955 6,373 5,990 (11,296) 21,454 117,894
</TABLE>
- -------
(1) Concurrent with the Offering, the Company intends to change its fiscal
year end from February 28 to December 31.
(2) Pro forma financial data give effect to the completed and pending
acquisitions that are described in Unaudited Pro Forma Combined Financial
Statements, as if they had all occurred at the beginning of each period
presented. Such results are not necessarily indicative of the results the
Company would have obtained had these events actually occurred on January
1, 1996 for the Income Statement Data or on June 30, 1997 for the Balance
Sheet Data. Pro forma as adjusted financial data give effect to a
reduction in interest expense as a result of reductions in indebtedness
upon application of a portion of the net proceeds to the Company from the
Offering and the redemption of preferred stock.
(3) The Company's acquisitions of the Pre-Offering Companies and Group
Maintenance America Corp. have been accounted for as purchases and,
accordingly, the operations of these acquired businesses are included in
the financial data from the effective date of their respective
acquisition.
(4) Reflects a decrease of $11.1 million, $4.2 million and $5.2 million for
the Pro Forma As Adjusted year ended December 31, 1996, and the Pro Forma
As Adjusted six months ended June 30, 1996 and 1997, respectively, for pro
forma reductions in salaries, bonuses and benefits to former owners of the
GroupMAC Companies to which they have agreed prospectively.
(5) Includes $2.4 million for compensation expense resulting from revaluation
of warrants.
(6) Includes $2.4 million of expenses for the formation and build-up of
corporate management and infrastructure.
(7) Consists of amortization recorded or to be recorded, as a result of the
acquisition of GroupMAC Companies, over a 40-year period and computed on
the basis described in the Notes to the Unaudited Pro Forma Combined
Financial Statements.
(8) Computed on a basis described in Note 4 of Notes to Unaudited Pro Forma
Combined Financial Statements.
(9) Represents earnings before interest, taxes, depreciation and amortization.
EBITDA is not a calculation based upon generally accepted accounting
principles; however, it is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
EBITDA should not be considered by a prospective purchaser of Common Stock
as an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements and related notes of the Company, all financial
statements of the GroupMAC Companies presented herein and Selected Historical
and Pro Forma Financial Data included elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues are derived from providing new installation services
and maintenance, repair and replacement services for HVAC, plumbing,
electrical and other systems to residential and commercial customers.
Approximately 54% of the company's pro forma combined 1996 revenues of $307.5
million were derived from new installation services and 46% were attributable
to maintenance, repair and replacement services. Maintenance, repair and
replacement revenues are recognized as the services are performed, except for
service contract revenue which is recognized ratably over the life of the
contract. Revenues from fixed price installation and retro-fit contracts are
generally accounted for on a percentage-of-completion basis, using the cost-
to-cost method.
Cost of services consists primarily of components, parts and supplies
related to the Company's new installation and maintenance, repair and
replacement services, salaries and benefits of service and installation
technicians, subcontracted services, depreciation, fuel and other vehicle
expenses and equipment rentals. Selling, general and administrative expenses
consist primarily of compensation and related benefits for owners,
administrative salaries and benefits, advertising, office rent and utilities,
communications and professional fees. Certain owners and certain key employees
of the GroupMAC Companies have agreed to reductions totaling $11.1 million in
fiscal 1996 in their compensation and related benefits in connection with
their acquisition by the Company, which have been reflected as a pro forma
adjustment in the Unaudited Pro Forma Combined Statement of Operations. Such
reductions in salaries, bonuses and benefits are in accordance with the terms
of employment agreements.
The Company believes that it will, and in certain cases has already begun
to, realize savings from (i) greater volume discounts from suppliers of
components, parts and supplies; (ii) consolidation of insurance and bonding
programs; (iii) other general and administrative expenses such as training and
advertising; and (iv) the Company's ability to borrow at lower interest rates
than most, if not all, of the GroupMAC Companies. Offsetting these savings
will be costs related to the Company's new corporate management, costs
associated with being a public company and integration costs.
The Company recorded a non-recurring, non-cash compensation charge of
$206,000 during the fourth quarter of 1996 relating to certain shares of
Common Stock sold to management, representing the difference between the
amount paid for the shares and the estimated fair value of the shares on the
date of sale. This non-recurring compensation charge is not included in the
Pro Forma Combined Financial Statements.
As a result of the acquisition of the GroupMAC Companies, $71.7 million,
representing the excess of the fair value of the consideration paid over the
fair value of the net assets to be acquired, will be recorded as goodwill on
the Company's balance sheet. Goodwill will be amortized as a non-cash charge
to the income statement over a 40-year period. The pro forma impact of this
amortization expense, which is substantially non-deductible for tax purposes,
is $1.8 million per year on an after-tax basis.
COMBINED RESULTS OF OPERATIONS
The combined results of operations of the GroupMAC Companies for the periods
presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the revenues, cost of services and selling, general and
administrative expenses of the individual GroupMAC Companies on an historical
basis. The combined results of operations assume that each
21
<PAGE>
of the GroupMAC Companies was combined from the beginning of each period
presented. The combined results also exclude the effect of pro forma
adjustments and may not be comparable to, and may not be indicative of, the
Company's post-combination results of operations because (i) the GroupMAC
Companies were not under common control or management during the periods
presented; (ii) the Company will incur incremental costs for its corporate
management and the costs of being a public company; (iii) the Company will use
the purchase method to record the acquisitions of the GroupMAC Companies at
different points in time, resulting in the recording of goodwill that will be
amortized over 40 years; and (iv) the combined data does not reflect the
potential benefits and cost savings the Company expects to realize when
operating as a combined entity.
The following table sets forth certain unaudited combined financial data for
the periods indicated (dollars in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR(1) SIX MONTHS ENDED JUNE 30,
---------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $235,234 100.0% $258,834 100.0% $307,507 100.0% $151,396 100.0% $157,941 100.0%
Cost of Services........ 178,748 76.0 196,847 76.1 235,911 76.7 117,917 77.9 121,359 76.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross Profit............ 56,486 24.0 61,987 23.9 71,596 23.3 33,479 22.1 36,582 23.2
Selling, General and Ad-
ministrative
Expenses............... 49,410 21.0 53,143 20.5 60,162 19.6 28,319 18.7 32,295 20.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from Operations.. 7,076 3.0 8,844 3.4 11,434 3.7 5,160 3.4 4,287 2.7
</TABLE>
- --------
(1) Several of the individual GroupMAC Companies have fiscal year ends that
differ from December 31, which is the year end all of the GroupMAC
Companies will use concurrent with the Offering.
Unaudited Six Months Ended June 30, 1997 Compared to Unaudited Six Months
Ended June 30, 1996
Revenues. Revenues increased $6.5 million, or 4.3%, from $151.4 million for
the six months ended June 30, 1996 to $157.9 million for the six months ended
June 30, 1997. The increase in revenues was attributable to continuing
strength in the Seattle, Washington and Portland, Oregon commercial markets
with respect to MacDonald-Miller Industries, Inc. ("MacDonald-Miller"),
increased market penetration in certain Ohio markets by Airtron, incremental
business from existing customers at Masters and incremental service agreements
secured by Linford. Of the 24 GroupMAC Companies, 18 reported an increase in
revenues from the six month period ended June 30, 1996 to the corresponding
period in 1997.
Gross Profit. Gross profit increased $3.1 million, or 9.3%, from $33.5
million for the six months ended June 30, 1996 to $36.6 million for the six
months ended June 30, 1997. Gross margin increased from 22.1% to 23.2% from
the six month period ended June 30, 1996 to the corresponding period in 1997.
The increase in gross profit was primarily attributable to the overall revenue
increase coupled with lower material costs at Airtron, an increase in higher
margin special project and tenant improvement work at MacDonald-Miller and an
increase in higher margin replacement sales at Willis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.0 million, or 14.1%, from $28.3 million
for the six months ended June 30, 1996 to $32.3 million for the six months
ended June 30, 1997. Approximately $844,000 of the increase is due to
additional compensation paid to owners of the individual companies and $2.4
million relates to the formation and build-up of the corporate management
infrastructure necessary to build the Company through acquisitions and manage
the consolidated GroupMAC Companies. As a percentage of revenues, selling,
general and administrative expenses increased from 18.7% to 20.5% from the six
month period ended June 30, 1996 compared to the corresponding period in 1997.
Unaudited Fiscal Year 1996 Compared to Unaudited Fiscal Year 1995
Revenues. Revenues increased $48.7 million, or 18.9%, from $258.8 million in
fiscal 1995 to $307.5 million for fiscal 1996. The increase in revenues was
primarily attributable to an increase in all sectors of MacDonald-Miller's
business, particularly contracted "design and build" projects, retrofits,
remodeling and
22
<PAGE>
technical services; increased residential HVAC new installation revenue at
Airtron; and increased residential HVAC and plumbing installation revenues at
Masters. Additionally, other companies providing primarily commercial services
increased revenues by $8.0 million, or 20.8%, for the period and companies
providing primarily residential services increased revenues by $5.8 million or
13.4% for the period. Of the 24 GroupMAC Companies, 22 reported an increase in
revenues from fiscal 1995 to 1996.
Gross Profit. Gross profit increased $9.6 million, or 15.5%, from $62.0
million in fiscal 1995 to $71.6 million in fiscal 1996. Gross margin declined
slightly from 23.9% to 23.3% from fiscal 1995 to fiscal 1996. Approximately
54% of the increase in gross profit was attributable to increased sales volume
at Airtron, Masters and K&N at consistent or slightly higher gross margins
between the periods coupled with an increase in sales volume at MacDonald-
Miller, although at lower gross margins. The decline in gross margin at
MacDonald-Miller largely resulted from a higher mix of larger contracts that
typically have lower margins. The remaining residential and commercial service
companies contributed 28% and 19%, respectively, to the increase in gross
profit which resulted from both volume increases and, in the residential
services group, margin increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.1 million, or 13.4%, from $53.1 million
in fiscal 1995 to $60.2 million in fiscal 1996. Approximately $2.7 million of
the increase was due to additional compensation paid to owners of the
individual businesses, $724,000 was due to the formation and building of the
corporate management infrastructure and the remainder was due to an overall
build-up of administrative infrastructure to manage and control the
significant growth at various companies. As a percentage of revenues, selling,
general and administrative expenses decreased from 20.5% to 19.6% from fiscal
1995 to fiscal 1996.
Unaudited Fiscal Year 1995 Compared to Unaudited Fiscal Year 1994
Revenues. Revenues increased $23.6 million, or 10.0%, from $235.2 million in
fiscal 1994 to $258.8 million in fiscal 1995. The increase in revenues was
primarily attributable to higher volumes in each sector of MacDonald-Miller's
business, particularly in "design and build" projects, retrofits and
remodeling; increased market penetration and additional revenues from existing
customers at Masters; incremental revenues from the purchase of A-1 by A-ABC
during fiscal 1994; a higher volume of "design and build" work at Yale;
increased market share captured at Airtron and the start-up of two new offices
in Austin, Texas and Las Vegas, Nevada by K&N.
Gross Profit. Gross profit increased $5.5 million, or 9.7%, from $56.5
million in fiscal 1994 to $62.0 million in fiscal 1995. The increase in gross
profit was primarily attributable to the higher sales volumes at MacDonald-
Miller, Masters, A-ABC/A-1, Yale, Airtron and K&N. Gross margin remained
fairly consistent at 24.0% in fiscal 1994 and 23.9% in fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.7 million, or 7.6%, from $49.4 million in
fiscal 1994 to $53.1 million in fiscal 1995. The increase in selling, general
and administrative expense was largely due to a $2.2 million increase in
compensation paid to owners of the individual businesses. As a percentage of
revenues, selling, general and administrative expenses decreased from 21.0% to
20.5%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the operations and growth of the GroupMAC Companies have been
financed through internally generated working capital and borrowings from
commercial banks or other lenders. These borrowings are generally secured by
substantially all of the assets of the respective GroupMAC Companies, as well
as personal guarantees of the respective owners. With respect to the Pre-
Offering Companies, a substantial portion of their existing indebtedness was
repaid and refinanced through the Company's borrowing facility immediately
following the closing of each of the transactions. The Company believes that
$12.4 million of the net proceeds
23
<PAGE>
of the Offering will be used to repay debt assumed and certain obligations
resulting from the acquisition of the GroupMAC Companies.
In May 1997, the Company entered into a $35 million credit agreement (the
"Original Credit Agreement") with a group of banks providing for secured
facilities consisting of an 18 month revolving credit line of $3 million, a
six-year term loan of $20 million used in connection with the acquisition of
Airtron, and a $12 million term loan facility, having a final maturity six
years after the date of the Original Credit Agreement, which was used to
acquire the Pre-Offering Companies. All of the Company's loan obligations bear
interest at the prime rate. The Original Credit Agreement contains covenants
which, among other matters, restrict or limit the ability of the Company to
pay dividends, incur indebtedness, make capital expenditures and repurchase
capital stock. The Company must also maintain a minimum fixed charge coverage
ratio and certain other ratios, among other restrictions. As of July 31, 1997,
available borrowing capacity under the Original Credit Agreement was $2.5
million.
The Company has initiated discussions with a group of banks to establish the
terms of a new credit facility. Based on those discussions, the Company
expects the Bank Credit Agreement to provide for initial borrowing
availability of at least $60 million upon completion of the Offering. There is
no assurance, however, that such facility will be available in that amount or
on terms acceptable to the Company. Management expects to repay all amounts
outstanding under the Original Credit Agreement with net proceeds of the
Offering. The Company may also utilize proceeds of the Offering to pay
additional amounts, if any, due to the former owners of the Offering
Acquisition Companies under working capital adjustments to the purchase
prices. See "Use of Proceeds."
Prior to the closing of the Offering, certain of the Offering Acquisition
Companies that are S corporations may distribute cash and certain non-
operating assets to their shareholders in an amount not to exceed the balances
of their respective accumulated adjustment accounts. In addition, several
former owners of the GroupMAC Companies have the ability to receive additional
amounts of purchase price, payable in cash and Common Stock in 1998,
contingent upon the occurrence of future events. The Company believes this
amount will be approximately $5 million.
The Company's primary requirements for capital (other than those related to
acquisitions) consist of purchasing vehicles, inventory and supplies used in
the operation of the business. During fiscal 1996 and the six months ended
June 30, 1997, capital expenditures aggregated $4.0 million and $2.4 million,
respectively.
The Company anticipates that its cash flow from operations will provide cash
in excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures for property and equipment.
The Company intends to pursue aggressively acquisition opportunities and to
fund future acquisitions through a combination of operating cash flow,
borrowings under the Bank Credit Agreement and issuance of Common Stock.
SEASONAL AND CYCLICAL NATURE OF BUSINESS
The HVAC industry is subject to seasonal variations. Specifically, the
demand for new installations is generally lower during the winter months due
to reduced construction activities during inclement weather and less use of
air conditioning during the colder months. Demand for HVAC services is
generally higher in the second and third quarters. Accordingly, the Company
expects its revenues and operating results generally will be lower in the
first and fourth quarters. Historically, the construction industry has been
highly cyclical. As a result, the Company's volume of business may be
adversely affected by declines in new installation projects in various
geographic regions of the United States. See "Risk Factors--Exposure to
Downturns in Housing Starts or New Commercial Construction" and "--Fluctuation
in Quarterly Operating Results."
24
<PAGE>
INFLATION
Inflation did not have a significant effect on the results of operations of
the GroupMAC Companies for 1994, 1995, 1996 or the six months ended June 30,
1997.
GROUPMAC AND SUBSIDIARIES (FORMERLY AIRTRON)
Airtron was founded in 1970 and custom designs, installs, maintains and
repairs HVAC systems in new and existing homes and businesses from 14
locations in six states. Airtron's revenues for fiscal 1996 were $81.9 million
and income from operations was $3.6 million. Airtron derived 81% of its 1996
revenues from new installation services and 19% from maintenance, repair and
replacement services. Airtron is headquartered in Dayton, Ohio and has its
facilities in New Port Richey and Clearwater, Florida, Indianapolis, Indiana,
Wichita, Kansas, Louisville and Erlanger, Kentucky, Cincinnati, Cleveland,
Columbus and Dayton, Ohio, and Austin, Dallas, Houston and San Antonio, Texas.
Airtron acquired GroupMAC in May 1997 and acquired A-ABC/A-1, Charlie's,
Costner, Hallmark, Jarrell, K&N and Way in June 1997.
RESULTS OF OPERATIONS--GROUPMAC AND SUBSIDIARIES (FORMERLY AIRTRON)
The following table sets forth certain financial data for the periods
indicated. For comparative purposes, for the six month period ended June 30,
1997, the "Historical Airtron" column excludes the effects of the acquisitions
in May and June 1997. The "GroupMAC and Subsidiaries" column reflects the
consolidated operations of Airtron and such companies from their respective
dates of acquisition (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29, SIX MONTHS ENDED JUNE 30,
------------------------------------------- -------------------------------------------
HISTORICAL GROUPMAC AND
AIRTRON SUBSIDIARIES
------------- -------------
1995 1996 1997 1996 1997 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $72,226 100.0% $73,765 100.0% $81,880 100.0% $37,127 100.0% $38,676 100.0% $42,844 100.0%
Cost of Services........ 50,460 69.9 52,674 71.4 58,506 71.5 26,918 72.5 27,813 71.9 30,920 72.2
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit............ 21,766 30.1 21,091 28.6 23,374 28.5 10,209 27.5 10,863 28.1 11,924 27.8
Selling, General and
Administrative
Expenses............... 20,282 28.0 17,615 23.9 19,811 24.1 9,470 25.5 9,824 25.4 11,078 25.8
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 1,484 2.1 3,476 4.7 3,563 4.4 739 2.0 1,039 2.7 846 2.0
</TABLE>
Unaudited Six Months Ended June 30, 1997 Compared to Unaudited Six Months
Ended June 30, 1996
Revenues. Revenues for Historical Airtron increased $1.6 million, or 4.3%,
from $37.1 million for the six months ended June 30, 1996 to $38.7 million for
the six months ended June 30, 1997. Revenues for GroupMAC and Subsidiaries
increased $5.7 million, or 15.4%, from $37.1 million for the six months ended
June 30, 1996 to $42.8 million for the six months ended June 30, 1997. The
increase in revenues with respect to historical Airtron comparisons was
attributable to Airtron's market penetration in the Columbus, Ohio and Dayton,
Ohio markets. The increase in revenues for GroupMAC and Subsidiaries resulted
from the above-mentioned growth in Historical Airtron and the inclusion of
$4.1 million in revenues from the acquisitions completed during the period.
Gross Profit. Gross profit for Historical Airtron increased $655,000, or
6.4%, from $10.2 million for the six months ended June 30, 1996 to $10.9
million for the six months ended June 30, 1997. Gross margin increased
slightly from 27.5% to 28.1% for the six-month periods ending June 30, 1996
and 1997, respectively. The gross margin increase with respect to Historical
Airtron was primarily due to a reduction in material costs, partially offset
by increased labor costs. Gross profit for GroupMAC and Subsidiaries increased
$1.7 million, or 16.7%, from $10.2 million to $11.9 million. As a percentage
of revenues, gross margin increased from 27.5% to 27.8%. The margin increase
resulted from increased gross margin at Historical Airtron partially offset by
somewhat lower gross margin from K&N.
25
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Historical Airtron increased $354,000, or 3.7%,
from $9.5 million for the six months ended June 30, 1996 to $9.8 million for
the six months ended June 30, 1997. The overall increase in selling, general
and administrative expenses was primarily due to an increase in compensation,
professional fees and office rent partially offset by a decline in selling
expenses. As a percentage of revenues, selling, general and administrative
expenses remained relatively constant at 25.5% and 25.4% for the six month
periods ending June 30, 1996 and 1997, respectively. Selling, general and
administrative expenses for GroupMAC and Subsidiaries increased $1.6 million,
or 16.8%, from $9.5 million for the six months ended June 30, 1996 to $11.1
million for the six months ended June 30, 1997. This increase resulted from
increased expenses for Historical Airtron and the inclusion of $1.3 million of
selling, general and administrative expenses related to the companies acquired
during the period. As a percentage of revenues, selling, general and
administrative expenses increased from 25.5% to 25.8% for the six months ended
June 30, 1996 and 1997, respectively, as a result of the inclusion of two
months of the corporate overhead expenses of GroupMAC Parent and higher
selling, general and administrative expenses as a percentage of revenues for
the companies acquired during the period.
Year Ended February 28, 1997 Compared to Year Ended February 29, 1996
Revenues. Revenues increased $8.1 million, or 11.0%, from $73.8 million for
the year ended February 29, 1996 to $81.9 million for the year ended February
28, 1997. The increase in revenues was attributable to increased market
penetration in new residential construction in the Indianapolis, Indiana and
Dallas, Texas markets.
Gross Profit. Gross profit increased $2.3 million, or 10.9%, from $21.1
million for the year ended February 29, 1996 to $23.4 million for the year
ended February 28, 1997. Gross margin remained relatively constant at 28.6%
and 28.5% for the years ending February 29, 1996 and February 28, 1997,
respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.2 million, or 12.5%, from $17.6 million
for the year ended February 29, 1996 to $19.8 million for the year ended
February 28, 1997. Such increase was primarily attributable to an increase in
compensation, vehicle leases and professional fees of the Company. As a
percentage of revenues, selling, general and administrative expenses remained
relatively constant at 23.9% and 24.1% for the years ending February 29, 1996
and February 28, 1997, respectively.
Year Ended February 29, 1996 Compared to Year Ended February 28, 1995
Revenues. Revenues increased $1.6 million, or 2.2%, from $72.2 million for
the year ended February 28, 1995 to $73.8 million for the year ended February
29, 1996. The increase in revenues was attributable to increased sales volume
through the capture of additional market share in the Indianapolis, Indiana
and Dallas, Texas markets.
Gross Profit. Gross profit decreased $675,000, or 3.1%, from $21.8 million
for the year ended February 28, 1995 to $21.1 million for the year ended
February 29, 1996. Gross margin declined from 30.1% to 28.6%. The decrease in
gross profits was primarily attributable to higher material costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $2.7 million, or 13.3%, from $20.3 million
for the year ended February 28, 1995 to $17.6 million for the year ended
February 29, 1996. As a percentage of revenues, selling, general and
administrative expenses decreased from 28.0% to 23.9% due to a significantly
higher non-cash compensation charge in fiscal 1995 to accrue for the change in
market value of stock appreciation rights and warrants.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES--GROUPMAC AND SUBSIDIARIES (FORMERLY AIRTRON)
From March 1, 1994 through the six months ended June 30, 1997, Historical
Airtron generated a net $9.7 million from operating activities. Net income,
depreciation, deferred taxes and non-cash compensation generated $12.4 million
and changes in asset and liability accounts utilized a net $2.7 million,
principally due to a $3.3 million increase in accounts receivable partially
offset by increases in accounts payable and accrued expenses.
Cash used in investment activities by Historical Airtron from March 1, 1994
through the six months ended June 30, 1997, was primarily attributable to
purchases of property and equipment of $1.0 million and was partially offset
by proceeds from sales of property and equipment. Cash used in financing
activities by Historical Airtron was primarily attributable to purchases of
stock and warrants from selling shareholders totaling $5.5 million.
Historical Airtron had working capital of $7.1 million as of June 30, 1997
and no long-term debt outstanding. GroupMAC and Subsidiaries had working
capital of $7.4 million as of June 30, 1997 and had outstanding long-term debt
of $26.5 million, which primarily resulted from the financing of the
acquisitions of GroupMAC Parent, A-ABC/A-1, Hallmark, K&N, Costner, Charlie's,
Jarrell and Way. See "Combined Results of Operations--Liquidity and Capital
Resources."
MACDONALD-MILLER
MacDonald-Miller was founded in 1965 and provides a full range of HVAC
services to commercial and industrial customers in the Northwestern United
States including design and engineering; fabrication and installation of sheet
metal, piping, plumbing and controls; and HVAC service and maintenance.
MacDonald-Miller's revenues for fiscal 1996 were $66.1 million and income from
operations was $2.1 million. MacDonald-Miller derived 59% of its 1996 revenues
from maintenance, repair and replacement services and 41% from new
installation services. MacDonald-Miller is headquartered in Seattle,
Washington and has facilities in Seattle and Portland, Oregon.
RESULTS OF OPERATIONS--MACDONALD-MILLER
The following table sets forth certain financial data for the periods
indicated (dollars in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $39,534 100.0% $45,508 100.0% $66,059 100.0% $36,382 100.0% $38,836 100.0%
Cost of Services........ 32,256 81.6 36,927 81.1 56,373 85.3 31,590 86.8 33,451 86.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit............ 7,278 18.4 8,581 18.9 9,686 14.7 4,792 13.2 5,385 13.9
Selling, General and Ad-
ministrative
Expenses............... 6,088 15.4 7,338 16.2 7,632 11.6 3,706 10.2 3,788 9.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 1,190 3.0 1,243 2.7 2,054 3.1 1,086 3.0 1,597 4.1
</TABLE>
Six Months Ended June 30, 1997 Compared to Unaudited Six Months Ended June
30, 1996
Revenues. Revenues increased $2.4 million, or 6.6%, from $36.4 million for
the six months ended June 30, 1996 to $38.8 million for the six months ended
June 30, 1997. The increase in revenues was attributable to continuing
strength in the company's Northwest commercial markets, principally Seattle,
Washington and Portland, Oregon, including a $20 million contract with a large
software company to be completed in 1997, a 40% increase in revenues from the
company's Special Projects and Tenant Improvement operations, and a 14%
increase in revenues from the company's Commercial Service operations.
Gross Profit. Gross Profit increased $593,000, or 12.4%, from $4.8 million
for the six months ended June 30, 1996 to $5.4 million for the six months
ended June 30, 1997. Gross margin increased from 13.2% for the first six
months of 1996 to 13.9% for the same period of 1997. The gross profit increase
was attributable
27
<PAGE>
principally to higher volume and realized gross margins in the MacDonald-
Miller's Special Projects and Tenant Improvement operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $82,000, or 2.2%, from $3.7 million for the
six months ended June 30, 1996 to $3.8 million for the six months ended June
30, 1997. Both the dollar and percentage of revenue changes were attributable
to the higher revenue levels in 1997 compared to 1996. As a percentage of
revenues, selling, general and administrative expenses decreased slightly from
10.2% for the six months of 1996 to 9.8% for the same period of 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Revenues increased $20.6 million, or 45.3%, from $45.5 million for
the year ended December 31, 1995 to $66.1 million for the year ended December
31, 1996. The increase in revenues was attributable to an 18%, or $2.0
million, increase in revenues from Service and Maintenance operations, and a
23%, or $2.0 million, increase in revenues from the company's Special Projects
and Tenant Improvement operations. The $16.6 million balance of the increase
was attributable to contracted design and build projects, HVAC system
retrofits and remodels, lighting energy retrofits and technical services,
together representing a revenue increase of 65.4% over 1995. This increase was
directly related to the company's effort to increase its market presence in
the Seattle, Washington and Portland, Oregon metropolitan areas and was fueled
by continued strength of commercial activity in the Northwest.
Gross Profit. Gross profit increased $1.1 million, or 12.8%, from $8.6
million for the year ended December 31, 1995 to $9.7 million for the year
ended December 31, 1996. Gross margin decreased from 18.9% to 14.7% due to the
acceptance of certain lower margin projects and increased direct costs related
to the rapid revenue growth experienced in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $294,000, or 4.0%, from $7.3 million for the
year ended December 31, 1995 to $7.6 million for the year ended December 31,
1996. The increase in these expenses was directly attributable to incremental
costs incurred to implement a job cost and accounting software conversion and
other management information systems processes and infrastructure. As a
percentage of revenues, selling, general and administrative expenses decreased
from 16.2% to 11.6% due to the increased revenue levels.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased $6.0 million, or 15.2%, from $39.5 million for
the year ended December 31, 1994 to $45.5 million for the year ended December
31, 1995. The increase in revenues was attributable to a $1.2 million, or
10.5%, increase in revenues from Service and Maintenance operations, a $1.9
million, or 27.8%, increase in revenues from the company's Special Projects
and Tenant Improvement operations, and a $2.9 million, or 12.6%, increase in
revenues from installation operations, including design and build projects,
retrofits and remodeling. The broad-based increase in revenues was
attributable to generally increasing activity in the Seattle area, the
Company's principal market, and continued efforts to increase the underlying
base of service and maintenance business.
Gross Profit. Gross profit increased $1.3 million, or 17.8%, from $7.3
million for the year ended December 31, 1994 to $8.6 million for the year
ended December 31, 1995. Gross margin increased from 18.4% to 18.9% for the
years ending December 31, 1994 and 1995, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.2 million, or 19.7%, from $6.1 million
for the year ended December 31, 1994 to $7.3 million for the year ended
December 31, 1995. The increase was attributable generally to the higher level
of revenues and an approximate $200,000 increase relating to the initial
stages of the aforementioned job cost and accounting software conversion and
other management information system processes and infrastructure that
continued into 1996. As a percentage
28
<PAGE>
of revenues, selling, general and administrative expenses increased from 15.4%
to 16.2% for the years ending 1994 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES--MACDONALD-MILLER
From January 1, 1994 through the six months ended June 30, 1997, MacDonald-
Miller utilized a net $315,000 from operating activities. Net income and
depreciation generated $4.1 million and changes in asset and liability
accounts utilized a net $4.4 million, principally due to a $7.7 million
increase in accounts receivable partially offset by corresponding increases in
accounts payable and accrued expenses.
Net cash used in investment activities of $2.6 million was primarily
attributable to equipment and to real estate held for investment.
Net cash provided by financing activities of $2.9 million was primarily
attributable to the issuance and redemptions of common stock, long-term bank
financing related to capital expenditures and real estate held for investment
and short-term bank financing utilized to increase working capital.
As of June 30, 1997, MacDonald-Miller had working capital of $2.8 million
and $708,000 of long-term debt outstanding.
MASTERS
Masters, Inc. ("Masters") was founded in 1986 and provides HVAC and plumbing
services in the Washington, D.C. area. Masters' revenues for fiscal 1996 were
$39.8 million and income from operations for fiscal 1996 was $1.5 million.
Masters derived 100% of its 1996 revenues from new installation services.
Masters is headquartered in Gaithersburg, Maryland and has its facilities in
Gaithersburg and Chantilly, Virginia.
RESULTS OF OPERATIONS--MASTERS
The following table sets forth certain financial data for the periods
indicated (dollars in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $30,327 100.0% $35,160 100.0% $39,826 100.0% $18,279 100.0% $19,318 100.0%
Cost of Services........ 28,018 92.4 31,746 90.3 35,854 90.0 16,639 91.0 17,457 90.4
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit............ 2,309 7.6 3,414 9.7 3,972 10.0 1,640 9.0 1,861 9.6
Selling, General and Ad-
ministrative
Expenses............... 1,664 5.5 2,373 6.7 2,484 6.3 1,009 5.5 1,197 6.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 645 2.1 1,041 3.0 1,488 3.7 631 3.5 664 3.4
</TABLE>
Six Months Ended June 30, 1997 Compared to Unaudited Six Months Ended June
30, 1996
Revenues. Revenues increased $1.0 million, or 5.5%, from $18.3 million for
the six months ended June 30, 1996 to $19.3 million for the six months ended
June 30, 1997. The increase in revenues was attributable to additional revenue
from existing customers.
Gross Profit. Gross profit increased $221,000, or 13.8%, from $1.6 million
for the six months ended June 30, 1996 to $1.9 million for the six months
ended June 30, 1997. Gross margin increased from 9.0% for the six months ended
June 30, 1996 to 9.6% for the six months ended June 30, 1997. The increase was
primarily attributable to a higher mix of fire sprinkler installations that
typically produce higher margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $188,000, or 18.8%, from $1.0 million for
the six months ended June 30, 1996 to $1.2 million for the six months
29
<PAGE>
ended June 30, 1997. The increase in selling, general and administrative
expenses was primarily due to staff additions to keep pace with the growth of
the company, increased bad debts and an increase in professional fees. As a
percentage of revenues, selling, general and administrative expenses increased
from 5.5% to 6.2% over the respective periods.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Revenues increased $4.6 million, or 13.1%, from $35.2 million for
the year ended December 31, 1995 to $39.8 million for the year ended December
31, 1996. The increase was attributable to additional revenues from existing
customers and increased market penetration.
Gross Profit. Gross profit increased $558,000, or 16.4%, from $3.4 million
for the year ended December 31, 1995 to $4.0 million for the year ended
December 31, 1996. Gross margins increased slightly from 9.7% to 10.0% for the
years ending 1995 and 1996, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $111,000, or 4.6%, from $2.4 million for the
year ended December 31, 1995 to $2.5 million for the year ended December 31,
1996. As a percentage of revenues, selling, general and administrative
expenses decreased from 6.7% to 6.3% over the same period. This decrease was
primarily attributable to the net increase in revenue and the relatively fixed
nature of these expenses.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased $4.9 million, or 16.2%, from $30.3 million for
the year ended December 31, 1994 to $35.2 million for the year ended December
31, 1995. The increase was attributable to additional revenue from existing
customers and increased market penetration.
Gross Profit. Gross profit increased $1.1 million, or 47.8%, from $2.3
million for the year ended December 31, 1994 to $3.4 million for the year
ended December 31, 1995. Gross margin increased from 7.6% to 9.7% due to a
greater volume of higher margin HVAC new installations coupled with margin
expansion in plumbing new installations from more efficient production.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $709,000, or 41.7%, from $1.7 million for
the year ended December 31, 1994 to $2.4 million for the year ended December
31, 1995. As a percentage of revenues, selling, general and administrative
expenses increased from 5.5% to 6.7% due to an increase in bad debt expense,
an increase in personnel necessary to effectively manage the Company's rapid
growth and the addition of an executive incentive program.
LIQUIDITY AND CAPITAL RESOURCES--MASTERS
From January 1, 1994 through the six months ended June 30, 1997, Masters
generated $4.2 million in cash from operating activities. Net cash used in
investment activities was primarily attributable to capital expenditures of
$1.8 million. Net cash used in financing activities was primarily attributable
to $2.1 million in dividends paid to the shareholder.
Masters had working capital of $4.0 million as of June 30, 1997 and $765,000
of long-term debt outstanding.
K&N
K&N was founded in 1978 and provides plumbing services to the residential
new construction market in the Dallas, Fort Worth and Austin, Texas and Las
Vegas, Nevada markets. K&N also designs, sells, installs and services HVAC
systems in Dallas and Fort Worth. K&N's revenues for fiscal 1996 were $24.3
million and income from operations was $936,000. K&N derived 89% of its 1996
revenues from new installation services and 11% from maintenance, repair and
replacement services. K&N is headquartered in Arlington, Texas and has
facilities in Arlington and Austin, Texas and Las Vegas, Nevada.
30
<PAGE>
RESULTS OF OPERATIONS--K&N
The following table sets forth certain unaudited financial data for the
periods indicated (dollars in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ----------------------------
1995 1996 1997 1996 1997(1)
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $21,458 100.0% $22,709 100.0% $24,279 100.0% $11,893 100.0% $12,355 100.0%
Cost of Services........ 18,843 87.8 20,350 89.6 20,705 85.3 10,433 87.7 10,662 86.3
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit............ 2,615 12.2 2,359 10.4 3,574 14.7 1,460 12.3 1,693 13.7
Selling, General and Ad-
ministrative
Expenses............... 2,275 10.6 2,478 10.9 2,638 10.8 1,349 11.4 1,605 13.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 340 1.6 (119) (0.5) 936 3.9 111 .9 88 .7
</TABLE>
- --------
(1) The operating results of K&N represent six months of activity, even though
K&N was acquired, for accounting purposes, by Airtron on June 1, 1997.
Unaudited Six Months Ended June 30, 1997 Compared to Unaudited Six Months
Ended June 30, 1996
Revenues. Revenues increased $462,000, or 3.9%, from $11.9 million for the
six months ended June 30, 1996 to $12.4 million for the six months ended June
30, 1997. The increase in revenues was attributable to a higher level of new
home construction in the Austin and Las Vegas markets.
Gross Profit. Gross profit increased $233,000, or 15.5%, from $1.5 million
for the six months ended June 30, 1996 to $1.7 million for the six months
ended June 30, 1997. Gross margin increased from 12.3% to 13.7% due to
increases in operational efficiency.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $256,000, or 19.7%, from $1.3 million for
the six months ended June 30, 1996 to $1.6 million for the six months ended
June 30, 1997. The increase in selling, general and administrative expenses
was primarily attributable to additional owners' compensation expense. As a
percentage of revenues, selling, general and administrative expenses increased
from 11.4% to 13.0% for 1996 and 1997 respectively.
Year Ended March 31, 1997 Compared to Unaudited Year Ended March 31, 1996
Revenues. Revenues increased $1.6 million, or 7.0%, from $22.7 million for
the year ended March 31, 1996 to $24.3 million for the year ended March 31,
1997. The increase in revenues was attributable to the expansion of the
Company's customer base to include several new home builders in the Austin and
Las Vegas markets.
Gross Profit. Gross profit increased $1.2 million, or 50.0%, from $2.4
million for the year ended March 31, 1996 to $3.6 million for the year ended
March 31, 1997. The increase was due to a decline in production labor and
material costs for start ups in Austin, Texas and Las Vegas, Nevada, and the
savings from the closing during fiscal 1996 of an unsuccessful operation in
Palmdale, California. Gross margin increased from 10.4% to 14.7% for the years
ending March 31, 1996 and 1997, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $160,000, or 6.4%, from $2.5 million for the
year ended March 31, 1996 to $2.6 million for the year ended March 31, 1997.
As a percentage of revenues, selling, general and administrative expenses
remained relatively constant at 10.9% and 10.8% for the years ending March 31,
1996 and 1997, respectively.
Unaudited Year Ended March 31, 1996 Compared to Unaudited Year Ended March
31, 1995
Revenues. Revenues increased $1.2 million, or 5.6%, from $21.5 million for
the year ended March 31, 1995 to $22.7 million for the year ended March 31,
1996. The increase in revenues was attributable to the new operating
facilities in Austin, Texas and Las Vegas, Nevada and a higher level of new
home construction in the Dallas and Fort Worth metropolitan area.
31
<PAGE>
Gross Profit. Gross profit decreased $256,000, or 9.8%, from $2.6 million
for the year ended March 31, 1995 to $2.4 million for the year ended March 31,
1996. Gross margin decreased from 12.2% to 10.4% for the years ending March
31, 1995 and 1996, respectively. The gross margin decline was primarily
attributable to aggressive pricing and start-up labor costs for the two new
divisions in Austin, Texas and Las Vegas, Nevada.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $203,000, or 8.8% from $2.3 million for the
year ended March 31, 1995 to $2.5 million for the year ended March 31, 1996.
The increase in selling, general and administrative expenses was primarily
attributable to incremental costs relating to the closing of the Palmdale,
California operation and the implementation of a new management information
system. As a percentage of revenues, selling, general and administrative
expenses increased slightly from 10.6% to 10.9%.
LIQUIDITY AND CAPITAL RESOURCES--K&N
From April 1, 1994 through the six months ended June 30, 1997, K&N utilized
$269,000 in cash from operating activities, essentially funding its working
capital needs from operations.
Net cash used in investment activities from April 1994 through June 30, 1997
was attributable to capital expenditures of $2.2 million, primarily relating
to the consolidation of offices in the Dallas-Fort Worth metropolitan area,
the start up of the Austin, Texas and Las Vegas, Nevada operations and fleet
expansion. Financing activities generated a net increase of $2.4 million from
the issuance of long-term debt and net borrowings from shareholders. The funds
were utilized to finance the capital expenditures noted above and for working
capital.
As of June 30, 1997, K&N had working capital of $731,000 and $291,000 of
long-term debt outstanding.
OTHER RESIDENTIAL SERVICE COMPANIES
Pre-Offering Companies
A-ABC and A-1, founded in 1976 and 1994, respectively, provide maintenance,
repair and replacement services for HVAC equipment, as well as home
appliances, to residential customers in the Dallas and Garland, Texas areas.
A-ABC also offers plumbing repair and replacement services. Combined revenues
for fiscal 1996 totaled $8.5 million and combined income from operations
totaled $333,000. A-ABC and A-1 are headquartered in Dallas, Texas.
Callahan Roach and its affiliates provide training and consulting services,
marketing products and pricing programs nationally to over 1,300 independent
service companies, manufacturers and associations. Callahan Roach's revenues
for fiscal 1996 were $1.9 million and income from operations for fiscal 1996
was $8,257. Callahan Roach, founded in 1989, is headquartered in Colorado
Springs, Colorado and has facilities in Atlanta, Georgia, Dublin, Ohio and
Colorado Springs, Colorado.
Costner was founded in 1989 and provides HVAC maintenance, repair and
replacement services to residential customers in the Rock Hill, South Carolina
and Charlotte, North Carolina areas. Costner's revenues for fiscal 1996 were
$3.0 million, and income from operations was $7,487. Costner is headquartered
in Rock Hill, South Carolina.
Hallmark was founded in 1967 and provides HVAC maintenance, repair and
replacement services to residential customers in the Houston and San Antonio,
Texas areas. Hallmark's revenues for fiscal 1996 were $6.5 million, and income
from operations was $8,749. Hallmark is headquartered in Houston, Texas and
has facilities in Houston and San Antonio, Texas.
Jarrell was founded in 1959 and provides plumbing repair services to
residential customers in the Houston, Texas area. Jarrell's revenues for the
fiscal year ended February 28, 1997 were $1.2 million and it had income from
operations of $34,547 during that year. Jarrell is headquartered in Houston,
Texas.
32
<PAGE>
Way was founded in 1977 and provides HVAC services to residential customers
in Houston, Texas. Way's revenues for fiscal 1996 were $659,000 and income
from operations was $123,000. Way's operations have been combined with
Hallmark's operations.
Offering Acquisition Companies
Central Carolina Air Conditioning Company ("Central Carolina") was founded
in 1967 and provides HVAC maintenance, repair and replacement services to
residential and commercial customers in the Greensboro and Winston Salem,
North Carolina areas. Central Carolina's revenues for fiscal 1996 were $8.2
million and income from operations was $381,000. Central Carolina is
headquartered in Greensboro, North Carolina.
Evans Services, Inc. ("Evans") was founded in 1980 and provides plumbing and
HVAC services to residential customers in the Birmingham, Alabama area. Evans'
revenues for fiscal 1996 were $2.3 million and income from operations was
$86,000. Evans is headquartered in Birmingham, Alabama.
Paul E. Smith Co., Inc. ("Paul E. Smith") was founded in 1967 and installs
and maintains, repairs and replaces plumbing systems in new and existing
residences in the Indianapolis, Indiana area. Paul E. Smith's revenues for
fiscal 1996 were $5.6 million and income from operations was $297,000. Paul E.
Smith is headquartered in Indianapolis, Indiana.
Van's Comfortemp Air Conditioning, Inc. ("Van's") was founded in 1965 and
provides HVAC services to residential and light commercial customers in the
Palm Beach-Ft. Lauderdale, Florida area. Van's revenues for fiscal 1996 were
$4.3 million and income from operations was $7,000. Van's is headquartered in
Delray Beach, Florida.
Willis Refrigeration, Heating & Air Conditioning, Inc. ("Willis") was
founded in 1968 and installs, maintains and repairs HVAC systems in new and
existing residences in the greater Cincinnati and northern Kentucky areas.
Willis' revenues for fiscal 1996 were $6.8 million and income from operations
was $542,000 Willis is headquartered in Cincinnati, Ohio.
RESULTS OF OPERATIONS--OTHER RESIDENTIAL SERVICE COMPANIES
The GroupMAC Companies included in the Other Residential Services Companies
derive a majority of their revenues from residential new installation and
maintenance, repair and replacement services. In the aggregate, these 11
companies derived 84% of their revenue in fiscal 1996 from residential
services and 16% from light commercial service. The following table sets forth
certain unaudited financial data for the periods indicated (dollars in
thousands).
<TABLE>
<CAPTION>
FISCAL YEAR(1) SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997(2)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $38,481 100.0% $43,216 100.0% $48,964 100.0% $23,255 100.0% $24,886 100.0%
Cost of Services........ 25,397 66.0 27,537 63.7 30,628 62.6 14,762 63.5 14,799 59.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit............ 13,084 34.0 15,679 36.3 18,336 37.4 8,493 36.5 10,087 40.5
Selling, General and Ad-
ministrative
Expenses............... 11,432 29.7 14,210 32.9 16,506 33.7 8,082 34.7 8,277 33.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 1,652 4.3 1,469 3.4 1,830 3.7 411 1.8 1,810 7.3
</TABLE>
- --------
(1) Several of the individual GroupMAC Companies have fiscal year ends that
differ from December 31, which is the year end all of the GroupMAC
Companies will use concurrent with the Offering.
(2) The operating results of the Other Residential Service Companies,
including Hallmark and A-ABC/A-1, represent six months of activity, even
though Hallmark and A-ABC/A-1 were acquired, for accounting purposes, by
Airtron on June 1, 1997.
33
<PAGE>
Unaudited Six Months Ended June 30, 1997 Compared to Unaudited Six Months
Ended June 30, 1996
Revenues. Revenues increased $1.6 million, or 6.9%, from $23.3 million for
the six months ended June 30, 1996 to $24.9 million for the six months ended
June 30, 1997. The increase in revenues was attributable to expansion of
Central Carolina's commercial service and replacement business, an increase in
replacement sales at Willis and the occurrence of a significant light
commercial job at Jarrell.
Gross Profit. Gross profit increased $1.6 million, or 18.8%, from $8.5
million for the six months ended June 30, 1996 to $10.1 million for the six
months ended June 30, 1997. Gross margin increased from 36.5% to 40.5% from
the six month period ended June 30, 1996 to the corresponding period in 1997.
The increase in gross margin was attributable to higher margins at Central
Carolina from operational efficiencies and from increased higher margin
replacement sales at Willis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $196,000, or 2.4%, from $8.1 million for the
six months ended June 30, 1996 to $8.3 million for the six months ended June
30, 1997. As a percentage of revenues, selling, general and administrative
expenses decreased from 34.7% to 33.2% for the six month period ended June 30,
1996 compared to the corresponding period in 1997.
Unaudited Fiscal 1996 Compared to Unaudited Fiscal 1995
Revenues. Revenues increased $5.8 million, or 13.4%, from $43.2 million in
fiscal 1995 to $49.0 million in fiscal 1996. The increase in revenues was
primarily attributable to the continued internal expansion of HVAC services to
an appliance company acquired by A-ABC in late 1994, an acquisition made
during early 1996 by Hallmark of an operation in San Antonio and an aggressive
advertising campaign at Costner. Also, revenues increased significantly at
Van's and Willis due to a higher level of replacement sales.
Gross Profit. Gross profit increased $2.6 million, or 16.6%, from $15.7
million in fiscal 1995 to $18.3 million in fiscal 1996. The increase in gross
profit was attributable to the continued internal expansion of HVAC services
at A-1, which was acquired by A-ABC in 1994, an acquisition by Hallmark of a
high margin operation in San Antonio and revenue increases at Costner and
other higher margin companies. Gross margin increased from 36.3% to 37.4% for
fiscal 1995 and 1996, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.3 million, or 16.2%, from $14.2 million
in fiscal 1995 to $16.5 million in fiscal 1996. The increase in selling,
general and administrative expenses was mainly due to the acquisition of an
operation in San Antonio by Hallmark during the period, a higher level of
spending on advertising at Costner and an increase in owner compensation among
all of the residential service companies of $129,000. As a percentage of
revenues, selling, general and administrative expenses increased from 32.9% to
33.7% for fiscal 1995 and 1996, respectively.
Unaudited Fiscal 1995 Compared to Unaudited Fiscal 1994
Revenues. Revenues increased $4.7 million, or 12.2%, from $38.5 million in
fiscal 1994 to $43.2 million in fiscal 1995. The increase in revenues was
primarily attributable to incremental revenues from an acquisition made by A-
ABC in late 1994, the expansion of the customer base at Central Carolina to
include the commercial sector and an increased emphasis on the selling of
service agreements and a higher level of replacement revenues at Van's.
Gross Profit. Gross profit increased $2.6 million, or 19.8%, from $13.1
million in fiscal 1994 to $15.7 million in fiscal 1995. The increase in gross
profits was primarily attributable to the expanded revenue volumes. Gross
margin increased from 34.0% to 36.3% for fiscal years 1994 and 1995,
respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.8 million, or 24.6%, from $11.4 million
in fiscal 1994 to $14.2 million in fiscal 1995. As a percentage of revenues,
34
<PAGE>
selling, general and administrative expenses increased from 29.7% to 32.9% due
to incremental overhead at the company acquired in late 1994 by A-ABC,
incremental owners' compensation of $378,000 across the residential service
companies and an overall increase in infrastructure to keep pace with the
internal growth at each company within the group.
OTHER COMMERCIAL SERVICE COMPANIES
Pre-Offering Companies
Charlie's was founded in 1981 and provides plumbing maintenance, repair and
replacement services to commercial and residential customers in the Houston,
Texas area and specializes in the high-rise condominium market in Houston.
Charlie's revenues for fiscal 1996 were $3.1 million, and income from
operations was $65,000. Charlie's is headquartered in South Houston, Texas.
Sibley Services, Incorporated ("Sibley") was founded in 1974 and provides
HVAC and refrigeration maintenance, repair and replacement services to
commercial and industrial customers in the greater Memphis, Tennessee area
which includes northern Mississippi and northeast Arkansas. Sibley also offers
design and build services, including facility automation. Sibley's revenues
for fiscal 1996 were $7.0 million and income from operations was $130,018.
Sibley is headquartered in Memphis, Tennessee.
USA was founded in 1995 and provides marketing products and training
materials to over 100 member companies across the country. USA's revenues for
fiscal 1996 were $763,000 and income from operations was $33,000. USA is
headquartered in Lakewood, Colorado.
Offering Acquisition Companies
All Service Electric, Inc. ("All Service") was founded in 1990 and provides
electrical contracting services (including new installation and repair
services) primarily to commercial customers in the Jacksonville, Florida area.
All Service's revenues for fiscal 1996 were $2.8 million and income from
operations was $687,000. All Service is headquartered in Jacksonville,
Florida.
Arkansas Mechanical Services, Inc. ("Arkansas Mechanical") was founded in
1988 and provides HVAC maintenance, repair and replacement services to
commercial and industrial customers in the greater Little Rock and
Fayetteville, Arkansas areas. Arkansas Mechanical also provides engineering
services for retrofit upgrades and replacements. Arkansas Mechanical's
revenues were $3.3 million and income from operations was $325,000. Arkansas
Mechanical is headquartered in North Little Rock, Arkansas and has facilities
in the North Little Rock and Fayetteville, Arkansas areas.
Linford Service Company ("Linford") was founded in 1960 and provides HVAC
maintenance, repair and replacement to commercial customers throughout
California. Linford's revenues for fiscal 1996 were $11.3 million and the loss
from operations was $267. Linford is headquartered in Oakland, California and
has facilities in Oakland, Ontario, Sacramento, San Diego and San Jose,
California.
Mechanical Services, Inc. ("Mechanical") was founded in 1993 and provides
design and build, engineering and installation services in the mechanical
trades industry in the Little Rock and Fayetteville, Arkansas areas.
Mechanical Services' revenues for fiscal 1996 were $2.9 million and income
from operations was $56,000. Mechanical Services is headquartered in North
Little Rock, Arkansas and has facilities in North Little Rock and
Fayetteville, Arkansas.
Southeast Mechanical Service, Inc. ("Southeast Mechanical") was founded in
1979 and provides HVAC maintenance, repair and replacement services in the
Miami and Fort Lauderdale, Florida areas. Southeast Mechanical's revenues for
fiscal 1996 were $5.3 million and income from operations was $585,000.
Southeast Mechanical is headquartered in Hollywood, Florida.
35
<PAGE>
Yale Incorporated ("Yale") was founded in 1939 and provides HVAC services to
commercial customers throughout Minnesota. Yale's revenues for fiscal 1996
were $10.1 million and income from operations was $405,000. Yale is
headquartered in Minneapolis, Minnesota.
RESULTS OF OPERATIONS--OTHER COMMERCIAL SERVICE COMPANIES
The GroupMAC Companies included in the Other Commercial Services Companies
derive a majority of their revenues from commercial new installation and
maintenance, repair and replacement services. In the aggregate, these nine
companies derive 96% of their revenue from commercial services and 4% of their
revenues from residential services. The following table sets forth certain
unaudited financial data for the periods indicated (dollars in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR(1) SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $33,208 100.0% $38,476 100.0% $46,499 100.0% $24,460 100.0% $23,870 100.0%
Cost of Services........ 23,774 71.6 27,613 71.8 33,845 72.8 17,575 71.9 17,177 72.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit............ 9,434 28.4 10,863 28.2 12,654 27.2 6,885 28.1 6,693 28.0
Selling, General and
Administrative
Expenses............... 7,669 23.1 9,129 23.7 10,367 22.3 4,703 19.2 5,198 21.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 1,765 5.3 1,734 4.5 2,287 4.9 2,182 8.9 1,495 6.3
</TABLE>
- --------
(1) Several of the individual GroupMAC Companies have fiscal year ends that
differ from December 31, which is the year end all of the GroupMAC
Companies will use concurrent with the Offering.
Unaudited Six Months Ended June 30, 1997 Compared to Unaudited Six Months
Ended June 30, 1996
Revenues. Revenues declined $590,000, or 2.4%, from $24.5 million for the
six months ended June 30, 1996 to $23.9 million for the six months ended June
30, 1997. The decrease in revenues was attributable to a $2.0 million decline
in revenues at Sibley which resulted from an internal decision to discontinue
a large, low margin customer relationship. Such decline was offset by growth
at Linford from incremental service agreements and at Mechanical Services from
incremental "design and build" project work.
Gross Profit. Gross profit declined $192,000, or 2.9%, from $6.9 million for
the six months ended June 30, 1996 to $6.7 million for the six months ended
June 30, 1997. The decline in gross profit primarily resulted from the
discontinuance of the customer relationship discussed above. Gross margin
remained consistent at 28.1% and 28.0% for the six month periods ended June
30, 1996 and 1997, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $494,000, or 10.6%, from $4.7 million for
the six months ended June 30, 1996 to $5.2 million for the six months ended
June 30, 1997. The increase in selling, general and administrative expenses
was primarily attributable to incremental owners' compensation and additional
personnel to support the growth in sales at Linford and an intentional shift
in business mix at Yale toward higher margin service contract work. As a
percentage of revenues, selling, general and administrative expenses increased
from 19.2% to 21.7% over the six month periods ended June 30, 1996 and 1997,
respectively.
Unaudited Fiscal 1996 Compared to Unaudited Fiscal 1995
Revenues. Revenues increased $8.0 million, or 20.8%, from $38.5 million in
fiscal 1995 to $46.5 million in fiscal 1996. The increase in revenues was
primarily attributable to incremental service agreements at Linford,
incremental design and build projects at Mechanical Services and an increase
in maintenance, repair and replacement sales at Southeast Mechanical and
Sibley Services.
Gross Profit. Gross profit increased $1.8 million, or 16.5%, from $10.9
million in fiscal 1995 to $12.7 million in fiscal 1996. The largest factor
impacting the increase in gross profit was volume growth in revenues at
36
<PAGE>
Linford, although the growth was at slightly lower margins. Additionally,
significant increases in gross profit were due to rapid service revenue growth
combined with margin expansion at All Service and Yale. Gross margin decreased
slightly from 28.2% to 27.2% between fiscal 1995 and fiscal 1996.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased $1.3 million, or 14.3%, from $9.1 million in
fiscal 1995 to $10.4 million in fiscal 1996. The overall increase in selling,
general and administrative expenses was due to the expansion and relocation of
facilities as well as an increase in administrative and sales personnel at
Linford. As a percentage of revenues, selling, general and administrative
expenses decreased slightly from 23.7% to 22.3% in fiscal 1996.
Unaudited Fiscal 1995 Compared to Unaudited Fiscal 1994
Revenues. Revenues increased $5.3 million, or 16.0%, from $33.2 million in
fiscal 1994 to $38.5 million in fiscal 1995. The increase in revenues was
primarily attributable to an increase in design and build jobs at Yale and
Mechanical and an increase in service agreement volumes at Linford.
Gross Profit. Gross profit increased $1.5 million, or 16.0%, from $9.4
million in fiscal 1994 to $10.9 million in fiscal 1995. The increase in gross
profit was primarily attributable to a $2.0 million increase in revenues at
Linford at slightly higher margins, volume increases at Yale and Mechanical
and gross margin expansion at Charlie's and Arkansas Mechanical. As a
percentage of revenues, gross margin declined slightly from 28.4% in fiscal
1994 to 28.2% in fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.4 million, or 18.2%, from $7.7 million in
fiscal 1994 to $9.1 million in fiscal 1995. As a percentage of revenues,
selling, general and administrative expenses increased from 23.1% to 23.7% due
primarily to an increase in owners' compensation of $503,000 and personnel
additions necessary to adequately manage the revenue growth at Linford.
37
<PAGE>
BUSINESS
GENERAL
The Company was founded in 1996 to create the leading nationwide provider of
HVAC, plumbing and electrical services to residential and commercial
customers. Since inception, the Company has acquired 11 Pre-Offering Companies
totaling $138.8 million in combined 1996 revenues and has definitive
agreements to acquire the 13 Offering Acquisition Companies upon the closing
of the Offering. After the Offering, the Company believes it will be one of
the largest diversified providers of HVAC, plumbing and electrical services in
the United States with operations in 37 cities in 21 states. The market for
these diversified services is approximately $100 billion. The Company's pro
forma 1996 revenue and income from operations were $307.5 million and $20.9
million, respectively, and combined historical revenues of the GroupMAC
Companies grew at an annual rate of 14.3% from 1994 through 1996.
The Company offers a comprehensive range of services to residential and
commercial customers in both the new installation and the maintenance, repair
and replacement segments of the HVAC, plumbing and electrical service
industries. The Company's services include installing and maintaining,
repairing and replacing central air conditioning systems, furnaces, heat pumps
and plumbing and electrical systems. Approximately 74%, 23% and 3% of the
Company's pro forma 1996 revenues were derived from HVAC, plumbing and
electrical and other services, respectively. Approximately 59% of pro forma
1996 revenues were derived from residential services and 41% from commercial
services, while 54% of pro forma 1996 revenues were from the new installation
segment and 46% were from the maintenance, repair and replacement services.
Through Callahan Roach and USA, the Company also provides consulting services
and sells products to over 1,400 independent HVAC and plumbing service
companies. The Company believes that its broad service offering and geographic
diversity provide several advantages, including the ability to offer its
commercial and residential customers a single source for a range of services,
to consolidate purchasing power with vendors, to capture business from
customers that operate on a regional and national basis, to mitigate the
effects of seasonality and to balance local or regional economic cycles.
The Company believes that it can maximize its long-term growth and
profitability by participating in both the new installation and the
maintenance, repair and replacement segments of the HVAC, plumbing and
electrical service industries. The new installation business is generally
characterized by higher volume sales to homebuilders, commercial developers
and other large customers. The maintenance, repair and replacement business
generally produces higher margins from services provided to a broader customer
base. The Company intends to focus on growing its maintenance, repair and
replacement business, to capitalize on the higher margins and the more
predictable nature of revenues associated with this segment and to target a
revenue mix of approximately 60% maintenance, repair and replacement and 40%
new installation over time. The Company derives considerable profits and
strategic value from its new installation business, as this segment generates
a database of potential customers for maintenance, repair and replacement
services. The higher volumes associated with consolidating a number of new
installation firms provide purchasing economies of scale that increase the
competitiveness of both the new installation and the maintenance, repair and
replacement segments.
INDUSTRY OVERVIEW
Based on available industry data, the Company believes the HVAC, plumbing
and electrical service industries in the United States represent a market with
annual revenues of approximately $100 billion. The HVAC service industry is
believed to generate approximately $64 billion in annual revenues, the
plumbing service industry generates approximately $19 billion in annual
revenues and the electrical service industry generates approximately $16
billion in annual revenues. The Company also believes these industries are
highly fragmented with over 100,000 businesses, consisting predominantly of
small, owner-operated companies focusing on a single local geographic area and
providing a limited range of services. The Company believes that the majority
of owners in its industry have limited access to adequate capital for
modernization, training and expansion and limited opportunities for liquidity
in their business. As a result of this fragmentation, three
38
<PAGE>
publicly traded consolidators have emerged in these markets. The combined
revenues of these consolidators and the Company represent less than 2% of the
revenues for the HVAC, plumbing and electrical markets.
Growth in the HVAC service industry is affected by a number of factors,
particularly (i) the aging of the installed base of equipment, (ii) the
increasing efficiency, sophistication and complexity of HVAC systems and (iii)
the increasing restrictions on the use of refrigerants commonly used in older
HVAC systems. These factors also mitigate the effect on the HVAC service
industry of economic cycles inherent in the traditional construction industry.
An aging installed base has also positively affected growth in the plumbing
service industry. Industry sources report that 75% of the kitchen market and
65% of the bath market now consist of remodeling rather than new construction.
Growth in electrical services is closely tied to the new construction markets,
although the retrofitting of existing structures is driven by increased demand
for computer networks and other modernization.
The HVAC, plumbing and electrical service industries can be broadly divided
into the new installation segment and the maintenance, repair and replacement
segment. The new installation segment includes the installation of HVAC,
plumbing and electrical systems in new homes and commercial buildings for
contractors, builders, developers and other users. The maintenance, repair and
replacement segment includes the maintenance, repair, replacement and
reconfiguration of existing systems in residential homes and commercial
buildings. The new installation segment represents approximately 34% of
industry revenues, while the maintenance, repair and replacement segment
represents 66% of industry revenues.
The Company believes significant opportunities are available to a well
capitalized, national company employing professionally trained, customer-
oriented service technicians and providing a full complement of high quality
residential and commercial services in an industry that has been characterized
by inconsistent quality, reliability and pricing. In addition, the increasing
complexity of HVAC systems has led to a need for better trained technicians to
install, monitor and service these systems. The cost of recruiting, training
and retaining a sufficient number of qualified technicians makes it more
difficult for smaller HVAC companies to expand their businesses. The Company
also believes the highly fragmented nature of the residential and commercial
service industries will provide it with significant opportunities to
consolidate a large number of existing residential and commercial service
businesses.
OPERATING STRATEGY
The goal of the Company's operating strategy is to increase the revenues and
profitability of the GroupMAC Companies and subsequently acquired businesses,
while maintaining the highest level of service to its customers. The key
elements of the Company's operating strategy are as follows:
ACHIEVE OPERATING EFFICIENCIES. The Company intends to pursue significant
cost savings through the consolidation of purchasing power and to obtain
additional operating efficiencies through the implementation of a variety
of "best practices." It expects to achieve substantial purchasing economies
in the areas of equipment and supplies, service vehicles (including fuel
and maintenance), insurance and benefits, marketing and advertising, long
distance services and a variety of professional services. Callahan Roach
and USA, leading providers of integration, training and business consulting
services to the HVAC industry, will assist the Company in identifying and
refining its best practices and implementing such practices across the
GroupMAC Companies and future acquisitions through a systematic program of
training and consulting. In addition, the Company has recently established
a Council of Presidents consisting of the key operating management of
acquired companies, which will meet regularly to facilitate the sharing of
operating practices, synergies and strategies across the Company.
OPERATE ON A DECENTRALIZED BASIS. The Company intends to retain the
managers of the businesses it acquires, allow them to maintain substantial
responsibility for the day-to-day operations, profitability and growth of
those businesses and provide them with incentives based upon performance.
This will allow the Company to capitalize on the local market knowledge and
customer relationships at each acquired company. The Company believes that
the operating autonomy provided by this decentralized structure, together
with
39
<PAGE>
the implementation of reporting systems and financial controls at the
corporate level, will give it a competitive advantage in growing market
share and in attracting additional acquisition candidates.
ATTRACT, DEVELOP AND RETAIN HIGH QUALITY TECHNICIANS. The Company
believes operational success in this industry results from attracting and
retaining a highly trained and motivated workforce in order to deliver
consistently high-quality service at a fair price and to reduce re-work and
other costs. The Company's strategy is to become the employer of choice in
its industry by offering to its employees and managers a market-leading
combination of training, compensation and employee benefits, career
development opportunities and an equity participation in the Company's
success. Over time, the Company intends to develop an internal technical
training program to enhance the skill level of its employees.
ESTABLISH NATIONAL MARKET COVERAGE. The Company intends to expand its
existing relationships with home builders, commercial real estate
developers and property managers and other enterprises by offering
comprehensive HVAC, plumbing and electrical new installation and
maintenance, repair and replacement services on a national or regional
basis. The Company believes that significant demand exists from these
customers to utilize the services of a single company capable of providing
these services and that the GroupMAC Companies' many geographic locations
allow it to respond to this demand. Many of the GroupMAC Companies already
provide local or regional coverage to companies with nationwide operations.
In addition, the Company plans to utilize the customer bases of Callahan
Roach and USA, which are nationwide in scope, to establish an affiliate
network to market services on a national basis.
The Company began to implement its operating strategy following its
acquisition of the Pre-Offering Companies and has already entered into
negotiations with vendors in the areas of equipment and supplies, service
vehicles, casualty insurance, employee benefits, fuel supply arrangements,
Yellow Pages advertising, business forms and uniforms. Callahan Roach
personnel have conducted field visits with the GroupMAC Companies to assess
each company's operating strengths and weaknesses and to identify operating
best practices for use throughout the organization and are currently
developing customized training programs for the management and staff personnel
of these companies. Based on a study of the GroupMAC Companies' existing
benefit plans, the Company intends to implement a program that will preserve
or enhance the overall level of benefits resulting in projected cost savings
to the Company. The Compensation Committee has approved the issuance, after
the Offering, of up to 2,336,022 stock options covering all eligible employees
of the GroupMAC Companies. In preparation for creation of a national account
marketing program, the Company is conducting a study of the national and
regional companies currently serviced by one or more of the GroupMAC
Companies.
ACQUISITION STRATEGY
The Company's acquisition program is designed to enhance its position in
existing markets and to expand its operations into new markets. The key
elements of the Company's acquisition strategy are as follows:
ACQUIRE COMPANIES ACROSS MULTIPLE MARKET SEGMENTS. The Company intends to
acquire profitable businesses with well-developed market positions that are
engaged in the new installation and the maintenance, repair and replacement
segments of the HVAC, plumbing and electrical service industries in order
to develop synergies from the combined operations. For example, the Company
believes that new installation companies can be successfully teamed with
companies providing maintenance, repair and replacement services in the
same geographical markets, providing the latter with a new source of
service customers (purchasers of new homes) before these customers have a
chance to develop service relationships with other competitors. Likewise,
the combination of two or more companies providing complementary services
within a geographical market will enable the Company to offer to the
combined customer bases a wider range of services from a single supplier.
EXPAND GEOGRAPHIC PRESENCE. In new geographic markets, the Company will
target for acquisition one or more of the leading local or regional
companies in each market segment. Important criteria for these acquisition
candidates will be a reputation as a high quality provider and superior
operational management and systems. Once the Company has entered a market
it will seek to acquire other high quality service
40
<PAGE>
providers operating within the region in order to expand its market
penetration and the range of services it offers in that market. The Company
will also pursue "tuck in" acquisitions of smaller companies whose customer
bases, operating assets and service personnel can be incorporated into the
Company's existing operations without a significant increase in selling,
general and administrative costs.
RETAIN AND PROVIDE INCENTIVES TO EXISTING MANAGEMENT. The Company will
seek acquisitions of successful companies whose senior managers will remain
as employees of the Company and continue to operate their respective
businesses on a local level. The Company intends to motivate these managers
and align their interests with those of the Company by utilizing Common
Stock as a significant portion of the purchase consideration, by
establishing a key manager stock option plan for their benefit and by
implementing a cash bonus plan that rewards managers and key employees for
improvement in after-tax earnings that exceeds the cost of capital
employed.
LEVERAGE INDUSTRY REPUTATION AND CONTACTS. The Company intends to utilize
existing industry relationships established by its acquired companies and
Company management, as well as the industry-wide contacts of Callahan Roach
and USA, to develop a broad base of potential acquisitions. The Company
believes that its ability to acquire additional high quality companies will
be influenced by the level of success enjoyed by companies that have
previously joined with the Company, as well as the continuing efforts of
the Company and its operating subsidiaries to maintain a high profile in
the industry. The Company intends to remain actively involved in industry
organizations on the local and national level, working with independent
companies to support issues of interest to the Company and its operating
subsidiaries.
The Company began implementing the above strategies with the acquisition of
Airtron in May 1997 and has since acquired 10 other companies providing both
new installation and maintenance, repair and replacement services in the
residential and commercial HVAC, plumbing and electrical markets. The Pre-
Offering Companies have combined fiscal 1996 revenues of $138.8 million. After
the acquisition of the 13 Offering Acquisition Companies, the Company will
have operations in 37 cities in 21 states with combined 1996 revenues of
$307.5 million. The Company will have two or more companies offering
complementary services in four geographical markets (Houston, Dallas, Austin
and Indianapolis). Within certain of its markets (Dallas, Houston, San Antonio
and Cincinnati), the Company has acquired or is acquiring at the Offering
companies with a primary focus on maintenance, repair and replacement services
to augment its new installation businesses in these areas.
BEST PRACTICES
The Company believes that one of the most significant competitive advantages
of a consolidation company is its ability to identify the best marketing,
sales and operating practices within individual acquired companies and to
spread those best practices across all of its operating locations. The key to
successful implementation is having a disciplined approach to identifying the
desired practices, developing the procedures and related training to ensure
these practices are understood and implemented properly in the field
locations, and measuring systematically the operating performance of the
companies against benchmarks or standards to ensure that the practices are
effective.
The Company believes it enjoys a distinct competitive advantage in this area
resulting from its purchase of Callahan Roach and USA in July 1997. These two
organizations provide the Company with professional level capabilities in the
areas of integration, training and management development for both the
residential and commercial segments of its business. The Company intends to
utilize the expertise of these two industry-recognized GroupMAC Companies in
developing, implementing and monitoring its best practices. Both of these
organizations have extensive industry-wide experience from which to draw best
practices, in addition to the ideas and procedures that come from existing
GroupMAC Companies and future acquisitions. The Company believes that this
expertise, and the exploitation of best practices in this manner, will enable
the Company to accelerate the integration of acquired companies.
41
<PAGE>
Callahan Roach serves HVAC and plumbing contractors across the United States
in such areas as advertising, marketing, business valuation, pricing
strategies, management information services, acquisition planning and
integration and general consulting. It provides the Customer Assurance
Pricing(TM) models to over 1,300 HVAC and plumbing service companies. Callahan
Roach has been an industry leader in the development and commercialization of
this flat rate pricing best practice known as Customer Assurance Pricing(TM),
successfully marketing it to over 3,500 independent contractors across the
United States. Callahan Roach has developed and is currently field testing a
flat rate pricing software product (derived from its manual Customer Assurance
Pricing(TM) systems) that will run on hand-held computers for use by sales and
service personnel in the field. USA provides training and other products and
services to a network of 105 independent service companies focused on
maintenance, repair and replacement of commercial HVAC systems. The Company
believes that its acquisition of USA adds significant commercial HVAC
expertise to complement the residential HVAC and plumbing expertise provided
by Callahan Roach.
In order to ensure that best practices are shared among each of the
individual GroupMAC Companies, the Company has created a Council of Presidents
composed of the president or senior executive of each of the GroupMAC
Companies. The Council will meet on a regular basis, as well as divide into
smaller working committees, to share operating practices and develop
additional means to improve the overall performance of the Company and the
individual GroupMAC Companies. Best practices that result from the work of the
Council will be included in the training and monitoring programs developed and
disseminated through Callahan Roach and USA.
SERVICES PROVIDED
The Company provides a broad variety of maintenance, repair and replacement
services for HVAC, plumbing, electrical and other systems to both residential
and commercial customers. These services include preventive maintenance
(periodic checkups, cleaning and filter change-outs); emergency repairs; and
the replacement (in conjunction with the retrofitting or remodeling of a
residence or commercial building, or as a result of an emergency repair
request) of HVAC systems and associated parts, plumbing fixtures, pipes, water
feed and sewer lines, water heaters, softeners, filters and controls, and
electrical control systems, wiring, data cabling, switches and panels. The
Company also acts as a subcontractor for a variety of national, regional and
local residential home builders in the installation of HVAC, plumbing,
electrical and other systems in new residential construction, as well as
designing and installing HVAC, plumbing, electrical and other systems on
behalf of owners or general contractors in commercial buildings. In a few of
its operating locations, the Company provides certain specialized services,
including repair of home appliances, duct cleaning, installation and repair of
fireplaces, installation of fire sprinkler systems and the provision of
technical facilities management services to commercial building owners or
building managers. In connection with both its new installation business and
its maintenance, repair and replacement services, the Company sells a wide
range of HVAC, plumbing and electrical equipment, parts and supplies.
The following table shows the approximate percentages of the revenues of the
combined GroupMAC Companies during fiscal 1996 represented by new installation
services and maintenance, repair and replacement services, respectively.
<TABLE>
<CAPTION>
ELECTRICAL
HVAC PLUMBING & OTHER TOTAL
---- -------- ---------- -----
<S> <C> <C> <C> <C>
Residential Services:
New Installation............................... 26% 16% --% 42%
Maintenance, Repair and Replacement............ 13% 2% 2% 17%
--- --- --- ---
Total Residential............................ 39% 18% 2% 59%
Commercial Services:
New Installation............................... 10% 2% --% 12%
Maintenance, Repair and Replacement............ 25% 3% 1% 29%
--- --- --- ---
Total Commercial............................. 35% 5% 1% 41%
</TABLE>
42
<PAGE>
The Company intends to make additional acquisitions across the three main
technical disciplines (HVAC, plumbing and electrical) within the residential
and commercial markets. The Company's long term objective is to develop
maintenance, repair and replacement capabilities (both residential and
commercial) in the top 100 markets within the United States, while offering
new installation services across a more limited range of markets where new
construction in the residential and/or commercial sectors is expected to out-
pace the national average over the long term. Over time, this objective is
expected to shift the revenues of the Company to an increased percentage of
service revenue. See "--Operating Strategy" and "--Acquisition Strategy."
FIELD OPERATIONS
The Company's field operations are conducted out of the individual operating
locations of the various GroupMAC Companies. Typically, the GroupMAC Companies
specialize in one of the technical disciplines in either the residential or
commercial market. However, a few of the GroupMAC Companies that operate
principally in the residential new installation or residential maintenance,
repair and replacement markets also engage to a limited extent in projects or
service work for "light commercial" customers (i.e., smaller commercial
buildings where systems are similar in design to residential systems). In
addition, six of the GroupMAC Companies offer services in more than one
technical discipline. The Company permits the GroupMAC Companies to function
in a largely autonomous manner in delivering products and services to their
respective markets. The Company believes this flexible operating strategy
improves each location's ability to respond quickly to opportunities and
competition.
New Installation
New installation service in the residential market begins with the home
builder providing architectural plans or mechanical drawings for the
particular type or types of residences within the tract to be developed, and
requesting a bid or contract proposal for the work (often broken into phases
within the tract). Company personnel analyze the plans and drawings and
estimate the equipment, materials and parts and the direct and supervisory
labor required for the project. The company delivers a written bid or
negotiates the written agreement for the job. In HVAC installations, a portion
of the required air ducts are fabricated and pre-assembled with other
components in the company's own facilities prior to delivery to the job site.
Other equipment and materials for the particular project are ordered from
manufacturers, distributors or other suppliers for delivery in time for the
scheduled onsite construction work. The installation work is coordinated by
the company's field supervisors along with the builder's construction
supervisors. Draw payments for the project are generally obtained within 30
days of completing the installation, at which time any mechanics' and
materialmen's liens securing such payments are released. Interim payments are
often obtained to cover labor and materials costs on larger installation
projects. During 1996, the GroupMAC Companies were involved in the
installation of approximately 18,000 HVAC systems and 6,500 plumbing systems
in new residences.
Commercial new installation work begins with a design request from the owner
or general contractor. Initial meetings with the parties allow the contractor
to prepare preliminary and then more detailed design specifications,
engineering drawings and cost estimates. Once a project is awarded, it is
conducted in pre-agreed phases and progress billings are rendered to the owner
for payment, less a retainage. Actual field work (ordering of equipment and
materials, fabrication or assembly of certain components, delivery of such
materials and components to the job site, scheduling of work crews with the
necessary skills, and inspection and quality control) is coordinated in these
same phases. During 1996, the GroupMAC Companies were involved in the
installation of approximately 480 HVAC systems and 95 plumbing systems in new
commercial facilities. The Company has established a policy to review and
approve any new installation project by a GroupMAC Company which exceeds 5% of
the projected annual revenue of that GroupMAC Company.
Substantially all the equipment and component parts the Company sells or
installs are purchased from manufacturers and other outside suppliers. The
Company is not materially dependent on any of these outside sources.
43
<PAGE>
Maintenance, Repair and Replacement
The GroupMAC Companies engaged in maintenance, repair and replacement
services use specialized systems to log service orders, schedule service
calls, identify and ready the necessary repair parts or equipment, track the
work order, provide information for communication with the service technicians
and customers, and prepare accurate invoices. Service histories and specific
product information are generally accessible to the dispatcher in a database
that may be searched by customer name or address. Maintenance, repair and
replacement service calls are initiated when a customer requests emergency
repair service or the Company calls the client to schedule periodic service
agreement maintenance. Service technicians are scheduled for the call or
routed to the customer's residence or business by the dispatcher via a
scheduling board or daily work sheet (for non-emergency service) or through
cellular telephone, pager or radio. Service personnel work out of the
Company's service vehicles, which carry an inventory of equipment, tools,
parts and supplies needed to complete the typical variety of jobs. The
technician assigned to a service call travels to the residence or business,
interviews the customer, diagnoses the problem, prepares and discusses a price
quotation, performs the work and often collects payment from the customer.
Service technicians of GroupMAC Companies that are existing clients of
Callahan Roach carry a Customer Assurance Pricing(TM) manual which lists labor
and equipment parts required to fulfill certain tasks and the associated
prices. This manual is custom generated for each company from a database
containing over 15,000 different repair operations and which is updated for
price changes periodically. This "flat rate pricing" strategy allows the
Company to monitor margins and labor productivity at the point of sale, while
increasing the level of customer satisfaction by demonstrating greater
fairness and objectivity in pricing. Payment for maintenance, repair and
replacement services not covered by a warranty or service contract is
generally requested in cash or by check or credit card at the service
location. During fiscal 1996, the GroupMAC Companies performed approximately
150,000 service calls for periodic maintenance under existing service
contracts, and approximately 175,000 emergency or other service calls.
A portion of the Company's service work is done to satisfy factory
warranties. For such services, the Company is generally compensated by the
manufacturer responsible for the defective equipment under warranty. The
Company attempts to enter into service contracts whereby the customer pays an
annual or semi-annual fee for periodic diagnostic services. The customers
under service contracts receive specific discounts from standard prices for
repair and replacement service.
CENTRALIZED SUPPORT SERVICES
The Company provides certain management, financial, accounting and
logistical support services for all of the GroupMAC Companies, including the
following:
Purchasing
The Company believes it will be able to structure volume purchasing
arrangements or otherwise achieve purchasing economies of scale in the
following areas: (i) HVAC, plumbing and electrical equipment, parts and
supplies, (ii) purchase or lease and maintenance of service vehicles, (iii)
casualty and liability insurance, (iv) health insurance and related benefits,
(v) retirement benefits administration, (vi) office equipment, (vii) marketing
and advertising (including Yellow Pages), (viii) long distance services and
(ix) a variety of accounting, financial management, marketing and legal
services. The principal manufacturers or suppliers of the products sold by the
Company include Carrier Air Conditioning, Inc., The Trane Company, Lennox
Industries, Inc., Goodman Manufacturing Corp. and Ferguson Enterprises, Inc.
Each GroupMAC Company will have the opportunity to order products from the
manufacturers or distributors at the discounted rate negotiated by the Company
and therefore, benefit from the Company's purchasing power while maintaining
existing supplier relationships.
Management Information Systems
With limited exceptions, the Company intends to continue to operate for the
near-term with the existing accounting and other computer systems currently in
place at the various GroupMAC Companies. The Company
44
<PAGE>
will, however, cause each of the GroupMAC Companies to adopt a uniform chart
of accounts and to standardize their budgeting process and reports so that
results among the GroupMAC Companies more easily can be compared and
integrated. In addition, where a GroupMAC Company or a future acquired company
has a system in place that is inadequate for its existing or near term needs,
the Company will begin the migration to a standard that will allow for greater
consistency (and a longer term change to a Company-wide, integrated system).
The Company has implemented regular financial and operational "flash reports"
and other mechanisms to allow for management control and oversight. The
Company will utilize this information to establish and monitor performance of
individual GroupMAC Companies against operating benchmarks and ratios.
Employee Screening, Training and Development
The Company is committed to providing the highest level of customer service
through the development of a highly trained workforce. Prior to employment,
the Company makes an assessment of the technical competence level of all
potential new employees, confirms background references and conducts criminal
and driving record checks. In addition, all employees of the Company are
subject to random drug testing. Once hired, employees of the Company are
required to complete a progressive training program to advance their technical
competencies and to ensure that they understand and follow the Company's
safety practices and other internal policies. Both technical and customer
service personnel are given intensive training in customer communication,
sales and problem-solving skills.
The Company also conducts a detailed internal evaluation of each acquired
company's strengths, weaknesses and compliance with recognized industry or
Company "best practices," and then designs a training program to develop and
enhance the communication, sales, management and other relevant skills of its
employees and management to bring about continuous improvement in these areas.
The Company acquired Callahan Roach and USA in part for their professional
training and consulting capabilities and intends to implement their market-
leading training programs within the GroupMAC Companies.
Advertising and Marketing
The Company intends to capitalize on cross-marketing and business
development opportunities that it believes will be available to the Company as
a national provider of comprehensive residential and commercial HVAC, plumbing
and electrical services. The Company will leverage the diverse technical and
marketing strengths of individual GroupMAC Companies to expand the overall
penetration of services within those local markets in which two or more
GroupMAC Companies are located. Eventually, the Company intends to offer
comprehensive services from all of its operating locations.
The GroupMAC Companies use both general advertising and a direct sales force
to market their residential and commercial services (both new installation and
repair services) in their respective geographic markets. The Company is
developing a marketing and advertising program to establish a national brand
identity while preserving and enhancing the value of the unique and long-
standing trade names and customer identification enjoyed by the individual
GroupMAC Companies. The GroupMAC logo and identifying marks will be featured
on service trucks, marketing materials and advertising of the GroupMAC
Companies, but in a manner that does not detract from the local brand. The
Company proposes to develop (initially for the GroupMAC Companies, but
ultimately for delivery to the market through licensed affiliates developed by
Callahan Roach and USA) market-leading warranty and service programs for the
residential and commercial markets, as well as an aggressive national account
sales program focused on national and large regional home builders, as well as
major corporations, governmental and private institutions, real estate
investment trusts, real estate management firms and other multi-location
commercial property owners and managers. In 1996, advertising and marketing
expenditures represented 1.8% of the Company's combined revenue.
45
<PAGE>
PROPERTIES AND VEHICLES
The Company operates a fleet of approximately 1,580 owned or leased service
trucks, vans and support vehicles. It believes these vehicles generally are
well-maintained, ordinary wear and tear excepted, and adequate for the
Company's current operations.
The Company has a total of 54 facilities, one of which it owns and 53 of
which are under leases with remaining terms ranging from four months to 15
years from the date hereof on terms the Company believes to be commercially
reasonable. The aggregate of the leased or owned space at the Company's
facilities is approximately 600,000 square feet. A majority of the Company's
facilities are leased from certain former shareholders (or entities controlled
by certain former shareholders) of the GroupMAC Companies. None of these
leases expire prior to 2000 and none contain unusual or less than arm's length
provisions. The Company believes the owned and leased facilities are adequate
to serve its current level of operations.
The Company believes that it has generally satisfactory title to the
properties owned by it, subject to the liens for current taxes, liens incident
to minor encumbrances and easements and restrictions that do not materially
detract from the value of such property or the interests therein or the use of
such properties in its business.
COMPETITION
The market for HVAC, plumbing and electrical services is highly competitive.
The Company believes that the principal competitive factors in the residential
and commercial services industry are (i) timeliness, reliability and quality
of services provided, (ii) range of services offered, (iii) market share and
visibility and (iv) price. The Company believes its strategy of creating a
leading national provider of comprehensive services directly addresses these
factors. The ability of the Company to employ, train and retain highly
motivated service technicians to provide quality services should be enhanced
by its ability to utilize professionally managed recruiting and training
programs. In addition, the Company expects to offer compensation, health and
savings benefits that are more comprehensive than most offered in the
industry, including a stock option plan for all employees that is unique to
this industry. Service quality should be enhanced by the implementation and
continuous reinforcement of best practices across the GroupMAC Companies.
Competitive pricing is possible through purchasing economies and other cost
saving opportunities that exist across each of the service lines offered and
from productivity improvements.
Most of the Company's competitors are small, owner-operated companies that
typically operate in a single market. Certain of these smaller competitors may
have lower overhead cost structures and may be able to provide their services
at lower rates. Moreover, many homeowners have traditionally relied on
individual persons or small repair service firms with whom they have long-
established relationships for a variety of home repairs. There is currently a
limited number of public companies focused on providing residential or
commercial services in some of the same service lines provided by the Company.
In addition, there are a number of national retail chains that sell a
variety of plumbing fixtures and equipment, and HVAC equipment for residential
use and offer, either directly or through various subcontractors,
installation, warranty and repair services. Other companies or trade groups
engage in franchising their names and marketing programs in some service
lines. In the future, competition may be encountered from, among others, HVAC
equipment manufacturers, the unregulated business segments of regulated gas
and electric utilities or from newly deregulated utilities entering into
various residential service areas. Certain of the Company's competitors and
potential competitors have greater financial resources than the Company to
finance residential services acquisition and development opportunities, to pay
higher prices for the same opportunities or to develop and support their own
residential services operations if they decide to enter the field.
EMPLOYEES
As of August 1, 1997, the Company and the GroupMAC Companies had
approximately 2,860 full and part-time employees, approximately 1,825 of which
are installation/service technicians. In the course of performing
46
<PAGE>
installation work, the Company may utilize the services of subcontractors.
Approximately 500 employees (in five of the commercial GroupMAC Companies) are
members of the Bridge, Structural and Ornamental Iron Workers, Construction
Building Material, Ice and Coal Drivers, Helpers and Inside Employees,
Mechanical Contractors, Mechanical Services, Pipe-fitters, Plumbing and Pipe-
fitters and Sheet Metal Workers, Air Conditioning Contractors, Stationary
Engineers and Electrical Contractors unions, and work under collective
bargaining agreements. Two of such agreements recently expired and are now on
a year-to-year basis and may be renegotiated after either side gives the
requisite notice (90 days in one case and 120 days in the other). The other
collective bargaining agreements have expiration dates between April 30, 1998
and August 16, 2000. The Company believes its relationship with its employees
is satisfactory.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various legal proceedings,
most of which pertain to contract installation, service and employee matters
arising in the ordinary course of business. Although no assurance can be
given, the Company believes that the outcome of these proceedings,
individually and in the aggregate, will not have a material adverse effect on
its financial condition or results of operations.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are subject to various federal,
state and local laws and regulations, including, among others, (i) permitting
and licensing requirements applicable to service technicians in their
respective trades, (ii) building, HVAC, plumbing and electrical codes and
zoning ordinances, (iii) laws and regulations relating to consumer protection,
including laws and regulations governing service contracts for residential
services, and (iv) laws and regulations relating to worker safety and
protection of human health and the environment. In some states, warranties
provided for in the Company's service agreements may be deemed insurance
contracts by applicable state insurance regulatory agencies thereby subjecting
the Company and the service agreements to the insurance laws and regulations
of such state.
The Company believes it has all required permits and licenses to conduct its
operations and is in substantial compliance with applicable regulatory
requirements relating to its operations. Failure of the Company to comply with
the applicable regulations could result in substantial fines or revocation of
the Company's operating permits.
A large number of state and local regulations governing the residential
services trades require various permits and licenses to be held by
individuals. In some cases, a required permit or license held by a single
individual may be sufficient to authorize specified activities for all the
Company's service technicians who work in the geographic area covered by the
permit or licenses.
The Company's operations are subject to numerous federal, state and local
environmental laws and regulations, including those governing vehicle
emissions and the use and handling of refrigerants. These laws are
administered by the United States Environmental Protection Agency, the Coast
Guard, the Department of Transportation and various state and local
governmental agencies. The technical requirements of these laws and
regulations are becoming increasingly complex, stringent and expensive.
Federal and state environmental laws include statutes intended to allocate the
cost of remedying contamination among specifically identified parties. CERCLA
(or "Superfund") can impose strict, joint and several liability on past and
present owners or operators of facilities at, from, or to which a release of
hazardous substances has occurred, on parties who generated hazardous
substances that were released at such facilities and on parties who arranged
for the transportation of hazardous substances to such facilities. A majority
of states have adopted "Superfund" statutes comparable to, and in some cases
more stringent than, CERCLA. If the Company were to be found to be a
responsible party under CERCLA or a similar state statute, the Company could
be held liable for all investigative and remedial costs associated with
addressing such contamination, even though the releases were caused by a prior
owner or operator or third party. In addition, claims alleging personal injury
or property damage may be brought against the Company as a result of alleged
exposure to hazardous substances resulting from the Company's operations.
47
<PAGE>
The Company has been notified that it is a potentially responsible party under
CERCLA at a site in Dayton, Ohio. The Company's believes that the Company's
liability in connection with such site is minimal.
Prior to entering into the agreements relating to the acquisition of the
GroupMAC Companies, the Company evaluated the properties owned or leased by
such companies and in some cases engaged an independent environmental
consulting firm to conduct or review assessments of environmental conditions
at certain of those properties. No material environmental problems were
discovered in these reviews, and the Company is not otherwise aware of any
actual or potential environmental liabilities that would be material to the
Company. There can be no assurance that all such liabilities have been
identified, that such liabilities will not occur in the future, that a party
could not assert a material claim against the Company with respect to such
liabilities, or that the Company would be required or able to answer for such
claim.
The Company's operations are subject to federal, state and local laws and
regulations protecting the health and safety of workers. These laws are
administered by the federal Occupational Safety & Health Administration and
state and local health and safety governmental agencies. The Company's
operations are subject to the Clean Air Act, Title VI of which governs air
emissions and imposes specific requirements on the use and handling of
substances known or suspected to cause or contribute significantly to harmful
effects on the stratospherical ozone layer, such as chlorofluorocarbons and
certain other refrigerants ("CFCs"). Clean Air Act regulations require the
certification of service technicians involved in the service or repair of
systems, equipment and appliances containing these refrigerants and also
regulate the containment and recycling of these refrigerants. These
requirements have increased the Company's training expenses and expenditures
for containment and recycling equipment. The Clean Air Act is intended
ultimately to eliminate the use of CFCs in the United States and require
alternative refrigerants to be used in replacement HVAC systems. The
implementation of the Clean Air Act restrictions has also increased the cost
of CFCs in recent years and is expected to continue to increase such costs in
the future. As a result, the number of conversions of existing HVAC systems
that use CFCs to systems using alternative refrigerants is expected to
increase.
The Company's operations in certain geographic regions are subject to laws
that will, over the next few years, require specified percentages of vehicles
in large vehicle fleets to use "alternative fuels," such as compressed natural
gas or propane, and meet reduced emissions standards. The Company does not
anticipate that the cost of fleet conversion that may be required under
current laws will be material. Future costs of compliance with these laws will
be dependent upon the number of vehicles purchased in the future for use in
the covered geographic regions, as well as the number and size of future
business acquisitions by the Company in these regions. The Company cannot
determine to what extent its future operations and earnings may be affected by
new regulations or changes in existing regulations relating to vehicle
emissions.
Capital expenditures related to environmental matters during fiscal 1996
were not material. The Company does not currently anticipate any material
adverse effect on its business or consolidated financial position as a result
of future compliance with existing environmental laws and regulations
controlling the discharge of materials into the environment. Future events,
however, such as changes in existing laws and regulations or their
interpretation, more vigorous enforcement policies of regulatory agencies or
stricter or different interpretations of existing laws and regulations may
require additional expenditures by the Company which may be material.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company upon completion of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James P. Norris............. 58 Chairman of the Board; Director
J. Patrick Millinor, Jr..... 51 Chief Executive Officer; Director
Donald L. Luke.............. 60 President and Chief Operating Officer; Director
William Michael Callahan.... 51 Executive Vice President-Training, Technology
and Field Support
Chester J. Jachimiec........ 42 Executive Vice President-Acquisitions; Director
Alfred R. Roach, Jr......... 53 Executive Vice President-Marketing, Sales and
Product Support
Richard S. Rouse............ 50 Executive Vice President-Corporate Development
and Administration; Director
Randolph W. Bryant.......... 46 Senior Vice President, General Counsel and
Secretary
Darren B. Miller............ 37 Senior Vice President and Chief Financial
Officer
James D. Jennings........... 54 President and Chief Executive Officer of
Airtron; Director
Timothy Johnston............ 41 Senior Vice President of Airtron; Director
John M. Sullivan............ 60 Director
James D. Weaver............. 47 Director
Ronald D. Bryant............ 50 Director
David L. Henninger.......... 53 Director
Andrew Jeffrey Kelly........ 43 Director
Thomas B. McDade............ 74 Director
Lucian Morrison............. 60 Director
Fredric Sigmund............. 56 Director
</TABLE>
JAMES P. NORRIS became a Director and Chairman of the Board of the Company
in June 1997. From 1969 to May 1997, he served as Executive Vice President of
Air Conditioning Contractors of America ("ACCA"), an industry trade
association based in Washington, D.C.
J. PATRICK MILLINOR, JR. became a Director and Chief Executive Officer of
the Company upon its formation in 1997. From April 1997 to August 1997, he
served as President of the Company. From October 1996 through April 1997, he
served as Chief Executive Officer of the Company's predecessor, GroupMAC
Management Co. ("Management Co."). From September 1994 to October 1996, Mr.
Millinor worked directly for Gordon Cain, a major stockholder in the Company,
assisting in the formation and management of Agennix Incorporated and Lexicon
Genetics, two biotechnology companies. From March 1993 to September 1994, he
served as Chief Executive Officer of UltrAir, Inc., a start-up passenger
airline. From October 1992 to March 1993, he served as Chief Financial Officer
of UltrAir, Inc. From 1991 to 1992, he served as Chief Financial Officer of
Lifeco Travel Services, a travel management company. From 1986 to 1991, Mr.
Millinor served as Chief Operating Officer and Senior Vice President,
respectively, of Commonwealth Savings Association and Bank United. From 1979
to 1986, Mr. Millinor was a partner with KPMG Peat Marwick LLP. He currently
serves as a director of Agennix Incorporated, Haelan Health Corporation and
Lexicon Genetics.
DONALD L. LUKE became a Director and President and Chief Operating Officer
of the Company in August 1997. From November 1996 to July 1997, he served as
Chairman of Arriva Air International, Inc. a start-up commercial air cargo
business. From September 1996 to August 1997, he served as a consultant to
Batteries Batteries, Inc., a consolidator of specialty battery distribution
companies which completed its initial public offering in April 1996. From 1995
to September 1996, he served as President, Chief Executive Officer and
49
<PAGE>
Director of Batteries Batteries, Inc. From 1991 to 1995, Mr. Luke served as
President and Chief Executive Officer of Miracle Ear New York City. From 1989
to 1991, he served as President and Chief Executive Officer of Senior Service
Corporation. From 1988 to 1989, he served as Chairman and Chief Executive
Officer of Cuisinarts, Inc. From 1987 to 1988, he served as President and
Chief Operating Officer of Aetmedia, Inc. From 1981 to 1987, he served as
President and Chief Operating Officer and a director of Chemlawn Services
Corporation. He is currently the Chief Executive Officer of CTW, Inc. a
privately held acquisitions and management company, and a partner in McFarland
Grossman Capital Ventures, L.C., a consolidator of fastener distribution
companies.
WILLIAM MICHAEL CALLAHAN became Executive Vice President-Training,
Technology and Field Support of the Company in August 1997. From 1989 to July
1997, Mr. Callahan was a partner in Callahan Roach & Associates. From 1972 to
1989, Mr. Callahan served as President of Capital City Heating & Cooling, a
company he founded. In 1988, Mr. Callahan served as President of ACCA.
CHESTER J. JACHIMIEC became a Director and Executive Vice President-
Acquisitions of the Company upon its formation in 1997. From October 1996 to
April 1997, he served as Executive Vice President-Acquisitions at the
Company's predecessor, Management Co. From February 1994 to October 1996, Mr.
Jachimiec served as the Director of Acquisitions & Investments for Tenneco
Energy. From 1990 to 1994, he was an investor in or consultant to various
private ventures engaged in natural gas gathering, processing and exploration
as well as computer software development. Prior to 1990, Mr. Jachimiec
practiced securities law and public accounting with several professional
firms.
ALFRED R. ROACH, JR. became Executive Vice President-Marketing, Sales and
Product Support of the Company in August 1997. From 1989 to July 1997, Mr.
Roach was a partner in Callahan Roach & Associates. From 1986 to 1989, he
served as President and General Counsel of Service America Corporation, an
HVAC franchise company. From 1970 to 1986, Mr. Roach engaged in the private
practice of law.
RICHARD S. ROUSE became a Director and Executive Vice President-Corporate
Development and Administration of the Company upon its formation in 1997. From
October 1996 to April 1997, he served as Executive Vice President-Corporate
Development and Administration of the Company's predecessor, Management Co.
From July 1994 to July 1996, Mr. Rouse served as Vice President and General
Manager of Southcoast Services, a privately held landfill operating company.
From 1992 to 1994, he served as Vice President and General Manager of SWS, an
industrial services company. From 1990 to 1991, he was a co-founder and Senior
Vice President-Corporate Development for Republic Waste Industries, Inc. From
1984 to 1990, he was Marketing Manager of Lubripac, a blender and packager of
lubricants and specialty chemicals. Prior to 1984, Mr. Rouse served in various
marketing and management capacities with the Exxon Chemical Company.
RANDOLPH W. BRYANT became Senior Vice President, General Counsel and
Secretary of the Company upon its formation in 1997. From December 1996 to
April 1997, Mr. Bryant served as Associate General Counsel of El Paso Natural
Gas Company. From 1984 to 1996, he was an attorney with Tenneco Inc. and
Tenneco Energy Inc., last serving as Associate General Counsel.
DARREN B. MILLER became Senior Vice President and Chief Financial Officer of
the Company upon its formation in 1997. From October 1996 to April 1997, he
served as Senior Vice President and Chief Financial Officer of the Company's
predecessor, Management Co. From 1989 to 1996, Mr. Miller served in several
capacities at Allwaste, Inc., a consolidator of industrial service companies,
including Vice President-Treasurer and Controller from 1995 to 1996. Prior to
1989, he was employed in the audit practice of Arthur Andersen LLP.
JAMES D. JENNINGS became a Director of the Company in May 1997 in connection
with the acquisition of Airtron. Since 1986, Mr. Jennings has served as
President, Chief Executive Officer and a director of Airtron. Prior to 1986,
Mr. Jennings was employed by Airtron in various other capacities.
TIMOTHY JOHNSTON became a Director of the Company in May 1997 in connection
with the acquisition of Airtron. Since 1995, Mr. Johnston has served as a
Senior Vice President of Airtron. Mr. Johnston has served as
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Secretary/Treasurer of Airtron since 1991 and as Chief Financial Officer of
Airtron since 1988. Prior to 1987, Mr. Johnston was employed by Airtron in
various other capacities.
JOHN M. SULLIVAN became a Director of the Company upon its formation in
1997. From October 1996 to April 1997, he served as a Director of the
Company's predecessor, Management Co. Since 1994, Mr. Sullivan has been
engaged as an independent financial and tax consultant. From 1992 through
1994, he was an International Tax Director for General Motors Corporation.
Prior to 1992, Mr. Sullivan was a tax partner with Arthur Andersen LLP.
JAMES D. WEAVER became a Director of the Company upon its formation in 1997.
From October 1996 to April 1997, he served as a Director at the Company's
predecessor, Management Co. Mr. Weaver has been the President of the Gordon
and Mary Cain Foundation, a nonprofit organization, since 1990 and the
Director of the Good Samaritan Foundation, a nonprofit organization, since
1986.
RONALD D. BRYANT will become a Director upon consummation of the Offering.
He founded Masters in 1986 and has served as its president since that time and
will continue in that capacity after consummation of the Offering.
DAVID L. HENNINGER will become a Director upon consummation of the Offering.
He acquired Van's in 1975, has served as its president since that time and
will continue in that capacity after consummation of the Offering.
ANDREW JEFFREY KELLY will become a Director upon consummation of the
Offering. He founded K&N in 1979, has served as its president since that time
and will continue in that capacity after consummation of the Offering.
THOMAS B. MCDADE will become a Director upon consummation of the Offering.
He has been engaged in consulting and managing his personal investments since
1985. From 1957 to 1985, he was employed by Texas Commerce Bancshares, last
serving in the capacity of Vice Chairman. He currently serves as a director of
Bankers Trust Co. of the Southwest, TransTexas Gas, TransAmerican Energy and
TransAmerican Refining.
LUCIAN MORRISON will become a Director upon consummation of the Offering. He
has been engaged as a trustee and consultant with respect to trust, estate,
probate and qualified plan matters since 1992. From 1979 until 1990, he served
as Chief Executive Officer of Heritage Trust Company. From 1990 through 1991,
he served as Chief Fiduciary Officer of Northern Trust Company.
FREDRIC SIGMUND will become a Director upon consummation of the Offering.
Since 1986, he has served as Chief Executive Officer of MacDonald-Miller. From
1967 to 1986, he served in various positions with MacDonald-Miller.
Effective upon the consummation of the Offering, the Board of Directors of
the Company will consist of 15 members divided into three classes of five
directors serving staggered three-year terms expiring at the annual meeting of
shareholders in 1998, 1999 and 2000, respectively. At each annual meeting of
shareholders, one class of directors will be elected for a full term of three
years to succeed the class of directors whose terms are expiring.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established three committees--the Audit
Committee, the Compensation Committee and the Acquisition Committee. Pursuant
to resolutions of the Board, these committees have the following described
responsibilities and authority.
The Audit Committee has the responsibility, among other things, of (i)
recommending the selection of the Company's independent public accountants,
(ii) reviewing and approving the scope of the independent public
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accountants' audit activity and extent of non-audit services, (iii) reviewing
with management and such independent public accountants the adequacy of the
Company's basic accounting system and the effectiveness of the Company's
internal audit plan and activities, (iv) reviewing with management and the
independent public accountants the Company's financial statements and
exercising general oversight of the Company's financial reporting process and
(v) reviewing with the Company litigation and other legal matters that may
affect the Company's financial condition, and monitoring compliance with the
Company's business ethics and other policies. As of the date of this
Prospectus, no members have been appointed to the Audit Committee.
The Compensation Committee has the responsibility, among other things, of
(i) establishing the salary rates of officers and employees of the Company and
its subsidiaries, (ii) examining periodically the compensation structure of
the Company and (iii) supervising the welfare and pension plans and
compensation plans of the Company. The members of the Compensation Committee
are Messrs. Sullivan (Chair) and Weaver.
The Acquisition Committee has the authority to approve the terms and
conditions of acquisitions by the Company of businesses having less than $40
million of revenues and $20 million of assets, including the authority to
recommend to the full Board of Directors the approval of the issuance of debt
and equity securities of the Company in connection with such acquisitions,
provided that the consideration paid by the Company for each such business is
less than $20 million. The members of the Acquisition Committee are Messrs.
Millinor (Chair), Jachimiec and Rouse.
The Company's Board may also establish other committees.
DIRECTOR COMPENSATION
In October 1996, the Company granted to each of Messrs. Sullivan and Weaver
options to purchase 10,000 shares of Common Stock at a price of $3.08 per
share. Between the grant of such options and the date of this Prospectus,
directors of the Company have not received compensation for their services as
directors nor have they received compensation for attending the Company's
board meetings. After the Offering, the Company intends to grant to directors
of the Company who are not employees of the Company or its subsidiaries an
option to purchase 4,000 shares of Common Stock at a purchase price per share
equal to the fair market value of one share of Common Stock on the date of
grant. Such options will remain in effect for five years after the date of
grant and 800 shares of each such grant will become exercisable each year. If
a director ceases to serve in such capacity because of his death, disability
or retirement, the options granted to that director will become exercisable
for a one-year period. Each director also will be reimbursed for travel
expenses incurred for each meeting of the Board or for each Board Committee
meeting attended.
EXECUTIVE COMPENSATION
The Company did not conduct any operations other than activities related to
the acquisition of the GroupMAC Companies prior to May 2, 1997 and did not pay
any compensation prior to October 1996. The Company anticipates that during
1997 its most highly compensated executive officers (the "Named Executive
Officers") and their annualized base salaries will be: Mr. Norris--$150,000;
Mr. Millinor--$150,000; Mr. Luke--$150,000; Mr. Jennings--$150,000; Mr.
Johnston--$150,000; Mr. Callahan--$150,000; and Mr. Roach--$150,000. Pursuant
to the terms of their employment agreements with the Company, the annual base
salaries of each of the Named Executive Officers named above are subject to
upward adjustment effective one year from the effective date of the employment
agreement. The effective dates of the employment agreements of the Named
Executive Officers are as follows: Mr. Millinor, October 24, 1996; Messrs.
Jennings and Johnston, April 30, 1997; Mr. Norris, June 1, 1997; and Messrs.
Luke, Callahan and Roach, August 1, 1997. Each of the Named Executive Officers
is eligible to earn additional performance based incentive compensation for
1997. None of the executive officers is expected to receive perquisites the
value of which exceeded the lesser of $50,000 or 10% of the salary and bonus
of such executive.
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OPTION GRANTS
The following table sets forth the number of options to purchase shares of
Common Stock that have been granted to the Named Executive Officers since the
formation of the Company:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
--------------------- STOCK PRICE
OPTIONS % OF TOTAL EXCERSISE APPRECIATION FOR
GRANTED OPTIONS PRICE OPTION TERM(3)
(NO. OF GRANTED TO PER ----------------
SHARES)(1) EMPLOYEES(2) SHARE EXPIRATION DATE 5% 10%
---------- ------------ -------- ---------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
James P. Norris......... 28,000 7.4% $3.08 June 1, 2007 $54,236 $137,444
J. Patrick Millinor,
Jr..................... 50,000 13.2 3.08 October 24, 2006 96,850 245,436
Donald L. Luke.......... 14,000 3.7 3.08 August 1, 2007 27,118 68,722
James D. Jennings....... -- -- -- -- -- --
Timothy Johnston........ -- -- -- -- -- --
W. Michael Callahan..... -- -- -- -- -- --
Alfred R. Roach, Jr..... -- -- -- -- -- --
</TABLE>
- --------
(1) The options reported in this column consist of Non-Qualified Options
granted under Stock Option Agreements between the Company and each of the
Named Executive Officers. The options will become exercisable on each of
the first, second and third anniversaries of the date of grant with
respect to one-third of the shares subject to the option. In the case of
Mr. Millinor's options, the three annual vesting periods are accelerated
in the event the closing price of the Common Stock over ten consecutive
trading days exceeds $17.50, $22.50 and $27.50 per share, respectively.
(2) Based on outstanding options to purchase an aggregate of 378,800 shares of
Common Stock.
(3) The dollar amounts under these columns are the result of calculations at
the 5% and 10% appreciation rates set by the Securities and Exchange
Commission (the "Commission") and, therefore, are not intended to forecast
possible future appreciation, if any, in the price of the Common Stock. In
order to realize the potential values set forth in the 5% and 10% columns
of this table, the per share price of the Common Stock would be $5.02 and
$7.99, respectively, or 63% and 159% respectively, above the base exercise
price. Because the Common Stock was not publicly traded prior to the
Offering, these amounts were calculated based on the assumption that the
fair market value of one share of Common Stock on the date of grant was
equal to the exercise price.
The following table sets forth the number of options to purchase shares of
Common Stock held, as of August 1, 1997, by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
AUGUST 1, 1997 AUGUST 1, 1997(1)
----------------------- -----------------------
NOT NOT
NAME EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
James P. Norris................. -- 28,000 -- $333,760
J. Patrick Millinor, Jr......... -- 50,000 -- 596,000
Donald L. Luke.................. -- 14,000 -- 166,880
James D. Jennings............... -- -- -- --
Timothy Johnston................ -- -- -- --
W. Michael Callahan............. -- -- -- --
Alfred R. Roach, Jr............. -- -- -- --
</TABLE>
- --------
(1) Based on the mid-point of the range of estimated initial public offering
prices set forth on the cover of this Prospectus.
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<PAGE>
EMPLOYMENT AGREEMENTS
In 1997, Mr. Norris entered into an employment agreement with the Company
which provides for an annual base salary of $150,000 and an annual cash bonus
of up to 200% of Mr. Norris' annual base salary depending on the actual annual
performance of the Company. The agreement expires on June 1, 2000. In the
event of Mr. Norris' death, the agreement will terminate. In the event of Mr.
Norris' disability, the Company will continue payment of compensation during
the first 12 month period of such disability to the extent not covered by the
Company's disability insurance policies. In the event his employment is
terminated, Mr. Norris will receive compensation for the periods described in
the agreement. In addition, Mr. Norris has agreed not to compete with the
Company during the six-month period following his termination of employment.
In 1996, Mr. Millinor entered into an employment agreement with the Company
which provides for an annual base salary of $150,000 and an annual cash bonus
of up to 200% of Mr. Millinor's annual base salary depending on the actual
annual performance of the Company. The agreement expires on October 24, 1999.
In the event of Mr. Millinor's death, the agreement will terminate. In the
event of Mr. Millinor's disability, the Company will continue payment of
compensation during the first 12 month period of such disability to the extent
not covered by the Company's disability insurance policies. In the event his
employment is terminated, Mr. Millinor will receive compensation for the
periods described in the agreement. In addition, Mr. Millinor has agreed not
to compete with the Company during the six-month period following his
termination of employment.
In 1997, Mr. Luke entered into an employment agreement with the Company
which provides for an annual base salary of $150,000 and an annual cash bonus
of up to 200% of Mr. Luke's annual base salary depending on the actual annual
performance of the Company. The agreement expires on August 1, 2000. In the
event of Mr. Luke's death, the agreement will terminate. In the event of Mr.
Luke's disability, the Company will continue payment of compensation during
the first 12 month period of such disability to the extent not covered by the
Company's disability insurance policies. In the event his employment is
terminated, Mr. Luke will receive compensation for the periods described in
the agreement. In addition, Mr. Luke has agreed not to compete with the
Company during the six-month period following his termination of employment.
In 1997, Mr. Jennings entered into an employment agreement with Airtron
which provides for an annual base salary of $150,000. Mr. Jennings also
participates in incentive bonus plans of both Airtron and the Company. The
agreement expires on April 30, 2000. In the event of Mr. Jennings' death, the
agreement will terminate. In the event of Mr. Jennings' disability, Airtron
will continue payment of compensation during the first six month period of
such disability to the extent not covered by Airtron's disability insurance
policies. In the event his employment is terminated, Mr. Jennings will receive
compensation for the periods described in the agreement. In addition, Mr.
Jennings has agreed not to compete with Airtron until the later to occur of
(i) April 30, 2002 or (ii) one year following his termination of employment.
In 1997, Mr. Johnston entered into an employment agreement with Airtron
which provides for an annual base salary of $150,000. Mr. Johnston also
participates in incentive bonus plans of both Airtron and the Company. The
agreement expires on April 30, 2000. In the event of Mr. Johnston's death, the
agreement will terminate. In the event of Mr. Johnston's disability, Airtron
will continue payment of compensation during the first six month period of
such disability to the extent not covered by Airtron's disability insurance
policies. In the event his employment is terminated, Mr. Johnston will receive
compensation for the periods described in the agreement. In addition, Mr.
Johnston has agreed not to compete with Airtron until the later to occur of
(i) April 30, 2002 or (ii) one year following his termination of employment.
In 1997, Mr. Callahan entered into an employment agreement with the Company
which provides for an annual base salary of $150,000 and an annual cash bonus
of up to 180% of Mr. Callahan's annual base salary depending on the actual
annual performance of the Company. The agreement expires on August 1, 2000. In
the event of Mr. Callahan's death, the agreement will terminate. In the event
of Mr. Callahan's disability, the Company will continue payment of
compensation during the first 12 month period of such disability to the extent
not covered by the Company's disability insurance policies. In the event his
employment is terminated, Mr.
54
<PAGE>
Callahan will receive compensation for the periods described in the agreement.
In addition, Mr. Callahan has agreed not to compete with the Company during
the six-month period following his termination of employment.
In 1997, Mr. Roach entered into an employment agreement with the Company
which provides for an annual base salary of $150,000 and an annual cash bonus
of up to 180% of Mr. Roach's annual base salary depending on the actual annual
performance of the Company. The agreement expires on August 1, 2000. In the
event of Mr. Roach's death, the agreement will terminate. In the event of Mr.
Roach's disability, the Company will continue payment of compensation during
the first 12 month period of such disability to the extent not covered by the
Company's disability insurance policies. In the event his employment is
terminated, Mr. Roach will receive compensation for the periods described in
the agreement. In addition, Mr. Roach has agreed not to compete with the
Company during the six-month period following his termination of employment.
Each of the foregoing employment agreements, except the employment
agreements applicable to Messrs. Jennings and Johnston, grants the executive
certain rights in the event of a change in control of the Company. Under the
terms of each agreement, the Company must pay the executive an amount equal to
twelve months compensation at the executive's current salary and provide
benefits to the executive for twelve months if the Company terminates the
executive's employment without "cause." In addition, if an executive's
employment terminates within six months after a sale of all or substantially
all of the assets of the Company or a merger, consolidation, liquidation or
reorganization of the Company, the Company shall pay the executive an amount
equal to three times the executive's severance benefits otherwise available
under the employment agreement.
STOCK AWARDS PLAN
The Group Maintenance America Corp. 1997 Stock Awards Plan (the "Stock
Awards Plan") was adopted by the Company's Board of Directors to further
promote and align the interests of Directors, key employees and other persons
providing services to the Company with those of its shareholders. Pursuant to
this plan and a stock option plan for non-management employees, the Company
intends to grant options to purchase up to 2,336,022 shares of Common Stock
upon consummation of the Offering at an exercise price equal to the initial
public offering price.
Purpose. The purpose of the Stock Awards Plan is to promote the long-term
success of the Company and its subsidiaries for the benefit of the Company's
shareholders by encouraging its officers, employees, Directors and consultants
to have meaningful investments in the Company so that, as shareholders
themselves, those individuals will be more likely to represent the views and
interests of other shareholders and by providing incentives to such
individuals for continued services. The Company believes that the possibility
of participation under the Stock Awards Plan will provide this group of
individuals with an incentive to perform more effectively and will assist the
Company and its subsidiaries in attracting and retaining people of outstanding
training, experience and ability.
Term. The Stock Awards Plan will expire on June 30, 2007.
Administration. The Stock Awards Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee"), which has exclusive
authority to make all interpretations and determinations affecting the Stock
Awards Plan. The Committee has the power to determine which officers,
employees, Directors and consultants will receive an award, the time or times
when such award will be made, the type of award and the number of shares of
Common Stock to be issued under an award or the value of an award.
Participation. All officers, employees, Directors and consultants of the
Company and its subsidiaries are eligible to participate in the Stock Awards
Plan, subject to the discretion of the Committee. Participants in the Stock
Awards Plan are also eligible to participate in other incentive plans of the
Company.
Shares Available for Awards. The number of shares of Common Stock that may
be issued under the Stock Awards Plan may not exceed 9% of the number of
shares outstanding (determined quarterly), subject to
55
<PAGE>
adjustment for corporate transactions and changes that affect the Company, its
shares or share status. The number of shares of Common Stock that may be
issued to employees of the GroupMAC Companies and companies acquired in the
future under the Stock Awards Plan and the stock option plan for non-
management employees will equal 12% of the number of shares outstanding
(determined quarterly), subject to adjustment for corporate transactions and
changes that affect the Company, its shares or share status. Such shares may
consist in whole or in part of authorized and unissued shares or treasury
shares. If an award lapses or is terminated or settled in cash in lieu of
Common Stock, the shares of Common Stock previously covered by such awards
will be available for future awards under the Stock Awards Plan.
Awards. The Stock Awards Plan permits grants of the following types of
awards: (i) options, including incentive stock options ("ISOs"), non-qualified
stock options, and reload stock options; (ii) stock appreciation rights
("SARs"); (iii) restricted stock; (iv) performance awards; (v) phantom stock
awards; or (vi) any combination thereof. Under the Stock Awards Plan, ISOs,
non-qualified stock options and SARs may not vest in less than six months from
the award date; provided, however, that the Committee may, in its sole
discretion, shorten or terminate restrictions with respect to an award. Upon
the occurrence of a change of control of the Company, all outstanding awards
under the Stock Awards Plan shall immediately vest and become exercisable.
Stock Options. The Stock Awards Plan provides that the option price pursuant
to which Common Stock may be purchased will be determined by the Committee,
provided that the option price of an ISO will not be less than 100% of the
fair market value of a share of Common Stock on the date of grant. The term of
each option will be fixed by the Committee. Payment of the option price may be
made in cash, through the delivery of shares of Common Stock having a fair
market value on the exercise date equal to the option exercise price or such
other method as may be permitted by the Committee.
In conjunction with non-qualified stock options awarded under the Stock
Awards Plan or otherwise, the Committee may award an additional option to
purchase a number of shares of Common Stock as determined by the Committee if
a holder exercises all or part of an original option within five years of the
date of grant of the original option. The additional option is deemed to be
granted upon delivery of payment upon exercise of the original option without
further action by the Committee (a "Reload Option"). Reload Options are
subject to all of the terms and conditions of stock options generally, except
that their term ends upon termination of the stock options with respect to
which they are granted.
Stock Appreciation Rights. The Committee may award SARs either separately as
an additional right (the "Additional Right SAR") or in conjunction with a
stock option as an alternative right (the "Alternative Right SAR"). The
exercise of a stock option granted in conjunction with an Alternative Right
SAR terminates the Alternative Right SAR to the extent of the shares acquired
upon exercise of the award. Conversely, the exercise of an Alternative Right
SAR terminates the associated stock option to the extent of the shares with
respect to which such right is exercised. The exercise of an Additional Right
SAR has no effect on the exercisability of any other award and the exercise of
any other award has no effect on the exercisability of an Additional Right
SAR.
Upon the exercise of an SAR, the participant will receive an amount equal to
the excess of the fair market value of a share of Common Stock on the date the
SAR is exercised over the award price. The award price for SARs will be
determined by the Committee, provided that the award price will not be less
than 100% of the fair market value of a share of Common Stock on the date such
award was made. For purposes of the limitation on the aggregate number of
shares of Common Stock that may be issued under the Stock Awards Plan, only
the number of shares actually issued in connection with the exercise of an SAR
is to be considered.
Restricted Stock. The Committee may make awards of restricted Common Stock
on such terms, conditions and restrictions (which may include, but are not
limited to, continuous employment with the Company, achievement of specific
business objectives, and other measurements of individual, business unit or
Company performance), as it determines. Such terms and conditions may include
the manner in which such restricted stock is held, the extent to which the
holder of such stock has rights of a shareholder and the circumstances under
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<PAGE>
which such shares will be forfeited. None of the shares subject to a
restricted stock award may be assigned, transferred, pledged or sold by the
participant until the termination or earlier lapse of restrictions relating
thereto.
Performance Awards. The Committee may make awards of performance awards,
which are based on future performance of the officer, employee, Director or
consultant, the Company or any business unit in which he is employed or
providing services to during the performance period. The Committee will
establish the performance measures applicable to such performance prior to the
beginning of the performance period but subject to such later revisions as the
Committee may deem appropriate to reflect significant unforeseen events or
changes.
Phantom Stock. Phantom stock awards are awards of Common Stock or rights to
receive amounts equal to stock appreciation over a specified period of time.
The Committee may make awards of phantom stock on such terms, conditions and
restrictions as it determines. Such terms and conditions may include the
manner in which such phantom stock is held and the circumstances under which
such units will be forfeited. Phantom stock is an award unit having a value
equivalent to the fair market value of one share of Common Stock, the value of
which fluctuates with that of the Common Stock from which such unit derives
its value. Each phantom stock award will have a maximum value established by
the Committee at the time of the award.
Settlement of Awards. At the Committee's discretion, awards may be settled
in cash, shares of Common Stock, other awards, or in combinations thereof. The
Committee may also require or permit participants to defer the issuance or
vesting of shares or the settlement of awards in cash. The Committee may also
provide that deferred settlements include the payment or crediting of interest
on the deferral amounts or the payment or crediting of dividend equivalents on
deferred settlements denominated in shares of Common Stock. The Committee may
determine the manner in which federal, state or local tax withholding
obligations of the Company will be satisfied including, but not limited to,
the reduction in the amount of stock or cash to be delivered or paid to the
participant or reimbursement by the participant in cash or with shares of
Common Stock, at the fair market value on the settlement date.
RELATED PARTY TRANSACTIONS
Airtron leases its headquarters offices in Dayton, Ohio and its operating
facilities in Cincinnati and Cleveland, Ohio, Indianapolis, Indiana,
Clearwater, Florida, Dallas, Houston and San Antonio, Texas and Wichita,
Kansas from entities controlled by certain former shareholders of Airtron,
including Messrs. Jennings, Johnston, Seifring and Wilkerson. None of these
leases expire prior to 2008. The aggregate annual base rent to be paid under
these leases is approximately $678,500 with annual increases based on the
consumer price index. The Company believes that the terms of such leases are
no less favorable to the Company than would be available under similar leases
entered into on an arm's-length basis.
In the Company's acquisition of Airtron, Mr. Jennings received $3,729,653,
together with 848,074 shares of Common Stock and 2,711,344 shares of Series A
Preferred Stock and Mr. Johnston received $1,393,474, together with 330,764
shares of Common Stock and 1,057,473 shares of Series A Preferred Stock. Also
in the Airtron acquisition, Richard M. Siefring, a holder of more than 5% of
the outstanding Common Stock, received $4,345,177, together with 985,431
shares of Common Stock and 3,150,484 shares of Series A Preferred Stock, and
Dale M. Wilkerson, another holder of more than 5% of the outstanding Common
Stock, received, together with his spouse, $3,244,206, together with 739,744
shares of Common Stock and 2,365,007 shares of Series A Preferred Stock. All
of such shares of preferred stock will be redeemed at a redemption price of
$1.00 per share out of the net proceeds of the Offering.
In the Company's acquisition of CRPP, each of Messrs. Callahan and Roach
received consideration in the form of 18,400 shares of Common Stock and
230,000 shares of Series H Preferred Stock. In the Company's acquisition of
CRA, each of Messrs. Callahan and Roach received $500,000, together with
250,000 shares of Series H Preferred Stock. All of such shares of preferred
stock will be redeemed at a redemption price of $1.00 per share out of the net
proceeds of the Offering. Each of them may receive additional cash of
$500,000, 25,629
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<PAGE>
shares of Common Stock and warrants to purchase 257,000 shares of Common Stock
at $17.50 per share depending on the occurrence of certain events.
In the Company's acquisition of K&N, Andrew Jeffrey Kelly, who will become a
Director of the Company, received $1,568,000, together with 403,111 shares of
Common Stock and 1,568,000 shares of Series D Preferred Stock. All of such
shares of preferred stock will be redeemed at a redemption price of $1.00 per
share out of the net proceeds of the Offering. Mr. Kelly may receive
contingent consideration based on the operating results of K&N for the 15
month period ended June 30, 1998. The Company estimates that such payments
will be $640,000. K&N entered into a new five year renewable lease with Sigma
Management, a company owned by Mr. Kelly, to replace the existing lease for
the Company's Arlington, Texas facility. The annual base rent to be paid under
this lease is approximately $94,800. The Company believes that the terms of
such lease are no less favorable to the Company than would be available under
a similar lease entered into on an arm's-length basis.
In the Company's pending acquisition of MacDonald-Miller, Fredric J.
Sigmund, who will become a director of the Company, will receive approximately
$1,464,500 and 146,447 shares of Common Stock. Mr. Sigmund may receive a
portion of the contingent consideration payable to the former shareholder of
MacDonald-Miller based on the operating results of MacDonald-Miller for the 12
month period ended December 31, 1997. The Company estimates that such payments
will be approximately $425,000. MacDonald-Miller will enter into a new ten
year renewable lease with F&V Investments, a company owned by Mr. Sigmund, to
replace the existing lease for MacDonald-Miller's Seattle, Washington
facility. The annual base rent to be paid under this lease is approximately
$475,000. The Company believes that the terms of such lease are no less
favorable to the Company than would be available under a similar lease entered
into on an arm's-length basis.
In the Company's pending acquisition of Masters, Ronald D. Bryant, who will
become a director of the Company, will receive approximately $6,254,000 and
433,926 shares of Common Stock. Additionally, Masters will enter into a new
six year renewable lease with Mr. Bryant to replace the existing lease for
Masters' Gaithersburg, Maryland facility. The annual base rent to be paid
under this lease is approximately $233,700, with annual increases of 4%. The
Company believes that the terms of such lease are no less favorable to the
Company than would be available under a similar lease entered into on an
arm's-length basis.
In the Company's pending acquisition of Van's, David L. Henninger, who will
become a director of the Company, will receive, together with his spouse,
approximately $1,559,125 and 105,498 shares of Common Stock. Additionally,
Van's will enter into a new five-year renewable lease with Mr. Henninger to
replace the existing lease for Van's Delray Beach, Florida facility. The
initial annual base rent to be paid under this lease is approximately $69,000
with annual increases of 3%. The Company believes that the terms of such lease
are no less favorable to the Company than would be available under a similar
lease entered into on an arm's-length basis.
58
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this Prospectus, certain
information known by the Company with respect to the ownership of shares of
Common Stock as to (i) all persons who are expected to be the beneficial
owners of 5% or more of the outstanding shares of Common Stock upon
consummation of the Offering, (ii) each director and each person who has
consented to be named as a director (the "named directors"), (iii) each Named
Executive Officer, and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each of the following persons
may be deemed to have sole voting and dispositive power with respect to such
shares. Information set forth in the table with respect to beneficial
ownership of the Common Stock has been provided to the Company by such
holders. Unless otherwise indicated, each person's address is c/o the
Company's principal executive offices at 1800 West Loop South, Suite 1375,
Houston, Texas 77027.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND OUTSTANDING
NATURE OF COMMON STOCK
BENEFICIAL -----------------
OWNERSHIP OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) OFFERING OFFERING
- ------------------------------------ --------------- -------- --------
<S> <C> <C> <C>
James P. Norris...................... -- -- --
J. Patrick Millinor, Jr.............. 236,812(2) 2.4% 1.2%
Donald L. Luke....................... -- -- --
Chester J. Jachimiec................. 147,333(3) 1.5% *
Richard S. Rouse..................... 125,933(4) 1.3% *
William Michael Callahan............. 275,400(5) 2.8% 1.4%
Alfred R. Roach, Jr.................. 275,400(5) 2.8% 1.4%
John M. Sullivan..................... 30,000 * *
James D. Weaver...................... 16,500(6) * *
James D. Jennings.................... 653,872(7) 6.8% 3.4%
Timothy Johnston..................... 330,764(7) 3.4% 1.7%
Ronald D. Bryant..................... 433,926 4.5% 2.2%
David L. Henninger................... 105,498 1.1% *
Andrew Jeffrey Kelly................. 403,111 4.2% 2.1%
Thomas B. McDade..................... -- -- --
Lucian Morrison...................... 2,000 * *
Fredric Sigmund...................... 146,447 1.5% *
National City Bank Dayton, as Trustee
of the Airtron, Inc. Savings and
Profit Sharing Plan................. 639,074 6.6% 3.3%
c/o Mr. David Smeltzer
6 North Main Street
Dayton, Ohio 45412
Richard M. Siefring.................. 985,431(7) 10.2% 5.1%
7813 N. Dixie Drive
Dayton, Ohio 45414
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND OUTSTANDING
NATURE OF COMMON STOCK
BENEFICIAL -----------------
OWNERSHIP OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) OFFERING OFFERING
- ------------------------------------ --------------- -------- --------
<S> <C> <C> <C>
Dale M. Wilkerson............................ 527,969(7) 5.5% 2.7%
7813 N. Dixie Drive
Dayton, Ohio 45414
Gordon A. Cain............................... 2,498,750 25.8% 12.8%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
All executive officers and named directors of
the Company as a group
(19 persons)................................ 3,264,996 31.8% 16.3%
</TABLE>
- --------
* Beneficially owns less than 1% of the outstanding shares of Common Stock.
(1) The numbers shown do not include an aggregate of 171,333 options or
warrants to purchase Common Stock held by such individuals which are not
exercisable within 60 days.
(2) Includes 16,667 shares subject to currently exercisable options.
(3) Includes 16,000 shares held in each of the Paula Ann Jachimiec Trust and
the Sarah Elizabeth Jachimiec Trust of which Mr. Jachimiec is trustee. Mr.
Jachimiec disclaims beneficial ownership of such shares. Includes 15,333
shares subject to currently exercisable options.
(4) Includes 13,333 shares subject to currently exercisable options.
(5) Includes 257,000 shares subject to currently exercisable warrants.
(6) Includes 10,000 shares subject to currently exercisable warrants.
(7) Includes shares held in employee benefit plans.
60
<PAGE>
THE ACQUISITIONS
The Company entered into exchange agreements with shareholders of the Pre-
Offering Companies (other than Jarrell) and merger agreements with the
shareholders of Jarrell and the Offering Acquisition Companies. With respect
to the Pre-Offering Companies, the Company paid, and with respect to the
Offering Acquisition Companies the Company will pay, an agreed value for all
the issued and outstanding capital stock of each GroupMAC Company based
generally on the Company's evaluation of the operating results and
capitalization of such company. In some cases, the shareholders of a company
have the opportunity to receive additional amounts of purchase price
contingent upon the occurrence of future events. Shareholders of several Pre-
Offering Companies also received preferred stock which will be redeemed for
cash (at a redemption price equal to $1.00 per share) with a portion of the
proceeds of the Offering.
The following table sets forth for each GroupMAC Company, as of the date of
its acquisition, the consideration paid or to be paid to its shareholders (i)
in cash, (ii) in Common Stock, (iii) in preferred stock and (iv) in assumed
debt.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON PREFERRED ASSUMED
CASH(1)(4) STOCK(1)(4) STOCK(1)(5) DEBT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRE-OFFERING COMPANIES:
Airtron................... $20,848,637 4,652,140 14,873,133 $ 1,289,927
A-ABC/A-1................. 1,886,000 359,302 -- 947,937
Charlie's................. 1,502,502 157,256 -- 112,741
CRPP(2)................... 450,000 192,123 550,000(2) 78,236
CRA (asset purchase)(2)... 2,000,000 -- 500,000 --
Costner(2)(3)............. 501,290 61,167 100,000 193,755
Hallmark.................. 2,080,794 105,687 580,000 338,398
Jarrell................... 150,000 12,698 -- 26,654
K&N(2).................... 1,568,000 403,111 1,568,000 1,498,995
Sibley(2)................. 1,201,873 62,001 664,691 376,368
USA (asset purchase)...... 435,779 49,804 435,771 100,000
Way (asset
purchase)(2)(3).......... 16,500 6,000 -- --
----------- --------- ---------- -----------
32,641,375 6,061,289 19,271,595 4,963,011
----------- --------- ---------- -----------
OFFERING ACQUISITION
COMPANIES:(3)
All Service............... 2,311,570 188,350 -- 8,830
Arkansas Mechanical....... 2,121,000 141,400 -- 692,997
Central Carolina.......... 3,637,952 262,741 -- 979
Evans..................... 1,167,391 95,121 -- --
Linford(2)................ 651,000 117,634 -- 114,000
MacDonald-Miller(2)....... 6,001,931 600,193 -- 5,624,398
Masters................... 6,605,457 458,338 -- 1,834,709
Mechanical................ 109,000 7,267 -- --
Paul E. Smith............. -- 202,590 -- 325,000
Southeast Mechanical...... 2,149,000 143,333 -- 355,980
Van's..................... 1,559,125 105,498 -- 340,000
Willis.................... 2,257,000 225,667 -- 220,731
Yale...................... 2,215,000 147,667 -- 420,045
----------- --------- ---------- -----------
30,785,426 2,695,799 -- 9,937,669
----------- --------- ---------- -----------
S Corporation Distribu-
tions(4)................. (1,856,250) (111,583) -- --
----------- --------- ---------- -----------
Total................. $61,570,551 8,645,505 19,271,595 $14,900,680
=========== ========= ========== ===========
</TABLE>
- --------
(1) Subject to post-closing adjustments.
(2) The former shareholders of these GroupMac Companies may receive additional
consideration in the form of cash, Common Stock or warrants for Common
Stock based on the occurance of future events.
(3) The shares of Common Stock to be issued is based on the midpoint of the
range of initial public offering prices reflected on the cover page of
this Prospectus.
(4) The cash and Common Stock consideration is presented before anticipated
Subchapter S distributions.
(5) Includes 1,713,622 warrants for preferred stock.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under the Company's Articles of Incorporation, as amended (the "Articles"),
the Company has authority to issue 150,000,000 shares of capital stock,
consisting of 50,000,000 shares of Preferred Stock, par value $0.001 per share
(the "Preferred Stock"), and 100,000,000 shares of Common Stock, par value
$0.001 per share. As of the date of this Prospectus, the Company had
outstanding 9,682,634 shares of Common Stock and 17,557,973 shares of
Preferred Stock (13,159,511 shares of Series A Preferred Stock, 100,000 shares
of Series C Preferred Stock, 1,568,000 shares of Series D Preferred Stock,
580,000 shares of Series E Preferred Stock, 664,691 shares of Series F
Preferred Stock, 500,000 shares of Series H Preferred Stock, 435,771 shares of
Series I Preferred Stock and 550,000 shares of Series G Preferred Stock). All
of the outstanding Preferred Stock and warrants for 1,713,622 shares of Series
A Preferred Stock will be redeemed at a price of $1.00 per share out of the
net proceeds of the Offering. When so redeemed, all such shares of Preferred
Stock will be authorized and subject to reissuance by the Company.
The following summary description of the capital stock of the Company is
intended as a summary only and is qualified in its entirety by reference to
the Articles, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
PREFERRED STOCK
The Articles authorize the issuance of Preferred Stock in one or more series
having designations, rights and preferences determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without approval of holders of Common Stock, to issue Preferred Stock with
dividends, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of issuance, the Preferred Stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present
intention to issue any additional shares of its Preferred Stock, there can be
no assurance that it will not do so in the future.
COMMON STOCK
Voting Rights. Holders of Common Stock are entitled to one vote for each
share on all matters on which shareholders generally are entitled to vote,
including elections of directors. Upon consummation of the Offering, the Board
of Directors will be classified into three classes of five directors, with the
term of each class expiring on a staggered basis. The classification of the
Board of Directors may make it more difficult to change the composition of the
Board of Directors and thereby may discourage or make more difficult an
attempt by a person or group to obtain control of the Company. The Articles do
not provide for cumulative voting for the election of directors. Holders of
Common Stock have no preemptive, subscription, redemption or conversion
rights.
Dividends. Subject to the preferential rights of any outstanding Preferred
Stock that may be created by the Board of Directors under the Articles,
dividends may be paid to holders of Common Stock when, as and if declared by
the Board of Directors out of funds legally available for such purpose. The
declaration and payment of dividends on Common Stock could be restricted by
the terms of any Preferred Stock issued. Under the TBCA, dividends may be paid
by the Company out of "surplus" (as defined under Article 1.02 of the TBCA)
or, if there is no surplus, out of net profits for the fiscal year in which
the dividends are declared and/or the preceding fiscal year. On a pro forma
basis, at June 30, 1997, the Company had surplus of approximately $21 million
(on a book value basis) for the payment of dividends, and the Company will
also be able to pay dividends out of any net profits for the current and/or
prior fiscal year, if any. However, the Company does not intend to pay
dividends at the present time. See "Dividend Policy" and "Description of Bank
Credit Agreement."
Liquidation. In the event of the dissolution or winding up of the Company,
after payment or provision for payment of debts and other liabilities of the
Company and any other series or class of the Company's stock hereafter issued
that ranks senior as to liquidation rights to the Common Stock, the holders of
Common Stock
62
<PAGE>
will be entitled to receive pro rata all remaining assets of the Company
available to such holders. All outstanding shares of Common Stock are, and the
shares of Common Stock to be sold by the Company in this Offering will be,
duly and validly issued, fully paid and nonassessable.
Miscellaneous. There is no established public trading market for the Common
Stock. Application has been made to list the Common Stock for trading on the
New York Stock Exchange.
The transfer agent and registrar for the Common Stock is
.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Article 13 of the TBCA ("Article 13") which, with
certain exceptions, prohibits a Texas corporation from engaging in a "business
combination" (as defined in Article 13) with any shareholder who is a
beneficial owner of 20% or more of the corporation's outstanding stock for a
period of three years after such shareholder's acquisition of a 20% ownership,
unless: (i) the board of directors of the corporation approves the transaction
or the shareholder's acquisition of shares prior to the acquisition or (ii)
two-thirds of the unaffiliated shareholders of the corporation approve the
transaction at a shareholders' meeting. Shares that are issuable, but have not
yet been issued, pursuant to options, conversion or exchange rights or other
agreements are not considered outstanding for purposes of Article 13.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
The Articles contain a "fair price" provision which generally requires that
certain mergers, business combinations and similar transactions constituting a
"Business Transaction" with a "Related Person" (generally the beneficial owner
of at least 10 percent of the Company's voting stock) be approved by the
holders of at least 80 percent of the Company's voting stock, unless (i) the
transaction is approved by at least 80 percent of the "Continuing Directors"
of the Company, who constitute a majority of the entire board, (ii) the
transaction occurs more than five years after the last acquisition of the
Company voting stock by the Related Person or (iii) certain "fair price" and
procedural requirements are satisfied. The Articles define "Business
Transaction" as (i) any merger or consolidation involving the Company or a
subsidiary of the Company, (ii) any sale, lease, exchange, transfer or other
disposition (in one transaction or a series of transactions), including
without limitation a mortgage or any other security device, of all or any
substantial part of the assets either of the Company or of a subsidiary of the
Company, (iii) any sale, lease, exchange, transfer or other disposition of all
or any substantial part of the assets of an entity to the Company or a
subsidiary of the Company, (iv) the issuance, sale, exchange, transfer or
other disposition by the Company or a subsidiary of the Company of any
securities of the Company or any subsidiary of the Company, (v) any
recapitalization or reclassification of the Company's securities (including
without limitation, any reverse stock split) or other transaction that would
have the effect of increasing the voting power of a Related Person, (vi) any
liquidation, spinoff, splitoff, splitup or dissolution of the Company, and
(vii) any agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Transaction. "Continuing
Director" is defined to mean a director who either was a member of the Board
of Directors of the Company prior to the time such Related Person became a
Related Person or who subsequently became a director of the Company and whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least 80 percent of the Continuing Directors then on
the Board of Directors, either by a specific vote or by approval of the proxy
statement issued by the Company on behalf of the Board of Directors in which
such person is named as nominee for director, without an objection to such
nomination; provided, however, that in no event shall a director be considered
a "Continuing Director" if such director is a Related Person and the Business
Transaction to be voted upon is with such Related Person or is one in which
such Related Person otherwise has an interest (except proportionately as a
shareholder of the Company).
In accordance with the Company's Bylaws, a shareholder of the Company may
nominate persons for election to the Board of the Company if the shareholder
submits such nomination, together with certain related information required by
the Company's Bylaws, in writing to the Secretary of the Company not less than
50 days nor more than 75 days prior to the date of any annual meeting of
shareholders.
63
<PAGE>
DESCRIPTION OF BANK CREDIT AGREEMENT
The Company expects to enter into the Bank Credit Agreement with a syndicate
of lenders and a major bank, as agent, to replace the Original Credit
Agreement. The following description summarizes certain provisions the Company
currently expects will be included in the Bank Credit Agreement, which has not
yet been negotiated. Facilities will be available under the Bank Credit
Agreement to help fund future acquisitions and to provide working capital.
Borrowings under the Bank Credit Agreement are guaranteed by the significant
subsidiaries of the Company and by future subsidiaries that are significant to
the Company in terms of size and earnings. The obligations of the Company
under any borrowings pursuant to the Bank Credit Agreement and the obligations
under any guarantees by subsidiaries are secured by a first priority lien on
the capital stock of subsidiaries of the Company, including any future
subsidiaries, and on substantially all the assets of the Company and its
subsidiaries.
The Company has options with respect to the interest rate applicable to any
borrowings under the Bank Credit Agreement. Interest accrues on the basis of
the prime rate plus a spread or a Eurodollar rate plus a spread. The interest
rate available depends on various financial ratios maintained by the Company
at the time of borrowing.
The Bank Credit Agreement contains certain covenants which, subject to
certain conditions, limitations and exceptions, (a) restrict the ability of
the Company and its subsidiaries (i) to incur additional indebtedness; (ii) to
declare or pay dividends or distributions on shares of capital stock of the
Company or its subsidiaries; (iii) to purchase, redeem, acquire or retire for
value capital stock of the Company or a subsidiary; (iv) to retire, prior to
scheduled maturity, indebtedness that is pari passu with or subordinated to
borrowings under the Bank Credit Agreement; (v) to make certain loans,
advances, payments or investments; (vi) to guaranty indebtedness of
affiliates; (vii) to enter into transactions with affiliates; (viii) to create
liens on their properties or assets; and (ix) to effect asset sales; (b)
restrict the ability of the Company to merge, consolidate or convey, transfer
or lease its properties and assets substantially as an entirety; and (c)
restrict the ability of the Company's subsidiaries to guaranty indebtedness.
Events of Default under the Bank Credit Agreement include default on the
payment of principal of any borrowings thereunder when due; default on the
payment of interest on borrowings thereunder for a period of time after it is
due; default on the payment (or the acceleration) of certain other
indebtedness; default in other covenants under the Bank Credit Agreement (in
certain cases after the passage of a period of time or the giving of notice by
the agent bank or both); failure to pay certain final judgments or orders; and
certain events of bankruptcy and insolvency.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
19,466,850 shares of Common Stock (20,546,850 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 7,200,000
shares (8,280,000 shares if the Underwriters' over-allotment option is
exercised in full) sold in the Offering will be freely tradable in the public
market without restriction or limitation under the Securities Act, except for
any shares held by an "affiliate" (as defined in the Securities Act) of the
Company. The 9,682,634 shares of Common Stock held by existing shareholders of
the Company immediately prior to the Offering and the 2,584,216 shares of
Common Stock to be issued to shareholders of the Offering Acquisition
Companies will be "restricted securities" within the meaning of Rule 144,
except for the 600,193 shares of Common Stock registered under the Securities
Act in connection with the acquisition of MacDonald-Miller.
In addition, the Company's directors, executive officers and principal
shareholders, who hold an aggregate of 7,451,122 shares of Common Stock, have
entered into lock-up agreements with the Representatives of the Underwriters.
These persons have agreed not to offer, sell, contract to sell, grant any
option with respect to, pledge, hypothecate or otherwise dispose of, any
shares of Common Stock owned by them until the date occurring 180 days after
the date of this Prospectus without the prior written consent of the
Representatives. All such 7,451,122 shares will become available for sale 180
days after the date of this Prospectus upon expiration of these lock-up
agreements, subject to compliance with Rule 144 promulgated under the
Securities Act.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for a
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock that does not exceed the greater of (i) one percent of the number of the
then outstanding shares or (ii) the average weekly reported trading volume of
the Common Stock during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and to the
availability of current public information about the Company and must be made
in unsolicited brokers' transactions or to a market maker. A person (or
persons whose shares are aggregated) who is not an "affiliate" of the Company
under the Securities Act during the three months preceding a sale and who has
beneficially owned such shares for at least two years is entitled to sell such
shares under Rule 144(k) without regard to the information, volume, manner of
sale and notice provisions of such Rule. Commencing October 24, 1997,
1,211,200 "restricted" shares of Common Stock will be eligible for resale
pursuant to Rule 144, subject to the volume, manner of sale and other
limitations thereof. The remaining "restricted" shares will become eligible
for resale pursuant to Rule 144 from time to time thereafter.
On the date of this Prospectus, the Company had outstanding options to
purchase 378,800 shares of Common Stock, 100,533 of which will be vested.
Options to purchase 10,000 shares of Common Stock have been exercised and
options to purchase at least an additional 2,336,022 shares of Common Stock
will be granted under the Stock Plan and a stock option plan for nonmanagement
employees concurrently with the closing of the Offering. The Company expects
to file a registration statement on Form S-8 under the Securities Act to
register the shares of Common Stock issuable upon exercise of options granted
under these plans. Accordingly, such shares will be freely tradeable by
holders who are not affiliates of the Company and, subject to the volume and
manner of sale limitations of Rule 144, by holders who are affiliates of the
Company.
Prior to this Offering, there has been no active trading market for the
Common Stock. No predictions can be made of the effect, if any, that market
sales of shares of Common Stock or the availability of such shares for sale
will have on the market price prevailing from time to time. Nevertheless,
sales of significant amounts of Common Stock could adversely affect the
prevailing market price of Common Stock, as well as impair the ability of the
Company to raise capital through the issuance of additional equity securities.
65
<PAGE>
TRANSFER RESTRICTIONS
Purchasers of Common Stock in the acquisitions of the Pre-Offering Companies
were, and Common Stock in the acquisitions of the Offering Acquisition
Companies will be, required to enter into a Stock Transfer Restriction
Agreement.
The Stock Transfer Restriction Agreements are substantially similar and
generally require that, at any time that the Company is engaged in an
underwritten public offering of its securities, each shareholder who is a
party thereto shall refrain from making any disposition of Common Stock on a
securities exchange or in the over-the-counter or any other public trading
market for the period of time requested by the Company; provided, however,
that (i) the restrictions on the transfer of Common Stock shall not limit any
shareholder's right to sell Common Stock pursuant to any piggyback
registration right that such shareholder may have pursuant to any registration
rights or similar agreement binding upon the Company and (ii) such
restrictions are no more restrictive than those imposed on the management of
the Company. Additionally, each Stock Transfer Restriction Agreement provides
that, during the one-year period following the date of such agreement (the
"First Holding Period"), the shareholder will not dispose of his or her shares
of Common Stock (subject to certain limited exceptions generally involving
transfers to family members and trusts or pursuant to an effective
registration statement). In addition to the foregoing restrictions, during the
one year period following the First Holding Period (the "Second Holding
Period"), no shareholder who is a party thereto may dispose of any Common
Stock in any calendar month in an amount greater than 3% of the number of
shares of Common Stock issued to such shareholder increasing cumulatively for
months in which less than 3% was sold. After expiration of the Second Holding
Period, all such restrictions under the Stock Transfer Restriction Agreements
lapse. Finally, any shareholder who is a party thereto shall provide five
business days' notice to the Company prior to any proposed disposition until
the later of (i) the end of the one-year period following the Second Holding
Period, (ii) for as long as such shareholder is an officer or director of the
Company or any of its Pre-Offering Companies or (iii) the date on which such
shareholder ceases to hold the greater of 20,000 shares of Common Stock or 20%
of the number of shares.
No shareholder who is a party thereto shall make a transfer of any Common
Stock if such action would constitute (i) a violation of any federal or state
securities law, (ii) a breach of any condition to any exemption from
registration of the Common Stock under any such laws or (iii) a breach of any
undertaking or agreement of such shareholder entered into pursuant to such
laws or in connection with obtaining an exemption thereunder.
The summary herein of certain provisions of the Stock Transfer Restriction
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all of the provisions thereof, the form of
which is filed as an exhibit to the Registration Statement.
REGISTRATION RIGHTS
Pursuant to several Registration Rights Agreements, as amended (the
"Registration Rights Agreements"), the Company has agreed to register under
the Securities Act substantially all of the shares of Common Stock outstanding
on the date of this Prospectus (9,682,634 shares) and will enter into similar
agreements with the shareholders of the Offering Acquisition Companies (who
will receive 2,584,216 shares of Common Stock). Pursuant to the Registration
Rights Agreements, the shareholders who are parties thereto will be entitled,
subject to certain limitations, to include their shares of Common Stock in a
registration of shares of Common Stock subsequent to this Offering which is
initiated by the Company under the Securities Act. The Registration Rights
Agreement with respect to the founding shareholders of the Company
additionally provides that any one or more shareholders holding a minimum
number of shares of Common Stock has the right to require the Company to
effect a registration of all or any part of the shares of Common Stock under
the Securities Act (a "Demand Registration"). In the event the aggregate
number of shares of Common Stock which the shareholders request the Company to
include in any registration, together, in the case of a registration initiated
by the Company, with the shares of Common Stock of the Company to be included
in such registration, exceeds the number that in the opinion of the managing
underwriter can be sold in such offering without materially affecting the
offering price
66
<PAGE>
of such shares, the number of shares of each shareholder to be included in
such registration will be reduced pro rata based on the aggregate number of
shares for which registration was requested.
The Company at its option, may delay the filing of a registration statement
required pursuant to any Demand Registration for up to 120 days if it has
determined that filing a registration statement would be seriously detrimental
to the Company or its shareholders or that a delay in filing the registration
statement is necessary in light of a pending corporate development. In
addition, although the Company's founding shareholders have the right to have
the shares of Common Stock owned by them registered by the Company under the
Securities Act as described below, each of them has agreed not to exercise
their respective demand rights for the two year period following the Offering
except for Mr. Cain who has agreed to not exercise his demand rights for one
year.
The Registration Rights Agreements contain customary provisions whereby the
Company and the shareholders party thereto agree to indemnify and contribute
to the other with regard to losses caused by the misstatement of any
information or the omission of any information required to be provided in a
registration statement filed under the Securities Act. The Registration Rights
Agreements require the Company to pay the expenses associated with any
registration other than sales discounts, commissions, transfer taxes and
amounts to be borne by underwriters or as otherwise required by law.
The summary herein of certain provisions of the Registration Rights
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all of the provisions of the forms of
Registration Rights Agreements, copies of which are filed as exhibits to the
Registration Statement.
67
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom The Robinson-Humphrey
Company, Inc., William Blair & Company, L.L.C. and ABN AMRO Chicago
Corporation are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company the number of shares of Common
Stock set forth below opposite their respective names. The Underwriters are
committed to purchase all of such shares if any are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased
as set forth in the Underwriting Agreement.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
The Robinson-Humphrey Company, Inc..............................
William Blair & Company, L.L.C..................................
ABN AMRO Chicago Corporation....................................
---------
Total......................................................... 7,200,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The Company has granted the Underwriters an option, exercisable by the
Representatives, to purchase up to 1,080,000 additional shares of Common Stock
at the initial public offering price less the underwriting discount. Such
option, which expires 30 days after the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent the Representatives
exercise such option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase approximately the same percentage of the
option shares as the number of shares to be purchased initially by that
Underwriter bears to the total number of shares to be purchased initially by
the Underwriters.
Prior to this Offering, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby was determined by negotiations among the Company and the
Representatives. Among the factors considered in determining the initial price
to the public were the history of and the prospects for the industry in which
the Company competes, the past and present operations of the Company and the
historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities markets at
the time of the Offering, and the recent market prices of securities of
generally comparable companies. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to the Offering at or above the initial
public offering price.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not
68
<PAGE>
exceed a specified maximum. Syndicate covering transactions involve purchases
of the Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when
shares of Common Stock originally sold by such syndicate member are purchased
in a syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
New York Stock Exchange or otherwise and, if commenced, may be discontinued at
any time.
In connection with the Offering, the Company, its officers and directors and
certain of its shareholders have agreed that, during a period of 180 days from
the date of this Prospectus, such holders will not, without the prior written
consent of the Representatives, directly or indirectly, offer, sell, contract
to sell, grant any option with respect to, pledge, hypothecate or otherwise
dispose of, any shares of Common Stock. In addition, the Company has agreed
that, during a period of 180 days from the date of this Prospectus, the
Company will not, without the prior written consent of the Representatives,
directly or indirectly, offer, sell, contract to sell, grant any option with
respect to, pledge, hypothecate or otherwise dispose of any shares of Common
Stock except for shares of Common Stock to be issued (i) in the Offering, (ii)
in connection with acquisitions generally, and (iii) upon the exercise of
options to purchase Common Stock granted in employment contracts or under the
Stock Option Plan and pursuant to director options as described under
"Management--Option Grants."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas, and for the
Underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The financial statements of Group Maintenance America Corp. (GroupMAC
Parent), Group Maintenance America Corp. and Subsidiaries (formerly Airtron,
Inc.), K&N Plumbing, Heating and Air Conditioning, Inc., A-ABC Appliance, Inc.
and A-1 Appliance and Air Conditioning, Inc., Arkansas Mechanical Services,
Inc. and Mechanical Services, Inc., Callahan Roach Products and Publications,
Inc., Central Carolina Air Conditioning Company, Hallmark Air Conditioning,
Inc. and Subsidiary, Sibley Services, Inc., Southeast Mechanical Service,
Inc., Willis Refrigeration, Heating & Air Conditioning, Inc., and Yale, Inc.,
to the extent and for the periods indicated in their reports, have been
included herein and in the registration statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Masters, Inc. as of December 31, 1995, December
31, 1996 and June 30, 1997, and for each of the three years in the period
ended December 31, 1996 and for the six month period ended June 30, 1997
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The financial statements and schedules of MacDonald-Miller included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Moss Adams LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
69
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term encompasses any and all amendments thereto) under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is filed as
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which were omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus concerning
the contents of any contract, agreement or other document referred to are
summaries of the terms of such contract, agreement or other document and are
not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. For further information with respect to the Company, reference
is hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof, which may be inspected, without charge, at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: 7 World Trade Center, Suite 1300, New York, New
York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference facilities of the Commission, upon
payment of the prescribed fees. The Registration Statement is also available
on the Internet at the Commission's World Wide Web site at http://www.sec.gov.
The Common Stock has been approved for listing on the NYSE, and reports, proxy
statements and other information concerning the Company can be inspected and
copied at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
As a result of the Offering, the Company will be subject to the reporting
requirements under the Exchange Act and, in accordance therewith, will file
reports, proxy statements, information statements and other information with
the Commission. The Company intends to furnish annual reports to its
shareholders containing audited financial statements reported on by an
independent certified public accounting firm and quarterly reports containing
unaudited summary financial information for each of the first three quarters
of each year.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GROUP MAINTENANCE AMERICA CORP. UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements........ F-4
Unaudited Pro Forma Combined Balance Sheet............................... F-6
Unaudited Pro Forma Combined Statements of Operations.................... F-8
Notes to Unaudited Pro Forma Combined Financial Statements............... F-14
HISTORICAL FINANCIAL STATEMENTS
GROUP MAINTENANCE AMERICA CORP. (GROUPMAC PARENT)
Report of Independent Public Accountants................................. F-18
Balance Sheets........................................................... F-19
Statements of Operations................................................. F-20
Statements of Shareholders' Equity....................................... F-21
Statements of Cash Flows................................................. F-22
Notes to Financial Statements............................................ F-23
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
Report of Independent Public Accountants................................. F-28
Consolidated Balance Sheets.............................................. F-29
Consolidated Statements of Operations.................................... F-30
Consolidated Statements of Shareholders' Equity.......................... F-31
Consolidated Statements of Cash Flows.................................... F-32
Notes to Consolidated Financial Statements............................... F-33
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................. F-45
Consolidated Balance Sheets.............................................. F-46
Consolidated Statements of Operations.................................... F-47
Consolidated Statements of Shareholders' Equity.......................... F-48
Consolidated Statements of Cash Flows.................................... F-49
Notes to Consolidated Financial Statements............................... F-50
MASTERS, INC.
Report of Independent Public Accountants................................. F-59
Balance Sheets........................................................... F-60
Statements of Operations................................................. F-61
Statements of Shareholder's Equity....................................... F-62
Statements of Cash Flows................................................. F-63
Notes to Financial Statements............................................ F-64
K&N PLUMBING, HEATING AND AIR CONDITIONING, INC.
Report of Independent Public Accountants................................. F-71
Balance Sheet............................................................ F-72
Statement of Operations.................................................. F-73
Statement of Shareholders' Equity........................................ F-74
Statement of Cash Flows.................................................. F-75
Notes to Financial Statements............................................ F-76
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR
CONDITIONING, INC.
Report of Independent Public Accountants................................. F-81
Combined Balance Sheets.................................................. F-82
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Combined Statements of Operations....................................... F-83
Combined Statements of Shareholders' Equity............................. F-84
Combined Statements of Cash Flows....................................... F-85
Notes to Combined Financial Statements.................................. F-86
ARKANSAS MECHANICAL SERVICES, INC. AND MECHANICAL
SERVICES, INC.
Report of Independent Public Accountants................................ F-91
Combined Balance Sheets................................................. F-92
Combined Statements of Operations....................................... F-93
Combined Statements of Shareholders' Equity............................. F-94
Combined Statements of Cash Flows....................................... F-95
Notes to Combined Financial Statements.................................. F-96
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
Report of Independent Public Accountants................................ F-102
Balance Sheets.......................................................... F-103
Statements of Operations................................................ F-104
Statements of Shareholders' Equity...................................... F-105
Statements of Cash Flows................................................ F-106
Notes to Financial Statements........................................... F-107
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
Report of Independent Public Accountants................................ F-110
Balance Sheets.......................................................... F-111
Statements of Operations................................................ F-112
Statements of Shareholders' Equity...................................... F-113
Statements of Cash Flows................................................ F-114
Notes to Financial Statements........................................... F-115
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
Report of Independent Public Accountants................................ F-120
Consolidated Balance Sheets............................................. F-121
Consolidated Statements of Operations................................... F-122
Consolidated Statements of Shareholders' Equity......................... F-123
Consolidated Statements of Cash Flows................................... F-124
Notes to Consolidated Financial Statements.............................. F-125
SIBLEY SERVICES, INC.
Report of Independent Public Accountants................................ F-131
Balance Sheets.......................................................... F-132
Statements of Operations................................................ F-133
Statements of Shareholders' Equity...................................... F-134
Statements of Cash Flows................................................ F-135
Notes to Financial Statements........................................... F-136
SOUTHEAST MECHANICAL SERVICE, INC.
Report of Independent Public Accountants................................ F-142
Balance Sheets.......................................................... F-143
Statements of Operations................................................ F-144
Statements of Shareholders' Equity...................................... F-145
Statements of Cash Flows................................................ F-146
Notes to Financial Statements........................................... F-147
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
Report of Independent Public Accountants................................ F-151
Balance Sheets.......................................................... F-152
Statements of Operations................................................ F-153
Statements of Shareholders' Equity...................................... F-154
Statements of Cash Flows................................................ F-155
Notes to Financial Statements........................................... F-156
YALE, INC.
Report of Independent Public Accountants................................ F-161
Balance Sheets.......................................................... F-162
Statements of Operations................................................ F-163
Statements of Shareholders' Equity...................................... F-164
Statements of Cash Flows................................................ F-165
Notes to Financial Statements........................................... F-166
</TABLE>
F-3
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Group Maintenance America Corp. ("GroupMAC"), of 11
companies acquired to date ("the Pre-Offering Companies") and 13 additional
companies for which definitive agreements have been signed (the "Offering
Acquisition Companies" and together with the Pre-Offering Companies, the
"GroupMAC Companies") as follows:
<TABLE>
<CAPTION>
DATE
COMPANY ACQUIRED
- ------- -----------
<S> <C>
Airtron, Inc....................................................... 5/2/97
A-ABC Appliance, Inc. & A-1 Appliance and Air Conditioning, Inc.... 6/1/97
Hallmark Air Conditioning, Inc..................................... 6/1/97
K&N Plumbing, Heating and Air Conditioning, Inc.................... 6/1/97
Way Service, Inc................................................... 6/1/97
AA JARL, Inc. (d/b/a "Jarrell Plumbing")........................... 6/30/97
Charlie Crawford, Inc. (d/b/a "Charlie's Plumbing")................ 6/30/97
Costner Brothers, Inc.............................................. 6/30/97
Callahan Roach Products & Publications, Inc. & Callahan Roach &
Associates........................................................ 7/1/97
Sibley Services, Inc............................................... 7/1/97
United Service Alliance, L.C....................................... 7/31/97
All Service Electric, Inc.......................................... At offering
Arkansas Mechanical Services, Inc.................................. At offering
Central Carolina Air Conditioning Company.......................... At offering
Evans Services, Inc................................................ At offering
Linford Service Company............................................ At offering
MacDonald-Miller Industries, Inc................................... At offering
Masters, Inc....................................................... At offering
Mechanical Services, Inc........................................... At offering
Paul E. Smith Co., Inc............................................. At offering
Southeast Mechanical Service, Inc.................................. At offering
Van's Comfortemp Air Conditioning, Inc............................. At offering
Willis Refrigeration, Heating & Air Conditioning, Inc.............. At offering
Yale Incorporated.................................................. At offering
</TABLE>
All of the acquisitions have been or will be accounted for utilizing the
purchase method of accounting. The pending acquisitions, which are all
evidenced by signed definitive agreements, are expected to occur at or
immediately following the closing of the Company's initial public offering,
with Airtron, Inc. ("Airtron") as the acquirer for financial accounting
purposes. These unaudited pro forma combined financial statements are based on
the historical financial statements of the acquired companies and estimates
and assumptions set forth below and in the notes to the unaudited pro forma
combined financial statements.
The unaudited pro forma combined balance sheets of the Company's combines
the historical consolidated balance sheet of the Company and the balance
sheets of the acquisitions completed subsequent to June 30, 1997 with the
balance sheets of the pending acquisitions, as if these acquisitions had
occurred on June 30, 1997. The accompanying unaudited pro forma statements of
operations of the Company combine the historical statements of operations of
GroupMAC and the statements of operations of the completed and pending
acquisitions as if such acquisitions had occurred on January 1, 1996.
F-4
<PAGE>
GroupMAC has preliminarily analyzed the savings that it expects to realize
from reductions in salaries and certain benefits to the owners. To the extent
the owners of the GroupMAC Companies have agreed prospectively to reductions
in salary, bonuses and benefits, these reductions have been reflected in the
pro forma combined statements of operations. With respect to other potential
cost savings, GroupMAC cannot fully quantify these savings until completion of
the combination of the GroupMAC Companies. It is anticipated that these
savings will be partially offset by costs related to GroupMAC's new corporate
management and by the costs associated with being a public company. However,
because these savings and costs cannot be accurately quantified at this time,
they have not been included in the pro forma combined financial information of
GroupMAC.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate and may
be revised as additional information becomes available. The pending
acquisitions are subject to certain working capital and long-term debt
adjustments, of which an estimate is reflected in the pro forma adjustments.
The pro forma combined financial data do not purport to represent what
GroupMAC's financial position or results of operations would actually have
been if such transactions had in fact occurred on those dates and are not
necessarily representative of GroupMAC's financial position or results of
operations for any future period. Since the pending and completed acquisitions
have not historically been under common control or management, historical pro
forma combined results may not be indicative of or comparable to future
performance. The unaudited pro forma combined financial statements should be
read in conjunction with other financial statements and notes thereto included
elsewhere in this prospectus. See "Risk Factors" included elsewhere herein.
F-5
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROUPMAC AND MACDONALD- OTHER RESIDENTIAL OTHER COMMERCIAL PRO FORMA PRO FORMA
ASSETS SUBSIDIARIES MILLER MASTERS SERVICE COMPANIES SERVICE COMPANIES COMBINED ADJUSTMENTS COMBINED
- ------ ------------ ---------- ------- ----------------- ----------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents...... $ 5,875 $ -- $ 637 $ 1,792 $ 446 $ 8,750 $ 1,464 $ 10,214
Accounts receiv-
able--
Trade, net of al-
lowance.......... 14,940 14,728 6,270 2,921 7,576 46,435 -- 46,435
Other............ 418 388 343 18 4 1,171 -- 1,171
Due from related
parties.......... -- 673 246 215 74 1,208 (1,208) --
Inventories...... 4,935 814 622 1,060 1,327 8,758 -- 8,758
Costs and esti-
mated earnings in
excess of bill-
ings on uncom-
pleted contracts. 43 1,016 1,420 214 387 3,080 -- 3,080
Refundable income
taxes............ 577 -- -- -- -- 577 -- 577
Deferred tax as-
set.............. 1,607 -- -- 230 -- 1,837 -- 1,837
Prepaid expenses
and other current
assets........... 718 63 71 311 373 1,536 -- 1,536
-------- ------- ------- ------- ------- -------- -------- --------
Total current
assets.......... 29,113 17,682 9,609 6,761 10,187 73,352 256 73,608
PROPERTY AND
EQUIPMENT, net.... 4,721 1,555 610 2,266 2,148 11,300 (206) 11,094
GOODWILL, net..... 18,020 -- -- -- 591 18,611 53,045 71,656
DEFERRED TAX AS-
SETS.............. 10,120 196 -- -- -- 10,316 -- 10,316
OTHER NONCURRENT
ASSETS............ 2,670 519 674 1,383 9 5,255 (1,659) 3,596
-------- ------- ------- ------- ------- -------- -------- --------
Total assets.... $ 64,644 $19,952 $10,893 $10,410 $12,935 $118,834 $ 51,436 $170,270
======== ======= ======= ======= ======= ======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS'
EQUITY:
- -----------------------------
CURRENT
LIABILITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts payable
and accrued ex-
penses........... $ 11,551 $ 7,659 $ 3,312 $ 1,915 $ 4,528 $ 28,965 $ 207 $ 29,172
Short-term debt,
including current
maturities....... 4,577 4,886 1,070 727 1,256 12,516 2,092 14,608
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts........ 1,781 1,716 851 39 317 4,704 -- 4,704
Liability for
warranty costs... 854 -- -- 55 -- 909 -- 909
Deferred service
revenue.......... 1,153 -- -- 1,209 332 2,694 -- 2,694
Income taxes
payable.......... 495 396 -- 345 -- 1,236 -- 1,236
Deferred tax
liabilities...... -- -- -- 26 32 58 1,506 1,564
Other current
liabilities...... 740 -- 395 27 -- 1,162 -- 1,162
Due to
shareholders/affiliates. 537 35 -- 41 748 1,361 29,557 30,918
-------- ------- ------- ------- ------- -------- -------- --------
Total current
liabilities..... 21,688 14,692 5,628 4,384 7,213 53,605 33,362 86,967
LONG-TERM DEBT,
net of current
maturities........ 26,434 708 765 739 817 29,463 1,903 31,366
LEASE OBLIGATIONS. 34 -- -- -- 14 48 -- 48
DEFERRED SERVICE
REVENUE........... 145 -- -- 204 -- 349 -- 349
DEFERRED TAX LIA-
BILITY............ -- -- -- 156 17 173 113 286
DEFERRED COMPENSA-
TION.............. -- 190 -- 372 -- 562 (562) --
DUE TO SHAREHOLD-
ERS............... 9,745 -- -- -- -- 9,745 -- 9,745
OTHER LONG-TERM
LIABILITIES....... 773 -- -- 11 -- 784 -- 784
REDEEMABLE PRE-
FERRED STOCK AND
RELATED WARRANTS.. 17,121 -- -- -- -- 17,121 2,150 19,271
SHAREHOLDERS' EQ-
UITY (DEFICIT)
Common stock..... 9 355 5 52 502 923 (911) 12
Additional paid-
in capital....... 14,011 -- -- 41 107 14,159 32,599 46,758
Retained earnings
(deficit)........ (25,316) 4,007 4,495 4,451 4,417 (7,946) (17,370) (25,316)
Treasury stock... -- -- -- -- (152) (152) 152 --
-------- ------- ------- ------- ------- -------- -------- --------
Total sharehold-
ers' equity
(deficit)....... (11,296) 4,362 4,500 4,544 4,874 6,984 14,470 21,454
-------- ------- ------- ------- ------- -------- -------- --------
Total liabili-
ties and share-
holders' equity
(deficit)....... $ 64,644 $19,952 $10,893 $10,410 $12,935 $118,834 $ 51,436 $170,270
======== ======= ======= ======= ======= ======== ======== ========
<CAPTION>
OFFERING PRO FORMA
ASSETS ADJUSTMENTS AS ADJUSTED
- ------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents...... $ 2,533 $ 12,747
Accounts receiv-
able--
Trade, net of al-
lowance.......... -- 46,435
Other............ -- 1,171
Due from related
parties.......... -- --
Inventories...... -- 8,758
Costs and esti-
mated earnings in
excess of bill-
ings on uncom-
pleted contracts. -- 3,080
Refundable income
taxes............ -- 577
Deferred tax as-
set.............. -- 1,837
Prepaid expenses
and other current
assets........... -- 1,536
----------- -----------
Total current
assets.......... 2,533 76,141
PROPERTY AND
EQUIPMENT, net.... -- 11,094
GOODWILL, net..... -- 71,656
DEFERRED TAX AS-
SETS.............. -- 10,316
OTHER NONCURRENT
ASSETS............ (197) 3,399
----------- -----------
Total assets.... $ 2,336 $172,606
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS'
EQUITY:
- -----------------------------
CURRENT
LIABILITIES:
<S> <C> <C>
Accounts payable
and accrued ex-
penses........... $ -- $ 29,172
Short-term debt,
including current
maturities....... (12,501) 2,107
Billings in
excess of costs
and estimated
earnings on
uncompleted
contracts........ -- 4,704
Liability for
warranty costs... -- 909
Deferred service
revenue.......... -- 2,694
Income taxes
payable.......... -- 1,236
Deferred tax
liabilities...... -- 1,564
Other current
liabilities...... -- 1,162
Due to
shareholders/affiliates. (30,918) --
----------- -----------
Total current
liabilities..... (43,419) 43,548
LONG-TERM DEBT,
net of current
maturities........ (31,366) --
LEASE OBLIGATIONS. (48) --
DEFERRED SERVICE
REVENUE........... -- 349
DEFERRED TAX LIA-
BILITY............ -- 286
DEFERRED COMPENSA-
TION.............. -- --
DUE TO SHAREHOLD-
ERS............... -- 9,745
OTHER LONG-TERM
LIABILITIES....... -- 784
REDEEMABLE PRE-
FERRED STOCK AND
RELATED WARRANTS.. (19,271) --
SHAREHOLDERS' EQ-
UITY (DEFICIT)
Common stock..... 7 19
Additional paid-
in capital....... 96,433 143,191
Retained earnings
(deficit)........ -- (25,316)
Treasury stock... -- --
----------- -----------
Total sharehold-
ers' equity
(deficit)....... 96,440 117,894
----------- -----------
Total liabili-
ties and share-
holders' equity
(deficit)....... $ 2,336 $172,606
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-6
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER RESIDENTIAL SERVICE COMPANIES
----------------------------------------------------
CENTRAL OTHER TOTAL OTHER
ASSETS CAROLINA WILLIS CRPP COMPANIES RESIDENTIAL COMPANIES
------ -------- ------ ---- --------- ---------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents....... $ 457 $ 788 $106 $ 441 $ 1,792
Accounts receiv-
able--
Trade, net of
allowance........ 868 1,391 -- 662 2,921
Other............ -- -- -- 18 18
Due from related
parties........... 175 -- -- 40 215
Inventories....... 246 194 47 573 1,060
Costs and esti-
mated earnings in
excess of bill-
ings on
uncompleted con-
tracts............ 168 -- -- 46 214
Refundable income
taxes............. -- -- -- -- --
Deferred tax as-
set............... -- 230 -- -- 230
Prepaid expenses
and other current
assets............ 220 10 -- 81 311
------ ------ ---- ------ -------
Total current
assets.......... 2,134 2,613 153 1,861 6,761
PROPERTY AND
EQUIPMENT, net.... 675 512 118 961 2,266
GOODWILL, net..... -- -- -- -- --
DEFERRED TAX AS-
SETS.............. -- -- -- -- --
OTHER NONCURRENT
ASSETS............ 39 360 -- 984 1,383
------ ------ ---- ------ -------
Total assets.... $2,848 $3,485 $271 $3,806 $10,410
====== ====== ==== ====== =======
<CAPTION>
LIABILITIES
AND
SHAREHOLDERS'
EQUITY
-------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILI-
TIES:
Accounts payable
and accrued ex-
penses............ $ 508 $ 381 $ 90 $ 936 $ 1,915
Short-term debt,
including current
maturities........ 1 221 61 444 727
Billings in ex-
cess of costs and
estimated earn-
ings on
uncompleted con-
tracts............ 39 -- -- -- 39
Liability for
warranty costs.... -- -- -- 55 55
Deferred service
revenue........... 763 229 -- 217 1,209
Income taxes pay-
able.............. -- 284 14 47 345
Deferred tax lia-
bilities.......... -- -- -- 26 26
Other current li-
abilities......... -- -- -- 27 27
Due to related
parties........... -- -- -- 41 41
------ ------ ---- ------ -------
Total current
liabilities..... 1,311 1,115 165 1,793 4,384
LONG-TERM DEBT,
net of current ma-
turities.......... -- -- 18 721 739
LEASE OBLIGATIONS. -- -- -- -- --
DEFERRED SERVICE
REVENUE........... 204 -- -- -- 204
DEFERRED TAX LIA-
BILITY............ -- 147 9 -- 156
DEFERRED COMPENSA-
TION.............. 61 -- -- 311 372
DUE TO SHAREHOLD-
ERS............... -- -- -- -- --
OTHER LONG-TERM
LIABILITIES....... -- -- -- 11 11
REDEEMABLE PRE-
FERRED STOCK AND
RELATED WARRANTS.. -- -- -- -- --
SHAREHOLDERS' EQ-
UITY (DEFICIT)
Common stock...... 20 4 1 27 52
Additional paid-
in capital........ 23 -- -- 18 41
Retained earnings
(deficit)......... 1,229 2,219 78 925 4,451
Treasury stock.... -- -- -- -- --
------ ------ ---- ------ -------
Total sharehold-
ers' equity
(deficit)....... 1,272 2,223 79 970 4,544
------ ------ ---- ------ -------
Total liabili-
ties and share-
holders' equity
(deficit)....... $2,848 $3,485 $271 $3,806 $10,410
====== ====== ==== ====== =======
<CAPTION>
OTHER COMMERCIAL SERVICE COMPANIES
-------------------------------------------------------------------
ARKANSAS SOUTHEAST OTHER TOTAL OTHER
ASSETS YALE SIBLEY MECHANICAL MECHANICAL COMPANIES COMMERCIAL COMPANIES
------ ------ ------- ---------- ---------- --------- --------------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents....... $ 94 $ 41 $ 20 $ 74 $ 217 $ 446
Accounts receiv-
able--
Trade, net of
allowance........ 1,554 635 1,338 936 3,113 7,576
Other............ -- -- -- -- 4 4
Due from related
parties........... -- 13 18 43 -- 74
Inventories....... 89 126 76 64 972 1,327
Costs and esti-
mated earnings in
excess of bill-
ings on
uncompleted con-
tracts............ 295 55 36 1 -- 387
Refundable income
taxes............. -- -- -- -- -- --
Deferred tax as-
set............... -- -- -- -- -- --
Prepaid expenses
and other current
assets............ 45 244 11 36 37 373
------ ------- ---------- ---------- --------- --------------------
Total current
assets.......... 2,077 1,114 1,499 1,154 4,343 10,187
PROPERTY AND
EQUIPMENT, net.... 694 87 633 430 304 2,148
GOODWILL, net..... -- -- 14 -- 577 591
DEFERRED TAX AS-
SETS.............. -- -- -- -- -- --
OTHER NONCURRENT
ASSETS............ -- -- 1 -- 8 9
------ ------- ---------- ---------- --------- --------------------
Total assets.... $2,771 $1,201 $2,147 $1,584 $5,232 $12,935
====== ======= ========== ========== ========= ====================
<CAPTION>
LIABILITIES
AND
SHAREHOLDERS'
EQUITY
-------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILI-
TIES:
Accounts payable
and accrued ex-
penses............ $ 983 $ 284 $ 795 $ 355 $2,111 $ 4,528
Short-term debt,
including current
maturities........ 245 307 500 135 69 1,256
Billings in ex-
cess of costs and
estimated earn-
ings on
uncompleted con-
tracts............ 19 73 100 125 -- 317
Liability for
warranty costs.... -- -- -- -- -- --
Deferred service
revenue........... -- -- -- -- 332 332
Income taxes pay-
able.............. -- -- -- -- -- --
Deferred tax lia-
bilities.......... -- 32 -- -- -- 32
Other current li-
abilities......... -- -- -- -- -- --
Due to related
parties........... -- -- 35 371 342 748
------ ------- ---------- ---------- --------- --------------------
Total current
liabilities..... 1,247 696 1,430 986 2,854 7,213
LONG-TERM DEBT,
net of current ma-
turities.......... 175 69 192 221 160 817
LEASE OBLIGATIONS. -- -- -- -- 14 14
DEFERRED SERVICE
REVENUE........... -- -- -- -- -- --
DEFERRED TAX LIA-
BILITY............ -- 17 -- -- -- 17
DEFERRED COMPENSA-
TION.............. -- -- -- -- -- --
DUE TO SHAREHOLD-
ERS............... -- -- -- -- -- --
OTHER LONG-TERM
LIABILITIES....... -- -- -- -- -- --
REDEEMABLE PRE-
FERRED STOCK AND
RELATED WARRANTS.. -- -- -- -- -- --
SHAREHOLDERS' EQ-
UITY (DEFICIT)
Common stock...... 1 21 26 -- 454 502
Additional paid-
in capital........ 101 -- -- 6 -- 107
Retained earnings
(deficit)......... 1,247 503 546 371 1,750 4,417
Treasury stock.... -- (105) (47) -- -- (152)
------ ------- ---------- ---------- --------- --------------------
Total sharehold-
ers' equity
(deficit)....... 1,349 419 525 377 2,204 4,874
------ ------- ---------- ---------- --------- --------------------
Total liabili-
ties and share-
holders' equity
(deficit)....... $2,771 $1,201 $2,147 $1,584 $5,232 $12,935
====== ======= ========== ========== ========= ====================
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-7
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER OTHER
RESIDENTIAL COMMERCIAL
GROUPMAC AND MACDONALD- SERVICE SERVICE GROUPMAC PRO FORMA PRO FORMA
SUBSIDIARIES MILLER MASTERS K&N COMPANIES COMPANIES PARENT ADJUSTMENTS AS ADJUSTED
------------ ---------- ------- ------- ----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES.............. $81,880 $66,059 $39,826 $24,279 $48,964 $46,499 $ -- $ -- $307,507
COST OF SERVICES...... 58,506 56,373 35,854 20,705 30,628 33,845 -- -- 235,911
------- ------- ------- ------- ------- ------- ----- -------- --------
Gross profit......... 23,374 9,686 3,972 3,574 18,336 12,654 -- -- 71,596
SELLING, GENERAL AND
ADMINISTRATIVE EX-
PENSES................ 19,811 7,632 2,484 2,638 16,375 10,367 724 (11,078)(a) 48,953
GOODWILL AMORTIZATION. -- -- -- -- 131 -- -- 1,660 (b) 1,791
------- ------- ------- ------- ------- ------- ----- -------- --------
Income (loss) from
operations........... 3,563 2,054 1,488 936 1,830 2,287 (724) 9,418 20,852
OTHER INCOME (EX-
PENSE):
Interest expense..... (82) (520) (135) (97) (295) (210) (1) 1,213 (c) (127)
Interest income...... 171 -- -- -- 86 22 2 -- 281
Other................ 256 8 -- (3) 231 (1) -- (194)(d) 297
------- ------- ------- ------- ------- ------- ----- -------- --------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION.. 3,908 1,542 1,353 836 1,852 2,098 (723) 10,437 21,303
INCOME TAX PROVISION.. 1,572 574 -- 315 275 46 -- 6,455 (e) 9,237
------- ------- ------- ------- ------- ------- ----- -------- --------
NET INCOME (LOSS)..... $ 2,336 $ 968 $ 1,353 $ 521 $ 1,577 $ 2,052 $(723) $ 3,982 $ 12,066
======= ======= ======= ======= ======= ======= ===== ======== ========
PRO FORMA NET INCOME
PER SHARE............. $ .61
========
SHARES USED IN COMPUT-
ING PRO FORMA NET IN-
COME PER SHARE........ (f) 19,668
========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-8
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER RESIDENTIAL SERVICE COMPANIES
---------------------------------------------------------------
TOTAL OTHER
CENTRAL A-ABC/ OTHER RESIDENTIAL
CAROLINA A-1 WILLIS HALLMARK CRPP COMPANIES COMPANIES
-------- ------ ------ -------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES......... $8,161 $8,546 $6,781 $6,516 $1,553 $17,407 $48,964
COST OF SERVICES. 5,182 5,447 5,033 3,461 311 11,194 30,628
------ ------ ------ ------ ------ ------- -------
Gross profit.... 2,979 3,099 1,748 3,055 1,242 6,213 18,336
SELLING, GENERAL
AND ADMINISTRA-
TIVE EXPENSES.... 2,598 2,652 1,206 3,029 1,238 5,652 16,375
GOODWILL AMORTI-
ZATION........... -- 114 -- 17 -- -- 131
------ ------ ------ ------ ------ ------- -------
Income from op-
erations........ 381 333 542 9 4 561 1,830
OTHER INCOME (EX-
PENSE):
Interest ex-
pense........... (10) (95) (25) (31) (9) (125) (295)
Interest income. 30 11 8 16 -- 21 86
Other........... (40) 1 48 3 (7) 226 231
------ ------ ------ ------ ------ ------- -------
INCOME (LOSS) BE-
FORE INCOME TAX
PROVISION........ 361 250 573 (3) (12) 683 1,852
INCOME TAX PROVI-
SION............. -- -- 238 18 -- 19 275
------ ------ ------ ------ ------ ------- -------
NET INCOME
(LOSS)........... $ 361 $ 250 $ 335 $ (21) $ (12) $ 664 $ 1,577
====== ====== ====== ====== ====== ======= =======
<CAPTION>
OTHER COMMERCIAL SERVICE COMPANIES
-----------------------------------------------------------
TOTAL
OTHER
ARKANSAS SOUTHEAST OTHER COMMERCIAL
YALE SIBLEY MECHANICAL MECHANICAL COMPANIES COMPANIES
-------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES......... $10,065 $6,962 $6,237 $5,282 $17,953 $46,499
COST OF SERVICES. 7,931 5,335 4,773 3,831 11,975 33,845
-------- ------- ---------- ---------- --------- ----------
Gross profit.... 2,134 1,627 1,464 1,451 5,978 12,654
SELLING, GENERAL
AND ADMINISTRA-
TIVE EXPENSES.... 1,729 1,498 1,083 866 5,191 10,367
GOODWILL AMORTI-
ZATION........... -- -- -- -- -- --
-------- ------- ---------- ---------- --------- ----------
Income from op-
erations........ 405 129 381 585 787 2,287
OTHER INCOME (EX-
PENSE):
Interest ex-
pense........... (30) (31) (51) (55) (43) (210)
Interest income. -- -- -- -- 22 22
Other........... (50) 16 30 (15) 18 (1)
-------- ------- ---------- ---------- --------- ----------
INCOME (LOSS) BE-
FORE INCOME TAX
PROVISION........ 325 114 360 515 784 2,098
INCOME TAX PROVI-
SION............. -- 42 -- -- 4 46
-------- ------- ---------- ---------- --------- ----------
NET INCOME
(LOSS)........... $ 325 $ 72 $ 360 $ 515 $ 780 $ 2,052
======== ======= ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-9
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER OTHER
RESIDENTIAL COMMERCIAL
MACDONALD- SERVICE SERVICE PRO FORMA PRO FORMA
AIRTRON MILLER MASTERS K&N COMPANIES COMPANIES GROUPMAC ADJUSTMENTS AS ADJUSTED
------- ---------- ------- ------- ----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $37,127 $36,382 $18,279 $11,893 $23,255 $24,460 $-- $ -- $151,396
COST OF SERVICES........ 26,918 31,590 16,639 10,433 14,762 17,575 -- -- 117,917
------- ------- ------- ------- ------- ------- --- ------- --------
Gross profit........... 10,209 4,792 1,640 1,460 8,493 6,885 -- -- 33,479
SELLING, GENERAL AND AD-
MINISTRATIVE EXPENSES... 9,470 3,706 1,009 1,349 8,021 4,676 -- (4,163)(a) 24,068
GOODWILL AMORTIZATION... -- -- -- -- 61 27 -- 808 (b) 896
------- ------- ------- ------- ------- ------- --- ------- --------
Income from operations. 739 1,086 631 111 411 2,182 -- 3,355 8,515
OTHER INCOME (EXPENSE):
Interest expense....... (37) (244) (67) (38) (149) (102) -- 575 (c) (62)
Interest income........ 42 -- 8 1 38 12 -- -- 101
Other.................. 200 67 -- 4 (18) 10 -- (23)(d) 240
------- ------- ------- ------- ------- ------- --- ------- --------
INCOME BEFORE INCOME TAX
PROVISION .............. 944 909 572 78 282 2,102 -- 3,907 8,794
INCOME TAX PROVISION.... 368 347 -- 150 (38) 283 -- 2,766 (e) 3,876
------- ------- ------- ------- ------- ------- --- ------- --------
NET INCOME (LOSS)....... $ 576 $ 562 $ 572 $ (72) $ 320 $ 1,819 $-- $ 1,141 $ 4,918
======= ======= ======= ======= ======= ======= === ======= ========
PRO FORMA NET INCOME PER
SHARE................... $ .25
========
SHARES USED IN COMPUTING
PRO FORMA NET INCOME PER
SHARE................... (f) 19,668
========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-10
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER RESIDENTIAL SERVICE COMPANIES
-------------------------------------------------------------
TOTAL OTHER
CENTRAL A-ABC/ OTHER RESIDENTIAL
CAROLINA A-1 WILLIS HALLMARK CRPP COMPANIES COMPANIES
-------- ------ ------ -------- ---- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES......... $3,672 $4,314 $3,059 $3,016 $816 $8,378 $23,255
COST OF SERVICES. 2,141 2,802 2,669 1,390 174 5,586 14,762
------ ------ ------ ------ ---- ------ -------
Gross profit.... 1,531 1,512 390 1,626 642 2,792 8,493
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES......... 1,420 1,251 625 1,573 548 2,604 8,021
GOODWILL AMORTI-
ZATION........... -- 58 -- 3 -- -- 61
------ ------ ------ ------ ---- ------ -------
Income (loss)
from operations. 111 203 (235) 50 94 188 411
OTHER INCOME (EX-
PENSE):
Interest ex-
pense........... (5) (61) (11) (11) (6) (55) (149)
Interest income. 7 1 9 9 -- 12 38
Other........... 10 17 9 (42) 2 (14) (18)
------ ------ ------ ------ ---- ------ -------
INCOME (LOSS) BE-
FORE INCOME TAX
PROVISION........ 123 160 (228) 6 90 131 282
INCOME TAX PROVI-
SION............. -- -- (95) 34 26 (3) (38)
------ ------ ------ ------ ---- ------ -------
NET INCOME
(LOSS)........... $ 123 $ 160 $ (133) $ (28) $ 64 $ 134 $ 320
====== ====== ====== ====== ==== ====== =======
<CAPTION>
OTHER COMMERCIAL SERVICE COMPANIES
----------------------------------------------------------
TOTAL
OTHER
ARKANSAS SOUTHEAST OTHER COMMERCIAL
YALE SIBLEY MECHANICAL MECHANICAL COMPANIES COMPANIES
------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES......... $5,343 $4,210 $3,460 $2,847 $8,600 $24,460
COST OF SERVICES. 4,186 3,236 2,663 2,007 5,483 17,575
------- ------- ---------- ---------- --------- ----------
Gross profit.... 1,157 974 797 840 3,117 6,885
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES......... 873 711 525 388 2,179 4,676
GOODWILL AMORTI-
ZATION........... -- -- -- -- 27 27
------- ------- ---------- ---------- --------- ----------
Income (loss)
from operations. 284 263 272 452 911 2,182
OTHER INCOME (EX-
PENSE):
Interest ex-
pense........... (16) (17) (23) (28) (18) (102)
Interest income. -- 1 -- -- 11 12
Other........... (22) 15 17 (3) 3 10
------- ------- ---------- ---------- --------- ----------
INCOME (LOSS) BE-
FORE INCOME TAX
PROVISION........ 246 262 266 421 907 2,102
INCOME TAX PROVI-
SION............. -- 198 -- -- 85 283
------- ------- ---------- ---------- --------- ----------
NET INCOME
(LOSS)........... $ 246 $ 64 $ 266 $ 421 $ 822 $ 1,819
======= ======= ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-11
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER OTHER
RESIDENTIAL COMMERCIAL
GROUPMAC AND MACDONALD- SERVICE SERVICE GROUPMAC PRO FORMA PRO FORMA
SUBSIDIARIES MILLER MASTERS K&N COMPANIES COMPANIES PARENT ADJUSTMENTS AS ADJUSTED
------------ ---------- ------- ------- ----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............... $42,844 $38,836 $19,318 $10,061 $23,012 $23,870 $ -- $ -- $157,941
COST OF SERVICES....... 30,920 33,451 17,457 8,670 13,684 17,177 -- -- 121,359
------- ------- ------- ------- ------- ------- ------- ------- --------
Gross profit.......... 11,924 5,385 1,861 1,391 9,328 6,693 -- -- 36,582
SELLING, GENERAL AND
ADMINISTRATIVE EX-
PENSES................. 11,047 3,788 1,197 1,376 7,820 5,171 1,783 (5,204)(a) 26,978
GOODWILL AMORTIZATION.. 31 -- -- -- 55 27 -- 783 (b) 896
------- ------- ------- ------- ------- ------- ------- ------- --------
Income (loss) from op-
erations.............. 846 1,597 664 15 1,453 1,495 (1,783) 4,421 8,708
OTHER INCOME (EXPENSE):
Interest expense...... (395) (214) (76) (40) (128) (142) (2) 934 (c) (63)
Interest income....... 153 -- 11 1 59 16 4 -- 244
Other................. 228 167 -- (9) 138 35 -- (51)(d) 508
------- ------- ------- ------- ------- ------- ------- ------- --------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION... 832 1,550 599 (33) 1,522 1,404 (1,781) 5,304 9,397
INCOME TAX PROVISION... 349 569 -- (55) 228 24 -- 3,002 (e) 4,117
------- ------- ------- ------- ------- ------- ------- ------- --------
NET INCOME (LOSS)...... $ 483 $ 981 $ 599 $ 22 $ 1,294 $ 1,380 $(1,781) $ 2,302 $ 5,280
======= ======= ======= ======= ======= ======= ======= ======= ========
PRO FORMA NET INCOME
PER SHARE.............. $ .27
========
SHARES USED IN COMPUT-
ING PRO FORMA NET IN-
COME PER SHARE......... (f) 19,668
========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-12
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER RESIDENTIAL SERVICE COMPANIES
-------------------------------------------------------------
TOTAL OTHER
CENTRAL A-ABC/ OTHER RESIDENTIAL
CAROLINA A-1 WILLIS HALLMARK CRPP COMPANIES COMPANIES
-------- ------ ------ -------- ---- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES......... $4,170 $3,419 $3,471 $2,168 $844 $8,940 $23,012
COST OF SERVICES. 2,208 2,227 2,413 1,005 184 5,647 13,684
------ ------ ------ ------ ---- ------ -------
Gross profit.... 1,962 1,192 1,058 1,163 660 3,293 9,328
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES......... 1,485 949 511 1,455 532 2,888 7,820
GOODWILL AMORTI-
ZATION........... -- 48 -- 7 -- -- 55
------ ------ ------ ------ ---- ------ -------
Income (loss)
from operations. 477 195 547 (299) 128 405 1,453
OTHER INCOME (EX-
PENSE):
Interest ex-
pense........... (2) (34) (10) (11) (8) (63) (128)
Interest income. 27 4 18 4 -- 6 59
Other........... 10 (8) 13 63 (1) 61 138
------ ------ ------ ------ ---- ------ -------
INCOME (LOSS) BE-
FORE INCOME
TAX PROVISION.... 512 157 568 (243) 119 409 1,522
INCOME TAX PROVI-
SION............. -- -- 225 (21) 22 2 228
------ ------ ------ ------ ---- ------ -------
NET INCOME
(LOSS)........... $ 512 $ 157 $ 343 $ (222) $ 97 $ 407 $ 1,294
====== ====== ====== ====== ==== ====== =======
<CAPTION>
OTHER COMMERCIAL SERVICE COMPANIES
----------------------------------------------------------
TOTAL
OTHER
ARKANSAS SOUTHEAST OTHER COMMERCIAL
YALE SIBLEY MECHANICAL MECHANICAL COMPANIES COMPANIES
------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES......... $5,174 $2,259 $4,029 $2,358 $10,050 $23,870
COST OF SERVICES. 3,791 1,679 3,169 1,725 6,813 17,177
------- ------- ---------- ---------- --------- ----------
Gross profit.... 1,383 580 860 633 3,237 6,693
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES......... 1,052 627 583 409 2,500 5,171
GOODWILL AMORTI-
ZATION........... -- -- -- -- 27 27
------- ------- ---------- ---------- --------- ----------
Income (loss)
from operations. 331 (47) 277 224 710 1,495
OTHER INCOME (EX-
PENSE):
Interest ex-
pense........... (19) (10) (32) (43) (38) (142)
Interest income. -- -- -- -- 16 16
Other........... (9) -- 2 -- 42 35
------- ------- ---------- ---------- --------- ----------
INCOME (LOSS) BE-
FORE INCOME
TAX PROVISION.... 303 (57) 247 181 730 1,404
INCOME TAX PROVI-
SION............. -- (4) -- -- 28 24
------- ------- ---------- ---------- --------- ----------
NET INCOME
(LOSS)........... $ 303 $ (53) $ 247 $ 181 $ 702 $ 1,380
======= ======= ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-13
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. BACKGROUND:
Group Maintenance America Corp. ("GroupMAC") was founded in 1996 to create
the leading nationwide provider of heating, ventilation and air conditioning
("HVAC"), plumbing and electrical services to residential and commercial
customers. GroupMAC has acquired 11 companies to date (the "Pre-Offering
Companies") and has definitive agreements to acquire an additional 13
companies (the "Offering Acquisition Companies") concurrently with this
Offering.
2. COMPLETED AND PENDING ACQUISITIONS:
The acquisitions of the Pre-Offering Companies were financed by borrowings
under a credit agreement dated May 2, 1997 (the "Credit Agreement"). The
Credit Agreement provides secured facilities consisting of a) an 18-month
revolving credit facility providing up to $3 million in revolving loans (the
"Revolving Credit Facility"), b) a six-year term loan of $20 million to help
fund the acquisition of Airtron (the "Airtron Term Loan"), and c) a term loan
facility available until October 31, 1998, providing for up to $12 million in
term loans having a final maturity six years after the date of the Credit
Agreement (the "Acquisition Credit Facility"). The Credit Agreement is more
fully described in Note 7 to the GroupMAC and Subsidiaries Consolidated
Financial Statements contained herein.
The results of operations of the completed transactions are included in the
actual results of operations of the Company from the date of acquisition and
the historical balance sheet at June 30, 1997 includes the acquisitions
completed as of that date. In addition, the Company acquired three of the Pre-
Offering Companies in July 1997 and has signed definitive agreements to
purchase the outstanding capital stock of the Offering Acquisition Companies.
The completion of these pending transactions are subject to various
conditions. All of the completed and pending acquisitions are accounted for as
purchases. The cash portion of the pending acquisitions is assumed to be
provided by proceeds from the Offering. For purposes of computing the
estimated purchase price for accounting purposes, the value of the shares is
determined using an estimate of the fair market value.
The estimated purchase price for the acquisitions and related allocations of
the excess purchase price are based upon preliminary estimates and are subject
to certain purchase price adjustments at and following closing. The total
consideration specified below does not reflect distributions totaling $3.5
million which represent substantially all of the previously taxed
undistributed earnings of such acquired companies from the acquired companies
that are S corporations or $2.1 million of other distributions of real estate
and non operating assets offset by related liabilities of $1.6 million.
However, these amounts are reflected in the pro forma adjustments as further
described in Note 3.
The unaudited pro forma combined statements of operations for the year ended
December 31, 1996 utilize the fiscal years of the companies, all of which
approximate GroupMAC's fiscal year end. For the six months ended June 30, 1996
and 1997, the respective companies' actual financial statements for the six
month periods ended June 30, 1996 and 1997 are utilized. The respective
results of operations for the Pre-Offering Companies from January 1, 1997 to
the dates of the acquisitions were combined with GroupMAC and the Offering
Acquisition Companies' actual results of operations for the six months ended
June 30, 1997 to determine the pro forma results of operations for the six
months ended June 30, 1997.
F-14
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES
SHARES OF OF
PREFERRED COMMON
CASH STOCK STOCK
------- --------- ------
<S> <C> <C> <C>
PRE-OFFERING COMPANIES
Airtron............................................ $20,849 14,873 4,652
A-ABC/A-1.......................................... 1,886 -- 359
Callahan Roach..................................... 2,450 1,050 192
Charlie's.......................................... 1,503 -- 157
Costner............................................ 501 100 61
Hallmark........................................... 2,081 580 106
Jarrell............................................ 150 -- 13
K&N................................................ 1,568 1,568 403
Sibley............................................. 1,202 665 62
USA (asset purchase)............................... 436 436 50
Way (asset purchase)............................... 16 -- 6
------- ------ -----
32,642 19,272 6,061
------- ------ -----
OFFERING ACQUISITION COMPANIES
All Service........................................ 2,312 -- 188
Arkansas Mechanical................................ 2,121 -- 141
Central Carolina................................... 3,638 -- 263
Evans ............................................. 1,167 -- 95
Linford ........................................... 651 -- 118
MacDonald-Miller................................... 6,002 -- 600
Masters............................................ 6,605 -- 458
Mechanical......................................... 109 -- 7
Paul E. Smith...................................... -- -- 203
Southeast Mechanical............................... 2,149 -- 143
Van's.............................................. 1,559 -- 106
Willis............................................. 2,257 -- 226
Yale............................................... 2,215 -- 148
------- ------ -----
30,785 -- 2,696
------- ------ -----
Sub S Corp Distributions............................. (1,856) -- (111)
------- ------ -----
Totals........................................... $61,571 19,272 8,646
======= ====== =====
</TABLE>
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
a) Records the S Corporation Distributions of $3.5 million of which $1.4
million is expected to be paid using cash on hand of the applicable company
and $2.1 million is expected to be satisfied with a note to the selling
shareholders. Also records the deferred income tax liabilities associated with
converting all acquired companies taxed under Subchapter S of the Internal
Revenue Code (the Code) to corporations taxed under Subchapter C of the Code.
b) Records the final proceeds expected to be received from the Stock
Subscription Agreement dated October 24, 1996, representing the purchase of
668,000 shares by an individual at $3.08 per share.
c) Records the settlement of all shareholder receivables and payables with
cash at closing.
d) Records the elimination of all assets and liabilities of the acquired
companies that are specifically excluded as part of the purchase transaction.
F-15
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
e) Records the proceeds from the final borrowings under the $12 million term
loan facility of the Credit Agreement to fund the acquisitions of three Pre-
Offering Companies that closed subsequent to June 30, 1997.
f) Records the elimination of the historical equity accounts of the three
Pre-Offering Companies discussed in Note 3e and the 13 Offering Acquisition
Companies that will close concurrently with this Offering.
g) Records the purchase of the three Pre-Offering Companies discussed in
Note 3e and the 13 Offering Acquisition Companies that will close concurrently
with this Offering, including the cash, preferred stock and common stock
consideration due to these companies.
h) Records the proceeds from the issuance of 7,200,000 shares of GroupMAC
Common Stock, net of estimated offering costs of $11,560,000. Offering costs
primarily consist of underwriting discounts and commissions, accounting fees,
legal fees and printing expenses.
i) Records the repayment of the Revolving Credit Facility, the Airtron Term
Loan and the Acquisition Line of Credit with proceeds from the Offering.
j) Records the remaining estimated cash due to the Pre-Offering Companies
and the cash portion to be paid to the Offering Acquisition Companies in
connection with the acquisition of such companies.
k) Records the retirement of GroupMAC preferred stock.
l) Records the retirement of debt assumed in connection with the acquisition
of the GroupMAC companies.
The following tables summarize unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
------- ------ ------ ------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $(1,423) $2,056 $ 383 $ 184 $2,900 $(2,636) $ 1,464
Due from related
parties................ (1,208) (1,208)
Property and equipment,
net.................... (206) (206)
Goodwill................ 1,619 107 (14,750) 66,069 53,045
Other noncurrent assets. (1,659) (1,659)
Accounts payable and
accrued expenses....... (207) (207)
Short-term debt,
including current
maturities............. (2,107) 15 (2,092)
Deferred tax
liabilities, current... (1,506) (1,506)
Due to
shareholder/affiliates. 825 (30,382) (29,557)
Long-term debt, net of
current maturities..... 997 (2,900) (1,903)
Deferred tax
liabilities, long-term. (113) (113)
Deferred compensation... 562 562
Preferred stock......... (2,150) (2,150)
Common stock............ (2) 915 (2) 911
Additional paid-in
capital................ (2,054) 147 (30,692) (32,599)
Retained earnings
(deficit).............. 3,530 13,840 17,370
Treasury stock.......... (152) (152)
------- ------ ------ ------ ------ ------- ------- -------
Total................. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ====== ====== ====== ====== ======= ======= =======
</TABLE>
F-16
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OFFERING
(H) (I) (J) (K) (L) ADJUSTMENTS
------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $96,637 $(32,500) $(30,918) $(19,271) $(11,415) $ 2,533
Other noncurrent assets. (197) (197)
Short-term debt,
including current
maturities............. 3,833 8,668 12,501
Due to
shareholder/affiliates. 30,918 30,918
Long-term debt, net of
current maturities..... 28,667 2,699 31,366
Lease Obligations....... 48 48
Preferred stock......... 19,271 19,271
Common stock............ (7) (7)
Additional paid-in
capital................ (96,433) (96,433)
Retained earnings
(deficit).............. --
------- -------- -------- -------- -------- -------
Total................. $ -- $ -- $ -- $ -- $ -- $ --
======= ======== ======== ======== ======== =======
</TABLE>
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
a) Reflects the prospective reduction in salaries, bonuses and benefits to
the owners of the GroupMAC Companies to which they have agreed. These
reductions in salaries, bonuses and benefits are in accordance with the terms
of the employment agreements. Such employment agreements are primarily for
three years, contain restrictions related to competition and provide severance
for termination of employment in certain circumstances.
b) Reflects the amortization of goodwill to be recorded as a result of the
Acquisitions over a 40-year estimated life.
c) Reflects the elimination of historical interest expense related to the
Credit Agreement and the assumed debt of the GroupMAC Companies resulting from
the payoff of such debt with the proceeds of the Offering. Offsetting this
reduction is interest expense related to the notes issued to fund the S
Corporation Distributions discussed in Note 3a.
d) Reflects the elimination of income and expenses related to a management
benefit plan in effect at one of the GroupMAC Companies. This plan will be
liquidated in connection with the acquisition of the company.
e) Reflects the incremental provision for federal and state income taxes
relating to the compensation differential and other pro forma adjustments
discussed in this Note 4 as well as income taxes on S Corporation earnings.
f) The number of shares estimated to be outstanding on completion of the
Offering include the following:
<TABLE>
<S> <C>
Shares issued in Initial Public Offering............................. 7,200,000
Shares issued under Subscription Agreement dated October 24, 1996.... 2,600,000
Shares issued to Pre-Offering Companies.............................. 6,061,289
Shares issued to Offering Acquisition Companies...................... 2,584,216
Shares issued to Founding Management and Directors................... 1,021,345
Incremental effect of options and warrants on shares outstanding..... 201,379
----------
Shares estimated to be outstanding................................... 19,668,229
==========
</TABLE>
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Group Maintenance America Corp.
We have audited the accompanying balance sheets of Group Maintenance America
Corp. (the Company) as of December 31, 1996 and April 30, 1997, and the
related statements of operations, shareholders' equity (deficit), and cash
flows for the periods from October 21, 1996 (inception) to December 31, 1996
and the four months ended April 30, 1997. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Group Maintenance America
Corp. as of December 31, 1996 and April 30, 1997 and the results of its
operations and its cash flows for the periods from October 21, 1996
(inception) to December 31, 1996 and the four months ended April 30, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 11, 1997
F-18
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1996 1997
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 228,036 $ 516,838
Due from employee.................................. 1,200 6,759
Prepaid expenses................................... 2,341 --
--------- -----------
Total current assets............................. 231,577 523,597
PROPERTY AND EQUIPMENT, net.......................... 100,996 120,694
OTHER NONCURRENT ASSETS.............................. 19,473 1,094,708
--------- -----------
Total assets..................................... $ 352,046 $ 1,738,999
========= ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................... $ 137,377 $ 527,869
Accrued expenses................................... 6,118 1,478,898
--------- -----------
Total current liabilities........................ 143,495 2,006,767
LONG-TERM DEBT....................................... 75,000 75,000
OTHER LONG-TERM LIABILITIES.......................... -- 73,424
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value; 50,000,000 shares
authorized; none issued or outstanding............ -- --
Common stock, $.001 par value; 100,000,000 shares
authorized; 1,211,345 and 1,611,345 shares issued,
respectively...................................... 1,211 1,611
Additional paid-in capital......................... 854,857 2,085,457
Retained earnings.................................. (722,517) (2,503,260)
--------- -----------
Total shareholders' equity (deficit)............. 133,551 (416,192)
--------- -----------
Total liabilities and shareholders' equity
(deficit)....................................... $ 352,046 $ 1,738,999
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 21,
1996) FOUR MONTHS
THROUGH ENDED
DECEMBER 31, APRIL 30,
1996 1997
------------ -----------
<S> <C> <C>
REVENUES............................................. -- --
COST OF SERVICES..................................... -- --
--------- -----------
Gross profit....................................... -- --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 724,006 1,783,409
--------- -----------
Loss from operations............................. (724,006) (1,783,409)
OTHER INCOME (EXPENSE):
Interest expense................................... (1,118) (2,000)
Interest income.................................... 2,607 4,666
--------- -----------
Loss before income tax provision................. (722,517) (1,780,743)
INCOME TAX PROVISION................................. -- --
--------- -----------
NET LOSS............................................. $(722,517) $(1,780,743)
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL SHAREHOLDERS'
NUMBER OF PAID-IN RETAINED EQUITY
SHARES AMOUNT CAPITAL EARNINGS (DEFICIT)
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, October 21,
1996 -- $ -- $ -- $ -- $ --
Net loss.............. -- -- -- (722,517) (722,517)
Issuance of common
stock................ 991,345 991 648,607 -- 649,818
Compensation expense
related to issuance
of management shares. 220,000 220 206,250 -- 206,250
--------- ------ ---------- ----------- -----------
BALANCE, December 31,
1996................... 1,211,345 1,211 854,857 (722,517) 133,551
Net loss.............. -- -- -- (1,780,743) (1,780,743)
Issuance of common
stock................ 400,000 400 1,230,600 -- 1,231,000
--------- ------ ---------- ----------- -----------
BALANCE, April 30, 1997. 1,611,345 $1,611 $2,085,457 $(2,503,260) $ (416,192)
========= ====== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 21,
1996) FOUR MONTHS
THROUGH ENDED
DECEMBER 31, APRIL 30,
1996 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(722,517) $(1,780,743)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 3,343 12,877
Noncash compensation charge....................... 206,250 --
Changes in operating assets and liabilities:
(Increase) decrease in--
Prepaid expenses and other assets............... (3,541) (3,218)
Other noncurrent assets......................... -- (1,567)
Increase (decrease) in--
Accounts payable................................ 137,377 390,492
Accrued expenses................................ 6,118 979,562
--------- -----------
Net cash used in operating activities.......... (372,970) (402,597)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (104,339) (32,575)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.............. 649,818 1,231,000
Proceeds from borrowings............................ 75,000 --
Deferred offering costs............................. (19,473) (439,205)
Deferred financing costs............................ -- (67,821)
--------- -----------
Net cash provided by financing activities...... 705,345 723,974
--------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS................ 228,036 288,802
CASH AND CASH EQUIVALENTS, beginning of period....... -- 228,036
--------- -----------
CASH AND CASH EQUIVALENTS, end of period............. $ 228,036 $ 516,838
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Group Maintenance America Corp. (the Company or GroupMAC Parent) was
incorporated in October 1996 and, therefore, the financial statements reflect
the period since the Company's inception through December 31, 1996 and the
four months ended April 30, 1997. The Company's primary business is to build a
national company providing heating, ventilation and air conditioning (HVAC),
plumbing and electrical services.
Effective April 30, 1997, GroupMAC Parent entered into an Agreement and Plan
of Exchange (the Agreement) with Airtron, Inc. (Airtron), in which $20,366,951
in cash, 14,873,133 shares of GroupMAC Parent preferred stock and 4,652,140
shares of GroupMAC Parent common stock were issued to shareholders of Airtron
in exchange for 100 percent of the then outstanding shares of Airtron. In
connection with this merger the combined company is referred to as GroupMAC
and Subsidiaries. The Agreement closed on May 2, 1997 with the cash portion
funded by the Company's available credit facility and a capital contribution
from a shareholder pursuant to a stock subscription agreement (see note 6).
For accounting purposes, the transaction was accounted for as a reverse
acquisition, as if Airtron acquired GroupMAC Parent, as the former
shareholders of Airtron now own a majority of GroupMAC Parent's common stock.
Concurrent with this transaction, the resulting combined entity will be named
Group Maintenance America Corp. and Subsidiaries. The Company is included in
the consolidated financial statements of GroupMAC and Subsidiaries, presented
elsewhere herein, for periods subsequent to the effective date of the
acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. There were no cash payments for interest or
income taxes in 1996 or in the four months ended April 30, 1997.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures of major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109. Under
this method deferred income taxes are recorded based upon differences between
the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
F-23
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has recorded a full valuation allowance against all deferred tax
assets due to the uncertainty of ultimate realizability. Accordingly, no income
tax benefit has been recorded for the losses incurred.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Other noncurrent assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1996 1997
------------ ----------
<S> <C> <C>
Deferred offering costs......................... $ 13,648 $ 452,853
Deferred financing costs........................ -- 634,463
Other noncurrent assets......................... 5,825 7,392
-------- ----------
$ 19,473 $1,094,708
======== ==========
</TABLE>
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1996 1997
------------ ----------
<S> <C> <C>
Accrued compensation............................ $ -- $ 767,476
Accrued financing costs......................... -- 566,642
Other accrued expenses.......................... 6,118 144,780
------- ----------
$ 6,118 $1,478,898
======= ==========
</TABLE>
F-24
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31, APRIL 30,
LIVES 1996 1997
---------- ------------ ---------
<S> <C> <C> <C>
Office equipment, furniture and fixtures..... 3--7 years $ 104,339 $136,358
Less accumulated depreciation................ (3,343) (15,664)
--------- --------
$ 100,996 $120,694
========= ========
</TABLE>
5. LONG-TERM DEBT
CREDIT AGREEMENT
In May 1997, the Company entered into a credit agreement (the Credit
Agreement) with a group of banks providing for secured facilities consisting
of an 18-month revolving credit line of $3 million, a six-year term loan of
$20 million used in connection with the acquisition of Airtron (see note 1)
and a term loan facility, available until October 31, 1998, providing for up
to $12 million in term loans having a final maturity six years after the date
of the Credit Agreement, to be used in connection with future acquisitions.
Loans under the revolving credit facility are limited to a borrowing base
consisting of 70% of eligible accounts receivable. Interest on outstanding
borrowings is payable in quarterly installments beginning August 31, 1997. A
commitment fee of .25% is payable on the unused portion of the revolving
credit line.
The Credit Agreement contains covenants which, among other matters, restrict
or limit the ability of the Company to pay dividends, incur indebtedness, make
capital expenditures and repurchase capital stock. The Company must also
maintain a minimum fixed charge coverage ratio (as defined) and certain other
ratios, among other restrictions.
As of June 30, 1997, available borrowing capacity under the Credit Agreement
was $5.4 million.
LONG-TERM DEBT
On October 24, 1996, the Company executed a $75,000 subordinated note with a
Texas limited liability company. The note bears interest at eight percent (8%)
and is payable upon the earlier of (i) the closing of the Company's first
public offering of its common stock or (ii) two years from the date of the
note. The note is subordinate to all indebtedness of the Company to the banks
and is guaranteed by certain officers of the Company.
6. SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
The Company is authorized to issue 100 million shares of common stock, $.001
par value. There were 1,211,345 and 1,611,345 shares of common stock issued
and outstanding at December 31, 1996 and April 30, 1997, respectively. In
connection with the sale of certain shares of common stock to management, a
nonrecurring, noncash compensation charge of $206,250 was recorded in 1996 to
reflect the difference between the amount paid for the shares and the
estimated fair value of the shares on the date of sale.
On October 24, 1996, the Company entered into a stock subscription agreement
with an individual allowing for the purchase of up to 2.6 million shares of
common stock at a purchase price of $3.08 per share. Under this agreement, 0.2
million shares were purchased in October 1996, 0.2 million in January 1997 and
0.2 million in
F-25
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
April 1997 and additional shares are required to be purchased upon written
notice from the Company, but in no event later than October 24, 1998.
Subsequent to April 30, 1997, an additional 1.658 million shares have been
purchased under the Subscription Agreement.
PREFERRED STOCK
The Company is authorized to issue up to 50 million shares of preferred
stock, par value $.001 per share, in one or more series. As of December 31,
1996 and April 30, 1997, none were outstanding.
OPTIONS
Under an option agreement dated October 24, 1996, the Company is authorized
to grant stock options with respect to 388,800 shares of the Company's common
stock to directors and senior management.
The following is a summary of stock option activity and number of shares
reserved for outstanding options.
<TABLE>
<CAPTION>
OPTION NUMBER
PRICE PER OF
SHARE SHARES
--------- -------
<S> <C> <C>
Granted................................................ $3.08 291,600
-------
Balance at December 31, 1996........................... 291,600
Granted................................................ $3.08 69,200
-------
Balance at April 30, 1997.............................. 360,800
=======
</TABLE>
At April 30, 1997, options representing 28,000 shares were available to be
granted under the option agreement.
The Company has adopted the disclosure-only provisions of the Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for the
option agreement as all options have an exercise price equal to or greater
than the fair value of the underlying stock at date of grant. Had compensation
cost for the Company's stock option plan been determined consistent with the
provisions of SFAS No. 123, net loss would have been increased by the
following pro forma amounts:
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 21,
1996) FOUR MONTHS
THROUGH ENDED
DECEMBER 31, APRIL 30,
1996 1997
------------ -----------
<S> <C> <C>
Net loss:
As reported......................................... $(722,517) $(1,780,743)
Pro forma........................................... $(745,602) $(1,837,870)
</TABLE>
The pro forma compensation cost may not be representative of that to be
expected in future years because options vest over several years and
additional awards may be made each year.
F-26
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used by the plan for fiscal 1996 and for the four months ending
April 30, 1997: no dividend yield; expected volatility of 0%; risk-free
interest rate of 6.26%; and expected lives of ten years. The weighted average
fair value per share of the options granted during fiscal 1996 and in the four
months ending April 30, 1997 is estimated to be $1.425.
7. INCOME TAXES
There is no Federal income tax provision as losses were incurred and a
valuation allowance has been established against future benefits deriving from
the carryforward of these losses.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating lease agreements, primarily
for office space, furniture and service equipment. Minimum annual rental
payments under non-cancelable operating leases as of June 30, 1997, were
approximately as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDING APRIL
30,
------------
<S> <C>
1997......................................... $46,000
1998......................................... 600
1999......................................... 300
=======
</TABLE>
Rental expense under operating leases was $9,032 for the period ended
December 31, 1996 and $49,194 for the four months ending April 30, 1997.
9. EVENT SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT--STOCK SPLIT
On August 16, 1997, the Company's Board of Directors declared a 1-for-2.5
reverse stock split of the Company's common stock. All share data included in
the consolidated financial statements have been restated to reflect the stock
split.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Group Maintenance America Corp. and Subsidiaries (formerly Airtron, Inc.):
We have audited the accompanying consolidated balance sheets of Group
Maintenance America Corp. and Subsidiaries (formerly Airtron, Inc.) (the
Company) as of February 29, 1996, February 28, 1997 and June 30, 1997 and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years ended February 28, 1995, February 29, 1996 and
February 28, 1997, and the four months ended June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Group
Maintenance America Corp. and Subsidiaries (formerly Airtron, Inc.) as of
February 29, 1996, February 28, 1997 and June 30, 1997 and the results of its
operations and its cash flows for the years ended February 28, 1995, February
29, 1996 and February 28, 1997, and the four months ended June 30, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
August 1, 1997
F-28
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY JUNE 30,
29, 1996 28, 1997 1997
----------- ----------- ------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............. $ 1,773,643 $ 4,339,406 $ 5,875,027
Accounts receivable, net of allowance
for doubtful accounts of $568,327,
$479,905 and $528,769, respectively... 7,409,168 7,811,108 14,939,516
Inventories............................ 3,686,094 3,354,054 4,934,852
Costs and estimated earnings in excess
of billings on uncompleted contracts.. 36,123 13,229 43,274
Prepaid expenses and other current
assets................................ 351,783 359,427 1,136,436
Deferred tax assets.................... 1,338,000 764,500 1,607,450
Refundable income taxes................ -- 3,235,500 576,467
----------- ----------- ------------
Total current assets................. 14,594,811 19,877,224 29,113,022
PROPERTY AND EQUIPMENT, net.............. 1,387,456 1,289,242 4,721,461
GOODWILL, net of accumulated amortization
of $30,795.............................. -- -- 18,019,592
DEFERRED TAX ASSET....................... 4,957,700 3,195,100 10,120,000
OTHER NONCURRENT ASSETS.................. 7,342,260 2,791,491 2,669,975
----------- ----------- ------------
Total assets......................... $28,282,227 $27,153,057 $ 64,644,050
=========== =========== ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt.......... $ -- $ 148,994 $ 4,577,200
Accounts payable....................... 2,958,771 2,882,012 7,089,459
Accrued expenses....................... 5,231,529 7,765,355 5,315,951
Due to related parties................. -- -- 537,421
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 1,554,948 1,469,002 1,780,467
Deferred service contract revenue...... 732,655 738,559 1,153,186
Income taxes payable................... 832,023 536,498 494,479
Other current liabilities.............. -- -- 740,000
----------- ----------- ------------
Total current liabilities............ 11,309,926 13,540,420 21,688,163
LONG-TERM DEBT, net of current
maturities.............................. -- 1,140,933 26,467,994
COMPENSATION AND BENEFITS PAYABLE........ 9,909,809 5,831,263 --
DUE TO SHAREHOLDERS...................... -- -- 9,744,500
OTHER LONG-TERM LIABILITIES.............. 689,100 650,000 918,477
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK AND RELATED
WARRANTS................................ -- -- 17,121,133
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value;
100,000,000 shares authorized;
5,692,261, 4,652,140 and 8,707,998
shares issued and outstanding,
respectively.......................... 5,692 4,652 8,708
Additional paid-in capital............. 301,116 246,093 14,010,586
Retained earnings (deficit)............ 6,066,584 5,739,696 (25,315,511)
----------- ----------- ------------
Total shareholders' equity (deficit). 6,373,392 5,990,441 (11,296,217)
----------- ----------- ------------
Total liabilities and shareholders'
equity (deficit).................... $28,282,227 $27,153,057 $ 64,644,050
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED JUNE
YEAR ENDED YEAR ENDED YEAR ENDED 30,
FEBRUARY FEBRUARY FEBRUARY ------------------------
28, 1995 29, 1996 28, 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $72,225,889 $73,764,643 $81,879,819 $25,956,840 $31,085,514
COST OF SERVICES........ 50,459,914 52,673,935 58,505,888 18,925,670 22,686,136
----------- ----------- ----------- ----------- -----------
Gross profit.......... 21,765,975 21,090,708 23,373,931 7,031,170 8,399,378
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 17,882,164 17,614,854 19,811,136 5,461,278 6,189,127
WARRANT COMPENSATION.... 2,400,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income from
operations........... 1,483,811 3,475,854 3,562,795 1,569,892 2,210,251
OTHER INCOME (EXPENSE):
Interest expense...... -- -- (82,211) (37,768) (352,666)
Interest income....... 75,835 67,744 170,918 20,100 93,212
Other................. 140,078 246,219 256,249 23,535 2,821
----------- ----------- ----------- ----------- -----------
Income before income
tax provision...... 1,699,724 3,789,817 3,907,751 1,575,759 1,953,618
INCOME TAX PROVISION.... 910,664 1,650,956 1,571,680 633,614 800,000
----------- ----------- ----------- ----------- -----------
NET INCOME.............. $ 789,060 $ 2,138,861 $ 2,336,071 $ 942,145 $ 1,153,618
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING............ 8,008,122 6,190,337 5,172,201 5,172,201 8,857,295
=========== =========== =========== =========== ===========
NET INCOME PER SHARE.... $ 0.10 $ 0.35 $ 0.45 $ 0.18 $ 0.13
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY (DEFICIT)
---------- -------- ----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, February 28,
1994................... 502,767 $502,767 $ -- $ 7,305,936 $(5,633,300) $ 2,175,403
Adjustment to convert
number and par value
of Airtron shares to
shares of GroupMAC
Parent ............... 8,825,065 (493,439) 493,439 -- -- --
---------- -------- ----------- ------------ ----------- ------------
RESTATED BALANCE, Febru-
ary 28, 1994........... 9,327,832 9,328 493,439 7,305,936 (5,633,300) 2,175,403
Purchases of stock..... -- -- -- -- (1,534,896) (1,534,896)
Cancellation of trea-
sury stock............ (2,639,420) (2,640) (139,626) (4,618,714) 4,760,980 --
Contributions of bene-
fit trust............. -- -- -- -- 2,125,866 2,125,866
Compensation on war-
rants................. -- -- -- 2,400,000 -- 2,400,000
Net income............. -- -- -- 789,060 -- 789,060
---------- -------- ----------- ------------ ----------- ------------
BALANCE, February 28,
1995................... 6,688,412 6,688 353,813 5,876,282 (281,350) 5,955,433
Purchases of stock..... -- -- -- -- (2,657,565) (2,657,565)
Cancellation of trea-
sury stock............ (996,151) (996) (52,697) (1,948,559) 2,002,252 --
Contributions to bene-
fit trust............. -- -- -- -- 936,663 936,663
Net income............. -- -- -- 2,138,861 -- 2,138,861
---------- -------- ----------- ------------ ----------- ------------
BALANCE, February 29,
1996................... 5,692,261 5,692 301,116 6,066,584 -- 6,373,392
Purchases of stock..... -- -- -- -- (2,112,474) (2,112,474)
Repurchase of warrants. -- -- -- (600,000) -- (600,000)
Cancellation of trea-
sury stock............ (1,040,121) (1,040) (55,023) (2,056,411) 2,112,474 --
Distributions to share-
holders............... -- -- -- (6,548) -- (6,548)
Net income............. -- -- -- 2,336,071 -- 2,336,071
---------- -------- ----------- ------------ ----------- ------------
BALANCE, February 28,
1997................... 4,652,140 4,652 246,093 5,739,696 -- 5,990,441
Reverse acquisition of
GroupMAC Parent....... 1,611,345 1,611 (1,052,266) -- -- (1,050,655)
Preferred Stock issued
to Airtron sharehold-
ers in reverse acqui-
sition................ -- -- -- (14,873,133) -- (14,873,133)
Distribution to Airtron
shareholders in
reverse acquisition... -- -- -- (17,335,692) -- (17,335,692)
GroupMAC Parent acqui-
sition costs.......... -- -- (663,263) -- -- (663,263)
Purchase of Acquired
Companies............. 1,102,513 1,103 11,351,359 -- -- 11,352,462
Shares issued under
subscription agree-
ment.................. 1,332,000 1,332 4,097,898 -- -- 4,099,230
Exercise of options.... 10,000 10 30,765 -- -- 30,775
Net income............. -- -- -- 1,153,618 -- 1,153,618
---------- -------- ----------- ------------ ----------- ------------
BALANCE, June 30, 1997.. 8,707,998 $ 8,708 $14,010,586 $(25,315,511) $ -- $(11,296,217)
========== ======== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, -------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 789,060 $ 2,138,861 $ 2,336,071 $ 942,145 $ 1,153,618
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization.......... 228,759 238,338 208,037 71,836 194,477
Gain from sale of
property and
equipment............. 6,993 (9,222) (223,593) (5,521) --
Deferred income taxes.. (2,295,336) (1,400,500) 2,336,100 1,204,700 2,338,223
Warrant compensation... 2,400,000 -- -- -- --
Changes in operating
assets and
liabilities, net of
effect of
acquisitions
accounted for as
purchases:
(Increase) decrease
in -
Accounts receivable.. (571,196) (403,499) (401,940) (1,756,106) (2,078,958)
Inventories.......... (177,969) 171,699 332,040 456,037 29,553
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... (174,216) 163,218 22,894 -- (30,045)
Prepaid expenses and
other current
assets.............. 2,718 (33,805) (7,644) (1,068,085) 71,952
Refundable income
taxes............... -- -- (3,235,500) -- 431,378
Other noncurrent
assets.............. -- -- -- -- 4,821
Increase (decrease)
in -
Accounts payable..... (2,464) 425,430 (76,759) 1,400,875 461,236
Accrued expenses..... 417,434 667,499 2,533,826 (435,002) (5,848,590)
Due to related
parties............. -- -- -- -- (10,395)
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... 248,316 (143,888) (85,946) 340,007 311,465
Deferred service
contract revenue.... 46,264 23,516 5,904 27,844 (104,989)
Income tax payable... (77,096) 590,661 (295,525) (1,597,897) (221,172)
Other current
liabilities......... -- -- -- -- 619,120
Compensation and
benefits payable.... 1,498,152 1,579,127 254,920 (1,086,957) (8,513)
Other long-term
liabilities......... -- -- -- -- 121,405
----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) operating
activities......... 2,339,419 4,007,435 3,702,885 (1,506,124) (2,565,414)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Cash paid for
acquisitions, net of
cash acquired of
$2,011,220............ -- -- -- -- (5,342,855)
Deferred offering
costs................. -- -- -- -- (545,690)
Purchases of property
and equipment......... (370,289) (246,009) (182,256) (49,048) (364,955)
Proceeds from sale of
property and
equipment............. -- 56,909 296,026 -- --
Proceeds from note
receivable............ 29,396 -- 155,803 -- --
----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) investing
activities......... (340,893) (189,100) 269,573 (49,048) (6,253,500)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Purchases of stock..... (1,534,896) (2,657,565) (787,174) (205,471) --
Repurchase of warrants. -- -- (538,500) -- --
Proceeds from long-term
debt.................. -- -- -- -- 29,600,000
Payments of long-term
debt.................. -- -- (35,373) -- (2,976,681)
Payments of other long-
term obligations...... -- (37,000) (39,100) (13,000) --
Deferred offering
costs................. -- -- -- -- (31,838)
Issuance of stock...... -- -- -- -- 4,099,230
Exercise of options.... -- -- -- -- 30,775
Distributions to
shareholders.......... -- -- (6,548) -- (20,366,951)
----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) financing
activities......... (1,534,896) (2,694,565) (1,406,695) (218,471) 10,354,535
----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 463,630 1,123,770 2,565,763 (1,773,643) 1,535,621
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 186,243 649,873 1,773,643 1,773,643 4,339,406
----------- ----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 649,873 $ 1,773,643 $ 4,339,406 $ -- $ 5,875,027
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Group Maintenance America Corp. (GroupMAC Parent) was incorporated as a
Texas corporation in October, 1996 to build a national company providing
heating, ventilation and air conditioning (HVAC), plumbing and electrical
services.
Effective April 30, 1997, GroupMAC Parent entered into an Agreement and Plan
of Exchange (the Agreement) with Airtron, Inc. (Airtron), in which $20,366,951
in cash, 14,873,133 shares of GroupMAC Parent preferred stock and 4,652,140
shares of GroupMAC Parent common stock were issued to shareholders of Airtron
in exchange for 100 percent of the then outstanding shares of Airtron.
Although for legal purposes Airtron was acquired by GroupMAC Parent, for
accounting purposes, the transaction was accounted for as a reverse
acquisition, as if Airtron acquired GroupMAC Parent, due to the fact that the
former shareholders of Airtron then owned a majority of GroupMAC Parent's
common stock. The consolidated financial statements presented herein for the
periods prior to the effective date of the acquisition only include the
accounts of Airtron. The consolidated statements of shareholders' equity have
been converted from Airtron's capital stock structure to GroupMAC Parent's
capital stock structure to reflect the exchange of shares pursuant to the
Agreement. The cash paid to the Airtron shareholders, net of existing
liabilities to former shareholders, has been treated as a distribution to the
Airtron shareholders. The consolidated group of companies are collectively
referred to herein as GroupMAC and Subsidiaries or "the Company." All
significant intercompany balances have been eliminated. Concurrent with the
initial public offering of the Company's common stock, the Company intends to
change its fiscal year end from February 28 to December 31.
Airtron was incorporated in 1970 as a Delaware Corporation. Airtron installs
and services brand name heating and air conditioning equipment for residential
and commercial customers located in Ohio, Indiana, Kentucky, Florida and
Texas.
In May and June 1997, the Company acquired in separate transactions seven
additional residential or commercial service companies (the Acquired
Companies), through a combination of cash and preferred and common stock of
the Company. Subsequent to June 30, 1997 the Company acquired three additional
companies and has signed definitive agreements to acquire 14 others.
The acquisitions of the Acquired Companies were accounted for as purchase
business combinations, with the results of operations included in the
Company's financial statements from the effective date of acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim consolidated financial statements for the four months ended June
30, 1996, are unaudited, and certain information and footnote disclosures,
normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been
included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets
F-33
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
from service and maintenance contracts are recognized over the life of the
contracts. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
Cash equivalents of approximately $911,000, $2,189,000 and $3,823,000 at
February 29, 1996, February 28, 1997 and June 30, 1997, respectively, consist
of short-term investments in money market funds. For purposes of the
statements of cash flows, the Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents. Cash
payments for income taxes were approximately $2,946,000, $2,452,000,
$2,586,000 and $456,000 for the years ended February 28, 1995, February 29,
1996 and February 28, 1997 and the four months ended June 30, 1997,
respectively.
Investments
The Company classifies all investments held for the deferred compensation
plan with readily determinable fair values as trading securities. These
securities are recorded at fair value with unrealized holding gains and losses
reported in earnings. Where readily determinable fair values are not
available, investments are recorded at cost.
Inventories
Inventories consist primarily of purchased materials and supplies. The
inventory is valued at the lower of cost or market, with cost determined on a
first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
principally using the straight-line method over the useful lives of the
assets. Leasehold improvements are amortized over the lesser of the remaining
lease term or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures of major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair
value of net assets acquired and is amortized on a straight-line basis over a
period of 40 years. The Company assesses the recoverability of
F-34
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows compared to the carrying value of goodwill. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to continue
to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
Warranty Costs
The Company generally warrants all of its work for a period of one year from
the date of installation. A provision for estimated warranty costs is made at
the time a product is sold or service is rendered.
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
New Accounting Pronouncement
Effective March 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
Earnings Per Share, which the Company is required to adopt for both interim
and annual periods ending after December 15, 1997. SFAS 128 simplifies the
earnings per share calculation by replacing primary earnings per share with
basic earnings per share, as well as requiring the presentation of fully
diluted earnings per share. Basic earnings per share is computed by dividing
reported earnings available to common shareholders by the weighted average
shares outstanding. The Company's current presentation of net income per share
is the same as the fully diluted earnings per share presentation required by
SFAS 128.
F-35
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net Income Per Share
Net income per share is calculated by dividing net income by the weighted
average number of shares of common stock and common stock equivalents. Stock
options are regarded as common stock equivalents and are therefore considered
in net income per share calculations if dilutive. Common stock equivalents are
computed using the treasury stock method. All stock options are dilutive and,
accordingly, primary and fully diluted net income per share are the same.
The following table summarizes weighted average shares outstanding for each
of the periods presented (in thousands).
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, ---------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Shares issued in the
acquisition of Airtron. 8,008,122 6,190,337 5,172,201 5,172,201 4,652,140
Group Maintenance
America Corp. shares
outstanding, excluding
acquisitions........... -- -- -- -- 2,935,345
Shares issued for the
acquisition of the
Acquired Companies..... -- -- -- -- 1,102,513
Stock options, net of
assumed repurchase of
common shares as
treasury stock......... -- -- -- -- 167,297
--------- --------- --------- --------- ---------
8,008,122 6,190,337 5,172,201 5,172,201 8,857,295
========= ========= ========= ========= =========
</TABLE>
3. BUSINESS COMBINATIONS
During May and June 1997, the Company acquired the Acquired Companies for an
aggregate of approximately $7,705,000 in cash and payables to the former
shareholders of the Acquired Companies, and 2,248,000 and 1,102,513 shares of
preferred and common stock, respectively. The preferred stock was valued at
its redemption value of $1 per share. The common stock was valued at its
estimated fair value at the time of the respective acquisition. The Company
financed the cash portion of the purchase consideration through borrowings
under its credit agreement. Purchase price consideration is subject to final
adjustment. The allocation of purchase price to the assets acquired and
liabilities assumed has been initially assigned and recorded based on
preliminary estimates of fair value and may be revised as additional
information becomes available.
F-36
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma data presented below consists of the combined income
statement data for GroupMAC Parent, Airtron and the Acquired Companies as if
the acquisitions were effective on the first day of the period being reported
(in thousands, except for per share amounts) (unaudited).
<TABLE>
<CAPTION>
FISCAL FOUR MONTHS
YEAR ENDED
1996 JUNE 30, 1997
-------- -------------
<S> <C> <C>
Revenues.......................................... $128,500 $43,900
======== =======
Net income........................................ $ 6,000 $ 1,000
======== =======
Net income per share.............................. $ 0.68 $ 0.11
======== =======
</TABLE>
The above pro forma amounts for 1996 include the historical information for
each of the companies using their historical year end, rather than the year
end of the Company, as the Acquired Companies year end approximates the
Company's. The pro forma amounts for 1997 include the results of operations
for each of the companies for the four months ended June 30, 1997. Pro forma
adjustments included in the amounts above include compensation differentials,
adjustment for goodwill amortization over a period of 40 years, elimination of
historical interest expense on long-term debt which was repaid, the addition
of interest expense on borrowed funds used to finance the acquisition of
Airtron and the Acquired Companies, and adjustment to the federal and state
income tax provisions based on pro forma operating results. Net income per
share for 1996 and 1997 assumes all shares issued for the acquisitions of
Airtron and the Acquired Companies had been outstanding for the periods
presented.
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Other noncurrent assets consists of the following:
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY JUNE 30,
29, 1996 28, 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Investments restricted for benefit of
employees:
Recorded at fair value..................... $4,033,097 $ -- $ --
Recorded at cost........................... 3,153,360 2,791,491 --
Note receivable.............................. 155,803 -- --
Refundable income taxes...................... -- -- 2,183,883
Other noncurrent assets...................... -- -- 486,092
---------- ---------- ----------
$7,342,260 $2,791,491 $2,669,975
========== ========== ==========
</TABLE>
Accrued expenses consists of the following:
<TABLE>
<S> <C> <C> <C>
Accrued payroll costs and benefits............ $4,423,249 $7,006,790 $3,063,446
Warranties.................................... 494,506 544,031 853,592
Other accrued expenses........................ 313,774 214,534 1,398,913
---------- ---------- ----------
$5,231,529 $7,765,355 $5,315,951
========== ========== ==========
</TABLE>
F-37
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, JUNE 30,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Costs incurred....................... $ 14,613,066 $ 13,125,649 $ 16,489,091
Estimated earnings recognized........ 2,983,612 2,275,287 3,129,035
------------ ------------ ------------
17,596,678 15,400,936 19,618,126
Less billings on contracts........... (19,115,503) (16,856,709) (21,355,319)
------------ ------------ ------------
$ (1,518,825) $ (1,455,773) $ (1,737,193)
============ ============ ============
</TABLE>
These costs and estimated earnings on uncompleted contracts are included in
the accompanying consolidated balance sheets under the following captions:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY JUNE 30,
1996 28, 1997 1997
------------ ----------- -----------
<S> <C> <C> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts... $ 36,123 $ 13,229 $ 43,274
Billings in excess of costs and
estimated earnings on uncompleted
contracts.............................. (1,554,948) (1,469,002) (1,780,467)
----------- ----------- -----------
$(1,518,825) $(1,455,773) $(1,737,193)
=========== =========== ===========
</TABLE>
6. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and equipment
were as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL FEBRUARY FEBRUARY JUNE 30,
LIVES 29, 1996 28, 1997 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Land........................ -- $ 244,813 $ 217,551 $ 217,551
Building and improvements... 20-30 years 927,631 639,903 639,903
Service and other vehicles.. 4-7 years 114,837 134,795 2,533,669
Machinery and equipment..... 5-10 years 679,748 686,319 1,156,245
Office equipment, furniture
and fixtures............... 5-10 years 667,220 724,013 1,313,933
Leasehold improvements...... -- 542,422 550,033 687,214
----------- ----------- -----------
3,176,671 2,952,614 6,548,515
Less accumulated
depreciation............... (1,789,215) (1,663,372) (1,827,054)
----------- ----------- -----------
$ 1,387,456 $ 1,289,242 $ 4,721,461
=========== =========== ===========
</TABLE>
F-38
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SHORT-AND LONG-TERM DEBT
Short-and long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY JUNE 30,
28, 1997 1997
---------- -----------
<S> <C> <C>
Note payable to former shareholder at 8.25%, due in
monthly installments of $20,822 including interest,
repaid in May 1997 with proceeds from the Company's
Credit Agreement.................................... $1,289,927 $ --
Credit Agreement:
Revolving credit loan.............................. -- 500,000
Advancing acquisition line of credit loan.......... -- 9,100,000
Term loan.......................................... -- 20,000,000
Equipment installment loans payable to banks and
other financial institutions, interest varying from
7.5% to 10.25%, payable in monthly installments
including interest, final installment due January
1998................................................ -- 450,230
Equipment installment loans payable to banks,
interest varying from 8.75% to 9.0%, secured by
certain equipment, payable in monthly and quarterly
installments including interest, final installment
due November 2000................................... -- 471,295
Notes payable to the former shareholders of an
Acquired Company at 8%, payable in monthly
installments through November 2004.................. -- 523,669
---------- -----------
Total short- and long-term debt.................. 1,289,927 31,045,194
Less short-term borrowings and current maturities.... (148,994) (4,577,200)
---------- -----------
$1,140,933 $26,467,994
========== ===========
</TABLE>
On May 2, 1997, the Company entered into a credit agreement (the Credit
Agreement) with a total commitment of $35 million. The Credit Agreement
consists of three portions: (a) a revolving credit agreement up to $3 million
for use as working capital, (b) a $12 million advancing acquisition line of
credit to finance the acquisitions, and (c) a $20 million term loan to finance
the acquisition of Airtron. Borrowings under the Credit Agreement bear
interest through October 1998 at the prime rate. Beginning in November 1998,
the interest rate is adjusted for margins ranging from 0% to 0.5%, depending
on the ratio of the Company's funded debt to its historical earnings before
interest, taxes, depreciation and amortization, subject to certain
adjustments, as approved by the lender. The Company is subject to commitment
fees of 0.25% per annum for the unutilized portion of the revolving credit
agreement and the advancing acquisition line of credit. The Credit Agreement
prohibits the Company from incurring additional indebtedness, except for
indebtedness existing at the time of execution of the Credit Agreement,
letters of credit up to $750,000, earn-out obligations and other limitations.
The Company may not pay any dividends or repurchase outstanding shares of the
Company's stock, except for the purchase of stock of departing officers and
employees. The Credit Agreement also requires the Company to maintain certain
levels of consolidated net worth and comply with certain other financial
covenants. The Company's subsidiaries have guaranteed all borrowings under the
Credit Agreement. All outstanding borrowings under the revolving credit
agreement are due on or before October 31, 1998, and the advancing acquisition
line of credit and the term loan mature on April 30, 2003. At June 30, 1997,
the applicable interest rate is 8.5%.
F-39
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of the long-term debt as of June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
YEAR
ENDING
JUNE
30,
------
<S> <C>
1998..................................... $ 4,577,200
1999..................................... 5,168,487
2000..................................... 5,498,520
2001..................................... 5,450,153
2002..................................... 5,450,153
Thereafter............................... 4,900,681
-----------
$31,045,194
===========
</TABLE>
8. DUE TO SHAREHOLDERS
Under the Agreement, part of the cash purchase price paid to former
shareholders relates to the tax benefits which will be received by the Company
related to the exercise of previously outstanding warrants and distributions
under deferred compensation arrangements. A liability and deferred tax asset
of $9,744,500 have been recognized in the accompanying consolidated financial
statements for an estimate of these amounts as of June 30, 1997.
9. STOCK-BASED COMPENSATION PLANS
Prior to the Agreement, under an option agreement dated October 24, 1996,
GroupMAC Parent granted stock options to directors and senior management to
purchase an aggregate of 360,800 shares at an exercise price of $3.08.
Subsequent to the Agreement the Company did not grant any stock options
through June 30, 1997. Under this option agreement, options representing
350,800 shares of common stock were outstanding at June 30, 1997 and there
were options representing 28,000 shares of common stock available for grant.
The following is a summary of stock option activity and number of shares
reserved for outstanding options.
<TABLE>
<CAPTION>
OPTION NUMBER
PRICE PER OF
SHARE SHARES
--------- -------
<S> <C> <C>
Granted............................................... $3.08 291,600
-------
Balance at December 31, 1996.......................... 291,600
Granted............................................... $3.08 69,200
-------
Balance at April 30, 1997, date of Agreement.......... 360,800
Exercised............................................. $3.08 (10,000)
-------
Balance at June 30, 1997.............................. 350,800
=======
</TABLE>
F-40
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has adopted the disclosure-only provisions of the Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Accordingly, compensation cost has been recognized only for the
options which have an exercise price less than the fair value of the
underlying stock at date of grant. Had compensation cost for the Company's
stock option plan been determined consistent with the provisions of SFAS No.
123, net income and net income per share would have been decreased by the
following pro forma amounts:
<TABLE>
<CAPTION>
FOUR
MONTHS
ENDED
JUNE 30,
1997
----------
<S> <C>
Net Income:
As Reported........................................................ $1,153,618
Pro forma.......................................................... $1,124,618
Net Income Per Share:
As Reported........................................................ $ 0.13
Pro forma.......................................................... $ 0.13
</TABLE>
The pro forma compensation cost may not be representative of that to be
expected in future years because options vest over several years and
additional awards may be made each year.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for fiscal 1996 for the plan: no dividend yield; expected
volatility of 0%; risk-free interest rate of 6.26%; and expected lives of ten
years. The weighted average fair value per share of the options granted prior
to the Agreement is estimated to be $1.425.
In July 1994, Airtron extended 60,000 warrants to purchase common shares at
$1 each until August 1, 2011. The appraisal for market value of Airtron's
stock at that time, was $40 per share, resulting in a charge of $2,400,000 and
an offsetting increase in retained earnings in fiscal 1995. All 60,000
warrants were outstanding at February 29, 1996. In August 1996, 15,000 of
these warrants were purchased from a former shareholder for $538,500,
resulting in a reduction in retained earnings for the original recorded value
of the warrants of $600,000 with the offset recorded as other income. At
February 28, 1997, 45,000 warrants were outstanding. In connection with the
Agreement these warrants were exchanged for cash and preferred and common
shares of GroupMAC Parent.
Airtron had deferred compensation arrangements for certain members of
management and the Board of Directors.The assets and liabilities previously
recorded by the Company have been reflected as distributions in the
accompanying financial statements.
10. SHAREHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 100 million shares of common stock, $.001
par value. There are 8,707,998 shares of common stock outstanding at June 30,
1997.
On October 24, 1996, the Company entered into a stock subscription agreement
with an individual allowing for the purchase of up to 2.6 million shares of
common stock at a purchase price of $3.08 per share. Under this agreement, 0.2
million shares were purchased in October, 1996, 0.2 million in January, 1997,
0.2 million in April, 1997, 880,000 on May 5, 1997, 452,000 on June 12, 1997,
326,000 on July 14, 1997 and additional shares are required to be purchased
upon written notice from the Company, but in no event later than October 24,
1998.
F-41
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PREFERRED STOCK
The Company is authorized to issue up to 50 million shares of preferred
stock, par value of $.001 per share, in one or more series. The non-
convertible, non-voting preferred stock is redeemable at any time after the
initial issuance, in whole or in part, at the option of the Company, at an
amount equal to the liquidation value of $1.00 per share plus any accrued but
unpaid dividends. In the event that an initial public offering (IPO) has not
occurred by June 30, 1999, cumulative dividends accrue commencing July 1, 1997
at an annual rate of $.08 per whole share. Redemption of all outstanding
preferred stock is mandatory upon an IPO.
In connection with certain acquisitions, the Company has issued 15,407,511
shares of preferred stock and warrants to purchase 1,713,622 shares of
preferred stock. Subsequent to June 30, 1997, an additional 2,150,462 shares
of preferred stock were issued in connection with other acquisitions (see Note
16).
11. INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
FEBRUARY FEBRUARY FEBRUARY JUNE 30,
28, 1995 29, 1996 28, 1997 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal................... $ 2,590,000 $ 2,529,500 $(1,020,024) $(1,656,723)
State and local........... 616,000 536,456 384,338 118,500
----------- ----------- ----------- -----------
3,206,000 3,065,956 (635,686) (1,538,223)
Deferred:
Federal................... (2,295,336) (1,415,000) 2,207,366 2,338,223
State and local........... -- -- -- --
----------- ----------- ----------- -----------
$ 910,664 $ 1,650,956 $ 1,571,680 $ 800,000
=========== =========== =========== ===========
</TABLE>
Total income tax expense differs from the amounts computed by applying the
U.S. federal statutory income tax rate of 34% to income before income tax
provision as a result of the following:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, JUNE 30,
1995 1996 1997 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Tax provision at statutory
rate....................... $577,906 $1,288,538 $1,328,635 $664,230
Increase (decrease)
resulting from:
State income taxes, net of
federal benefit.......... 406,560 354,061 253,663 78,210
Other..................... (73,802) 8,357 (10,618) 57,560
-------- ---------- ---------- --------
$910,664 $1,650,956 $1,571,680 $800,000
======== ========== ========== ========
</TABLE>
F-42
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY JUNE 30,
29, 1996 28, 1997 1997
---------- ---------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Allowance for doubtful
accounts................. $ 221,600 $ 187,200 $ 201,660
Inventories............... 222,800 245,600 245,590
Accrued expenses.......... 611,200 577,300 1,213,640
Compensation and benefits. 5,430,000 2,986,600 10,076,080
Other..................... -- -- 473,360
---------- ---------- -----------
Total deferred income
tax assets............. 6,485,600 3,996,700 12,210,330
---------- ---------- -----------
Deferred income tax
liabilities:
Depreciation.............. (2,000) (37,100) (313,580)
State franchise tax....... (163,300) -- (35,300)
Other..................... (24,600) -- (134,000)
---------- ---------- -----------
Total deferred income
tax liabilities........ (189,900) (37,100) (482,880)
---------- ---------- -----------
Net deferred income tax
assets................. $6,295,700 $3,959,600 $11,727,450
========== ========== ===========
</TABLE>
These deferred income tax assets and liabilities are included in the
accompanying consolidated balance sheets under the following captions:
<TABLE>
<S> <C> <C> <C>
Deferred tax assets--current................. $1,338,000 $ 764,500 $ 1,607,450
Deferred tax assets--long-term............... 4,957,700 3,195,100 10,120,000
---------- ---------- -----------
$6,295,700 $3,959,600 $11,727,450
========== ========== ===========
</TABLE>
Management believes it is more likely than not the Company will realize the
benefits of the net deferred tax assets.
12. LEASES
Operating leases for certain facilities and transportation equipment expire
at various dates through 2009. Certain leases contain renewal options.
Approximate minimum future rental payments as of June 30, 1997 are as follows:
<TABLE>
<S> <C>
1998....................................... $ 2,141,000
1999....................................... 1,705,000
2000....................................... 1,341,000
2001....................................... 1,129,000
2002....................................... 1,018,000
Thereafter................................. 5,569,000
-----------
$12,903,000
===========
</TABLE>
Total rental expense for the years ended February 28, 1995, February 29,
1996 and February 28, 1997 and the four months ended June 30, 1997 was
approximately $1,223,000, $1,970,000, $1,726,000 and $584,000, respectively,
(including $328,000, $445,000, $605,000 and $245,000, respectively, to related
parties).
F-43
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. EMPLOYEE BENEFIT PLANS
Airtron maintains a Profit Sharing and Stock Ownership Plan (the Plan).
Substantially all Airtron employees are eligible to participate in the Plan.
Airtron's contribution, as determined by the Board of Directors, is based upon
the participant's gross pay and amounted to approximately $222,000 in fiscal
years ending in 1995, 1996 and 1997 and $74,000 in the four months ended June
30, 1997. In connection with the Agreement (see Note 1) all Airtron shares
held by the Plan were exchanged for cash and preferred and common shares of
Group MAC Parent.
Certain of the Acquired Companies maintain defined contribution plans
covering substantially all employees.
14. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal actions arising in the ordinary course of
business. It is not possible to predict the outcome of these matters; however,
in the opinion of management, the disposition of these matters will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
15. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
restricted investments (carried at cost or fair value--see Note 4) and long-
term debt. The Company believes that the carrying value of these instruments
on the accompanying balance sheets approximate their fair value.
16. SUBSEQUENT EVENTS
During July 1997, the Company acquired three companies for an aggregate of
approximately $4,088,000 in cash and payables to the former shareholders of
the companies, and 2,150,000 and 304,000 shares of preferred and common stock,
respectively, along with warrants to purchase 514,000 shares of common stock.
The Company financed the cash portion of the purchase consideration through
borrowings under its Credit Agreement. The acquisitions will be accounted for
under the purchase method. Purchase price consideration is subject to final
adjustment. The allocation of purchase price to the assets acquired and
liabilities assumed has been initially assigned and recorded based on
preliminary estimates of fair value and may be revised as additional
information becomes available.
The Company has signed definitive agreements to acquire 14 companies with
combined annual revenues of approximately $172.6 million for which the
closings will occur simultaneously with an initial public offering expected to
occur in the last quarter of 1997. Such companies provide HVAC, plumbing
and/or electrical services to residential and/or commercial customers. Such
services include both new installations and service, repair and replacement
work.
Subsequent to the independent auditors' report, on August 16, 1997, the
Company's Board of Directors approved a 1-for-2.5 reverse stock split on the
Company's common stock. All share and per share data included in the
consolidated financial statements have been restated to reflect the stock
split.
F-44
<PAGE>
Upon completion of the initial public offering of Group Maintenance America
Corporation common stock and its concurrent acquisition of MacDonald-Miller
Industries, Inc., which assumes the divestiture of MacDonald-Miller
Residential Division to its shareholders (see Note 2); our opinion on the
accompanying financial statements will be as follows:
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
MacDonald-Miller Industries, Inc.
We have audited the accompanying consolidated balance sheets of MacDonald-
Miller Industries, Inc. and subsidiaries as of December 31, 1995, 1996 and
June 30, 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years ended December
31, 1996, and the six-month period ended June 30, 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MacDonald-
Miller Industries, Inc. and subsidiaries as of December 31, 1995 and 1996, and
June 30, 1997, and the results of their operations and cash flows for each of
the three years ended December 31, 1996 and the six-month period ended June
30, 1997 in conformity with generally accepted accounting principles.
Moss Adams LLP
Seattle, Washington
August 7, 1997
F-45
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- -----------
1995 1996 1997
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................... $ -- $ -- $ --
Receivables, less allowance for doubtful
accounts of $145,000, $137,378 and $149,653,
respectively:
Trade....................................... 9,771,993 13,287,714 14,728,290
Related parties and employees............... 108,840 341,186 672,407
Unconsolidated affiliate.................... 279,000 321,000 388,000
Inventories................................... 651,442 713,726 814,093
Costs and estimated earnings in excess of
billings on uncompleted contracts............ 1,356,980 1,342,213 1,015,468
Prepaid expenses.............................. 45,835 117,368 63,403
Income taxes refundable....................... -- 114,396 --
----------- ----------- -----------
Total current assets...................... 12,214,090 16,237,603 17,681,661
PROPERTY AND EQUIPMENT, net..................... 1,159,820 1,436,293 1,555,323
OTHER NONCURRENT ASSETS
Real estate held for investment............... 510,000 508,066 411,066
Other assets.................................. 106,610 145,861 107,523
Deferred income taxes......................... 148,000 105,000 196,000
----------- ----------- -----------
764,610 758,927 714,589
----------- ----------- -----------
Total assets.............................. $14,138,520 $18,432,823 $19,951,573
=========== =========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt.......... $ 100,136 $ 96,000 $ 96,000
Accounts payable.............................. 4,525,382 5,148,905 5,241,881
Notes payable:
Bank........................................ 2,199,134 5,395,816 4,790,113
Shareholders and related parties............ 673,523 30,000 35,340
Accrued expenses.............................. 1,915,968 1,840,699 2,416,748
Income taxes payable.......................... 28,764 -- 396,001
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 1,076,700 1,660,159 1,715,783
----------- ----------- -----------
Total current liabilities................. 10,519,607 14,171,579 14,691,866
LONG-TERM DEBT, net of current maturities....... 699,098 758,149 708,285
DEFERRED COMPENSATION........................... 355,085 189,848 189,848
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value; 150,000 shares
authorized................................... 198,473 291,539 355,133
Retained earnings............................. 2,366,257 3,021,708 4,006,441
----------- ----------- -----------
Total shareholders' equity................ 2,564,730 3,313,247 4,361,574
----------- ----------- -----------
Total liabilities and shareholders'
equity................................... $14,138,520 $18,432,823 $19,951,573
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $39,534,230 $45,508,339 $66,058,958 $36,382,305 $38,835,662
COST OF SERVICES........ 32,256,651 36,927,012 56,372,933 31,590,195 33,451,024
----------- ----------- ----------- ----------- -----------
Gross profit........ 7,277,579 8,581,327 9,686,025 4,792,110 5,384,638
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 6,088,076 7,338,381 7,631,851 3,705,694 3,787,822
----------- ----------- ----------- ----------- -----------
Income from
operations......... 1,189,503 1,242,946 2,054,174 1,086,416 1,596,816
OTHER INCOME (EXPENSE):
Interest expense...... (275,490) (370,603) (519,842) (244,135) (214,381)
Other................. (25,865) (42,527) 7,926 66,751 167,209
----------- ----------- ----------- ----------- -----------
(301,355) (413,130) (511,916) (177,384) (47,172)
Income before income
tax provision...... 888,148 829,816 1,542,258 909,032 1,549,644
INCOME TAX PROVISION.... 325,730 344,238 574,000 347,059 569,001
----------- ----------- ----------- ----------- -----------
NET INCOME.............. $ 562,418 $ 485,578 $ 968,258 $ 561,973 $ 980,643
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER
OF COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993.......... 102,603 $117,535 $2,527,242 $2,644,777
Issuance of common stock.......... 2,777 55,540 -- 55,540
Purchase and retirement of common
stock............................ (2,834) (79,919) -- (79,919)
Effects of adjustments related to
unconsolidated affiliate......... -- -- (738,816) (738,816)
Net income........................ -- -- 562,418 562,418
------- -------- ---------- ----------
BALANCE, December 31, 1994.......... 102,546 93,156 2,350,844 2,444,000
Issuance of common stock.......... 4,802 108,514 -- 108,514
Purchase and retirement of common
stock............................ (100) (3,197) -- (3,197)
Effects of adjustments related to
unconsolidated affiliate......... -- -- (470,165) (470,165)
Net income........................ -- -- 485,578 485,578
------- -------- ---------- ----------
BALANCE, December 31, 1995.......... 107,248 198,473 2,366,257 2,564,730
Issuance of common stock.......... 3,977 93,066 -- 93,066
Effects of adjustments related to
unconsolidated affiliate......... -- -- (312,807) (312,807)
Net income........................ -- -- 968,258 968,258
------- -------- ---------- ----------
BALANCE, December 31, 1996.......... 111,225 291,539 3,021,708 3,313,247
Issuance of common stock.......... 1,800 63,594 -- 63,594
Effects of adjustments related to
unconsolidated affiliate......... -- -- 4,090 4,090
Net income........................ -- -- 980,643 980,643
------- -------- ---------- ----------
BALANCE, June 30, 1997.............. 113,025 $355,133 $4,006,441 $4,361,574
======= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-48
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 562,418 $ 485,578 $ 968,258 $ 561,973 $ 980,643
Adjustments to
reconcile net income
to cash flows from
operating activities:
Depreciation and
amortization.......... 250,162 266,763 376,391 167,654 210,208
(Gain) loss on
disposal of property
and equipment......... (7,897) 8,623 18,857 -- 24,294
Allowance for loss on
real estate held for
investment............ -- -- 25,000 25,000 97,000
Deferred income taxes.. (9,000) (67,000) 43,000 (81,000) (91,000)
Changes in operating
assets and
liabilities:
(Increase) decrease
in:
Trade receivables.... (46,296) (2,700,456) (3,515,721) (1,181,851) (1,440,576)
Receivables from
related parties and
employees........... (141,194) 32,354 (232,346) 7,226 (331,221)
Receivable from
unconsolidated
affiliate........... (176,000) (103,000) (42,000) (21,000) (67,000)
Inventories.......... (76,019) 66,366 (62,284) (310,598) (100,367)
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... 41,276 (325,574) 14,767 (1,038,698) 326,745
Prepaid expenses..... 51,746 1,525 (71,533) (106,776) 53,965
Income taxes
refundable.......... -- -- (114,396) (154,537) 114,396
Other assets......... 57,860 (43,860) (39,251) (145,625) 38,338
Increase (decrease)
in:
Accounts payable..... (105,101) 906,917 83,013 (652,636) 691,425
Accrued expenses..... 446,596 353,195 (75,269) 551,774 576,049
Income taxes payable. (216,105) 25,894 (28,764) (28,764) 396,001
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... (159,552) 649,570 583,459 643,626 55,624
Deferred
compensation........ -- 355,085 (165,237) -- --
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 472,894 (88,020) (2,234,056) (1,764,232) 1,534,524
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment......... (452,306) (654,940) (686,586) (534,042) (365,461)
Proceeds from sale of
property and
equipment............. 9,975 73,841 14,865 -- 11,929
Additions to real
estate held for
investment............ -- (510,000) (23,066) (21,289) --
--------- ----------- ----------- ----------- -----------
Net cash used in
investing activities... (442,331) (1,091,099) (694,787) (555,331) (353,532)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Disbursements in
transit............... -- 198,590 540,510 1,338,474 (598,449)
Increase (decrease) of
notes payable to bank,
net................... 895,548 394,297 3,196,682 1,331,530 (605,703)
Effect of adjustment
related to
unconsolidated
affiliate............. (738,816) (470,165) (312,807) (345,641) 4,090
Proceeds from notes
payable to related
parties............... 239,613 673,523 55,000 69,452 30,340
Payments of notes
payable to related
parties............... (288,454) (231,268) (698,523) (20,000) (25,000)
Proceeds from long-term
borrowings............ -- 816,932 312,021 -- --
Payments of long-term
debt.................. (99,457) (331,050) (257,106) (91,778) (49,864)
Proceeds from issuance
of common stock....... 55,540 108,514 93,066 37,526 63,594
Purchase and retirement
of common stock....... (79,919) (3,197) -- -- --
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............. (15,945) 1,156,176 2,928,843 2,319,563 (1,180,992)
--------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 14,618 (22,943) -- -- --
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 8,325 22,943 -- -- --
--------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 22,943 $ -- $ -- $ -- $ --
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-49
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
MacDonald-Miller Industries, Inc. (the Company) (MMI), a Washington
corporation, is a mechanical contractor and service company engaged in the
design, installation and maintenance of heating, ventilating, air
conditioning, plumbing, refrigeration, and automated control systems for
commercial and industrial properties. The main areas of operation are in the
states of Washington and Oregon.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
On June 4, 1997, the Company signed a letter of intent with Group
Maintenance America Corp. (GroupMAC), whereby GroupMAC would acquire the
Company in a merger transaction for a combination of cash and common shares of
GroupMAC concurrent with the consummation of the initial public offering of
the common stock of GroupMAC, subject to certain conditions, including the
negotiation of definitive agreements and approval by Directors of both
companies. Prior to the planned acquisition, the Company will distribute the
net assets of MacDonald-Miller Residential (MMR) (a division of MMI) in a tax-
free distribution followed by the acquisition of MMR by certain Company
shareholders.
The accompanying financial statements have been prepared on the basis that
the distribution of the net assets of MMR had been completed as of December
31, 1993. Effects of adjustments related to the unconsolidated affiliate have
been shown as a reduction in shareholders' equity for each of the years
presented.
Amounts reported as due from affiliate in the accompanying balance sheets
represent the allocation of bank borrowings attributed to MMR and are expected
to be remitted to the Company at the completion of the planned acquisition as
separate financing of the division is established.
The consolidated financial statements include the accounts of MacDonald-
Miller Industries, Inc. and its wholly-owned subsidiaries MacDonald-Miller
Co., Inc. and MacDonald-Miller Service, Inc. (collectively "the Company").
Intercompany balances and transactions are eliminated in consolidation.
Interim Financial Information
The interim financial statements as of June 30, 1996 and for the six months
then ended, are unaudited, and certain information and footnote disclosures
have been omitted. In the opinion of management, all adjustments, consisting
of only normal recurring adjustments, necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim financial statements, have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
Use of Estimates
The preparation of the 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.
Significant estimates used in preparing these financial statements include
estimated costs to complete contracts in progress which have a direct effect
on gross profit.
Revenue Recognition
Revenues from fixed-price and modified fixed-price construction contracts
are recognized on the percentage-of-completion basis using the cost-to-cost
method. This method is used because the Company considers contract costs to be
the best available measure of progress on these contracts. Revenues from cost-
plus-fee contracts are
F-50
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recognized on the basis of costs incurred during the period plus the fee
earned, measured by the same method. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and revenues and are recognized in the period in which the revisions are
determined.
Inventories
Inventories consist of parts and supplies used in the Company's operations.
The inventories are valued at the lower of cost (determined using the first-
in, first-out method) or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
straight-line and accelerated methods over the useful life of the assets.
Leasehold improvements are amortized over the life of the related lease.
Disbursements in Transit
Under the Company's cash management system, checks issued, but not presented
to the bank frequently result in overdraft balances for financial accounting
purposes. These balances are classified as accounts payable in the balance
sheets and as a financing activity in the statements of cash flows.
Warranty Costs
The Company warrants labor for one year on new construction and 90 days
after servicing of air conditioning and heating units. A reserve for warranty
costs is recorded upon completion of installation or services.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
No. 123). The new standard measures compensation cost using a fair value
method, which computes compensation cost as the difference between the
options' fair value and the option price on the grant date. However, SFAS No.
123 allows companies to continue to measure compensation cost using the
intrinsic value method, which computes compensation cost as the difference
between a company's stock price and the option price at the grant date. The
Company has elected to continue to use the intrinsic value method.
Income Taxes
Income taxes are accounted for using an asset and liability approach which
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
financial statement and tax basis of assets and liabilities at the applicable
enacted tax rates. Income taxes are explained further in Note 9.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
billed receivables, loans, short-term debt (a revolving line of credit with a
variable interest rate) and long-term debt. The carrying value of these
instruments approximate fair value.
F-51
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Asset Impairment
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
Reclassifications
Certain amounts in the financial statements for 1994 and 1995 have been
reclassified to conform with the 1996 presentation. These changes had no
effect on operating results.
3. CONTRACTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Contracts receivable
Completed contracts..................... $ 3,257 $ 511,903 $ 767,621
Contracts in progress................... 7,065,294 9,843,152 11,231,253
Retentions.............................. 1,413,742 1,549,731 1,631,527
---------- ----------- -----------
8,482,293 11,904,786 13,630,401
Service and maintenance................... 1,110,384 1,219,618 1,195,211
Other..................................... 324,316 300,688 52,331
---------- ----------- -----------
9,916,993 13,425,092 14,877,943
Less allowance for doubtful accounts...... 145,000 137,378 149,653
---------- ----------- -----------
$9,771,933 $13,287,714 $14,728,290
========== =========== ===========
</TABLE>
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts........................... $29,427,252 $36,199,700 $32,045,499
Estimated earnings................... 5,377,340 5,029,941 4,227,719
----------- ----------- -----------
34,804,592 41,229,641 36,273,218
Less billings to date................ 34,524,312 41,547,587 36,973,533
----------- ----------- -----------
$ 280,280 $ (317,946) $ (700,315)
=========== =========== ===========
</TABLE>
F-52
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Costs and estimated earnings in
excess of billings on uncompleted
contracts......................... $ 1,356,980 $ 1,342,213 $ 1,015,468
Billings in excess of costs and
estimated earnings on uncompleted
contracts......................... (1,076,700) (1,660,159) (1,715,783)
----------- ----------- -----------
$ 280,280 $ (317,946) $ (700,315)
=========== =========== ===========
</TABLE>
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL --------------------- JUNE 30,
LIVES 1995 1996 1997
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Machinery and equipment........... 5 years $ 709,983 $ 763,572 $ 887,108
Vehicles.......................... 5 years 188,267 167,810 139,232
Office furniture and equipment.... 7 years 553,565 600,376 608,090
Data processing equipment......... 5 years 736,129 955,399 1,039,165
Communication equipment........... 5 years 90,759 112,419 108,145
Leasehold improvements............ 9 years 179,322 220,432 312,194
---------- ---------- ----------
2,458,025 2,820,008 3,093,934
Less accumulated depreciation..... 1,298,205 1,383,715 1,538,611
---------- ---------- ----------
$1,159,820 $1,436,293 $1,555,323
========== ========== ==========
</TABLE>
6. REAL ESTATE HELD FOR INVESTMENT
During 1995, the Company purchased certain real property which was not
intended to be used in business operations. The property is encumbered with
debt. The debt service payments are calculated using an amortization period of
30 years with interest at 7.88%. Monthly payments, including interest, are
$3,000 with the remaining balance due in full in October 2000. The balances of
the net book value and long-term debt of the real estate held for investment
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Cost basis.................................... $560,000 $583,066 $ 583,066
Loss reserve.................................. (50,000) (75,000) (172,000)
-------- -------- ---------
Net book value.............................. $510,000 $508,066 $ 411,066
======== ======== =========
Long-term debt................................ $401,664 $398,149 $ 396,285
======== ======== =========
</TABLE>
F-53
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. NOTE PAYABLE TO BANK
The note payable to bank represents the outstanding balance on a $6,000,000
revolving line of credit with interest at the bank's prime rate plus .75%. The
weighted average interest rate for December 31, 1995, 1996 and June 30, 1997
was 9.83%, 9.15% and 9.27%, respectively. The line of credit is subject to
annual renewal. The note is collateralized by receivables and inventory, and
is guaranteed by the executive officers. The Company is required under the
agreement to maintain certain financial covenants. These financial covenants
include current ratio and tangible net worth requirements, fixed asset
addition restrictions, dividend payment restrictions, and certain restrictions
regarding changes in ownership.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Note payable to bank, due in monthly installments
of $8,000 plus interest at prime plus 1%,
collateralized by equipment..................... $352,000 $456,000 $408,000
Note payable, paid in full during 1996........... 45,570 -- --
Note payable related to real estate (see Note 6). 401,664 398,149 396,285
-------- -------- --------
799,234 854,149 804,285
Less current portion............................. 100,136 96,000 96,000
-------- -------- --------
$699,098 $758,149 $708,285
======== ======== ========
</TABLE>
The aggregate maturities of the long-term debt for future years ending June
30 are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 96,000
1999............................................................. 96,000
2000............................................................. 492,285
2001............................................................. 96,000
2002............................................................. 24,000
--------
$804,285
========
</TABLE>
9. INCOME TAXES
The income tax provision consists of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current..................... $334,730 $411,238 $531,000 $428,059 $660,001
Deferred.................... (9,000) (67,000) 43,000 (81,000) (91,000)
-------- -------- -------- -------- --------
$325,730 $344,238 $574,000 $347,059 $569,001
======== ======== ======== ======== ========
</TABLE>
F-54
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total income tax expense differs from the amounts computed by applying the
United States statutory income tax rate to income before income tax provision
as a result of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------- ---------------------------
1994 % 1995 % 1996 % 1996 % 1997 %
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax provision at
statutory rate......... $301,970 34.0 $282,138 34.0 $524,368 34.0 $309,071 34.0 $526,879 34.0
Increase (reduction) in
income taxes resulting
from:
State income taxes..... 3,200 0.4 2,600 0.3 6,600 0.4 3,300 0.4 10,800 0.7
Meals and
entertainment......... 18,100 2.0 22,800 2.7 23,800 1.5 11,900 1.3 13,600 0.9
Other non-deductible
expenses.............. 2,210 0.2 19,700 2.4 5,600 0.4 5,800 0.6 2,800 0.2
Other.................. 250 -- 17,000 2.0 13,632 0.9 16,988 1.9 14,922 0.9
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
$325,730 36.6 $344,238 41.4 $574,000 37.2 $347,059 38,2 $569,001 36.7
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Warranty reserve............................. $ 44,000 $ 45,000 $ 41,000
Allowance for doubtful accounts.............. 56,000 48,000 51,000
Loss on sale reserve......................... 17,000 26,000 58,000
Deferred Compensation........................ 121,000 65,000 65,000
Other........................................ -- 18,000 60,000
-------- -------- --------
Total deferred income tax assets........... 238,000 202,000 275,000
-------- -------- --------
Deferred tax liabilities:
Contracts in progress........................ (17,000) (36,000) (8,000)
Depreciation................................. (73,000) (61,000) (71,000)
-------- -------- --------
Total deferred income tax liabilities...... (90,000) (97,000) (79,000)
-------- -------- --------
Net deferred income taxes.................. $148,000 $105,000 $196,000
======== ======== ========
</TABLE>
10. ACCRUED LIABILITIES
Accrued liabilities consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Payroll................................. $1,176,450 $1,269,823 $1,718,077
Payroll and business taxes.............. 495,867 309,251 488,115
Other................................... 243,651 261,625 210,556
---------- ---------- ----------
$1,915,968 $1,840,699 $2,416,748
========== ========== ==========
</TABLE>
F-55
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS
The Company conducts its operation from facilities which are leased from an
affiliated entity under an agreement expiring October 2003. The Company also
leases vehicles and facilities from unrelated companies under agreements
expiring at various times through 2001. The Company accounts for these leases
as operating leases. Aggregate minimum annual lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING RELATED
JUNE 30, PARTY OTHER TOTAL
------------ ---------- ---------- ----------
<S> <C> <C> <C>
1998...................................... $ 380,000 $ 511,000 $ 891,000
1999...................................... 380,000 467,000 847,000
2000...................................... 380,000 350,000 730,000
2001...................................... 380,000 211,000 591,000
2002...................................... 380,000 59,000 439,000
Thereafter................................. 507,000 -- 507,000
---------- ---------- ----------
$2,407,000 $1,598,000 $4,005,000
========== ========== ==========
</TABLE>
Rental expense under operating leases:
<TABLE>
<CAPTION>
YEARS ENDING RELATED
DECEMBER 31, PARTY OTHER TOTAL
------------ -------- -------- --------
<S> <C> <C> <C>
1994............................................ $380,000 $368,000 $605,000
1995............................................ 380,000 521,000 737,000
1996............................................ 380,000 582,000 759,000
<CAPTION>
PERIOD ENDING
JUNE 30,
-------------
<S> <C> <C> <C>
1996............................................ $190,000 $300,000 $490,000
1997............................................ 190,000 320,000 510,000
</TABLE>
12. RELATED PARTY BALANCES AND TRANSACTIONS
Notes Payable
During 1996, the note payable to shareholder was paid in full, which
included interest payments of $57,000.
Receivables
These balances represent short-term loans granted by the company to
shareholders and employees not incurred in the ordinary course of business.
The receivables are unsecured.
Leases
As further described in Note 10, the Company leases its main plant and
office facilities from the Company's president and principal shareholder.
13. EMPLOYEE BENEFIT PLANS
Pension Plan
The Company contributes monthly to several union-sponsored pension plans for
the benefit of most hourly employees. Such contributions aggregated
approximately $2,162,000, $958,000 and $480,000 in 1996, 1995 and 1994,
respectively, and $1,214,000 and $1,140,520 for the period ending June 30,
1997 and 1996, respectively.
F-56
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ESOP
The Company has established an employee stock ownership plan (ESOP) which
permits participation by eligible nonunion employees. Contributions are
determined at the discretion of the Board of Directors. ESOP expense amounted
to $87,000, $360,000 and $354,000 in 1996, 1995 and 1994, respectively. There
were no contributions for the periods ending June 30, 1997 and 1996. Upon sale
of the Company to GroupMAC (see Note 2), the ESOP plan will be terminated.
401(k)
The Company sponsors a 401(k) salary savings plan for the benefit of all
eligible union and nonunion employees. All contributions to the plan are
elective by the participants. Matching contributions amounted to $27,371,
$29,000 and $26,400 in 1996, 1995 and 1994, respectively, and $88,262 and
$14,430 for the period ending June 30, 1997 and 1996, respectively.
Stock Options
In 1989, several key employees were granted options to purchase 25,000
shares of common stock at fair market value at the date of grant of $20 per
share. The options vest and become exercisable in substantially equal annual
amounts through December 1998. Unexercised options expire one year after
becoming vested or 90 days following termination of employment for reasons
other than death or disability, if earlier. Unexercised options may be
extended to a maximum of two years after becoming vested with the approval of
the Board of Directors.
During 1995, the Company granted options to six employees to purchase 2,000
shares each of common stock at $31.97 per share, the fair market value at the
date of grant. These options are exercisable at the rate of 200 shares
annually through June 2004. During 1997, the Company amended the plan and
granted options to three additional employees to purchase shares of common
stock at $42.05 per share, the fair market value at date of grant.
The following table shows changes in stock options outstanding:
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS
-----------------------------
AUTHORIZED GRANTED AVAILABLE PRICE
---------- ------- --------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994.......... 80,000 19,469* 52,100 $20.00
Creation of new plan.............. 20,000 -- 20,000
Granted........................... -- 12,000 (12,000) $31.97
Exercised......................... -- (4,702) -- $20 to $26.16
Canceled.......................... -- (975) -- --
------- ------ -------
Balance, December 31, 1995.......... 100,000 25,792* 60,100 $20 to $31.97
Exercised......................... -- (3,977) -- $20 to $31.97
------- ------ -------
Balance, December 31, 1996.......... 100,000 21,815* 60,100 $20 to $31.97
Granted........................... -- 5,000 (5,000) $42.05
Exercised......................... -- (1,800) -- $20 to $42.05
------- ------ -------
Balance, June 30, 1997.............. 100,000 25,015* 55,100 $20 to $42.05
======= ====== =======
</TABLE>
- --------
* At the periods ended, the cumulative number of options vested were as
follows:
<TABLE>
<S> <C>
December 31, 1994................................................... 5,444
December 31, 1995................................................... 5,444
December 31, 1996................................................... 5,444
June 30, 1997....................................................... 2,777
</TABLE>
F-57
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Upon successful completion of the sale of MMI, all options in the key
employees plan will be vested and exercised. The employee plan will be
eliminated.
Incentive Compensation Plan
During 1995, the Board of Directors established an Incentive Compensation
Plan (ICP) on behalf of executive management. The ICP provides that a portion
of net income, in excess of an established rate of return on equity, be
expensed as incentive compensation. The 1996 and 1995 incentive compensation
expense is $10,000 and $710,000, respectively. There was no expense for the
period ending June 30, 1997 and 1996. The deferred portion at December 31,
1996 and 1995 of $190,000 and $355,000 is payable in future years depending on
operating results of the Company. In the event of operating losses, the
deferred pool will be reduced by the lesser of the operating loss, or the
deferred pool. Participation in the ICP is subject to certain employment and
vesting provisions. The deferred amounts are subordinated to bank and surety
credits.
14. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of receivables and costs and earnings in
excess of billings on uncompleted contracts. Concentrations of credit risk
with respect to billed and unbilled receivables are limited due to the large
number of customers comprising the Company's customer base. The Company
generally does not require collateral, but in most cases can place liens
against the property constructed if a default takes place.
15. SIGNIFICANT CUSTOMERS
During the period ending June 30, 1997, the Company had $17,706,000 or 45%
of the periods revenues, and $6,840,000 or 45% of the ending accounts
receivable from two customers. The accounts receivable and revenue represent
four jobs.
16. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash paid during the year
for:
Income taxes............ $427,105 $370,000 $405,300 $200,000 $150,000
======== ======== ======== ======== ========
Interest................ $275,490 $370,604 $519,842 $244,135 $214,381
======== ======== ======== ======== ========
</TABLE>
F-58
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Masters, Inc.
Gaithersburg, Maryland
We have audited the accompanying balance sheets of Masters, Inc. as of
December 31, 1995, December 31, 1996 and June 30, 1997, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996 and for the six month period
ended June 30, 1997. 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, such financial statements present fairly, in all material
respects, the financial position of Masters, Inc., as of December 31, 1995,
December 31, 1996 and June 30, 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996
and for the six month period ended June 30, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Washington, D.C.
July 24, 1997
F-59
<PAGE>
MASTERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
ASSETS ------------ ------------ -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............. $ 535,255 $ 670,776 $ 637,330
Accounts receivable, less allowance for
doubtful accounts of $50,000, $99,290
and $257,839, respectively............ 6,257,622 6,859,307 6,859,621
Costs and estimated earnings in excess
of billings on uncompleted contracts.. 1,506,793 1,866,172 1,419,830
Inventories............................ 489,063 588,715 621,912
Prepaid expenses and other assets...... 50,166 48,829 70,818
----------- ----------- -----------
Total current assets................. 8,838,899 10,033,799 9,609,511
PROPERTY AND EQUIPMENT, net.............. 590,229 625,125 609,719
OTHER NONCURRENT ASSETS.................. 673,570 673,570 673,570
----------- ----------- -----------
Total assets......................... $10,102,698 $11,332,494 $10,892,800
=========== =========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current
maturities of long-term debt.......... $ 1,406,634 $ 1,979,616 $ 1,069,777
Accounts payable....................... 1,781,218 1,761,200 2,152,392
Accrued expenses....................... 1,042,627 1,241,727 1,160,127
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 721,159 627,052 850,687
Other current liabilities.............. 406,163 319,904 395,275
----------- ----------- -----------
Total current liabilities............ 5,357,801 5,929,499 5,628,258
LONG-TERM DEBT, net of current
maturities.............................. 827,492 800,238 764,932
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDER'S EQUITY:
Common stock, par value $1 per share;
50,000 shares authorized; 5,100 shares
issued and outstanding................ 5,100 5,100 5,100
Retained earnings...................... 3,912,305 4,597,657 4,494,510
----------- ----------- -----------
Total shareholder's equity........... 3,917,405 4,602,757 4,499,610
----------- ----------- -----------
Total liabilities and shareholder's
equity.............................. $10,102,698 $11,332,494 $10,892,800
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
MASTERS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
----------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $30,327,333 $35,160,419 $39,825,843 $18,278,841 $19,318,196
COST OF SERVICES........ 28,018,280 31,746,287 35,854,155 16,639,076 17,457,471
----------- ----------- ----------- ----------- -----------
Gross profit.......... 2,309,053 3,414,132 3,971,688 1,639,765 1,860,725
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 1,664,069 2,373,300 2,483,875 1,008,650 1,196,777
----------- ----------- ----------- ----------- -----------
Income from
operations........... 644,984 1,040,832 1,487,813 631,115 663,948
INTEREST EXPENSE........ 86,940 102,428 134,718 58,888 64,672
----------- ----------- ----------- ----------- -----------
NET INCOME.............. $ 558,044 $ 938,404 $ 1,353,095 $ 572,227 $ 599,276
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
MASTERS, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDER'S
STOCK EARNINGS EQUITY
------ ---------- -------------
<S> <C> <C> <C>
BALANCE, January 1, 1994....................... $5,100 $3,125,114 $3,130,214
Net income................................... 558,044 558,044
Dividends paid............................... (219,912) (219,912)
------ ---------- ----------
BALANCE, December 31, 1994..................... 5,100 3,463,246 3,468,346
Net income................................... 938,404 938,404
Dividends paid............................... (489,345) (489,345)
------ ---------- ----------
BALANCE, December 31, 1995..................... 5,100 3,912,305 3,917,405
Net income................................... 1,353,095 1,353,095
Dividends paid............................... (667,743) (667,743)
------ ---------- ----------
BALANCE, December 31, 1996..................... 5,100 4,597,657 4,602,757
Net income................................... 599,276 599,276
Dividends paid............................... (702,423) (702,423)
------ ---------- ----------
BALANCE, June 30, 1997......................... $5,100 $4,494,510 $4,499,610
====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
MASTERS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income............. $ 558,044 $ 938,404 $ 1,353,095 $572,227 $ 599,276
Adjustments to recon-
cile net income to net
cash provided by (used
in) operating activi-
ties:
Depreciation........... 227,572 236,131 258,079 144,065 139,740
Loss(Gain) on disposal
of assets............. 20,576 8,480 2,223 -- (305)
Bad debt expense....... 425,602 626,625 434,250 100,000 169,741
Changes in operating
assets and liabili-
ties:
(Increase) decrease
in--
Notes and accounts
receivable.......... (517,095) (1,881,816) (1,035,935) (701,119) (170,055)
Costs and estimated
earnings in excess
of billings on un-
completed contracts. (104,401) (278,186) (359,379) (667,721) 446,342
Inventories.......... 116,978 9,039 (99,652) 31,423 (33,197)
Prepaid expenses and
other assets........ (16,255) (17,607) 1,337 9,945 (21,989)
Increase (decrease)
in--
Accounts payable..... 380,925 120,221 (20,018) 326,793 391,192
Billings in excess of
costs and estimated
earnings on uncom-
pleted contracts.... 43,624 209,499 (94,107) 26,087 223,635
Accrued salaries and
wages............... 2,662 16,042 17,360 58,963 40,363
Accrued profit shar-
ing and bonus....... 143,148 256,752 189,431 (43,433) (162,176)
Accrued vacation ben-
efits............... 53,589 40,105 61,561 29,600 35,858
Payroll taxes and
withholding......... 22,291 (5,665) (69,252) 57,517 4,356
Other current liabil-
ities............... 238,406 80,814 (86,259) (52,484) 75,371
----------- ----------- ----------- -------- -----------
Net cash provided by
(used in) operating ac-
tivities............... 1,595,666 358,838 552,734 (108,137) 1,738,152
----------- ----------- ----------- -------- -----------
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Purchases of property
and equipment......... (284,326) (1,045,919) (295,198) (169,080) (130,357)
Proceeds from sale of
equipment............. 18,208 566 -- -- 6,327
----------- ----------- ----------- -------- -----------
Net cash used in in-
vesting activities.... (266,118) (1,045,353) (295,198) (169,080) (124,030)
----------- ----------- ----------- -------- -----------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Proceeds from long-term
debt.................. 160,000 1,604,746 659,234 944,234 --
Payments of long-term
debt.................. (1,237,110) (345,617) (113,506) (51,018) (945,145)
Dividends paid......... (219,912) (489,345) (667,743) (567,324) (702,423)
----------- ----------- ----------- -------- -----------
Net cash provided by
(used in) financing
activities............ (1,297,022) 769,784 (122,015) 325,892 (1,647,568)
----------- ----------- ----------- -------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIV-
ALENTS................. 32,526 83,269 135,521 48,675 (33,446)
CASH AND CASH EQUIVA-
LENTS, beginning of pe-
riod................... 419,460 451,986 535,255 535,255 670,776
----------- ----------- ----------- -------- -----------
CASH AND CASH EQUIVA-
LENTS, end of period... $ 451,986 $ 535,255 $ 670,776 $583,930 $ 637,330
=========== =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
MASTERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Masters, Inc. (the Company) is a Mechanical Contractor primarily engaged in
the installation of residential and commercial plumbing, heating, air
conditioning and sprinkler systems within a 100-mile radius of the Washington,
D.C. area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the six months ended June 30, 1996 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows
with respect to the interim financial statements, have been included. The
results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from these estimates.
Revenue Recognition
The Company reports revenues from long-term construction contracts in
progress based on the percentage-of-completion method of accounting and,
therefore, takes into account the costs, estimated earnings and revenues to
date on contracts not yet completed.
The amount of revenue recognized at the statement date is the portion of the
total contract price that the cost expended to date bears to the anticipated
final total cost, based on current estimates of the cost to complete. Revenue
recognized is not necessarily related to the progress billings to customers.
As contracts extend over one or more years, revisions in estimates of cost
and earnings during the course of the work are reflected in the accounting
period in which the facts which require the revision become known.
At the time a loss on a contract becomes known, the entire amount of the
estimated loss is recognized in the financial statements.
Cash and Cash Equivalents
The Company has a cash management system with its bank that provides for the
investment of excess cash balances. The bank transfers the Company's excess
cash balances daily to investments that are under the bank's control. At
December 31, 1995, December 31, 1996 and June 30, 1997, the balances invested
under the cash management system were $1,294,005, $1,198,620 and $1,106,523,
respectively. The Company considers its investments with initial maturities of
less than 90 days to be cash equivalents.
F-64
<PAGE>
MASTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Inventories
Inventories consist primarily of purchased materials and supplies.
Inventories are stated at the lower of cost or market with cost determined on
a first-in, first-out basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed by the
straight-line method based on the estimated useful lives of the assets.
Leasehold improvements are depreciated over the lesser of the remaining lease
term or the estimated useful life of the asset. Expenditures for repairs and
maintenance are charged to expense when incurred. Expenditures for major
renewals and betterments, which extend the useful lives of existing equipment,
are capitalized and depreciated. Upon retirement or disposition of property or
equipment, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in the statement of
operations.
Warranty Costs
The Company provides one to two year warranties on their contracts. At
December 31, 1995, December 31, 1996 and June 30, 1997, the Company's warranty
reserve was $80,000, $159,000 and $192,388, respectively.
Income Taxes
The Company has elected to be taxed under Subchapter S of the Internal
Revenue Code. Accordingly, the current taxable income of the Company is
taxable to the shareholder who is responsible for the payment of taxes
thereon.
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
Reclassification
Certain amounts reported in the 1995 and 1996 financial statements have been
reclassified to conform with the June 30, 1997 presentation.
F-65
<PAGE>
MASTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ----------
<S> <C> <C> <C>
Trade accounts receivable.......... $5,337,781 $6,064,444 $5,919,387
Retentions......................... 288,552 226,646 521,686
Shareholder........................ 224,658 238,579 245,539
Service............................ 63,332 50,487 62,057
Trade notes receivable............. 57,672 36,557 25,366
Other.............................. 335,627 341,884 343,425
---------- ---------- ----------
$6,307,622 $6,958,597 $7,117,460
Allowance for sales adjustments and
doubtful accounts................. (50,000) (99,290) (257,839)
---------- ---------- ----------
$6,257,622 $6,859,307 $6,859,621
========== ========== ==========
</TABLE>
Accrued expenses consists of the following:
<TABLE>
<S> <C> <C> <C>
Accrued salaries and wages.............. $ 195,815 $ 213,175 $ 253,538
Accrued profit sharing and bonus........ 415,837 605,268 443,092
Accrued vacation benefits............... 307,523 369,084 404,941
Payroll taxes and withholding........... 123,452 54,200 58,556
---------- ---------- ----------
$1,042,627 $1,241,727 $1,160,127
========== ========== ==========
</TABLE>
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Costs incurred................. $ 37,064,954 $ 62,376,659 $ 58,243,065
Estimated earnings recognized.. 15,929,952 26,073,509 24,889,245
------------ ------------ ------------
52,994,906 88,450,168 83,132,310
Less billings on contracts..... (52,209,272) (87,211,048) (82,563,167)
------------ ------------ ------------
$ 785,634 $ 1,239,120 $ 569,143
============ ============ ============
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... $ 1,506,793 $ 1,866,172 $ 1,419,830
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... (721,159) (627,052) (850,687)
------------ ------------ ------------
$ 785,634 $ 1,239,120 $ 569,143
============ ============ ============
</TABLE>
F-66
<PAGE>
MASTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31, DECEMBER 31, JUNE 30,
LIVES 1995 1996 1997
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Leasehold improvements....... 2-7 years $ 215,396 $ 221,265 $ 223,012
Office furniture and
equipment................... 5-10 years 784,498 838,904 858,900
Automotive equipment......... 3-5 years 399,942 435,623 470,864
Construction machinery and
equipment................... 8-10 years 1,003,995 1,132,070 1,174,761
----------- ----------- -----------
2,403,831 2,627,862 2,727,537
Less accumulated
depreciation................ (1,813,602) (2,002,737) (2,117,818)
=========== =========== ===========
$ 590,229 $ 625,125 $ 609,719
=========== =========== ===========
</TABLE>
6. OTHER NONCURRENT ASSETS
During the fourth quarter of 1995, the Company purchased three model homes
from a customer for $673,570 in order to settle certain accounts receivable
balances. The Company is not in the real estate business, and intends to sell
this real estate. Management believes that the carrying value of these homes
approximates their net realizable value based on recent sales in this
development.
The related mortgage note totaling $630,462, $619,627 and $612,915 as of
December 31, 1995, December 31, 1996 and June 30, 1997, respectively, matures
October 5, 2000, and is payable in monthly installments of $5,843 including
principal and interest at 9.25%. The operating results of the investment are
not significant.
Maturities of the mortgage note are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1998........................................................... $ 14,159
1999........................................................... 15,525
2000........................................................... 17,024
2001........................................................... 566,207
--------
$612,915
========
</TABLE>
7. SHORT AND LONG-TERM DEBT
The Company has a revolving loan agreement with a bank, which as of December
31, 1995, December 31, 1996 and June 30, 1997, provided for maximum borrowings
of $3,000,000, $3,500,000 and $3,500,000, respectively. The agreement has a
maturity date of September 1, 1997. Borrowings under this agreement at
December 31, 1995, December 31, 1996 and June 30, 1997, amounted to
$1,300,000, $1,890,000 and $1,000,000, respectively, with interest at 8.5
percent at December 31, 1995, 8.25 percent at December 31, 1996 and 8.5
percent at June 30, 1997. All advances under the revolving note are cross-
collateralized with the notes and mortgage payable discussed below. The debt
agreements require among other provisions, the maintenance of certain levels
of net worth and working capital, and place restrictions on cash dividends.
The Company's long term debt for December 31, 1995, December 31, 1996 and
June 30, 1997, was $303,664, $270,227 and $221,794, respectively.
F-67
<PAGE>
MASTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
7.75%, due 2/28/97, secured by equipment... $ 44,484 $ 9,198 $ --
8.0%, due 6/25/97, secured by equipment.... 33,582 12,999 --
8.25%, due 11/22/00, secured by equipment.. 200,002 166,431 148,539
-------- -------- --------
Total Notes Payable...................... 278,068 188,628 148,539
-------- -------- --------
Capitalized lease, payable in monthly
installments, interest at 15.35%, due
6/30/00, secured by equipment............. 25,596 21,321 18,928
Capitalized lease, payable in monthly
installments, interest at 9.07%, due
4/30/01, secured by equipment............. $ -- $ 60,278 $ 54,327
-------- -------- --------
Total Capitalized Leases................. 25,596 81,599 73,255
-------- -------- --------
Total long-term debt................... 303,664 270,227 221,794
-------- -------- --------
Less current maturities................ (94,303) (76,095) (55,618)
-------- -------- --------
$209,361 $194,132 $166,176
======== ======== ========
</TABLE>
The aggregate maturities of the long-term debt as of June 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................. $ 37,507
1999............................................................. 40,721
2000............................................................. 44,211
2001............................................................. 26,100
--------
$148,539
========
</TABLE>
Total borrowings under the notes payable with the bank are collateralized by
accounts receivable, inventory, and property and equipment of the Company, the
personal guarantee of the shareholder, and an assignment of the proceeds of a
$2,000,000 life insurance policy on the life of the shareholder.
Future minimum lease payments under capital leases together with the present
value of the net minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1998........................................................... $25,183
1999........................................................... 25,183
2000........................................................... 25,183
2001........................................................... 12,954
-------
Total minimum lease payments..................................... 88,503
Less: Amount representing interest............................... (15,248)
-------
Present value of net minimum lease payments...................... 73,255
Less: Current Portion............................................ (18,111)
-------
Long-term Portion................................................ $55,144
=======
</TABLE>
Interest paid by Company on short and long-term debt was as follows:
<TABLE>
<S> <C>
Year ending December 31, 1994................................... $106,083
Year ending December 31, 1995................................... 115,031
Year ending December 31, 1996................................... 157,435
Six months ending June 30, 1997................................. 77,445
</TABLE>
F-68
<PAGE>
MASTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. LEASES
The Company occupies warehouse and office space which is subject to
operating leases. These leases provide for the following annual rental
payments:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1998......................................................... $ 283,558
1999......................................................... 280,881
2000......................................................... 278,094
2001......................................................... 289,008
2002......................................................... 296,522
Thereafter................................................... 165,858
----------
$1,593,921
==========
</TABLE>
Total rent expense was $285,353, $268,419 and $293,074 for the years ended
December 31, 1994, December 31, 1995 and December 31, 1996, respectively. Rent
expense was $140,766 for the six months ended June 30, 1997.
Office furniture and equipment at December 31, 1995, December 31, 1996 and
June 30, 1997, includes $27,500, $96,734 and $96,734, respectively, of
equipment under leases that have been capitalized. Accumulated depreciation
for such equipment was $2,750 at December 31, 1995, $17,940 at December 31,
1996 and $27,613 at June 30, 1997.
9. RELATED PARTY TRANSACTIONS
On January 22, 1997, the Company entered into a partnership with the
shareholder of the Company for the lease of warehouse and office space. The
lease requires an annual base rental of $233,700. The lease extends through
February 1, 2003. Rent increases on each anniversary at the rate of 4%. All
expenses except base period real estate taxes are paid by the Company. Total
rental expense under this lease for the six months ended June 30, 1997, was
$97,375.
The Company leases equipment from a company owned by the shareholder and an
officer of the Company. Expense for this equipment was $210,000, $199,925, and
$207,972, for the years ended December 31, 1994, December 31, 1995 and
December 31, 1996, respectively. Expense for this equipment was $100,803 for
the six months ended June 30, 1997.
The Company makes a monthly payment for advertising to a company owned by
the shareholder of the Company. Payments to this company were $0 for the year
ended December 31, 1994, and approximately $48,000 for each year ending
December 31, 1995 and December 31, 1996. Payments were $24,000 for the six
months ended June 30, 1997.
The Company has an outstanding receivable of $131,633 as of December 31,
1995, December 31, 1996 and June 30, 1997 from a company owned by the
shareholder of the Company.
The shareholder of the Company owes the Company $224,658, $238,579 and
$245,539 in notes receivable as of December 31, 1995, December 31, 1996 and
June 30, 1997, respectively. The balance includes accrued interest at rates
ranging from 7.0% to 8.5% and the notes are payable on demand.
F-69
<PAGE>
MASTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS
The Company adopted a qualified Profit-Sharing and 401(k) Retirement Plan in
December 1994. The Plan covers substantially all full time employees. The
401(k) portion of the Plan was effective in January 1995. Contributions are
determined based upon the discretion of the Company's Board of Directors. The
Company contributed $120,500 and $181,915 to the plan for the years ended
December 31, 1995 and December 31, 1996, respectively. A contribution of
$70,292 was made for the six months ended June 30, 1997. A favorable
determination letter dated January 29, 1996, has been obtained from the
Internal Revenue Service.
11. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position, results of operations or liquidity.
12. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
and short and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximate their fair
value.
13. SUBSEQUENT EVENT
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC will acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
* * * * * *
F-70
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
K & N Plumbing, Heating and Air Conditioning, Inc.
We have audited the accompanying balance sheet of K & N Plumbing, Heating
and Air Conditioning, Inc. as of March 31, 1997, and the related statements of
operations, shareholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of K & N Plumbing, Heating
and Air Conditioning, Inc. as of March 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 20, 1997, except for note 12, for which the date is June 1, 1997
F-71
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1997
----------
ASSETS
<S> <C>
CURRENT ASSETS:
Accounts receivable, net of allowance of $98,098....................... $3,410,659
Inventories............................................................ 254,135
Other receivables...................................................... 191,056
Prepaid expenses and other current assets.............................. 155,270
Deferred income taxes.................................................. 109,892
----------
Total current assets................................................. 4,121,012
PROPERTY AND EQUIPMENT, net.............................................. 1,483,869
OTHER NONCURRENT ASSETS.................................................. 20,895
----------
Total assets......................................................... $5,625,776
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-term debt......... $1,285,189
Accounts payable....................................................... 1,399,235
Accrued expenses....................................................... 627,263
Deferred service contract revenue...................................... 27,970
Income taxes payable................................................... 120,187
----------
Total current liabilities............................................ 3,459,844
LONG-TERM DEBT, net of current maturities................................ 305,685
DEFERRED INCOME TAXES.................................................... 252,091
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 100,000 shares authorized;
5,000 shares issued and outstanding................................... 5,000
Retained earnings...................................................... 1,603,156
----------
Total shareholders' equity........................................... 1,608,156
----------
Total liabilities and shareholders' equity........................... $5,625,776
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1997
-----------
<S> <C>
REVENUES........................................................... $24,279,160
COST OF SERVICES................................................... 20,704,965
-----------
Gross profit..................................................... 3,574,195
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................... 2,638,037
-----------
Income from operations........................................... 936,158
OTHER INCOME (EXPENSE):
Interest expense................................................. (97,390)
Other............................................................ (3,222)
-----------
Income before income tax provision............................. 835,546
INCOME TAX PROVISION............................................... 314,764
-----------
NET INCOME......................................................... $ 520,782
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------ ---------- -------------
<S> <C> <C> <C>
BALANCE, March 31, 1996......................... $5,000 $1,082,374 $1,087,374
Net income.................................... -- 520,782 520,782
------ ---------- ----------
BALANCE, March 31, 1997......................... $5,000 $1,603,156 $1,608,156
====== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-74
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR
ENDED
MARCH 31,
1997
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $ 520,782
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation...................................................... 500,679
Loss on sales of property and equipment........................... 10,982
Deferred income taxes............................................. 79,621
Changes in operating assets and liabilities:
(Increase) decrease in--
Accounts receivable............................................. (566,374)
Inventories..................................................... (100,496)
Other receivables............................................... 141,343
Prepaid expenses and other current assets....................... 45,096
Other noncurrent assets......................................... (4,972)
Increase (decrease) in--
Accounts payable................................................ 71,813
Accrued expenses................................................ 11,445
Deferred service contract revenue............................... 27,970
Income taxes payable............................................ 112,851
---------
Net cash provided by operating activities..................... 850,740
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................ (661,326)
Proceeds from sales of property and equipment...................... 14,442
---------
Net cash used in investing activities......................... (646,884)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Checks outstanding in excess of bank balance....................... (425,718)
Net borrowings on line of credit................................... 66,382
Principal payments on shareholder debt............................. (12,658)
Proceeds from issuance of installment debt......................... 479,093
Principal payments on installment debt............................. (310,955)
---------
Net cash used in financing activities......................... (203,856)
---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ --
CASH AND CASH EQUIVALENTS, beginning of year........................ --
---------
CASH AND CASH EQUIVALENTS, end of year.............................. $ --
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. BUSINESS AND ORGANIZATION
K & N Plumbing, Heating and Air Conditioning, Inc., (the Company) is
primarily engaged in the business of installing plumbing, heating and air
conditioning systems for new single-family detached homes in the areas in and
around Dallas and Austin, Texas and Las Vegas, Nevada. In addition, the
Company is involved in the replacement and repair market.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest and taxes were $99,838 and
$114,955, respectively, for the year ended March 31, 1997.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis, using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Inventories
Inventories consist primarily of purchased materials and supplies. The
inventory is valued at the lower of cost or market, with cost determined on a
first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease-term or the
estimated life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statement of operations.
F-76
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Warranty Costs
The Company warrants labor for one to two years after installation of new
air conditioning and heating units. The Company generally warrants labor for
one year after servicing of existing air conditioning and heating units. A
reserve for warranty costs is recorded upon completion of installation or
service.
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
New Accounting Pronouncement
Effective April 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepaid expenses and other current assets consist of the following at March
31, 1997:
<TABLE>
<S> <C>
Prepaid expenses.................................................. $ 94,808
Due from employees................................................ 60,462
--------
$155,270
========
Accrued expenses consist of the following at March 31, 1997:
Accrued payroll and related expense............................... $242,845
Other accrued expenses............................................ 384,418
--------
$627,263
========
</TABLE>
4. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C> <C>
Machinery and equipment............................. 5--7 years $ 554,461
Service and other vehicles.......................... 5 years 2,239,457
Office equipment, furniture and fixtures............ 5--7 years 290,702
Leasehold improvements.............................. -- 290,875
-----------
3,375,495
Less accumulated depreciation....................... (1,891,626)
-----------
$ 1,483,869
===========
</TABLE>
F-77
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following:
<TABLE>
<S> <C>
Credit facility in the amount of $1,000,000 with a bank, bearing
interest at prime plus 1.5%, secured by trade receivables and
inventory....................................................... $ 970,321
Equipment installation loans payable to banks and other financial
institutions, interest varying from 7.5% to 10.24%,
collateralized by certain equipment, payable in monthly
installments including interest, final installment due January
1998............................................................ 620,553
----------
Total short- and long-term debt.............................. 1,590,874
Less short-term borrowings and current maturities............... (1,285,189)
----------
$ 305,685
==========
</TABLE>
The Company had a revolving credit agreement with a bank to provide
borrowings up to $1,000,000. The agreement expires on August 30, 1997. The
revolving credit agreement was collateralized by accounts receivable,
inventories and the personal guarantee of the shareholder. The agreement
contained certain covenants with regard to minimum net worth and lending
limits of up to 80% of accounts receivable less than 60 days old. Borrowings
under the agreement in effect on March 31, 1997, bear interest at 10.0%, which
represents prime plus 1.5%. Borrowings outstanding at March 31, 1997 were
$970,321. The agreement was repaid in connection with the Company's
acquisition, see note 12.
The aggregate maturities of the short- and long-term debt as of March 31,
1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $1,285,189
1999............................................................... 246,605
2000............................................................... 59,080
----------
$1,590,874
==========
</TABLE>
6. INCOME TAXES
Income tax expense for the year ended March 31, 1997 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Federal............................................ $216,077 $73,166 $289,243
State.............................................. 19,066 6,455 25,521
-------- ------- --------
$235,143 $79,621 $314,764
======== ======= ========
</TABLE>
Total income tax expense differs from the amount computed by applying the
U.S. federal statutory income tax rate of 34% to income before income tax
provision as a result of the following:
<TABLE>
<S> <C>
Tax provision at statutory rate...................................... $284,086
Increase resulting from:
State income taxes, net of federal benefit......................... 16,844
Other.............................................................. 13,834
--------
$314,764
========
</TABLE>
F-78
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<S> <C>
Deferred income tax assets:
Warranty reserves.................................................. $ 41,440
Deferred service contract revenues................................. 10,349
Allowance for doubtful accounts.................................... 36,296
Vacation accrual................................................... 21,807
--------
Total deferred income tax asset.................................. 109,892
--------
Deferred income tax liabilities:
Depreciation....................................................... $112,936
Other.............................................................. 139,155
--------
Total deferred income tax liability.............................. 252,091
--------
Net deferred income tax liability................................ $142,199
========
</TABLE>
7. LEASES
The Company incurred rent expenses under operating leases of $137,351 for
the year ended March 31, 1997. Of such amount, $107,760 related to a facility
that is leased by the Company from its shareholder. Under the lease agreement,
the Company is to pay for all maintenance, certain taxes and insurance for the
facility.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of March 31, 1997
are as follows:
<TABLE>
<S> <C>
1998................................................................. $137,760
1999................................................................. 107,760
2000................................................................. 107,760
2001................................................................. 107,760
2002 and thereafter.................................................. 53,880
--------
$514,920
========
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company maintains a voluntary 401(k) profit-sharing plan covering all
employees. Employees may choose to defer up to 15% of their compensation
during the Plan year, not to exceed Internal Revenue Service limitations, by
contributing to the Plan. The Company matches 50% of each employee's
contributions up to a maximum of 5% of the employee's gross earnings.
Contributions made by the Company of $57,400 were charged to operations in the
year ended March 31, 1997.
9. SALES TO SIGNIFICANT CUSTOMERS
During the year ended March 31, 1997, two customers accounted for
approximately 30% of the Company's revenues.
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
F-79
<PAGE>
K & N PLUMBING, HEATING AND AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheet approximates their fair
value.
12. SUBSEQUENT EVENT
Effective June 1, 1997, Group Maintenance America Corp. (GroupMAC) acquired
the Company in a merger transaction for a combination of cash, preferred stock
and common stock of GroupMAC. All of the preferred shares issued in connection
with the acquisition of the business will be redeemed for cash concurrent with
the consummation of the initial public offering of the common stock of
GroupMAC.
F-80
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
A-ABC Appliance, Inc. and
A-1 Appliance and Air Conditioning, Inc.:
We have audited the accompanying combined balance sheets of A-ABC Appliance,
Inc. and A-1 Appliance and Air Conditioning, Inc. (collectively referred to as
the Company) as of December 31, 1996 and May 31, 1997, and the related
combined statements of operations, shareholders' equity and cash flows for the
year ended December 31, 1996 and the five months ended May 31, 1997. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the financial position of A-ABC Appliance,
Inc. and A-1 Appliance and Air Conditioning, Inc. as of December 31, 1996 and
May 31, 1997, and the results of its operations and its cash flows for the
year ended December 31, 1996 and the five months ended May 31, 1997 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 18, 1997
F-81
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 760,291 $ 654,324
Accounts receivable.................................. 144,519 217,461
Other receivables.................................... 35,226 --
Inventories.......................................... 570,007 517,587
Due from related parties and employees............... 30,912 162,580
Prepaid expenses..................................... 13,289 57,090
---------- ----------
Total current assets............................... 1,554,244 1,609,042
PROPERTY AND EQUIPMENT, net............................ 905,447 702,310
GOODWILL, net of accumulated amortization of $9,195 and
$9,820, respectively.................................. 50,808 50,183
OTHER NONCURRENT ASSETS................................ 334,372 263,599
---------- ----------
Total assets....................................... $2,844,871 $2,625,134
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................. $ 176,717 $ 168,425
Accounts payable..................................... 265,080 425,196
Accrued expenses..................................... 183,797 213,732
Due to related parties............................... 315,474 342,584
Deferred service contract revenue.................... 196,217 175,134
---------- ----------
Total current liabilities.......................... 1,137,285 1,325,071
LONG-TERM DEBT, net of current maturities.............. 844,549 779,511
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock......................................... 3,300 3,300
Additional paid-in capital........................... 304,140 304,140
Retained earnings.................................... 555,597 213,112
---------- ----------
Total shareholders' equity......................... 863,037 520,552
---------- ----------
Total liabilities and shareholders' equity......... $2,844,871 $2,625,134
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-82
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED MAY 31,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.................................. $8,546,450 $3,382,901 $3,419,026
COST OF SERVICES.......................... 5,446,934 2,147,150 2,227,471
---------- ---------- ----------
Gross profit............................ 3,099,516 1,235,751 1,191,555
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 2,766,293 1,124,839 996,082
---------- ---------- ----------
Income from operations.................. 333,223 110,912 195,473
OTHER INCOME (EXPENSE):
Interest expense........................ (94,434) (36,628) (34,313)
Interest income......................... 10,653 1,619 3,702
Other................................... 779 (15,130) (7,760)
---------- ---------- ----------
NET INCOME................................ $ 250,221 $ 60,773 $ 157,102
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-83
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $3,300 $304,140 $ 305,376 $ 612,816
Net income......................... -- -- 250,221 250,221
------ -------- --------- ---------
BALANCE, December 31, 1996........... 3,300 304,140 555,597 863,037
Net income......................... -- -- 157,102 157,102
Distributions to shareholders...... -- -- (499,587) (499,587)
------ -------- --------- ---------
BALANCE, May 31, 1997................ $3,300 $304,140 $ 213,112 $ 520,552
====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-84
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED MAY 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 250,221 $ 60,773 $ 157,102
Adjustments to reconcile net income to net
cash
provided by (used in) operating
activities:
Depreciation and amortization........... 318,259 138,454 133,448
Gain from sales of property and
equipment.............................. (18,765) (18,765) --
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable................... (8,567) (194,850) (72,942)
Other receivables..................... (28,778) 1,611 35,226
Inventories........................... 17,073 (31,888) 52,420
Due from related parties and
employees............................ 1,703 6,000 (11,186)
Prepaid expenses...................... 40,965 (16,391) (43,801)
Other noncurrent assets............... (4,952) (4,391) 24,940
Increase (decrease) in--
Accounts payable...................... (33,128) 143,415 160,116
Accrued expenses...................... (120,496) 69,937 29,935
Due to related parties................ (43,945) (359,419) (315,474)
Deferred service contract revenue..... 36,714 94,838 (21,083)
--------- --------- ---------
Net cash provided by (used in)
operating activities............ 406,304 (110,676) 128,701
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....... (456,877) (277,614) (4,335)
Proceeds from sales of property and
equipment................................ 20,585 20,585 --
--------- --------- ---------
Net cash used in investing
activities.......................... (436,292) (257,029) (4,335)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............. 376,714 376,714 --
Payments of long-term debt................ (135,202) (71,677) (73,330)
Distributions to shareholders............. -- -- (157,003)
--------- --------- ---------
Net cash provided by (used in)
financing activities............ 241,512 305,037 (230,333)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 211,524 (62,668) (105,967)
CASH AND CASH EQUIVALENTS, beginning of
period.................................... 548,767 548,767 760,291
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period... $ 760,291 $ 486,099 $ 654,324
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-85
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
A-ABC Appliance, Inc. (A-ABC) and A-1 Appliance and Air Conditioning, Inc.
(A-1), (collectively referred to as the Company), are under common ownership.
As common control exists among the entities, the financial statements have
been combined for all periods presented. There have been no intercompany
transactions between the entities. A-ABC and A-1 are primarily engaged in the
installation and servicing of heating and air conditioning systems, as well as
home appliances, for residential and light commercial customers in the Dallas,
Texas area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim combined financial statements for the five months ended May 31,
1996 are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the combined interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results of the entire fiscal year.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized upon completion of service. Revenues on service and
maintenance contracts are recognized over the life of the contract.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest were $92,052 and $34,313 for
the year ended December 31, 1996 and the five months ended May 31, 1997,
respectively.
Inventories
Inventories consist primarily of purchased materials and supplies. The
Company uses the first-in, first-out (FIFO) cost method to value its
inventories.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.
F-86
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Upon retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Income Taxes
The shareholders of the Company have elected to be taxed for federal tax
purposes as an S Corporation whereby the shareholders' respective equitable
shares in the taxable income of the Company are reportable on their individual
tax returns. The Company will make distributions to the shareholders each year
at least in amounts necessary to pay personal income taxes payable on the
Company's taxable income.
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Other noncurrent assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ --------
<S> <C> <C>
Covenant not to compete, net of accumulated
amortization of $247,500 and $293,333, respectively... $302,500 $256,667
Other noncurrent assets................................ 31,872 6,932
-------- --------
$334,372 $263,599
======== ========
Accrued expenses consists of the following:
Accrued payroll costs and benefits..................... $100,151 $165,233
Other accrued expenses................................. 83,646 48,499
-------- --------
$183,797 $213,732
======== ========
</TABLE>
F-87
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31, MAY 31,
LIVES 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Land.................................. -- $ 15,000 $ --
Buildings and improvements............ 20-30 years 138,958 --
Service and other vehicles............ 4-7 years 1,191,155 1,193,253
Office equipment, furniture and
fixtures............................. 5-10 years 450,086 452,323
Leasehold improvements................ -- 214,691 214,691
----------- -----------
2,009,890 1,860,267
Less accumulated depreciation......... (1,104,443) (1,157,957)
----------- -----------
$ 905,447 $ 702,310
=========== ===========
</TABLE>
5. GOODWILL AND OTHER NONCURRENT ASSETS
Goodwill represents the excess of the aggregate purchase price over the fair
value of net assets acquired and is amortized on a straight-line basis over a
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows compared to
the carrying value of goodwill. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
Other noncurrent assets include a covenant not to compete and deferred
charges related to the "Asset Purchase and Sale Agreement" made between the
Company's shareholders and former owners. The covenant not to compete and
deferred charges are amortized on a straight-line basis for a period of five
years, which is the period of the covenant in the agreement.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ ---------
<S> <C> <C>
Equipment installment loans payable to banks and
other financial institutions, interest varying from
8.75% to 9.0%, secured by certain equipment,
payable in monthly and quarterly installments
including interest, final installment
due November 2000.................................. $ 471,554 $ 419,900
Notes payable to the former shareholders of A-1
Appliance, Inc. at 8%, payable in monthly
installments of $7,783, including interest, final
installment due November 2004...................... 549,712 528,036
---------- ---------
Total long-term debt............................ 1,021,266 947,936
Less current maturities............................. (176,717) (168,425)
---------- ---------
$ 844,549 $ 779,511
========== =========
</TABLE>
F-88
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of the long-term debt as of December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
A-ABC A-1 COMBINED
-------- -------- ----------
<S> <C> <C> <C>
1997............................................ $ 97,304 $ 79,413 $ 176,717
1998............................................ 101,507 80,613 182,120
1999............................................ 108,743 71,823 180,566
2000............................................ 79,251 66,660 145,911
2001............................................ 23,435 72,477 95,912
Thereafter...................................... -- 240,040 240,040
-------- -------- ----------
$410,240 $611,026 $1,021,266
======== ======== ==========
</TABLE>
7. SHAREHOLDERS' EQUITY
The authorized, issued and outstanding common stock of the Company at
December 31, 1996 and May 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------ COMMON
AUTHORIZED ISSUED OUTSTANDING STOCK
---------- ------- ----------- ------
<S> <C> <C> <C> <C>
A-ABC voting........................... 50 50 50 $ 250
A-ABC non-voting....................... 50 50 50 50
A-1.................................... 300,000 300,000 300,000 3,000
------- ------- ------- ------
Total................................ 300,100 300,100 300,100 $3,300
======= ======= ======= ======
</TABLE>
The voting common stock and non-voting common stock of A-ABC have stated
values of $5 and $1 per share, respectively. The common stock of A-1 has a
stated value of $0.01 per share.
8. LEASES
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
A-ABC A-1 COMBINED
---------- ------- ----------
<S> <C> <C> <C>
1997........................................... $ 99,000 $27,000 $ 126,000
1998........................................... 99,000 27,000 126,000
1999........................................... 99,000 27,000 126,000
2000........................................... 99,000 11,250 110,250
2001........................................... 99,000 -- 99,000
Thereafter..................................... 717,750 -- 717,750
---------- ------- ----------
$1,212,750 $92,250 $1,305,000
========== ======= ==========
</TABLE>
Total rental expense for the year ended December 31, 1996 and the five
months ended May 31, 1997 was $136,200 and $58,200, respectively.
9. RELATED PARTY TRANSACTIONS
The Company leases the office building and warehouse from a shareholder of
A-ABC and A-1. The Company also pays management fees to a company owned by a
shareholder for administrative and operational services. The management
agreement is renewed annually.
F-89
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In May 1997, the Company sold land and buildings and improvements to a
shareholder for the recorded book value of $120,482. In addition, the Company
declared $342,584 of distributions to shareholders, which were not paid as of
May 31, 1997.
At December 31, 1996 and May 31, 1997, the Company had amounts due to
related parties of $315,474 and $342,584, respectively, and amounts due from
related parties of $23,174 and $145,070, respectively.
10. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) plan covering substantially all
employees. Contributions to this plan, determined annually, are at the
discretion of the Board of Directors. Authorized contributions for the year
ended December 31, 1996 and the five months ended May 31, 1997 amounted to
$20,258 and $9,942, respectively.
11. ADVERTISING
The Company expenses advertising costs as incurred. Total advertising
expense for the year ended December 31, 1996 and the five months ended May 31,
1997 amounted to $401,722 and $136,350, respectively, and is included in
selling, general and administrative expenses in the accompanying combined
statements of operations.
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position, results of operations or liquidity.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
long-term debt. The Company believes that the carrying value of these
instruments on the accompanying combined balance sheets approximates their
fair value.
14. SUBSEQUENT EVENT
Effective June 1, 1997, Group Maintenance America Corp. (GroupMAC) acquired
all of the outstanding shares of the Company for a combination of cash and
common stock of GroupMAC.
F-90
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Arkansas Mechanical Services, Inc.
and Mechanical Services, Inc.:
We have audited the accompanying combined balance sheets of Arkansas
Mechanical Services, Inc. and Mechanical Services, Inc. (collectively referred
to as the Company) as of December 31, 1996 and June 30, 1997, and the related
combined statements of operations, shareholders' equity and cash flows for the
year ended December 31, 1996 and the six months ended June 30, 1997. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Arkansas
Mechanical Services, Inc. and Mechanical Services, Inc. as of December 31,
1996 and June 30, 1997, and the results of its operations and its cash flows
for the year ended December 31, 1996 and the six months ended June 30, 1997 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 25, 1997
F-91
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
ASSETS ------------ ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 124,687 $ 20,123
Accounts receivable................................. 960,574 1,337,571
Inventories......................................... 55,036 75,862
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 52,310 36,203
Due from related parties............................ 21,291 17,553
Prepaid expenses and other current assets........... 8,795 11,508
---------- ----------
Total current assets.............................. 1,222,693 1,498,820
PROPERTY AND EQUIPMENT, net........................... 634,996 632,862
GOODWILL, net of accumulated amortization of $11,265
and $11,922, respectively............................ 14,975 14,318
OTHER NONCURRENT ASSETS............................... 1,217 1,383
---------- ----------
Total assets...................................... $1,873,881 $2,147,383
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current maturities of
long-term debt..................................... $ 513,157 $ 500,352
Accounts payable.................................... 529,497 725,177
Accrued expenses.................................... 157,811 69,571
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 117,526 99,690
Due to related parties.............................. -- 35,150
---------- ----------
Total current liabilities......................... 1,317,991 1,429,940
LONG-TERM DEBT, net of current maturities............. 205,170 192,645
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock........................................ 26,000 26,000
Retained earnings................................... 371,983 546,061
Treasury stock, at cost............................. (47,263) (47,263)
---------- ----------
Total shareholders' equity........................ 350,720 524,798
---------- ----------
Total liabilities and shareholders' equity........ $1,873,881 $2,147,383
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-92
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.................................. $6,237,166 $3,460,144 $4,028,775
COST OF SERVICES.......................... 4,773,451 2,663,083 3,168,537
---------- ---------- ----------
Gross profit.......................... 1,463,715 797,061 860,238
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 1,082,470 525,206 583,120
---------- ---------- ----------
Income from operations................ 381,245 271,855 277,118
OTHER INCOME (EXPENSE):
Interest expense........................ (51,408) (22,908) (32,160)
Other................................... 30,104 17,321 2,120
---------- ---------- ----------
NET INCOME................................ $ 359,941 $ 266,268 $ 247,078
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-93
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY SHAREHOLDERS'
STOCK EARNINGS STOCK EQUITY
------- --------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $26,000 $ 252,756 $(47,263) $ 231,493
Net income......................... -- 359,941 -- 359,941
Distributions to shareholders...... -- (240,714) -- (240,714)
------- --------- -------- ---------
BALANCE, December 31, 1996........... 26,000 371,983 (47,263) 350,720
Net income......................... -- 247,078 -- 247,078
Distributions to shareholders...... -- (73,000) -- (73,000)
------- --------- -------- ---------
BALANCE, June 30, 1997............... $26,000 $ 546,061 $(47,263) $ 524,798
======= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-94
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 359,941 $ 266,268 $ 247,078
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization............. 109,624 65,735 89,354
Changes in operating assets and liabili-
ties:
(Increase) decrease in--
Accounts receivable...................... (368,388) (366,932) (376,997)
Inventories.............................. (10,142) (34) (20,826)
Costs and estimated earnings in excess of
billings on uncompleted contracts....... (27,750) (52,223) 16,107
Due from related parties................. 69,661 85,066 3,738
Prepaid expenses and other current as-
sets.................................... (5,009) (20,847) (2,879)
Increase (decrease) in--
Accounts payable......................... 215,954 367,492 195,680
Accrued expenses......................... 43,524 10,842 (88,240)
Billings in excess of costs and estimated
earnings on uncompleted contracts....... 23,641 (71,807) (17,836)
Due to related parties................... (41,609) (41,609) 35,150
--------- --------- ---------
Net cash provided by operating activi-
ties.................................. 369,447 241,951 80,329
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........ (237,113) (130,895) (86,563)
Proceeds from sales of property and equip-
ment...................................... 15,000 -- --
--------- --------- ---------
Net cash used in investing activities.. (222,113) (130,895) (86,563)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings........ 590,000 440,000 110,000
Payments of short-term borrowings.......... (410,000) (260,000) (100,000)
Proceeds from long-term debt............... 194,326 98,775 37,499
Payments of long-term debt................. (145,389) (39,145) (72,829)
Distributions to shareholders.............. (295,714) (155,000) (73,000)
--------- --------- ---------
Net cash provided by (used in) financ-
ing activities........................ (66,777) 84,630 (98,330)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 80,557 195,686 (104,564)
CASH AND CASH EQUIVALENTS, beginning of pe-
riod....................................... 44,130 44,130 124,687
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.... $ 124,687 $ 239,816 $ 20,123
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-95
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Arkansas Mechanical Services, Inc. (AMS) and Mechanical Services, Inc.
(MSI), (collectively referred to as the Company), are under common ownership.
As common control exists among the entities, the financial statements have
been combined for all periods. All significant intercompany transactions and
balances have been eliminated in combination. The Company is primarily engaged
in the installation and servicing of heating and air conditioning systems for
commercial and industrial customers in Little Rock and Fayetteville, Arkansas
and the surrounding areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim combined financial statements for the six months ended June 30,
1996 are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the combined interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which losses are
determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest were $51,408 and $32,160 for
the year ended December 31, 1996 and the six months ended June 30, 1997.
Inventories
Inventories consist primarily of purchased materials and supplies. The
Company uses the first-in, first-out (FIFO) cost method to value its
inventories.
F-96
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 90
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.
Income Taxes
The shareholders of the Company have elected to be taxed for federal tax
purposes as an S Corporation whereby the shareholders' respective equitable
shares in the taxable income of the Company are reportable on their individual
tax returns. The Company will make distributions to the shareholders each year
at least in amounts necessary to pay personal income taxes payable on the
Company's taxable income.
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Accrued payroll costs and benefits.................. $ 115,949 $63,339
Other accrued expenses.............................. 41,862 6,232
--------- -------
$ 157,811 $69,571
========= =======
</TABLE>
F-97
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Costs incurred.................................. $1,493,806 $2,232,909
Estimated earnings recognized................... 246,687 247,900
---------- ----------
1,740,493 2,480,809
Less billings on contracts...................... 1,805,709 2,544,296
---------- ----------
$ (65,216) $ (63,487)
========== ==========
</TABLE>
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............... $ 52,310 $ 36,203
Billings in excess of costs and estimated
earnings on uncompleted contracts............... (117,526) (99,690)
--------- --------
$(65,216) $(63,487)
========= ========
</TABLE>
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31, JUNE 30,
LIVES 1996 1997
---------- ------------ ----------
<S> <C> <C> <C>
Service and other vehicles........... 4-7 years $ 654,491 $ 696,871
Machinery and equipment.............. 5-10 years 228,766 233,744
Office equipment, furniture and
fixtures............................ 5-10 years 69,698 98,121
Leasehold improvements............... -- 75,785 86,567
---------- ----------
1,028,740 1,115,303
Less accumulated depreciation........ (393,744) (482,441)
---------- ----------
$ 634,996 $ 632,862
========== ==========
</TABLE>
6. GOODWILL
Goodwill represents the excess of the aggregate purchase price over the fair
value of net assets acquired and is amortized on a straight-line basis over a
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows compared to
the carrying value of goodwill. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
F-98
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
<S> <C> <C>
Revolving line of credit with a bank with a maximum
amount of $300,000; interest accrues at prime plus
.75% and is payable monthly; secured by accounts
receivable and the personal guarantee of the
shareholders; due on demand.......................... $ 100,000 $ 75,000
Revolving line of credit with a bank with a maximum
amount of $250,000; interest accrues at 10.0% and is
payable monthly; secured by accounts receivable and
the personal guarantee of the shareholders; due on
demand with a maturity date of June 1997............. 180,000 --
Revolving line of credit with a bank with a maximum
amount of $400,000; interest accrues at prime plus
1.5% and is payable monthly; secured by accounts
receivable and the personal guarantee of the
shareholders; due on demand with a maturity date of
February 1998........................................ -- 215,000
Equipment installment notes to a bank; interest
accrued at various rates, payable in monthly
installments, including interest, of $14,256, final
installment due 2001; secured by service and other
vehicles and the personal guarantee of stockholders.. 275,603 259,718
Note payable to a bank; interest accrues at 9.5%;
payable in monthly installments including interest,
of $2,025, final installments, due August 1997;
secured by personal guarantee of the shareholder..... 92,512 83,731
Equipment installment notes to a bank; interest
varying from 7.5% to 10.0%; payable in monthly
installments of various amounts, including interest,
through 2000; secured by service and other vehicles.. 39,366 33,287
Note payable to a company affiliated through common
ownership; interest accrued at 9.0%; payable in
monthly installments, including interest of $981,
final installment due December 1999; unsecured....... 30,846 26,261
--------- ---------
Total short- and long-term debt..................... 718,327 692,997
Less short-term borrowings and current maturities..... (513,157) (500,352)
--------- ---------
$ 205,170 $ 192,645
========= =========
</TABLE>
The aggregate maturities of the short- and long-term debt as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
AMS MSI COMBINED
-------- -------- --------
<S> <C> <C> <C>
1997........................................... $320,107 $193,050 $513,157
1998........................................... 69,749 12,758 82,507
1999........................................... 68,141 10,827 78,968
2000........................................... 40,023 2,723 42,746
2001........................................... 949 -- 949
-------- -------- --------
$498,969 $219,358 $718,327
======== ======== ========
</TABLE>
F-99
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. SHAREHOLDERS' EQUITY
The authorized, issued and outstanding common stock of the Company at
December 31, 1996 and June 30, 1997 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------------
TREASURY COMMON
AMORTIZED ISSUED OUTSTANDING STOCK STOCK
--------- ------ ----------- -------- -------
<S> <C> <C> <C> <C> <C>
AMS......................... 100,000 6,000 6,000 1,900 $ 6,000
MSI......................... 1,000 400 333 -- 20,000
------- ----- ----- ----- -------
Total..................... 101,000 6,400 6,333 1,900 $26,000
======= ===== ===== ===== =======
</TABLE>
The common stock of AMS has a par value of $1 per share. The common stock of
MSI has a par value of $1 per share, but has a stated value of $60 per share.
MSI must maintain $20,000 in shareholders' equity in order to retain its
contractors license.
9. LEASES
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as December 31, 1996
are as follows:
<TABLE>
<CAPTION>
AMS MSI COMBINED
------- ------ --------
<S> <C> <C> <C>
1997.............................................. $17,608 $6,912 $24,520
1998.............................................. 14,400 2,656 17,056
1999.............................................. 14,400 -- 14,400
------- ------ -------
$46,408 $9,568 $55,976
======= ====== =======
</TABLE>
In addition to the above lease commitments, the Company leases office and
warehouse space under a month-to-month operating lease, with monthly payments
of $3,200. Total rental expense for the year ended December 31, 1996 and the
six months ended June 30, 1997 was $76,409 and $38,421, respectively.
10. RELATED PARTY TRANSACTIONS
The Company rents certain facilities from related parties. Total rent
expense for these facilities for the year ended December 31, 1996 and the six
months ended June 30, 1997 was $75,696 and $29,608, respectively. AMS rents
certain vehicles from a company affiliated through common ownership. Total
rent expense for these vehicles for the year ended December 31, 1996 and the
six months ended June 30, 1997 was $7,300 and $3,300, respectively.
The Company obtains data processing and other services from a company
affiliated through common ownership. The total expense for these services for
the year ended December 31, 1996 and the six months ended June 30, 1997 was
$120,564 and $60,282, respectively.
11. EMPLOYEE BENEFIT PLAN
Non-office employees are participants in a multi-employer defined
contribution plan pursuant to the collective bargaining agreement of the
union. Contributions for the year ended December 31, 1996 and the six months
ended June 30, 1997, were $91,316 and $57,512, respectively.
F-100
<PAGE>
ARKANSAS MECHANICAL SERVICES, INC. AND
MECHANICAL SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position, results of operations or liquidity.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying combined balance sheets approximates
their fair value.
14. ACQUISITION OF COMPANY
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC will acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
F-101
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Callahan Roach Products and Publications, Inc.
We have audited the accompanying balance sheet of Callahan Roach Products
and Publications, Inc. as of February 28, 1997, and the related statements of
operations, shareholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Callahan Roach Products
and Publications, Inc. as of February 28, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 30, 1997
F-102
<PAGE>
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, JUNE 30,
1997 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 27,161 $105,939
Accounts receivable................................. 10,104 --
Inventories......................................... 44,567 46,837
-------- --------
Total current assets.............................. 81,832 152,776
PROPERTY AND EQUIPMENT, net........................... 126,374 117,843
-------- --------
Total assets...................................... $208,206 $270,619
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of
long-term debt..................................... $ 60,595 $ 60,629
Accounts payable.................................... 76,043 71,427
Accrued expenses.................................... 21,892 18,436
Income taxes payable................................ 2,576 14,407
-------- --------
Total current liabilities......................... 161,106 164,899
LONG-TERM DEBT, net of current maturities............. 24,558 17,607
DEFERRED INCOME TAXES................................. 8,260 8,760
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 100,000 shares
authorized;
1,000 shares issued and outstanding................ 1,000 1,000
Retained earnings................................... 13,282 78,353
-------- --------
Total shareholders' equity........................ 14,282 79,353
-------- --------
Total liabilities and shareholders' equity........ $208,206 $270,619
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE>
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED ------------------
FEBRUARY 28, JUNE 30, JUNE 30,
1997 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES....................................... $1,552,708 $639,702 $597,042
COST OF SERVICES............................... 310,816 108,479 130,710
---------- -------- --------
Gross profit................................. 1,241,892 531,223 466,332
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 1,238,075 438,965 379,697
---------- -------- --------
Income from operations....................... 3,817 92,258 86,635
OTHER INCOME (EXPENSES):
Interest expense............................. (9,196) (2,187) (5,197)
Other........................................ (6,497) 9 (1,367)
---------- -------- --------
Income (loss) before income taxes........... (11,876) 90,080 80,071
INCOME TAX PROVISION........................... -- 19,000 15,000
---------- -------- --------
NET INCOME (LOSS).............................. $ (11,876) $ 71,080 $ 65,071
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE>
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------ -------- -------------
<S> <C> <C> <C>
BALANCE, February 28, 1996....................... $1,000 $ 25,158 $ 26,158
Net loss....................................... -- (11,876) (11,876)
------ -------- --------
BALANCE, February 28, 1997....................... 1,000 13,282 14,282
Net income (unaudited)......................... -- 65,071 65,071
------ -------- --------
BALANCE, June 30, 1997 (unaudited)............... $1,000 $ 78,353 $ 79,353
====== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-105
<PAGE>
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED -----------------
FEBRUARY 28, JUNE 30, JUNE 30,
1997 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ (11,876) $ 71,080 $ 65,071
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation....................... 26,587 2,395 17,872
Deferred income taxes -- -- 500
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable.............. (8,890) (9,983) 10,104
Inventories...................... 7,673 8,551 (2,270)
Increase (decrease) in--
Accounts payable................. (4,555) (54,180) (4,616)
Accrued expenses................. 14,051 2,462 (3,456)
Income taxes payable............. (589) 18,858 11,831
--------- -------- --------
Net cash provided by operating
activities..................... 22,401 39,183 95,036
--------- -------- --------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Purchases of property and equipment.. (103,577) (43,945) (9,341)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on bank
line of credit...................... 35,701 1,535 (443)
Proceeds from long-term debt......... 46,100 28,174 --
Payment on long-term debt............ (11,405) (723) (6,474)
--------- -------- --------
Net cash provided by (used in)
financing activities........... 70,396 28,986 (6,917)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH....... (10,780) 24,224 78,778
CASH AND CASH EQUIVALENTS, beginning
of period............................ 37,941 37,941 27,161
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of
period............................... $ 27,161 $ 62,165 $105,939
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Callahan Roach Products and Publications, Inc., (the Company) is primarily
engaged in the business of selling marketing products and pricing models to
independent service companies which install and service heating and air
conditioning systems nationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
Interim financial statements as of June 30, 1997 and for the four months
ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue and Cost Recognition
Revenues from service contracts are recognized as services are performed.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest and taxes were $9,196 and
$3,123, respectively, for the year ended February 28, 1997.
Inventories
Inventories consists of supplies used in providing the Company's products
and services. The inventory is valued at the lower of cost or market, with
cost determined on a first-in, first-out (FIFO) basis.
Property, Equipment and Depreciation
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
F-107
<PAGE>
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
New Accounting Pronouncement
Effective March 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accrued expenses consist of the following at February 28, 1997:
<TABLE>
<S> <C>
Accrued payroll and related expense................................. $14,051
Other accrued expenses.............................................. 7,841
-------
$21,892
=======
</TABLE>
3. PROPERTY AND EQUIPMENT
A summary of property and equipment at February 28, 1997 is as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C> <C>
Furniture and fixtures................................ 3-7 years $179,641
Less accumulated depreciation......................... (53,267)
--------
Property and equipment, net......................... $126,374
========
</TABLE>
4. INCOME TAXES
There is no Federal income tax provision as losses were incurred and a
valuation allowance has been established against future benefits deriving from
the carryforward of these losses. The deferred income tax liability results
primarily from tax depreciation in excess of book depreciation on property and
equipment.
F-108
<PAGE>
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following at February 28, 1997:
<TABLE>
<S> <C>
Credit facility in the amount of $100,000 with a bank, bearing
interest at 12.75%................................................ $42,584
Equipment loans payable to financial institutions, interest varying
from 12% to 19%, collateralized by certain equipment, payable in
monthly installments including interest,
final installment due February 2000............................... 42,569
-------
85,153
Less short-term borrowings and current maturities.................. (60,595)
-------
$24,558
=======
</TABLE>
The Company has a revolving credit agreement with a bank to provide
borrowings up to $100,000. The revolving credit agreement is collateralized by
the personal guarantees of shareholders. Borrowings under the agreement in
effect on February 28, 1997, bear interest at 12.5%. Borrowings outstanding at
February 28, 1997 were $42,584.
Maturities of short- and long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28,
------------
<S> <C>
1998................................................................ $60,595
1999................................................................ 16,375
2000................................................................ 8,183
-------
$85,153
=======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company may be involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
7. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
and short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
8. SUBSEQUENT EVENT
Effective July 1, 1997, Group Maintenance America Corp. (GroupMAC) acquired
the Company in a merger transaction for a combination of cash, preferred stock
and common stock of GroupMAC. All of the preferred shares issued in connection
with the acquisition of the Company will be redeemed for cash concurrent with
the consummation of the initial public offering of the common stock of
GroupMAC.
F-109
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Central Carolina Air Conditioning Co., Inc.:
We have audited the accompanying balance sheets of Central Carolina Air
Conditioning Co., Inc. (the Company) as of October 31, 1996 and June 30, 1997,
and the related statements of operations, shareholders' equity and cash flows
for the year ended October 31, 1996 and the eight months ended June 30, 1997.
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 financial position of Central Carolina Air
Conditioning Co., Inc. as of October 31, 1996 and June 30, 1997, and the
results of its operations and its cash flows for the year ended October 31,
1996 and the eight months ended June 30, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 18, 1997
F-110
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 440,289 $ 457,132
Accounts receivable.................................... 627,783 867,913
Inventories............................................ 292,215 246,225
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 113,653 168,226
Due from related parties............................... 505,003 175,448
Prepaid expenses and other current assets.............. 240,089 219,149
---------- ----------
Total current assets.................................. 2,219,032 2,134,093
PROPERTY AND EQUIPMENT, net............................. 459,553 674,948
OTHER NONCURRENT ASSETS................................. 37,098 38,498
---------- ----------
Total assets.......................................... $2,715,683 $2,847,539
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-
term debt............................................. $ 64,283 $ 979
Accounts payable....................................... 322,848 274,887
Accrued expenses....................................... 261,300 232,751
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 48,399 39,131
Deferred service contract revenue...................... 755,047 762,821
---------- ----------
Total current liabilities............................. 1,451,877 1,310,569
DEFERRED SERVICE CONTRACT REVENUE....................... 211,397 204,304
DEFERRED COMPENSATION LIABILITY......................... 55,373 60,670
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--$10 par value; 2,000 shares authorized,
issued and outstanding................................ 20,000 20,000
Additional paid-in capital............................. 23,140 23,140
Retained earnings...................................... 953,896 1,228,856
---------- ----------
Total shareholders' equity............................ 997,036 1,271,996
---------- ----------
Total liabilities and shareholders' equity............ $2,715,683 $2,847,539
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-111
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30,
OCTOBER 31, ----------------------
1996 1996 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................... $8,161,356 $5,139,628 $5,463,051
COST OF SERVICES........................... 5,182,045 3,267,848 3,224,802
---------- ---------- ----------
Gross profit............................. 2,979,311 1,871,780 2,238,249
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 2,598,253 1,672,596 1,648,388
---------- ---------- ----------
Income from operations................... 381,058 199,184 589,861
OTHER INCOME (EXPENSE):
Interest expense.......................... (9,841) (6,073) (3,087)
Interest income........................... 30,219 17,611 28,472
Other..................................... (40,166) 13,487 11,233
---------- ---------- ----------
NET INCOME................................. $ 361,270 $ 224,209 $ 626,479
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-112
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, October 31, 1995.......... $20,000 $23,140 $ 973,595 $1,016,735
Net income........................ -- -- 361,270 361,270
Distributions to shareholders..... -- -- (380,969) (380,969)
------- ------- ---------- ----------
BALANCE, October 31, 1996.......... 20,000 23,140 953,896 997,036
Net income........................ -- -- 626,479 626,479
Distributions to shareholders..... -- -- (351,519) (351,519)
------- ------- ---------- ----------
BALANCE, June 30, 1997............. $20,000 $23,140 $1,228,856 $1,271,996
======= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-113
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30,
OCTOBER 31, ----------------------
1996 1996 1997
----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 361,270 $ 224,209 $ 626,479
Adjustments to reconcile net income to net
cash
provided by (used in) operating
activities:
Depreciation............................. 200,548 140,707 142,535
Gain on sales of property and equipment.. (13,811) (3,344) --
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable.................... (144,095) (243,215) (240,130)
Inventories............................ 6,516 62,058 45,990
Costs and estimated earnings in excess
of billings on uncompleted contracts.. (73,301) (52,611) (54,573)
Due from related parties............... (340,792) (481,044) 329,555
Prepaid expenses and other current
assets................................ (55,800) 91,214 20,940
Other noncurrent assets................ 1,750 1,050 (1,400)
Increase (decrease) in--
Accounts payable....................... 75,239 7,192 (47,961)
Accrued expenses....................... (82,481) (123,859) (28,549)
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 31,913 71,245 (9,268)
Deferred service contract revenue...... 17,670 (31,809) 681
Deferred compensation liability........ 7,945 5,297 5,297
---------- ---------- ---------
Net cash provided by (used in)
operating activities................. (7,429) (332,910) 789,596
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........ (244,128) (266,117) (357,930)
Proceeds from sales of property and
equipment................................. 25,615 3,344 --
---------- ---------- ---------
Net cash used in investing activities. (218,513) (262,773) (357,930)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short- and long-term debt.... 125,000 125,000 --
Payments of short- and long-term debt...... (120,203) (14,655) (63,304)
Distributions to shareholders.............. (380,969) (196,994) (351,519)
---------- ---------- ---------
Net cash used in financing activities. (376,172) (86,649) (414,823)
---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ (602,114) (682,332) 16,843
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 1,042,403 1,042,403 440,289
---------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of period.... $ 440,289 $ 360,071 $ 457,132
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Central Carolina Air Conditioning Co., Inc. (the Company) is primarily
engaged in the installation and servicing of heating and air conditioning
systems for residential and commercial customers in the Greensboro and Winston
Salem, North Carolina areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the eight months ended June 30, 1996
are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been
included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents. Cash payments for interest were $9,841 and $3,087 for the
year ended October 31, 1996 and the eight months ended June 30, 1997,
respectively.
Inventories
Inventories consist of parts and supplies used mainly in the service portion
of the Company's operation. The inventory is valued at the lower of cost or
market, with cost determined on a first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated life of the asset.
F-115
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company also offers an extended service
warranty on sales of air conditioning and heating units, for coverage up to
five years after installation. The Company generally warrants labor for 90
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.
Income Taxes
The shareholders of the Company have elected to be taxed for federal and
North Carolina tax purposes as an S Corporation whereby the shareholders'
respective equitable shares in the taxable income of the Company are
reportable on their individual tax returns. The Company makes distributions to
the shareholders' each year at least in amounts necessary to pay personal
income tax payable on the Company's taxable income.
New Accounting Pronouncement
Effective November 1, 1995, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepaid expenses and other current assets consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Prepaid expenses....................................... $ 96,620 $ 69,732
Cash value of life insurance........................... 119,331 130,801
Other current assets................................... 24,138 18,616
-------- --------
$240,089 $219,149
======== ========
</TABLE>
Cash value of life insurance represents the cash value of six life insurance
policies.
Accrued expenses consists of the following:
<TABLE>
<S> <C> <C>
Accrued payroll costs and benefits........................ $124,208 $175,831
Accrued bonus and profit sharing.......................... 95,195 --
Other accrued expenses.................................... 41,897 56,920
-------- --------
$261,300 $232,751
======== ========
</TABLE>
F-116
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Costs incurred......................................... $464,107 $526,315
Estimated earnings recognized.......................... 177,188 269,364
-------- --------
641,295 795,679
Less billings on contracts............................. 576,041 666,584
-------- --------
$ 65,254 $129,095
======== ========
</TABLE>
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $113,653 $168,226
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (48,399) (39,131)
-------- --------
$ 65,254 $129,095
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and equipment
are as follows:
<TABLE>
<CAPTION>
ESTIMATED OCTOBER 31, JUNE 30,
USEFUL LIVES 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Service and other vehicles........... 4-7 years $ 1,026,498 $ 1,320,858
Machinery and equipment.............. 5-10 years 203,362 206,399
Office equipment, fixtures and
fixtures............................ 5-10 years 373,146 392,231
Leasehold improvements............... -- 294,877 306,087
----------- -----------
1,897,883 2,225,575
Less accumulated depreciation........ (1,438,330) (1,550,627)
----------- -----------
$ 459,553 $ 674,948
=========== ===========
</TABLE>
F-117
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Revolving line of credit with a bank, with a maximum
amount of $200,000 through February 1, 1997; interest
accrues at prime (8.25% as of October 31, 1996) and
is payable monthly; unpaid principal due on demand.... $50,000 $--
Note payable to bank, due in monthly installments of
$1,167, with interest of 8% per annum and secured
by vehicles; matures July 15, 1997.................... 9,998 979
Note payable to bank, due in monthly installments of
$1,093, with interest of 7.25% per annum and secured
by vehicles; matures February 15, 1997................ 4,285 --
------- ----
$64,283 $979
======= ====
</TABLE>
The Company had a revolving line of credit with a bank to provide unsecured
borrowings of up to $200,000. Interest accrued at prime and was payable
monthly. This agreement matured in February 1997. Upon maturity, the Company
obtained another revolving line of credit to provide borrowings of up to
$300,000 with a loan maturity date of March 1, 1998. Other terms of the
agreement were unchanged.
7. LEASES
The Company leases its office building and warehouse from a shareholder
under a 20-year lease terminating in October 2016. The rent is $9,125 for the
first three years and increases by 2.5% at the beginning of the fourth,
seventh, tenth, thirteenth, sixteenth and nineteenth years.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of October 31, 1996
are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 109,500
1998.............................................................. 109,500
1999.............................................................. 109,500
2000.............................................................. 112,238
2001.............................................................. 112,238
Thereafter........................................................ 1,799,369
----------
$2,352,345
==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company leases its office building and warehouse from shareholders of
the Company. For the year ended October 31, 1996 and the eight months ended
June 30, 1997, the Company paid $119,526 and $81,741, respectively, related to
these leases. As of October 31, 1996 and June 30, 1997, the Company has
unsecured advances to various shareholders totaling $444,933 and $136,400,
respectively. In addition, the Company has a mortgage receivable from the
President and shareholder of $60,070 and $39,048 as of October 31, 1996 and
June 30, 1997, respectively. These amounts are included in the amounts due
from related parties in the accompanying balance sheets.
F-118
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFIT PLAN
The Company maintains a voluntary 401(k) plan (the Plan) covering its
qualified employees. Employees may choose to defer up to 10% of their
compensation during the Plan year, not to exceed Internal Revenue Service
limitations, by contributing to the Plan. The Company matches 100% of each
employee's contributions up to a maximum of 5% of the employee's gross
earnings. Contributions made by the Company of $18,902 and $10,938 were
charged to operations in the year ended October 31, 1996 and the eight months
ended June 30, 1997, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company may be involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
11. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
12. ACQUISITION OF COMPANY
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC will acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
F-119
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Hallmark Air Conditioning, Inc.:
We have audited the accompanying consolidated balance sheets of Hallmark Air
Conditioning, Inc. and subsidiary (the Company) as of February 28, 1997 and
May 31, 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year ended February 28, 1997 and
the three months ended May 31, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hallmark
Air Conditioning, Inc. and subsidiary as of February 28, 1997 and May 31,
1997, and the results of their operations and their cash flows for the year
ended February 28, 1997 and the three months ended May 31, 1997, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 11, 1997
F-120
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1997 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 203,739 $ 229,466
Accounts receivable, net of allowance for doubtful
accounts of $4,039 and $8,078, respectively......... 139,143 220,122
Inventories.......................................... 359,380 395,684
Due from related parties............................. 43,977 38,140
Deferred income taxes................................ 163,673 160,527
Prepaid expenses and other current assets............ 244,257 184,829
---------- ----------
Total current assets............................... 1,154,169 1,228,768
PROPERTY AND EQUIPMENT, net............................ 224,504 203,424
GOODWILL, net of accumulated amortization of $6,418 and
$8,344, respectively.................................. 109,113 107,187
DUE FROM RELATED PARTIES............................... 29,476 29,476
OTHER NONCURRENT ASSETS................................ 131,990 128,040
---------- ----------
Total assets....................................... $1,649,252 $1,696,895
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-
term debt........................................... $ 46,989 $ 31,896
Current obligations under capital leases............. 69,628 69,628
Accounts payable..................................... 75,655 224,327
Accrued expenses..................................... 146,658 197,154
Deferred service contract revenue.................... 310,927 294,453
---------- ----------
Total current liabilities.......................... 649,857 817,458
LONG-TERM DEBT, net of current maturities.............. 181,570 191,434
OBLIGATIONS UNDER CAPITAL LEASES, net of current
maturities............................................ 54,733 45,440
DEFERRED SERVICE CONTRACT REVENUE...................... 159,708 144,204
DEFERRED INCOME TAXES.................................. 22,429 19,283
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--$100 par value; 500 shares authorized;
180 shares issued and outstanding................... 18,000 18,000
Retained earnings.................................... 560,889 459,761
Net unrealized gain on marketable securities......... 2,066 1,315
---------- ----------
Total shareholders' equity......................... 580,955 479,076
---------- ----------
Total liabilities and shareholders' equity......... $1,649,252 $1,696,895
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-121
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MAY 31,
FEBRUARY 28, ----------------------
1997 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.......................... $6,516,181 $1,642,422 $1,558,526
COST OF SERVICES.................. 3,461,490 879,293 826,626
---------- ---------- ----------
Gross profit.................... 3,054,691 763,129 731,900
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.......... 3,045,942 676,118 811,982
---------- ---------- ----------
Income (loss) from operations... 8,749 87,011 (80,082)
OTHER INCOME (EXPENSE):
Interest expense................ (30,647) (7,436) (30,135)
Interest income................. 16,106 4,082 11,652
Other........................... 3,227 (11,319) --
---------- ---------- ----------
Income (loss) before income tax
provision..................... (2,565) 72,338 (98,565)
INCOME TAX PROVISION.............. 18,114 12,120 2,563
---------- ---------- ----------
NET INCOME (LOSS)................. $ (20,679) $ 60,218 $ (101,128)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-122
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN ON TOTAL
COMMON RETAINED MARKETABLE SHAREHOLDERS'
STOCK EARNINGS SECURITIES EQUITY
------- --------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, February 29, 1996......... $18,000 $ 581,568 $ 853 $ 600,421
Net loss......................... -- (20,679) -- (20,679)
Net unrealized gain on marketable
securities...................... -- -- 1,213 1,213
------- --------- ------ ---------
BALANCE, February 28, 1997......... 18,000 560,889 2,066 580,955
Net loss......................... -- (101,128) -- (101,128)
Net unrealized loss on marketable
securities...................... -- -- (751) (751)
------- --------- ------ ---------
BALANCE, May 31, 1997.............. $18,000 $ 459,761 $1,315 $ 479,076
======= ========= ====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-123
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MAY 31,
FEBRUARY 28, ---------------------
1997 1996 1997
------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (20,679) $ 60,218 $(101,128)
Adjustments to reconcile net income (loss)
to net cash
provided by (used in) operating
activities:
Depreciation and amortization........... 171,417 33,426 40,806
Deferred income tax benefit............. (114) -- --
Changes in operating assets and
liabilities, net of effect of
acquisitions accounted for as
purchases:
(Increase) decrease in--
Accounts receivable................... 17,294 (107,706) (80,979)
Inventories........................... (7,915) (70,635) (36,304)
Due from related parties.............. 10,175 46,610 5,837
Prepaid expenses and other current
assets............................... (65,977) 88,660 58,677
Increase (decrease) in--
Accounts payable...................... (21,832) 105,401 148,672
Accrued expenses...................... (105,520) 61,281 50,496
Deferred service contract revenue..... (41,539) 6,911 (31,978)
--------- --------- ---------
Net cash provided by (used in)
operating activities................ (64,690) 224,166 54,099
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through acquisition......... 36,881 36,881 --
Purchases of property and equipment....... (35,742) (12,629) (13,850)
Proceeds from sales of property and
equipment................................ 15,831 -- --
Payment for covenant not to compete....... (130,000) (130,000) --
Proceeds from redemption of marketable
securities, net.......................... 1,663 30,475 --
--------- --------- ---------
Net cash used in investing
activities.......................... (111,367) (75,273) (13,850)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............. 16,010 -- 9,864
Payments of long-term debt................ (23,649) (1,681) (15,093)
Payments of obligations under capital
leases................................... (66,055) -- (9,293)
--------- --------- ---------
Net cash used in financing
activities.......................... (73,694) (1,681) (14,522)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... (249,751) (147,212) 25,727
CASH AND CASH EQUIVALENTS, beginning of
period.................................... 453,490 453,490 203,739
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period... $ 203,739 $ 600,702 $ 229,466
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-124
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Hallmark Air Conditioning, Inc. and subsidiary (the Company) is primarily
engaged in the installation and servicing of heating and air conditioning
systems for residential and light commercial customers in Houston and San
Antonio, Texas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the financial statements of
Hallmark Air Conditioning, Inc. (Hallmark) and its wholly-owned subsidiary,
Jerry Albert Air Conditioning, Inc. (Jerry Albert). All significant
intercompany balances and transactions have been eliminated in consolidation.
Interim Financial Information
The interim consolidated financial statements for the three months ended May
31, 1996 are unaudited, and certain information and footnote disclosures,
normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the consolidated interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Revenue is recognized upon completion of service. Revenues on service and
maintenance contracts are recognized over the life of the contract.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest and taxes were $32,261 and
$54,300, respectively, for the year ended February 28, 1997, and $28,310 and
$-0-, respectively, for the three months ended May 31, 1997.
Inventories
Inventories consist primarily of purchased materials and supplies. The
Company uses the first-in, first-out (FIFO) cost method to value its
inventories.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated useful life of the asset.
F-125
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statement of operations.
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
New Accounting Pronouncement
Effective March 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepaid expenses and other current assets consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1997 1997
------------ --------
<S> <C> <C>
Prepaid expenses....................................... $ 36,484 $ 14,313
Cash value of life insurance........................... 131,434 93,387
Marketable securities.................................. 30,015 30,805
Federal income taxes receivable........................ 46,324 46,324
-------- --------
$244,257 $184,829
======== ========
Other noncurrent assets consists of the following:
Covenant not to compete, net of accumulated
amortization of $10,833 and $14,033, respectively..... $119,167 $115,967
Other noncurrent assets................................ 12,823 12,073
-------- --------
$131,990 $128,040
======== ========
Accrued expenses consists of the following:
Accrued payroll costs and benefits..................... $100,330 $147,290
Other accrued expenses................................. 46,328 49,864
-------- --------
$146,658 $197,154
======== ========
</TABLE>
F-126
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED FEBRUARY 28, MAY 31,
USEFUL LIVES 1997 1997
------------ ------------ ----------
<S> <C> <C> <C>
Service and other vehicles............ 4-7 years $ 731,913 $ 756,447
Machinery and equipment............... 5-10 years 303,791 265,097
Office equipment, furniture and
fixtures............................. 5-10 years 43,643 43,643
Leasehold improvements................ -- 122,205 122,205
---------- ----------
1,201,552 1,187,392
Less accumulated depreciation......... (977,048) (983,968)
---------- ----------
$ 224,504 $ 203,424
========== ==========
</TABLE>
During the year ended February 28, 1997 and the three months ended May 31,
1997, the Company acquired $74,506 and $31,387, respectively, of property and
equipment in exchange for obligations under capital leases.
5. GOODWILL AND OTHER ASSETS
Goodwill represents the excess of the aggregate purchase price over the fair
value of net assets acquired and is amortized on a straight-line basis over a
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows compared to
the carrying value of goodwill. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
Other assets include a covenant not to compete related to the acquisition of
Jerry Albert. The covenant not to compete is being amortized on a straight-
line basis over the life of the covenant, which is five years.
6. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1997 1997
------------ --------
<S> <C> <C>
Revolving bank line of credit; borrowings not to
exceed $175,000; interest accrues at 8.75% and is
payable monthly; unpaid principal due in October
1997............................................... $ 10,000 $ --
Equipment installment notes to a bank, interest
varying from 8.5% to 9.5%; payable in monthly
installments of various amounts, including
interest, through July 1999; secured by certain
machinery and equipment............................ 28,402 36,596
Note payable to the former shareholder relating to
the purchase of all of the shares of Jerry Albert;
interest accrues at 8.5%; payable in monthly
installments, including interest, of $2,480, final
installment due May 2006........................... 190,157 186,734
-------- --------
Total short- and long-term debt................... 228,559 223,330
Less short-term borrowings and current maturities... (46,989) (31,896)
-------- --------
$181,570 $191,434
======== ========
</TABLE>
F-127
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of short- and long-term debt as of February 28, 1997
are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 46,989
1999................................................................ 33,798
2000................................................................ 31,263
2001................................................................ 29,756
2002................................................................ 29,756
Thereafter.......................................................... 56,997
--------
$228,559
========
</TABLE>
7. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
FEBRUARY 28, MAY 31,
1997 1997
------------ -------
<S> <C> <C>
Federal:
Current............................................... $ 7,976 $ --
Deferred.............................................. (114) --
State:
Current............................................... 10,252 2,563
Deferred.............................................. -- --
------- ------
$18,114 $2,563
======= ======
</TABLE>
Total income tax expense differs from the amount computed by applying the
U.S. federal statutory income tax rate of 34% to loss before income tax
provision as a result of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1997 1997
------------ --------
<S> <C> <C>
Benefit at the statutory rate........................ $ (872) $(33,512)
Increase resulting from:
State income taxes, net of federal benefit......... 10,252 2,563
Nondeductible expenses............................. 3,468 1,192
Increase in valuation allowance.................... -- 34,239
Other.............................................. 5,266 (1,919)
------- --------
$18,114 $ 2,563
======= ========
</TABLE>
F-128
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1997 1997
------------ --------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward..................... $ -- $ 31,043
Deferred service contract revenues.................. 133,160 135,757
Accrued customer protection......................... 15,358 13,131
Allowance for doubtful accounts..................... 1,288 2,747
Other............................................... 13,867 12,088
Valuation allowance................................. -- (34,239)
-------- --------
Total deferred income tax asset................... 163,673 160,527
-------- --------
Deferred income tax liabilities:
Depreciation........................................ 19,284 19,283
Other............................................... 3,145 --
-------- --------
Total deferred income tax liability............... 22,429 19,283
-------- --------
Net deferred income tax asset..................... $141,244 $141,244
======== ========
</TABLE>
Management believes it is more likely than not the Company will realize the
benefits of the net deferred income tax asset.
8. LEASES
The Company is obligated under various capital leases, for service and other
vehicles, that expire at various dates through June 2000. At February 28, 1997
and May 31, 1997, the gross amount of property and equipment and related
accumulated amortization recorded under capital leases were as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1997 1997
------------ ---------
<S> <C> <C>
Service and other vehicles........................... $ 259,143 $ 290,530
Less accumulated depreciation........................ (127,548) (141,290)
--------- ---------
$ 131,595 $ 149,240
========= =========
</TABLE>
The Company also has several noncancelable operating leases, primarily for
service and other vehicles, that expire over the next three years. These
leases generally contain renewal options for periods ranging from three to
five years and require the Company to pay all executory costs such as
maintenance and insurance. Rental payments include minimum rentals plus
contingent rentals based on mileage. Rental expense for these operating leases
during the year ended February 28, 1997 and the three months ended May 31,
1997 was approximately $18,600 and $5,000, respectively.
F-129
<PAGE>
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of February 28, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year ending February 28 or 29,
1998.................................................... $ 69,628 $11,789
1999.................................................... 35,699 59,928
2000.................................................... 19,034 --
-------- -------
Total minimum lease payments............................ 124,361 $71,717
=======
Less current obligations under capital leases............. 69,628
--------
Obligations under capital leases, net................... $ 54,733
========
</TABLE>
The Company leases its primary operations facility from a shareholder and
executive officer of the Company. The lease is for an initial one-year term
expiring in 1997 with an annual renewal thereafter and has been classified as
an operating lease and is included in the data presented above. Total rent
expense associated with this lease for the year ended February 28, 1997 and
the three months ended May 31, 1997 was approximately $96,000 and $24,000,
respectively.
9. EMPLOYEE BENEFIT PLAN
During January 1997, the Company established a contributory 401(k) plan
covering substantially all employees. Contributions to this plan, determined
annually, are at the discretion of the Board of Directors. Authorized
contributions for the year ended February 28, 1997 amounted to $830.
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
11. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
marketable securities (carried at fair value), and short- and long-term debt.
The Company believes that the carrying value of these instruments on the
accompanying consolidated balance sheets approximates their fair value.
12. ACQUISITION OF JERRY ALBERT
The Company acquired all of the outstanding shares of Jerry Albert on May 1,
1996, in exchange for a $200,000 note payable to the former shareholder of
Jerry Albert. The acquisition was accounted for as a purchase and the
operations of Jerry Albert have been included in the accompanying financial
statements since the date of acquisition. Based upon the relative size of the
acquisition, the related pro forma data is not presented.
13. SUBSEQUENT EVENT
Effective June 1, 1997 Group Maintenance America Corp. (GroupMAC) acquired
all of the outstanding shares of the Company for a combination of cash,
preferred stock and common stock of GroupMAC. All of the preferred shares
issued in connection with the acquisition of the business will be redeemed for
cash concurrent with the consummation of the initial public offering of the
common stock of GroupMAC.
F-130
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Sibley Services, Inc.:
We have audited the accompanying balance sheets of Sibley Services, Inc.
(the Company) as of October 31, 1996 and June 30, 1997, and the related
statements of operations, shareholders' equity and cash flows for the year
ended October 31, 1996 and the eight months ended June 30, 1997. 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 financial position of Sibley Services, Inc. as
of October 31, 1996 and June 30, 1997, and the results of its operations and
its cash flows for the year ended October 31, 1996 and the eight months ended
June 30, 1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 25, 1997
F-131
<PAGE>
SIBLEY SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 76,034 $ 40,710
Accounts receivable................................... 693,839 635,358
Inventories........................................... 89,649 126,146
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ 160,092 55,464
Due from related parties and employees................ 11,170 12,900
Prepaid expenses and other current assets............. 242,851 243,957
---------- ----------
Total current assets................................. 1,273,635 1,114,535
PROPERTY AND EQUIPMENT, net............................ 89,422 86,854
---------- ----------
Total assets......................................... $1,363,057 $1,201,389
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-
term debt............................................ $ 222,591 $ 307,253
Accounts payable...................................... 337,452 226,854
Accrued expenses...................................... 127,036 57,137
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 3,731 73,479
Deferred service contract revenue..................... 5,463 --
Deferred income taxes................................. 31,474 32,197
---------- ----------
Total current liabilities............................ 727,747 696,920
LONG-TERM DEBT, net of current maturities.............. 82,177 69,115
DEFERRED INCOME TAXES.................................. 9,899 16,668
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--no par value; 1,000 shares authorized;
534 shares issued and outstanding.................... 21,424 21,424
Retained earnings..................................... 626,728 502,180
Treasury stock, 138 shares at cost.................... (104,918) (104,918)
---------- ----------
Total shareholders' equity........................... 543,234 418,686
---------- ----------
Total liabilities and shareholders' equity......... $1,363,057 $1,201,389
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-132
<PAGE>
SIBLEY SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30,
OCTOBER 31, ----------------------
1996 1996 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................... $6,962,485 $4,945,490 $2,823,468
COST OF SERVICES........................... 5,334,694 3,792,960 2,111,619
---------- ---------- ----------
Gross profit............................. 1,627,791 1,152,530 711,849
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 1,497,773 955,427 846,902
---------- ---------- ----------
Income (loss) from operations............ 130,018 197,103 (135,053)
OTHER INCOME (EXPENSE):
Interest expense.......................... (31,160) (17,755) (15,182)
Other..................................... 15,516 13,547 4,404
---------- ---------- ----------
Income (loss) before income tax
provision............................... 114,374 192,895 (145,831)
INCOME TAX PROVISION....................... 42,030 70,885 (21,283)
---------- ---------- ----------
NET INCOME (LOSS).......................... $ 72,344 $ 122,010 $ (124,548)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-133
<PAGE>
SIBLEY SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY SHAREHOLDERS'
STOCK EARNINGS STOCK EQUITY
------- --------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, October 31, 1995........... $21,424 $ 554,384 $(104,918) $ 470,890
Net income........................ -- 72,344 -- 72,344
------- --------- --------- ---------
BALANCE, October 31, 1996........... 21,424 626,728 (104,918) 543,234
Net loss.......................... -- (124,548) -- (124,548)
------- --------- --------- ---------
BALANCE, June 30, 1997.............. $21,424 $ 502,180 $(104,918) $ 418,686
======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-134
<PAGE>
SIBLEY SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30,
OCTOBER 31, --------------------
1996 1996 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ 72,344 $ 122,010 $(124,548)
Adjustments to reconcile net income (loss)
to net cash
used in operating activities:
Depreciation and amortization............. 23,899 15,235 16,185
Gain on disposal of property and
equipment................................ (7,090) -- --
Deferred income taxes..................... 21,110 35,442 7,492
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable..................... (38,275) (618,597) 58,481
Inventories............................. (15,047) (54,979) (36,497)
Costs and estimated earnings in excess
of billings on uncompleted contracts... (82,416) (48,664) 104,628
Due from related parties and employees.. 7,551 (21,266) (1,730)
Unbilled job costs...................... 3,350 -- --
Prepaid expenses and other current
assets................................. (121,387) (52,617) (1,106)
Increase (decrease) in--
Accounts payable........................ 62,758 310,318 (110,598)
Accrued expenses........................ (18,964) (78,570) (69,899)
Billings in excess of costs and
estimated earnings on uncompleted
contracts.............................. (61,066) 83,948 69,748
Deferred service contract revenue....... (7,311) (22,771) (5,463)
Income taxes payable.................... (59,089) -- --
--------- --------- ---------
Net cash used in operating activities.. (219,633) (330,511) (93,307)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (20,802) (8,868) (13,617)
Proceeds from sales of property and
equipment.................................. 7,090 -- --
--------- --------- ---------
Net cash used in investing activities.. (13,712) (8,868) (13,617)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit............ 207,000 237,000 81,000
Payment on long-term note payable........... -- -- (9,400)
--------- --------- ---------
Net cash provided by financing
activities............................ 207,000 237,000 71,600
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.... (26,345) (102,379) (35,324)
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 102,379 102,379 76,034
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period..... $ 76,034 $ -- $ 40,710
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-135
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Sibley Services, Inc. (the Company) is primarily engaged in the installation
and servicing of heating and air conditioning systems for commercial and
industrial customers in Memphis, Tennessee and the surrounding area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the eight months ended June 30, 1996
are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been
included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest and taxes were $26,004 and
$130,791, respectively, for the year ended October 31, 1996. Cash payments for
interest and taxes were $10,589 and $9,500, respectively, for the eight months
ended June 30, 1997.
Inventories
Inventories consist primarily of purchased materials. The inventory is
valued at the lower of cost or market, with cost determined on a first-in,
first-out (FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated life of the asset.
F-136
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
New Accounting Pronouncement
Effective November 1, 1995, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepaid expenses and other current assets consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Cash value of life insurance........................... $128,976 $144,012
Prepaid expenses....................................... 64,213 50,713
Refundable income taxes................................ 49,662 42,123
Other.................................................. -- 7,109
-------- --------
$242,851 $243,957
======== ========
</TABLE>
Cash value of life insurance represents the cash value of five life
insurance policies. The Company is the owner and beneficiary of one policy
with a cash value of $21,417 at June 30, 1997 and a face value of $200,000.
There are four split-dollar policies with a cash value totaling $122,595 at
June 30, 1997. The Company also has a contingent receivable of $58,855 on the
four split-dollar policies at June 30, 1997. The contingent receivable is the
difference between the total premiums paid to date and the cash value. Per the
split-dollar agreement the Company will be reimbursed for 100% of the premiums
paid upon the death of the insured.
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Accrued payroll and related expenses.................... $ 94,670 $14,026
Other accrued expenses.................................. 32,366 43,111
-------- -------
$127,036 $57,137
======== =======
</TABLE>
F-137
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Costs incurred........................................ $222,130 $475,756
Estimated earnings recognized......................... 90,036 124,870
-------- --------
312,166 600,626
Less billings on contracts............................ 155,805 618,641
-------- --------
$156,361 $(18,015)
======== ========
</TABLE>
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $160,092 $ 55,464
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (3,731) (73,479)
-------- --------
$156,361 $(18,015)
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and equipment
are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL OCTOBER 31, JUNE 30,
LIVES 1996 1997
---------- ----------- ---------
<S> <C> <C> <C>
Service and other vehicles................. 4-7 years $ 81,742 $ 85,047
Machinery and equipment.................... 5-10 years 123,864 126,105
Office equipment, furniture and fixtures... 3-10 years 211,773 216,554
Leasehold improvements..................... -- 121,312 124,602
--------- ---------
538,691 552,308
Less accumulated depreciation.............. (449,269) (465,454)
--------- ---------
Property and equipment, net.............. $ 89,422 $ 86,854
========= =========
</TABLE>
6. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Credit facility in the amount of $500,000 with a bank,
bearing interest at prime plus 1% (9.5% as of June
30, 1997),
secured by trade receivables and inventory........... $207,000 $288,000
Note payable to shareholder with original face amount
of $125,000,
noninterest-bearing, discounted at 4.81%, $481 due
weekly,
including interest................................... 97,768 88,368
-------- --------
Total short- and long-term debt..................... 304,768 376,368
Less short-term borrowings and current maturities..... (222,591) (307,253)
-------- --------
$ 82,177 $ 69,115
======== ========
</TABLE>
F-138
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has an available line of credit of $500,000 through July 31,
1997. Advances are due April 30, 1997 and accrue interest at prime plus 1%.
The line of credit is secured by accounts receivable and inventory and the
personal guarantees of certain shareholders. Outstanding on the line of credit
as of October 31, 1996 and as of June 30, 1997 was $207,000 and $288,000,
respectively. The line of credit was repaid in connection with the Company's
acquisition, see note 14.
The Company purchased 125 shares of its stock from a shareholder during the
fiscal year ending October 31, 1994. The purchase price was $125,000 payable
at $481 per week, beginning in 1997, for 260 weeks with no interest. The note
is unsecured and has been discounted using an interest rate of 4.81%. Interest
has been accrued through October 31, 1996, in the amount of $14,585.
The aggregate maturities of the short- and long-term debt as of October 31,
1996 are as follows:
<TABLE>
<S> <C>
1997................................................................ $222,591
1998................................................................ 19,552
1999................................................................ 20,513
2000................................................................ 21,521
2001................................................................ 20,591
--------
$304,768
========
</TABLE>
7. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Federal
Current.............................................. $15,961 $(20,000)
Deferred............................................. 17,813 6,620
State
Current.............................................. 4,959 (8,775)
Deferred............................................. 3,297 872
------- --------
$42,030 $(21,283)
======= ========
</TABLE>
Total income tax expense (benefit) differs from the amount computed by
applying the U.S. federal statutory income tax rate of 34% to income (loss)
before income tax provision as a result of the following:
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Tax provision (benefit) at statutory rate............. $ 38,887 $(49,583)
Increase (decrease) resulting from:
State income taxes, net of federal benefit.......... 5,449 (5,216)
Nondeductible expenses.............................. 7,897 4,798
Tax consequences of graduated rates................. (10,203) 28,718
-------- --------
$ 42,030 $(21,283)
======== ========
</TABLE>
F-139
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income tax liability are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Deferred income tax liabilities:
Uncompleted contracts.................................. $31,474 $32,197
Depreciation........................................... 9,899 16,668
------- -------
Total deferred income tax liability................... $41,373 $48,865
======= =======
</TABLE>
8. LEASES
Operating leases for certain facilities, service and other vehicles and
office equipment expire at various dates through 2000. Certain leases contain
renewal options. Approximate minimum future rental payments as of October 31,
1996 are as follows:
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
1997................................................................ $176,639
1998................................................................ 94,032
1999................................................................ 62,677
2000................................................................ 10,866
--------
$344,214
========
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company leased a vehicle, computer equipment, its office and warehouse
from Sibley, Inc. (see note 8). The owner of Sibley, Inc., is related to a
shareholder of Sibley Services, Inc. For the year ended October 31, 1996 and
the eight months ended June 30, 1997 the Company paid $42,490 and $22,816,
respectively, related to these leases.
The Company leased twenty-five vehicles and twenty-two vehicles as of
October 31, 1996 and June 30, 1997, respectively and computer equipment from
JDT Leasing Company (see note 8) which is 100% owned by a shareholder. For the
year ended October 31, 1996 and the eight months ended June 30, 1997 the
Company paid $129,332 and $94,995, respectively, related to these leases.
The Company was owed $5,733 and $10,389 by a shareholder at October 31, 1996
and June 30, 1997, respectively. This receivable represents advances to the
shareholder and is unsecured.
The Company also has a note payable to a former shareholder (see note 6).
10. EMPLOYEE BENEFIT PLANS
The Company has a cafeteria plan for its eligible employees. Benefits under
the plan include medical and dental insurance.
In 1996, the Company established a 401(k) plan for its qualified employees.
Eligibility requires one year of service and age 21 or over. Employees may
elect to defer up to 10% of their compensation. The Company has agreed to
match the employee contribution 100% up to 5% of compensation. Contributions
made by the Company of $53,646 and $36,733 were charged to operations in the
year ended October 31, 1996 and the eight months ended June 30, 1997,
respectively.
F-140
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. SALES TO SIGNIFICANT CUSTOMER
Contract revenue billed to one customer amounted to $1,302,289 or 19% of
total sales for the year ended October 31, 1996. At October 31, 1996, amounts
due from this customer included in accounts receivables were $156,885.
12. COMMITMENTS AND CONTINGENCIES
The Company may be involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
and short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
14. SUBSEQUENT EVENT
Effective July 1, 1997 Group Maintenance America Corp. (GroupMAC) acquired
all of the outstanding shares of the Company for a combination of cash,
preferred stock and common stock of GroupMAC. All of the preferred shares
issued in connection with the acquisition of the business will be redeemed for
cash concurrent with the consummation of the initial public offering of the
common stock of GroupMAC.
F-141
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Southeast Mechanical Service, Inc.:
We have audited the accompanying balance sheets of Southeast Mechanical
Service, Inc. as of December 31, 1996 and June 30, 1997, and the related
statements of operations, shareholders' equity and cash flows for the year
ended December 31, 1996 and the six months ended June 30, 1997. 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 financial position of Southeast Mechanical
Service, Inc. as of December 31, 1996 and June 30, 1997 and the results of its
operations and its cash flows for the year ended December 31, 1996 and the six
months ended June 30, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
July 18, 1997
F-142
<PAGE>
SOUTHEAST MECHANICAL SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 45,852 $ 74,466
Accounts receivable.................................. 726,944 935,433
Inventories.......................................... 63,530 64,133
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 1,910 1,229
Due from related parties and employees............... 2,268 42,420
Prepaid expenses and other current assets............ 30,471 35,955
---------- ----------
Total current assets............................... 870,975 1,153,636
PROPERTY AND EQUIPMENT, net............................ 498,762 430,188
---------- ----------
Total assets....................................... $1,369,737 $1,583,824
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-
term debt........................................... $ 311,779 $ 135,254
Accounts payable..................................... 94,911 218,453
Accrued expenses..................................... 23,585 136,127
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 24,531 125,317
Due to related parties............................... -- 371,042
---------- ----------
Total current liabilities.......................... 454,806 986,193
LONG-TERM DEBT, net of current maturities.............. 273,403 220,726
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--$1.00 par value; 1,500 shares
authorized, 300 shares issued and outstanding....... 300 300
Additional paid-in capital........................... 5,700 5,700
Retained earnings.................................... 635,528 370,905
---------- ----------
Total shareholders' equity......................... 641,528 376,905
---------- ----------
Total liabilities and shareholders' equity......... $1,369,737 $1,583,824
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-143
<PAGE>
SOUTHEAST MECHANICAL SERVICE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.................................. $5,281,777 $2,847,310 $2,358,229
COST OF SERVICES.......................... 3,830,398 2,006,815 1,724,977
---------- ---------- ----------
Gross profit............................ 1,451,379 840,495 633,252
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 865,939 388,095 408,957
---------- ---------- ----------
Income from operations.................. 585,440 452,400 224,295
OTHER INCOME (EXPENSE):
Interest expense........................ (54,682) (28,379) (42,905)
Other................................... (15,360) (3,304) 29
---------- ---------- ----------
NET INCOME................................ $ 515,398 $ 420,717 $ 181,419
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-144
<PAGE>
SOUTHEAST MECHANICAL SERVICE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $300 $5,700 $ 440,035 $ 446,035
Net income......................... -- -- 515,398 515,398
Distributions to shareholders...... -- -- (319,905) (319,905)
---- ------ --------- ---------
BALANCE, December 31, 1996........... 300 5,700 635,528 641,528
Net income......................... -- -- 181,419 181,419
Distributions to shareholders...... -- -- (446,042) (446,042)
---- ------ --------- ---------
BALANCE, June 30, 1997............... $300 $5,700 $ 370,905 $ 376,905
==== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-145
<PAGE>
SOUTHEAST MECHANICAL SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 515,398 $ 420,717 $ 181,419
Adjustments to reconcile net income to net
cash
provided by operating activities:
Depreciation............................ 124,074 62,625 74,826
Loss on disposal of property and
equipment.............................. 15,426 1,681 --
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable................... (89,322) (188,594) (208,489)
Inventories........................... -- (1,290) (603)
Costs and estimated earnings in excess
of billings on uncompleted contracts. 23,664 (12,705) 681
Due from related parties and
employees............................ 536 1,949 (40,152)
Prepaid expenses and other current
assets............................... (11,937) (26,155) (5,484)
Increase (decrease) in--
Accounts payable...................... (51,579) 49,418 123,542
Accrued expenses...................... (8,360) 3,542 112,542
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ (11,874) 25,678 100,786
--------- --------- ---------
Net cash provided by operating
activities.......................... 506,026 336,866 339,068
--------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment....... (185,972) (60,537) (6,252)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings and
long-term debt........................... 163,552 120,863 --
Payments of short-term borrowings and
long-term debt........................... (168,518) (68,110) (229,202)
Dividends paid............................ (319,905) (319,905) (75,000)
--------- --------- ---------
Net cash used in financing
activities.......................... (324,871) (267,152) (304,202)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... (4,817) 9,177 28,614
CASH AND CASH EQUIVALENTS, beginning of
period.................................... 50,669 50,669 45,852
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period... $ 45,852 $ 59,846 $ 74,466
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-146
<PAGE>
SOUTHEAST MECHANICAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Southeast Mechanical Service, Inc. (the Company) is primarily engaged in the
servicing of commercial heating and air conditioning systems in Southeast
Florida including Broward, Dade and Palm Beach Counties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the six months ended June 30, 1996, are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principals, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows
with respect to the interim financial statements, have been included. The
results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents. Cash payments for interest were $16,406 and $27,839 for the
year ended December 31, 1996 and the six months ended June 30, 1997,
respectively.
Inventories
Inventories consist of parts and supplies used in the service portion of the
Company's operation. The inventory is valued at the lower of cost or market,
with cost determined on a first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.
F-147
<PAGE>
SOUTHEAST MECHANICAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Upon retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 30
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.
Income Taxes
The shareholders of the Company have elected to be taxed for federal tax
purposes as an S Corporation whereby the shareholders' respective equitable
shares in the taxable income of the Company are reportable on their individual
tax returns. The Company will make distributions to the shareholders each year
at least in amounts necessary to pay personal income taxes payable on the
Company's taxable income.
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
<S> <C> <C>
Costs incurred...................................... $ 8,013 $ 76,854
Estimated earnings recognized....................... 3,578 56,343
-------- ---------
11,591 133,197
Less billings on contracts.......................... (34,212) (257,285)
-------- ---------
$(22,621) $(124,088)
======== =========
</TABLE>
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ $ 1,910 $ 1,229
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ (24,531) (125,317)
-------- ---------
$(22,621) $(124,088)
======== =========
</TABLE>
F-148
<PAGE>
SOUTHEAST MECHANICAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and equipment
are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31, JUNE 30,
LIVES 1996 1997
----------- ------------ ----------
<S> <C> <C> <C>
Land................................... -- $ 57,839 $ 57,839
Buildings and improvements............. 20-30 years 273,896 273,896
Service and other vehicles............. 4-7 years 594,809 594,809
Machinery and equipment................ 5-10 years 73,250 73,250
Office equipment, furniture and
fixtures.............................. 5-10 years 161,686 167,938
---------- ----------
1,161,480 1,167,732
Less accumulated depreciation.......... (662,718) (737,544)
---------- ----------
$ 498,762 $ 430,188
========== ==========
</TABLE>
5. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Note payable to a bank in connection with a working
capital credit line facility. Interest payable
monthly at the bank's prime rate plus .50% (8.75% at
December 31, 1996 and 8.5% at June 30, 1997),
principal amount due in April, 1997. The Company has
an unused portion of this credit line facility
available at December 31, 1996 of $113,000 and
$281,000 at June 30, 1997. This credit line facility
is collateralized by the Company's accounts
receivable, inventory, property and equipment, and
the personal guarantees of the shareholders and
certain spouses..................................... $187,000 $ 19,000
Installment contracts payable at $8,201 per month,
including interest at 7.75% to 9.50%, until October,
1998 and at lesser amounts thereafter until
November, 2000, collateralized by automotive
equipment with a net book value of approximately
$239,000. Balance net of deferred interest of
$32,935 (current portion $17,384)................... 243,810 204,482
Mortgage note payable in monthly installments of
$1,259 plus interest at .50% above the bank's prime
rate (8.75% at December 31, 1996 and 8.5% at June
30, 1997) until January, 2005. The mortgage note is
collateralized by a building and land with a net
book value of approximately $169,000................ 123,350 115,798
Note payable to a bank, payable at $2,387 per month
plus interest at .50% above the bank's prime rate
(8.75% at December 31, 1996 and 8.5% at June 30,
1997) through December, 1997. This note is
collateralized by the Company's accounts receivable,
inventory and certain property and equipment........ 31,022 16,700
-------- --------
Total short- and long-term debt.................. 585,182 355,980
Less short-term borrowings and current maturities.... 311,779 135,254
-------- --------
$273,403 $220,726
======== ========
</TABLE>
F-149
<PAGE>
SOUTHEAST MECHANICAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of the short- and long-term debt as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997................................................................ $311,779
1998................................................................ 101,137
1999................................................................ 68,009
2000................................................................ 41,326
2001................................................................ 15,104
Thereafter.......................................................... 47,827
--------
$585,182
========
</TABLE>
6. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1996 and the six months ended June 30,
1997, the Company paid consulting fees totaling $71,800 and $10,900,
respectively to various affiliated corporations which are owned by certain of
its shareholders.
Interest expense in connection with shareholder loans repaid during the year
ended December 31, 1996 and the six months ended June 30, 1997 amounted to
$3,680 and $15,066, respectively.
The Company rents storage space on a month-to-month basis from a partnership
owned by its shareholders. Rent expense related to this rental agreement
totaled $4,969 for the year ended December 31, 1996 and $2,461 for the six
months ended June 30, 1997.
The Company's policy is to distribute to the shareholders pass-through
"Chapter S" income in the first month following year end. Such distributions
are made in the form of notes payable which bear interest at 10% and are paid
during the succeeding year. In January 1997, notes totaling $446,042 were
issued to shareholders in accordance with this policy. At June 30, 1997, there
was $371,042 still outstanding on these notes.
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
8. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
and short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
9. ACQUISITION OF COMPANY
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC will acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
F-150
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Willis Refrigeration, Heating & Air Conditioning, Inc.:
We have audited the accompanying balance sheets of Willis Refrigeration,
Heating & Air Conditioning, Inc. (the Company) as of March 31, 1997 and June
30, 1997, and the related statements of operations, shareholders' equity and
cash flows for the year ended March 31, 1997 and the three months ended June
30, 1997. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Willis Refrigeration,
Heating & Air Conditioning, Inc. as of March 31, 1997 and June 30, 1997, and
the results of its operations and its cash flows for the year ended March 31,
1997 and the three months ended June 30, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 25, 1997
F-151
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 774,445 $ 788,191
Accounts receivable, net of allowance for doubtful
accounts
of $564,648 and $539,673, respectively................. 1,288,442 1,390,882
Inventories............................................. 190,276 194,272
Deferred income taxes................................... 240,441 229,950
Prepaid expenses........................................ 12,377 8,873
---------- ----------
Total current assets................................... 2,505,981 2,612,168
PROPERTY AND EQUIPMENT, net.............................. 513,888 512,485
MARKETABLE SECURITIES.................................... 263,175 278,850
OTHER NONCURRENT ASSETS.................................. 80,585 81,538
---------- ----------
Total assets........................................... $3,363,629 $3,485,041
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................................... $ 222,828 $ 220,731
Accounts payable........................................ 409,302 270,115
Accrued expenses........................................ 86,843 111,099
Deferred service contract revenue....................... 199,194 229,235
Income taxes payable.................................... 230,913 283,747
---------- ----------
Total current liabilities.............................. 1,149,080 1,114,927
DEFERRED INCOME TAXES.................................... 142,005 147,072
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--no par value, stated value of $10 per
share; 500 shares authorized; 405 shares issued and
outstanding............................................ 4,050 4,050
Retained earnings....................................... 1,918,330 2,059,767
Net unrealized gain on marketable securities............ 150,164 159,225
---------- ----------
Total shareholders' equity............................. 2,072,544 2,223,042
---------- ----------
Total liabilities and shareholders' equity............. $3,363,629 $3,485,041
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-152
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,
MARCH 31, ----------------------
1997 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................... $6,780,747 $1,643,275 $1,743,102
COST OF SERVICES........................... 5,033,377 1,318,762 1,257,766
---------- ---------- ----------
Gross profit............................. 1,747,370 324,513 485,336
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 1,205,393 369,048 275,694
---------- ---------- ----------
Income (loss) from operations............ 541,977 (44,535) 209,642
OTHER INCOME (EXPENSE):
Interest expense.......................... (25,379) (7,343) (4,864)
Interest income........................... 7,926 3,257 10,449
Other..................................... 48,464 9,655 6,353
---------- ---------- ----------
Income (loss) before income tax
provision............................... 572,988 (38,966) 221,580
INCOME TAX PROVISION....................... 237,962 -- 80,143
---------- ---------- ----------
NET INCOME (LOSS).......................... $ 335,026 $ (38,966) $ 141,437
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-153
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN ON TOTAL
COMMON RETAINED MARKETABLE SHAREHOLDERS'
STOCK EARNINGS SECURITIES EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1996............. $4,050 $1,583,304 $ 77,400 $1,664,754
Net income......................... -- 335,026 -- 335,026
Net unrealized gain on marketable
securities........................ -- -- 72,764 72,764
------ ---------- -------- ----------
BALANCE, March 31, 1997............. 4,050 1,918,330 150,164 2,072,544
Net income......................... -- 141,437 -- 141,437
Net unrealized gain on marketable
securities........................ -- -- 9,061 9,061
------ ---------- -------- ----------
BALANCE, June 30, 1997.............. $4,050 $2,059,767 $159,225 $2,223,042
====== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-154
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,
MARCH 31, ---------------------
1997 1996 1997
---------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ 335,026 $ (38,966) $ 141,437
Adjustments to reconcile net income (loss)
to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 82,328 22,419 22,591
Deferred income taxes..................... 80,900 -- 8,944
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable..................... (39,157) (332,559) (102,440)
Inventories............................. 21,111 -- (3,996)
Prepaid expenses........................ 41,737 (22,000) 3,504
Increase (decrease) in--
Accounts payable........................ (125,073) 111,473 (139,187)
Accrued expenses........................ (74,603) (48,077) 24,256
Deferred service contract revenue....... 16,154 25,242 30,041
Income taxes payable.................... 46,885 -- 52,834
--------- --------- ---------
Net cash provided by (used in)
operating activities.................. 385,308 (282,468) 37,984
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (34,821) (2,099) (21,188)
Increase in cash surrender value of life
insurance policy........................... (10,943) -- (953)
--------- --------- ---------
Net cash used in investing activities.. (45,764) (2,099) (22,141)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term borrowings........... (84,942) -- (2,097)
--------- --------- ---------
Net cash used in financing activities.. (84,942) -- (2,097)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 254,602 (284,567) 13,746
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 519,843 519,843 774,445
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period..... $ 774,445 $ 235,276 $ 788,191
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-155
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Willis Refrigeration, Heating & Air Conditioning, Inc. (the Company) is
primarily engaged in the installation and servicing of heating and air
conditioning systems for residential customers in Ohio and northern Kentucky.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the three months ended June 30, 1996
are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been
included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Use of Estimates
Management uses estimates and assumptions in preparing the financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from new construction sales are recognized on the
percentage of completion basis with seventy percent of the revenue recognized
at initial installation of new units and thirty percent recognized at the
final stage of installation when the residential building is nearing
completion. Material, equipment and labor costs are estimated for each job and
are recognized on the same percentage method.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest were $25,379 and $2,131 for
the year ended March 31, 1997 and the three months ended June 30, 1997.
Inventories
Inventories consist primarily of parts and supplies used in both the service
and construction portions of the Company's operation. Inventory is stated at
the lower of cost or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.
F-156
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Upon retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Marketable Securities
The Company accounts for marketable securities in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. All of
the Company's marketable securities (all of which are equity securities) have
been classified as available for sale with unrealized gains or losses recorded
as a separate component of shareholders' equity. As of March 31, 1997 and June
30, 1997 the amortized cost of the marketable securities was $12,900.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 90
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or services.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
New Accounting Pronouncement
Effective April 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
F-157
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31, JUNE 30,
USEFUL LIVES 1997 1997
------------ ---------- ----------
<S> <C> <C> <C>
Service and other vehicles............. 3-5 years $ 505,103 $ 505,103
Office equipment, furniture and
fixtures.............................. 3-10 years 223,379 244,567
Buildings and improvements............. 18-31 years 453,267 453,267
Land................................... -- 106,500 106,500
---------- ----------
1,288,249 1,309,437
Less accumulated depreciation........ (774,361) (796,952)
---------- ----------
$ 513,888 $ 512,485
========== ==========
</TABLE>
4. OTHER NONCURRENT ASSETS
Other noncurrent assets includes the cash surrender value of a life
insurance policy for the vice president of the Company. The cash surrender
value of the policy is as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- --------
<S> <C> <C>
Cash surrender value.................................... $ 82,267 $ 83,220
Outstanding loan........................................ (18,682) (18,682)
-------- --------
Net cash surrender value.............................. $ 63,585 $ 64,538
======== ========
</TABLE>
5. SHORT-TERM BORROWINGS
Short-term borrowings consists of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- --------
<S> <C> <C>
Revolving line of credit of up to $700,000 payable to a
financial institution, bearing interest at 8.5%, due
upon demand, but in any event without demand or notice
on February 28, 1998.................................... $100,000 $100,000
Notes payable to the president of the Company, bearing
interest at 9%, no scheduled repayment.................. 122,828 120,731
-------- --------
Total short-term borrowings............................ $222,828 $220,731
======== ========
</TABLE>
6. INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
1997 1997
---------- ------------
<S> <C> <C>
Current.............................................. $157,062 $71,199
Deferred............................................. 80,900 8,944
-------- -------
Income tax provision............................... $237,962 $80,143
======== =======
</TABLE>
F-158
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Total income tax expense differed from the amount computed by applying the
U.S. federal statutory income tax rate of 34% to income before income tax
provision as a result of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
1997 1997
---------- ------------
<S> <C> <C>
Expense at the statutory rate........................ $194,816 $75,337
Increase (reduction) resulting from:
State income taxes................................. 45,839 12,289
Other.............................................. (2,693) (7,483)
-------- -------
$237,962 $80,143
======== =======
</TABLE>
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- --------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts......................... $226,249 $215,758
Warranty reserves....................................... 11,252 11,252
Vacation accrual........................................ 2,940 2,940
-------- --------
Total deferred income tax asset....................... 240,441 229,950
-------- --------
Deferred income tax liabilities:
Net unrealized gain on securities available for sale.... 105,115 111,729
Depreciation............................................ 36,890 35,343
-------- --------
Total deferred income tax liability................... 142,005 147,072
-------- --------
Net deferred income tax asset......................... $ 98,436 $ 82,878
======== ========
</TABLE>
Management believes that it is more likely than not that the Company will
realize the benefits of the net deferred income tax asset recorded at March
31, 1997 and June 30, 1997.
7. EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing plan (the Plan) covering its qualified
employees. The Company may make a contribution amount at any time to the Plan
to the extent authorized by the Board of Directors. Total expense related to
this Plan for the year ended March 31, 1997 and the three months ended June
30, 1997, was approximately $54,200 and $3,700, respectively.
8. SALES TO SIGNIFICANT CUSTOMER
During the year ended March 31, 1997 and the three months ended June 30,
1997 sales to one customer accounted for approximately 14% and 13% of the
Company's revenues.
9. EMPLOYMENT AGREEMENT
On January 13, 1992, the Company entered into an employment agreement with
the Company's Chairman of the Board of Directors whereby an annual salary
would be paid to the Chairman through December 31, 2011 and would continue to
be paid in the event of death, disability, or termination of employment. An
annual salary
F-159
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of $26,000 will be paid through August 31, 2006; $15,600 per annum will be
paid thereafter through December 31, 2011. The employment agreement will be
terminated upon the consummation of the proposed merger of the Company (see
note 12).
10. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
marketable securities (carried at fair value) and short-term borrowings. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
11. ACQUISITION OF COMPANY
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC would acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
F-160
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Yale, Inc.:
We have audited the accompanying balance sheets of Yale, Inc. as of
September 30, 1996 and June 30, 1997, and the related statements of
operations, shareholders' equity and cash flows for the year ended September
30, 1996 and the nine months ended June 30, 1997. 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 financial position of Yale, Inc. as of September
30, 1996 and June 30, 1997, and the results of its operations and its cash
flows for the year ended September 30, 1996 and the nine months ended June 30,
1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 18, 1997
F-161
<PAGE>
YALE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 112,091 $ 93,872
Accounts receivable, net of allowance for doubtful
accounts of $5,000................................. 1,355,712 1,553,593
Inventories......................................... 80,563 89,466
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 127,177 295,298
Prepaid expenses.................................... 54,324 44,545
---------- ----------
Total current assets.............................. 1,729,867 2,076,774
PROPERTY AND EQUIPMENT, net........................... 438,665 694,157
---------- ----------
Total assets...................................... $2,168,532 $2,770,931
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of
long-term debt..................................... $ 120,233 $ 244,998
Accounts payable.................................... 529,545 763,695
Accrued expenses.................................... 217,847 219,303
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 93,306 19,401
---------- ----------
Total current liabilities......................... 960,931 1,247,397
LONG-TERM DEBT, net of current maturities............. 101,732 175,047
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--no par value, stated value of $1 per
share; 20,000 shares authorized; 1,000 shares
issued and outstanding............................. 1,000 1,000
Additional paid-in capital.......................... 100,767 100,767
Retained earnings................................... 1,004,102 1,246,720
---------- ----------
Total shareholders' equity........................ 1,105,869 1,348,487
---------- ----------
Total liabilities and shareholders' equity........ $2,168,532 $2,770,931
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-162
<PAGE>
YALE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, ----------------------
1996 1996 1997
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................. $10,065,130 $7,228,688 $7,362,875
COST OF SERVICES......................... 7,930,984 5,553,931 5,414,265
----------- ---------- ----------
Gross profit........................... 2,134,146 1,674,757 1,948,610
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 1,729,405 1,292,928 1,522,284
----------- ---------- ----------
Income from operations................. 404,741 381,829 426,326
OTHER INCOME (EXPENSE):
Interest expense....................... (29,578) (23,824) (24,350)
Other.................................. (49,791) (21,383) (9,358)
----------- ---------- ----------
NET INCOME............................... $ 325,372 $ 336,622 $ 392,618
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-163
<PAGE>
YALE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1995......... $1,000 $100,767 $ 803,730 $ 905,497
Net income........................ -- -- 325,372 325,372
Distributions to shareholders..... -- -- (125,000) (125,000)
------ -------- ---------- ----------
BALANCE, September 30, 1996......... 1,000 100,767 1,004,102 1,105,869
Net income........................ -- -- 392,618 392,618
Distributions to shareholders..... -- -- (150,000) (150,000)
------ -------- ---------- ----------
BALANCE, June 30, 1997.............. $1,000 $100,767 $1,246,720 $1,348,487
====== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-164
<PAGE>
YALE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, ---------------------
1996 1996 1997
------------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 325,372 $ 336,622 $ 392,618
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation........................... 127,448 92,059 141,438
Gain on sale of property and equipment. (660) (660) (11,159)
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable.................. 59,098 (149,234) (197,881)
Inventories.......................... 410 (178,651) (8,903)
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................... (93,145) (51,801) (168,121)
Prepaid expenses..................... (25,136) (26,821) 9,779
Increase (decrease) in--
Accounts payable..................... 7,505 456,337 234,150
Accrued expenses..................... 58,688 (52,607) 1,456
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 54,294 38,574 (73,905)
--------- --------- ---------
Net cash provided by operating
activities......................... 513,874 463,818 319,472
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (315,074) (315,074) (403,831)
Proceeds from sales of property and
equipment............................... 41,945 41,945 18,060
--------- --------- ---------
Net cash used in investing
activities......................... (273,129) (273,129) (385,771)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............. 233,400 233,400 319,000
Payments of long-term debt............... (253,784) (221,810) (120,920)
Distributions to shareholders............ (125,000) (125,000) (150,000)
--------- --------- ---------
Net cash provided by (used in)
financing activities........... (145,384) (113,410) 48,080
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 95,361 77,279 (18,219)
CASH AND CASH EQUIVALENTS, beginning of
period................................... 16,730 16,730 112,091
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.. $ 112,091 $ 94,009 $ 93,872
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-165
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Yale, Inc. (the Company) is primarily engaged in the installation and
servicing of heating and air conditioning systems for commercial and
industrial customers in the state of Minnesota.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the nine months ended June 30, 1996 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows
with respect to the interim financial statements, have been included. The
results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting year. Actual results could differ from those estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents. Cash payments for interest were $37,791 and $24,350 for the
year ended September 30, 1996 and the nine months ended June 30, 1997,
respectively.
Inventories
Inventories consist of parts and supplies used in both the service and the
construction portions of the Company's operation. The inventory is valued at
the lower of cost or market, with cost determined on a first-in, first-out
(FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.
F-166
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Upon retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 90
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.
Income Taxes
The shareholders of the Company have elected to be taxed for federal and
Minnesota tax purposes as an S Corporation whereby the shareholders'
respective equitable shares in the taxable income of the Company are
reportable on their individual tax returns. The Company has made distributions
to the shareholders each year at least in amounts necessary to pay personal
income taxes payable on the Company's taxable income.
New Accounting Pronouncement
Effective October 1, 1995, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
Accrued payroll costs and benefits.................... $209,324 $161,306
Other accrued expenses................................ 8,523 57,997
-------- --------
$217,847 $219,303
======== ========
</TABLE>
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
Costs incurred........................................ $1,162,529 $811,487
Estimated earnings recognized......................... 60,763 108,605
---------- --------
1,223,292 920,092
Less billings on contracts............................ 1,189,421 644,195
---------- --------
$ 33,871 $275,897
========== ========
</TABLE>
F-167
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $127,177 $295,298
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (93,306) (19,401)
-------- --------
$ 33,871 $275,897
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL SEPTEMBER 30, JUNE 30,
LIVES 1996 1997
---------- ------------- ----------
<S> <C> <C> <C>
Service and other vehicles............. 4-7 years $ 675,544 $ 845,186
Machinery and equipment................ 5-10 years 141,367 153,019
Office equipment, furniture and
fixtures.............................. 5-10 years 101,171 124,444
Leasehold improvements................. -- 52,386
--------- ----------
918,082 1,175,035
Less accumulated depreciation.......... (479,417) (480,878)
--------- ----------
$ 438,665 $ 694,157
========= ==========
</TABLE>
6. SHORT- AND LONG-TERM DEBT
The Company has an available line of credit of $450,000 that matures on
April 30, 1998. Advances issued are due on demand and accrue interest at 0.5%
above the prime rate. Also, the Company has an agreement to borrow up to
$350,000 of term debt secured by service and other vehicles and equipment. The
line of credit and equipment notes are secured by substantially all of the
Company's assets and the personal guarantees of certain shareholders. At June
30, 1997, the Company had $100,000 of outstanding borrowings on the line of
credit, and had approximately $320,000 of outstanding borrowings on the term
debt.
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
Borrowings under line of credit agreement............. $ -- $100,000
Note payable to bank, due in monthly installments of
$1,230, plus interest at 0.5% over prime, through May
1997, secured by service and other vehicles.......... 9,735 --
Note payable to bank, due in monthly installments of
$2,944, plus interest at 0.5% over prime, through
August 1997, secured by service and other
vehicles............................................. 32,695 6,195
Note payable to bank, due in monthly installments of
$1,805, plus interest at 0.5% over prime, through
November 1998, secured by service and other vehicles. 46,948 30,703
Note payable to bank, due in monthly installments of
$1,014, plus interest at 0.5% over prime, through
October 1998, secured by service and other vehicles.. 25,346 16,220
Note payable to bank, due in monthly installments of
$1,584, plus interest at 0.5% over prime, through
December 1998, secured by service and other vehicles. 42,744 28,488
</TABLE>
F-168
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ---------
<S> <C> <C>
Note payable to bank, due in monthly installments of
$2,081, plus interest at 0.5% over prime, through
April 1999, secured by service and other vehicles.. 64,497 45,772
Note payable to bank, due in monthly installments of
$2,083, plus interest at 0.5% over prime, through
February 2000, secured by service and other
vehicles........................................... -- 66,667
Note payable to bank, due in monthly installments of
$3,000, plus interest at 0.5% over prime, through
December 2000, secured by service and other
vehicles........................................... -- 126,000
--------- ---------
Total short- and long-term debt................... 221,965 420,045
Less short-term borrowings and current maturities... (120,233) (244,998)
--------- ---------
$ 101,732 $ 175,047
========= =========
</TABLE>
The line of credit and the equipment notes contain certain restrictive
covenants relating to, among other items, minimum net income, minimum tangible
net worth, and debt to tangible net worth.
The aggregate maturities of the short- and long-term debt as of September
30, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................. $120,233
1998................................................................. 77,837
1999................................................................. 23,895
--------
$221,965
========
</TABLE>
7. LEASES
The Company operates out of facilities leased from a related entity under a
monthly operating lease requiring payments of $10,710 per month. The Company
sublets part of the building under an operating lease through February 1998.
Total rent expenses before sublease income for the year ended September 30,
1996 and the nine months ended June 30, 1997, were approximately $128,500 and
$96,400, respectively. Sublease income was approximately $39,000 and $29,250
for the year ended September 30, 1996 and the nine months ended June 30, 1997,
respectively. The Company has guaranteed the underlying mortgage
(approximately $405,000 as of September 30, 1996) for the facility.
8. RELATED PARTY TRANSACTIONS
During the year ended September 30, 1996 and the nine months ended June 30,
1997, the Company paid management fees to related parties totaling
approximately $110,100 and $60,075, respectively. In addition, as discussed in
note 7, the Company leases its operating facilities from a related entity.
9. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan covering all employees not covered by a
collective bargaining agreement. Eligible employees may contribute from 2 to
20% of their qualifying compensation to the plan, with the Company required to
match 50% of the employee's first 6% of contributions. The Company may make
additional contributions to the plan to the extent authorized by the Board of
Directors. Total expense related to this plan for the year ended September 30,
1996 and the nine months ended June 30, 1997, was approximately $30,100 and
$20,778, respectively.
F-169
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company makes contributions to union-administered benefit funds which
cover the majority of the Company's employees. For the year ended September
30, 1996 and the nine months ended June 30, 1997, the participation costs
charged to operations were approximately $592,400 and $511,720, respectively.
Governmental regulations impose certain requirements relative to multi-
employer plans. In the event of plan termination or employer withdrawal, an
employer may be liable for a portion of the plan's unfunded vested benefits,
if any. The Company has not received information from the plans'
administrators to determine its share of any unfunded vested benefits. The
Company does not anticipate withdrawal from the plans, nor is the Company
aware of any expected plan terminations.
10. SALES TO SIGNIFICANT CUSTOMER
During the year ended September 30, 1996 and the nine months ended June 30,
1997, sales to one customer accounted for approximately 18% and 26%,
respectively, of the Company's revenues.
11. COMMITMENTS AND CONTINGENCIES
Claims
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
Stock Transfer Agreement
The Company has a stock transfer agreement with the shareholders
(participants) covering all shares of common stock whereby the Company is
required to repurchase the shares of a participant in certain circumstances.
Additionally, the Company has an option to repurchase the common shares of a
participant in certain circumstances.
12. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
13. ACQUISITION OF COMPANY
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC will acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
F-170
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE UNDERWRITERS
OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLIC-
ITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY OF THE SHARES OF COMMON STOCK OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLIC-
ITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The Company............................................................... 15
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Dividend Policy........................................................... 17
Dilution.................................................................. 18
Selected Historical and Pro Forma Financial Data.......................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 38
Management................................................................ 49
Related Party Transactions................................................ 57
Security Ownership of Certain Beneficial Owners and Management............ 59
The Acquisitions.......................................................... 61
Description of Capital Stock.............................................. 62
Description of Bank Credit Agreement...................................... 64
Shares Eligible for Future Sale........................................... 65
Underwriting.............................................................. 68
Legal Matters............................................................. 69
Experts................................................................... 69
Available Information..................................................... 70
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY RE-
QUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO OF GROUP MAC appears here]
GROUP MAINTENANCE AMERICA CORP.
COMMON STOCK
----------------
PROSPECTUS
----------------
THE ROBINSON-HUMPHREY COMPANY, INC.
WILLIAM BLAIR & COMPANY
ABN AMRO CHICAGO CORPORATION
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the Commission and the NASD and the NYSE
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
-------
<S> <C>
Commission registration fee...................................... $40,145
NASD filing fee..................................................
NYSE listing fee.................................................
Printing and Engraving expenses..................................
Legal fees and expenses..........................................
Accounting fees and expenses.....................................
Blue sky fees and expenses.......................................
Transfer Agent's and Registrar's fees............................
Securities Offering Insurance....................................
Miscellaneous....................................................
-------
TOTAL.......................................................... $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article 2.02A of the TBCA provides, in relevant part, as follows:
Subject to the provisions of Section B and C of this Article, each
corporation shall have the power:
(16) to indemnify directors, officers, employees, and agents of the
corporation and to purchase and maintain liability insurance for those
persons.
Article IX of the Articles of Incorporation of the Company (therein referred
to as the "Corporation") provides as follows:
1. Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal in such
action, suit or proceeding, and any inquiry or investigation that would
lead to such action, suit or proceeding (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director or
officer of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to any employee benefit
plan (hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by
the TBCA, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all judgments, fines, penalties (including excise tax and
similar taxes), settlements, and reasonable expenses actually incurred by
such indemnitee in connection therewith. The right to indemnification
conferred in this Article shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the TBCA requires, an advancement
of expenses incurred by an indemnitee shall be made only upon delivery to
the Corporation of
II-1
<PAGE>
an undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined that such indemnitee is not
entitled to be indemnified for such expenses under this Article or
otherwise.
2. Insurance. The Corporation may purchase and maintain insurance, at its
expense, on behalf of any indemnitee against any liability asserted against
him and incurred by him in such a capacity or arising out of his status as
a representative of the Corporation, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the TBCA.
3. Indemnity of Employees and Agents of the Corporation. The Corporation
may, to the extent authorized from time to time by the board of directors,
grant rights to indemnification and to the advancement of expenses to any
employee or agent of the Corporation to the fullest extent of the
provisions of this Article or as otherwise permitted under the TBCA with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
The Company has entered into indemnity agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
TBCA as described above.
The Form of Underwriting Agreement filed herewith as Exhibit 1.1, under
certain circumstances, provides for indemnification by the Underwriters of the
directors, officers and controlling persons of the Company.
The Company has purchased liability insurance policies covering the
directors and officers of the Company, including, to provide protection where
the Company cannot legally indemnify a director or officer and where a claim
arises under the Employee Retirement Income Security Act of 1974 against a
director or officer based on an alleged breach of fiduciary duty or other
wrongful act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 21, 1996, the Company issued 977,200 shares of Common Stock to or
at the direction of its founders (Richard K. Reiling, J. Patrick Millinor,
Jr., Richard S. Rouse, Chester J. Jachimiec, Edward J. Hoffer, James Ford and
Darren Miller) at a price of $.003 per share for an aggregate sales price of
$2,443. On October 22, 1996, the Company issued 34,000 shares of Common Stock
to Arthur B. Goetze and Darren Miller for a purchase price of $.938 per share
for an aggregate consideration of $31,875. On October 24, 1996, the Company
and Gordon Cain entered into a Subscription Agreement pursuant to which Mr.
Cain agreed to purchase from the Company 2,600,000 shares of Common Stock at a
price of $3.077 per share. Pursuant to such agreement, Mr. Cain has purchased
or will purchase prior to the commencement of the Offering all of such shares
for an aggregate of $8,000,000. On April 30, 1997, Mr. Millinor purchased 145
shares for an aggregate sales price of $1,000. On May 27, 1997, John Sullivan
exercised an option to purchase 10,000 shares at a price per share of $3.077
for an aggregate of $30,775. All of such sales were completed without
registration under the Securities Act in reliance upon the exemption provided
by Section 4(2) of the Securities Act.
On May 2, 1997, the Company issued 11,630,350 shares of Common Stock and
14,873,133 shares of Series A Preferred Stock to the shareholders of Airtron
for all of the issued and outstanding capital stock, warrants, SARs and
Deferred Compensation interests of Airtron; on June 20, 1997, the Company
issued 1,007,778 shares of Common Stock and 1,568,000 shares of Series D
Preferred Stock to two shareholders of K&N for all the issued and outstanding
stock of K&N; on June 24, 1997, the Company issued 264,218 shares of Common
Stock and 580,000 shares of Series E Preferred Stock to two former
shareholders of Hallmark for all the issued and outstanding stock of Hallmark;
on June 24, 1997, the Company issued 31,746 shares of Common Stock to one
shareholder of Jarrell for all the issued and outstanding stock of Jarrell; on
June 24, 1997, the Company issued 12,858 shares of Common Stock to Way; on
June 25, 1997, the Company issued 918,466 shares of Common Stock to four
shareholders of A-ABC and A-1 for all the issued and outstanding stock of A-
ABC and A-1; on June 25, 1997, the Company issued 393,139 shares of Common
Stock and 678,920 shares of Series B Preferred Stock (which were exchanged for
107,765 additional shares of Common Stock of the Company) to one
II-2
<PAGE>
shareholder of Charlie's for all the issued and outstanding stock of
Charlie's; on June 21, 1997, the Company issued 131,072 shares of Common Stock
and 100,000 shares of Series C Preferred Stock to two shareholders of Costner
for all the issued and outstanding stock of Costner; on July 15, 1997, the
Company issued 155,002 shares of Common Stock and 664,691 shares of Series F
Preferred Stock to two shareholders of Sibley for all the issued and
outstanding stock of Sibley; on July 17, 1997, the Company issued 200,000
shares of Common Stock and 550,000 shares of Series G Preferred Stock to
Callahan Roach; on July 31, 1997, the Company issued 124,509 shares of Common
Stock and 435,771 shares of Series I Preferred Stock to USA (such sales of
Common Stock and Preferred Stock are herein referred to as "Pre-Offering
Company Sales").
Simultaneously with the consummation of the Offering, the Company will issue
2,064,023 shares of Common Stock in connection with the acquisitions of the
Offering Acquisition Companies (such sales of Common Stock are herein referred
to as "Offering Acquisition Company Sales").
The Pre-Offering Company Sales were and the Offering Acquisition Company
Sales will be completed without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
On May 19, 1997, the Company sold 35,297 units consisting of an aggregate of
14,119 shares of Common Stock and 45,138 shares of Series A Preferred Stock to
certain Airtron division vice presidents at a price of $4.04 per unit for an
aggregate sales price of $142,600. On July 17, 1997, the Company sold
approximately 1,597,686 units consisting of an aggregate of 639,074 shares of
Common Stock and 2,043,121 shares of Series A Preferred Stock to the
participants in the Airtron, Inc. Savings and Profit Sharing Plan at a price
of $4.04 per unit for an aggregate sales price of $6,454,651. Such sales were
exempt from registration by virtue of Section 4(2) of the Securities Act and
Rule 701 promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement between the Company and the
Underwriters named therein.
3.1 Articles of Incorporation of the Company as amended through July 31,
1997.
3.2 Bylaws of the Company.
4.1* Form of Certificate representing the Common Stock, par value $.001 per
share, of the Company.
4.2 Form of Stock Transfer Restriction Agreement among the Company and
certain holders of the Common Stock.
4.3 Form of Registration Rights Agreement among the Company and certain
holders of the Common Stock.
4.4 Form of Registration Rights Agreement among the Company and holders of
Common Stock who were formerly holders of capital stock of the Pre-
Offering Companies and the Offering Acquisition Companies.
5* Opinion of Bracewell & Patterson, L.L.P. as to the validity of the
Common Stock being offered.
10.1* Form of Stock Awards Plan.
10.2* Form of Option Agreement for Stock Awards Plan.
10.3* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of a Majority of the Outstanding Common Stock of
Airtron, Inc., dated April 30, 1997.
10.4* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of K & N
Plumbing, Heating and Air Conditioning, Inc., dated June 20, 1997.
10.5* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of Costner
Brothers, Inc., dated June 21, 1997.
10.6* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of Hallmark Air
Conditioning, Inc., dated June 24, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.7* Agreement and Plan of Merger among Group Maintenance America Corp.,
JARL Acquisition Corp., AA JARL, Inc. and James Wilburn, dated March
17, 1997.
10.8* Asset Purchase Agreement among Hallmark Air Conditioning, Inc. and Way
Service, Inc., dated June 24, 1997.
10.9* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock Charlie
Crawford, Inc., dated June 25, 1997.
10.10* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of A-ABC
Appliance, Inc. and A-1 Appliance & Air Conditioning, Inc., dated July
3, 1997.
10.11* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of Sibley
Services, Inc., dated July 15, 1997.
10.12* Agreement and Plan of Merger by and among Group Maintenance America
Corp., CRP Acquisition Corp., Callahan Roach Products & Publications,
Inc. and the Holders of the Outstanding Capital Stock of Callahan
Roach Products & Publications, Inc., dated July 16, 1997.
10.13* Agreement and Plan of Merger by and among Group Maintenance America
Corp., CRP Acquisition Corp., Callahan Roach & Associates and all of
the Partners of Callahan Roach & Associates, dated July 16, 1997.
10.14* Asset Purchase Agreement among United Acquisition Corp., Group
Maintenance America Corp., United Service Alliance, L.C. and the
Members of United Service Alliance, L.C., Inc., dated July 31, 1997.
10.15 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., All Service Acquisition Corp., All Service Electric,
Inc. and the Holder of the Outstanding Capital Stock of All Service
Electric, Inc., dated as of August 18, 1997.
10.16 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., AMS Acquisition Corp., Arkansas Mechanical Services,
Inc. and the Holders of the Outstanding Capital Stock of Arkansas
Mechanical Services, Inc., dated as of August 18, 1997.
10.17 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Central Carolina Acquisition Corp., Central Carolina
Air Conditioning Company and the Holders of the Outstanding Capital
Stock of Central Carolina Air Conditioning Company, dated as of August
18, 1997.
10.18 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Evans Acquisition Corp., Evans Services, Inc., the
Holder of the Outstanding Capital Stock of Evans Services, Inc., dated
as of August 18, 1997.
10.19* Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Linford Acquisition Corp., Linford Service Company and
the Holders of the Outstanding Common Stock of Linford Service
Company, dated as of August 18, 1997.
10.20 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., MacDonald-Miller Acquisition Corp., MacDonald-Miller
Industries, Inc., the Principal Holders of the Outstanding Capital
Stock of MacDonald-Miller Industries, Inc. and the Trustee of the
MacDonald-Miller Stock Ownership Plan and Trust, dated as of August
18, 1997.
10.21 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Masters Acquisition Corp., Masters, Inc. and the Holder
of the Outstanding Capital Stock of Masters, Inc., dated as of August
18, 1997.
10.22 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., AMS Acquisition Corp., Mechanical Services, Inc. and
the Holders of the Outstanding Capital Stock of Mechanical Services,
Inc., dated as of August 18, 1997.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.23 Form of Agreement and Plan of Exchange by and among Group Maintenance
America Corp., Paul E. Smith Co., Inc. and the Holders of the
Outstanding Capital Stock of Paul E. Smith Co., Inc., dated as of
August 18, 1997.
10.24 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Southeast Mechanical Service, Inc. and the Holders of
the Outstanding Capital Stock of Southeast Mechanical Service, Inc.,
dated as of August 18, 1997.
10.25 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Van's Acquisition Corp., Van's Comfortemp Air
Conditioning, Inc. and the Holders of the Outstanding Capital Stock of
Van's Comfortemp Air Conditioning, Inc., dated as of August 18, 1997.
10.26 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Willis Acquisition Corp., Willis Refrigeration, Heating
& Air Conditioning, Inc. and the Holders of the Outstanding Capital
Stock of Willis Refrigeration, Heating & Air Conditioning, Inc., dated
as of August 18, 1997.
10.27 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Yale Acquisition Corp., Yale Incorporated and the
Holders of the Outstanding Capital Stock of Yale Incorporated, dated
as of August 18, 1997.
10.28* Form of Employment Agreement by and between Group Maintenance America
Corp. and James P. Norris.
10.29* Form of Employment Agreement by and between Group Maintenance America
Corp. and J. Patrick Millinor, Jr.
10.30* Form of Employment Agreement by and between Group Maintenance America
Corp. and Donald L. Luke.
10.31* Form of Employment Agreement by and between Group Maintenance America
Corp. and James D. Jennings.
10.32* Form of Employment Agreement by and between Group Maintenance America
Corp. and Timothy Johnston.
10.33* Form of Employment Agreement by and between Group Maintenance America
Corp. and William Michael Callahan.
10.34* Form of Employment Agreement by and between Group Maintenance America
Corp. and Alfred R. Roach, Jr.
21 Subsidiaries of the Company.
23.1* Consent of Bracewell & Patterson, L.L.P. (included in its opinion
filed as Exhibit 5 hereto).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Moss Adams LLP.
23.5 Consent of Ronald D. Bryant.
23.6 Consent of David L. Henninger.
23.7 Consent of Andrew Jeffrey Kelly.
23.8 Consent of Thomas B. McDade.
23.9 Consent of Lucian Morrison.
23.10 Consent of Fredric J. Sigmund.
24 Powers of attorney.
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-5
<PAGE>
(b) Financial Statement Schedules
The following financial statement schedules are included herein.
None.
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable, or the information is included in the consolidated financial
statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 14, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Company of
expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GROUP
MAINTENANCE AMERICA CORP. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR
AMENDMENT THERETO TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON AUGUST 20, 1997.
GROUP MAINTENANCE AMERICA CORP.
/s/ J. Patrick Millinor, Jr.
By:__________________________________
J. Patrick Millinor, Jr.
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON AUGUST 20, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ James P. Norris* Chairman of the Board
___________________________________________
James P. Norris
/s/ J. Patrick Millinor, Jr. Director and Chief Executive Officer
_________________________________________ (principal executive officer)
J. Patrick Millinor, Jr.
/s/ Darren B. Miller Senior Vice President--Chief
___________________________________________ Financial Officer (principal
Darren B. Miller financial and accounting officer)
/s/ Donald L. Luke* Director, President and Chief
___________________________________________ Operating Officer
Donald L. Luke
/s/ Chester J. Jachimiec* Director
___________________________________________
Chester J. Jachimiec
/s/ Richard S. Rouse* Director
___________________________________________
Richard S. Rouse
/s/ James D. Jennings* Director
___________________________________________
James D. Jennings
/s/ Timothy Johnston* Director
___________________________________________
Timothy Johnston
/s/ John M. Sullivan* Director
___________________________________________
John M. Sullivan
/s/ James D. Weaver* Director
___________________________________________
James D. Weaver
</TABLE>
/s/ Randolph W. Bryant
*By:_________________________________
Randolph W. Bryant
(Attorney-in-fact for persons
indicated)
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement between the Company and the
Underwriters named therein.
3.1 Articles of Incorporation of the Company as amended through July 31,
1997.
3.2 Bylaws of the Company.
4.1* Form of Certificate representing the Common Stock, par value $.001 per
share, of the Company.
4.2 Form of Stock Transfer Restriction Agreement among the Company and
certain holders of the Common Stock.
4.3 Form of Registration Rights Agreement among the Company and certain
holders of the Common Stock.
4.4 Form of Registration Rights Agreement among the Company and holders of
Common Stock who were formerly holders of capital stock of the Pre-
Offering Companies and the Offering Acquisition Companies.
5* Opinion of Bracewell & Patterson, L.L.P. as to the validity of the
Common Stock being offered.
10.1* Form of Stock Awards Plan.
10.2* Form of Option Agreement for Stock Awards Plan.
10.3* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of a Majority of the Outstanding Common Stock of
Airtron, Inc., dated April 30, 1997.
10.4* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of K & N
Plumbing, Heating and Air Conditioning, Inc., dated June 20, 1997.
10.5* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of Costner
Brothers, Inc., dated June 21, 1997.
10.6* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of Hallmark Air
Conditioning, Inc., dated June 24, 1997.
10.7* Agreement and Plan of Merger among Group Maintenance America Corp.,
JARL Acquisition Corp., AA JARL, Inc. and James Wilburn, dated March
17, 1997.
10.8* Asset Purchase Agreement among Hallmark Air Conditioning, Inc. and Way
Service, Inc., dated June 24, 1997.
10.9* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock Charlie
Crawford, Inc., dated June 25, 1997.
10.10* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of A-ABC
Appliance, Inc. and A-1 Appliance & Air Conditioning, Inc., dated July
3, 1997.
10.11* Agreement and Plan of Exchange by and among Group Maintenance America
Corp. and the Holders of the Outstanding Capital Stock of Sibley
Services, Inc., dated July 15, 1997.
10.12* Agreement and Plan of Merger by and among Group Maintenance America
Corp., CRP Acquisition Corp., Callahan Roach Products & Publications,
Inc. and the Holders of the Outstanding Capital Stock of Callahan
Roach Products & Publications, Inc., dated July 16, 1997.
10.13* Agreement and Plan of Merger by and among Group Maintenance America
Corp., CRP Acquisition Corp., Callahan Roach & Associates and all of
the Partners of Callahan Roach & Associates, dated July 16, 1997.
10.14* Asset Purchase Agreement among United Acquisition Corp., Group
Maintenance America Corp., United Service Alliance, L.C. and the
Members of United Service Alliance, L.C., Inc., dated July 31, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.15 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., All Service Acquisition Corp., All Service Electric,
Inc. and the Holder of the Outstanding Capital Stock of All Service
Electric, Inc., dated as of August 18, 1997.
10.16 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., AMS Acquisition Corp., Arkansas Mechanical Services,
Inc. and the Holders of the Outstanding Capital Stock of Arkansas
Mechanical Services, Inc., dated as of August 18, 1997.
10.17 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Central Carolina Acquisition Corp., Central Carolina
Air Conditioning Company and the Holders of the Outstanding Capital
Stock of Central Carolina Air Conditioning Company, dated as of August
18, 1997.
10.18 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Evans Acquisition Corp., Evans Services, Inc., the
Holder of the Outstanding Capital Stock of Evans Services, Inc., dated
as of August 18, 1997.
10.19* Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Linford Acquisition Corp., Linford Service Company and
the Holders of the Outstanding Common Stock of Linford Service
Company, dated as of August 18, 1997.
10.20 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., MacDonald-Miller Acquisition Corp., MacDonald-Miller
Industries, Inc., the Principal Holders of the Outstanding Capital
Stock of MacDonald-Miller Industries, Inc. and the Trustee of the
MacDonald-Miller Stock Ownership Plan and Trust, dated as of August
18, 1997.
10.21 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Masters Acquisition Corp., Masters, Inc. and the Holder
of the Outstanding Capital Stock of Masters, Inc., dated as of August
18, 1997.
10.22 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., AMS Acquisition Corp., Mechanical Services, Inc. and
the Holders of the Outstanding Capital Stock of Mechanical Services,
Inc., dated as of August 18, 1997.
10.23 Form of Agreement and Plan of Exchange by and among Group Maintenance
America Corp., Paul E. Smith Co., Inc. and the Holders of the
Outstanding Capital Stock of Paul E. Smith Co., Inc., dated as of
August 18, 1997.
10.24 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Southeast Mechanical Service, Inc. and the Holders of
the Outstanding Capital Stock of Southeast Mechanical Service, Inc.,
dated as of August 18, 1997.
10.25 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Van's Acquisition Corp., Van's Comfortemp Air
Conditioning, Inc. and the Holders of the Outstanding Capital Stock of
Van's Comfortemp Air Conditioning, Inc., dated as of August 18, 1997.
10.26 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Willis Acquisition Corp., Willis Refrigeration, Heating
& Air Conditioning, Inc. and the Holders of the Outstanding Capital
Stock of Willis Refrigeration, Heating & Air Conditioning, Inc., dated
as of
August 18, 1997.
10.27 Form of Agreement and Plan of Merger by and among Group Maintenance
America Corp., Yale Acquisition Corp., Yale Incorporated and the
Holders of the Outstanding Capital Stock of Yale Incorporated, dated
as of August 18, 1997.
10.28* Form of Employment Agreement by and between Group Maintenance America
Corp. and James P. Norris.
10.29* Form of Employment Agreement by and between Group Maintenance America
Corp. and J. Patrick Millinor, Jr.
10.30* Form of Employment Agreement by and between Group Maintenance America
Corp. and Donald L. Luke.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.31* Form of Employment Agreement by and between Group Maintenance America
Corp. and James D. Jennings.
10.32* Form of Employment Agreement by and between Group Maintenance America
Corp. and Timothy Johnston.
10.33* Form of Employment Agreement by and between Group Maintenance America
Corp. and William Michael Callahan.
10.34* Form of Employment Agreement by and between Group Maintenance America
Corp. and Alfred R. Roach, Jr.
21 Subsidiaries of the Company.
23.1* Consent of Bracewell & Patterson, L.L.P. (included in its opinion
filed as Exhibit 5 hereto).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Moss Adams LLP.
23.5 Consent of Ronald D. Bryant.
23.6 Consent of David L. Henninger.
23.7 Consent of Andrew Jeffrey Kelly.
23.8 Consent of Thomas B. McDade.
23.9 Consent of Lucian Morrison.
23.10 Consent of Fredric J. Sigmund.
24 Powers of attorney.
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
GROUP MAINTENANCE AMERICA CORP.
ARTICLE I.
NAME
The name of the Corporation is Group Maintenance America Corp.
ARTICLE II.
DURATION
The period of the duration of the Corporation is perpetual.
ARTICLE III.
PURPOSE
The purpose for which the Corporation is organized is to transact any and
all lawful business for which corporations may be incorporated under the Texas
Business Corporation Act (the "TBCA").
ARTICLE IV.
CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 150,000,000 which shall be divided into (a)
100,000,000 shares of common stock having a par value of $.001 per share
("Common Stock") and (b) 50,000,000 shares of preferred stock having a par value
of $.001 per share ("Preferred Stock").
A description of the different classes of stock of the Corporation and a
statement of the designations, preferences, limitations and relative rights,
including voting rights of the various classes of stock are as follows:
1. Preferred Stock. The shares of Preferred Stock may be divided into
and issued in series. The board of directors shall have the authority to
establish series of unissued shares of Preferred Stock by fixing and determining
the relative rights and preferences of the shares of any series so established,
and to increase or decrease the number of shares within each such series;
provided, however, that the board of directors may not decrease the number of
shares within a series
<PAGE>
of Preferred Stock to less than the number of shares within such series that are
then issued. The Preferred Stock of each such series shall have such
designations, preferences, limitations, or relative rights, including voting
rights, as shall be set forth in the resolution or resolutions establishing such
series adopted by the board of directors, including, but without limiting the
generality of the foregoing, the following:
(a) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number (except
where otherwise provided by the board of directors in the resolution
establishing such series) may be increased or decreased (but not below the
number of shares of such series then outstanding) from time to time by like
action of the board of directors;
(b) The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any
other series of the same or other class or classes of capital stock of the
Corporation and whether such dividends shall be cumulative or
noncumulative;
(c) The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares of any
other class or classes or of any other series of the same or any other
class or classes of capital stock, obligations, indebtedness, rights to
purchase securities or other securities of the Corporation or other
entities, domestic or foreign, or for other property or for any combination
of the foregoing, and the terms and conditions of such conversion or
exchange;
(d) Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions on which, shares of such
series of Preferred Stock may be redeemed;
(e) The rights, if any, of the holders of such series of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation or in the event of any merger or
consolidation of or sale of assets by the Corporation;
(f) The terms of any sinking fund or redemption or repurchase or
purchase account, if any, to be provided for shares of such series of
Preferred Stock;
(g) The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter, which
may be less than, equal to or greater than one vote per share, and which
may, without limiting the generality of the foregoing, include the right,
voting as a series of Preferred Stock as a class, to elect one or more
directors of the Corporation generally or under such specific circumstances
and on such conditions, as shall be provided in the resolution or
resolutions of the board of directors adopted pursuant hereto, including,
without limitation, in the event there shall have been a default in the
payment of dividends on or redemption of any one or more series of
Preferred Stock; and
Articles of Incorporation/Page 2
<PAGE>
(h) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, as the board of directors shall determine.
2. Common Stock.
(a) Subject to the prior and superior rights of the Preferred Stock,
and on the conditions set forth in Section 1. of this Article or in any
resolution of the board of directors providing for the issuance of any
series of Preferred Stock, and not otherwise, such dividends (payable in
cash, stock or otherwise) as may be determined by the board of directors
may be declared and paid on the Common Stock from time to time out of any
funds legally available therefor.
(b) Each holder of Common Stock shall be entitled to one vote for each
share held.
3. Cumulative Voting Denied. Shares of the voting stock of the
Corporation shall not be voted cumulatively.
4. Preemptive Rights. Except as may be established by the board of
directors with respect to any series of Preferred Stock, shares of stock of the
Corporation do not carry preemptive rights.
5. Stock Certificates. There shall be set forth on the face or back of
each certificate for shares of stock of the Corporation a statement that each of
the following is set forth in the articles of incorporation of the Corporation
on file in the Office of the Secretary of State of the State of Texas, and that
the Corporation will furnish a copy of each such statement to the record holder
of the certificate without charge on written request to the Corporation at its
principal place of business or registered office: (i) a statement of the
designations, preferences, and relative rights, including voting rights, of each
class or series of the Corporation's capital stock to the extent that they have
been fixed and determined; (ii) a statement of the authority of the board of
directors to fix and determine the designations, preferences, limitations, and
relative rights, including voting rights, of any series; and (iii) a statement
of the extent to which the Corporation has by its articles of incorporation
limited or denied the preemptive right of shareholders to acquire unissued or
treasury shares of the Corporation.
ARTICLE V.
INITIAL CONSIDERATION FOR ISSUANCE OF SHARES
The Corporation will not commence business until it has received for the
issuance of its shares consideration of a value of at least One Thousand and
No/100 Dollars ($1,000.00), consisting of money, labor done, or property
actually received.
Articles of Incorporation/Page 3
<PAGE>
ARTICLE VI.
INITIAL REGISTERED OFFICE AND AGENT
The address of the initial registered office of the Corporation is 1800
West Loop South, Suite 1375, Houston, Texas 77027. The name of the initial
registered agent of the Corporation at such address is J. Patrick Millinor, Jr.
ARTICLE VII.
INITIAL BOARD OF DIRECTORS
1. The number of directors shall from time to time be fixed by the Bylaws
of the Corporation. The number of directors constituting the initial board of
directors is ten (10). Directors need not be residents of the State of Texas or
shareholders of the Corporation. The name and address of the persons elected to
serve as directors until the first annual meeting of the shareholders, or until
their successors shall have been duly elected, unless any or all shall sooner
die, resign or be removed, in accordance with the Bylaws of the Corporation, are
as follows:
NAME ADDRESS
---- -------
J. Patrick Millinor, Jr. 1800 West Loop South, Suite 1375
Houston, Texas 77027
Richard S. Rouse 1800 West Loop South, Suite 1375
Houston, Texas 77027
Chester J. Jachimiec 1800 West Loop South, Suite 1375
Houston, Texas 77027
Arthur B. Goetze 1800 West Loop South, Suite 1375
Houston, Texas 77027
Darren Miller 1800 West Loop South, Suite 1375
Houston, Texas 77027
B. Diane Bandiga 1800 West Loop South, Suite 1375
Houston, Texas 77027
Russell K. Bay 1800 West Loop South, Suite 1375
Houston, Texas 77027
Edward J. Hoffer 1800 West Loop South, Suite 1375
Houston, Texas 77027
Articles of Incorporation/Page 4
<PAGE>
James D. Weaver 1800 West Loop South, Suite 1375
Houston, Texas 77027
John M. Sullivan 1800 West Loop South, Suite 1375
Houston, Texas 77027
2. No director of the Corporation shall be removed from his office as a
director by vote or other action of the shareholders or otherwise except for
cause.
ARTICLE VIII.
LIMITATION OF DIRECTOR LIABILITY
To the greatest extent permitted by applicable law in effect from time to
time, a director of the Corporation shall not be liable to the Corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director except for liability for: (i) a breach of a director's
duty or loyalty to the Corporation or its shareholders; (ii) an act or omission
not in good faith that constitutes a breach of duty of the director to the
Corporation or that involves intentional misconduct or a knowing violation of
the law; (iii) a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office; (iv) an act or omission for which the liability of a director
is expressly provided for by statute; or (v) an act related to an unlawful stock
repurchase or unlawful payment of a dividend.
ARTICLE IX.
INDEMNIFICATION
1. Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in such action, suit or
proceeding, and any inquiry or investigation that would lead to such action,
suit or proceeding (hereinafter a "proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the TBCA, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), against all judgments, fines, penalties (including excise tax and
similar taxes), settlements, and reasonable expenses actually incurred by such
indemnitee in connection therewith. The right to indemnification conferred in
this Article shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the TBCA
Articles of Incorporation/Page 5
<PAGE>
requires, an advancement of expenses incurred by an indemnitee shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by that such indemnitee is not entitled to be indemnified for such
expenses under this Article or otherwise.
2. Insurance. The Corporation may purchase and maintain insurance, at
its expense, on behalf of any indemnitee against any liability asserted against
him and incurred by him in such a capacity or arising out of his status as a
representative of the Corporation, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
TBCA.
3. Indemnity of Employees and Agents of the Corporation. The Corporation
may, to the extent authorized from time to time by the board of directors, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Corporation to the fullest extent of the provisions of this Article
or as otherwise permitted under the TBCA with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE X.
CALL OF SPECIAL MEETINGS OF THE SHAREHOLDERS
Special meetings of the Corporation's shareholders may be called (i) by the
president, the board of directors, or such other person or persons as may be
authorized in the Bylaws or (ii) by the holders of at least fifty percent (50%)
of all the shares entitled to vote at the proposed special meeting.
ARTICLE XI.
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the laws of
the State of Texas, the board of directors is expressly authorized to alter,
amend or repeal the Bylaws of the Corporation or to adopt new Bylaws.
ARTICLE XII.
INCORPORATOR
The name and address of the incorporator of the Corporation is as follows:
Name Address
---- -------
Edward T. Laborde, Jr. 1200 Smith Street, Suite 1400
Houston, Texas 77002-4310
Articles of Incorporation/Page 6
<PAGE>
The undersigned, being the incorporator designated herein, executes these
Articles of Incorporation and certifies to the truth of the facts stated therein
this ______ day of April, 1997.
INCORPORATOR:
------------------------------
Edward T. Laborde, Jr.
Articles of Incorporation/Page 7
<PAGE>
ARTICLES OF MERGER
OF
GROUPMAC MANAGEMENT CO.
WITH AND INTO
GROUP MAINTENANCE AMERICA CORP.
Pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act (the "TBCA"), the undersigned domestic corporations adopt the
following Articles of Merger for the purpose of effecting a merger in accordance
with the provisions of Article 5.01 of the TBCA:
1. A plan of merger has been adopted in accordance with the provisions of
Article 5.04 of the TBCA providing for the combination of GroupMAC Management
Co. and Group Maintenance America Corp., and resulting in Group Maintenance
America Corp. being the surviving corporation in the merger. Attached hereto as
Annex A is the Plan of Merger which is hereby incorporated by reference (the
"Plan of Merger").
2. The name of each of the undersigned corporations, the type of such
corporation and the laws under which such corporation was organized are:
Name of Corporation Type of Entity State
- -------------------------------------- -------------- -----
GroupMAC Management Co. Corporation Texas
Group Maintenance America Corp. Corporation Texas
3. As to each of the undersigned domestic corporations, the approval of
whose shareholders is required, the number of shares outstanding and the total
number of shares voted for and against such Plan of Merger were as follows:
<TABLE>
<CAPTION>
Number of Number of Shares Voted
Name of Shares ----------------------
Corporation Class Outstanding For Against
- ------------------- --------------------- ---------------------- --------- -------
<S> <C> <C> <C> <C>
GroupMAC Common Stock, par 3,528,000 2,676,500 -0-
Management Co. value $.001 per share
Group Maintenance Common Stock, par 363 363 -0-
America Corp. value $.001 per share
</TABLE>
<PAGE>
4. The Plan of Merger was duly approved by the shareholders of each
corporation as follows:
(a) the shareholders of GroupMAC Management Co. holding more than two-
thirds of the shares outstanding and entitled to vote on the Plan of
Merger have signed a written consent pursuant to Article 9.10 of the
TBCA approving the Plan of Merger and any written notice as required by
Article 9.10 of the TBCA has been given; and
(b) the shareholders of Group Maintenance America Corp. in a unanimous
written consent pursuant to Article 9.10 of the TBCA have approved the
Plan of Merger.
5. The merger will become effective upon the issuance of the certificate
of merger by the Secretary of State of Texas in accordance with Article 5.05 of
the TBCA.
Dated: April ___, 1997.
GROUPMAC MANAGEMENT CO.
By: _________________________________________
J. Patrick Millinor, Jr., President
GROUP MAINTENANCE OF AMERICA CORP.
By: _________________________________________
J. Patrick Millinor, Jr. President
<PAGE>
ANNEX A
-------
PLAN OF MERGER
<PAGE>
PLAN OF MERGER
<PAGE>
PLAN OF MERGER
OF GROUPMAC MANAGEMENT CO.
(A TEXAS CORPORATION)
WITH AND INTO
GROUP MAINTENANCE AMERICA CORP.
(A TEXAS CORPORATION)
This PLAN OF MERGER ("Plan"), dated as of April 25, 1997, provides for the
merger of GROUPMAC MANAGEMENT CO., a Texas corporation ("Management Co.") with
and into GROUP MAINTENANCE AMERICA CORP., a Texas corporation ("MAC"), in
accordance with the Texas Business Corporation Act and is a constituent part of
the Articles of Merger to be filed with the Secretary of State of Texas to
effect the merger.
ARTICLE 1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions hereof, and in
accordance with the Texas Business Corporation Act ("TBCA") upon the Effective
Time (as defined in Section 1.2), Management Co. shall be merged with and into
MAC. MAC, as the surviving entity following the Merger is sometimes referred to
in this Plan as the "Surviving Corporation."
1.2 EFFECTIVE TIME OF THE MERGER. In accordance with the requirements of
applicable law, appropriate Articles of Merger under the TBCA shall be prepared,
executed and submitted for filing with the Secretary of State of the State of
Texas. The date of such filing is referred to in this Plan as the "Effective
Time."
1.3 EFFECTS OF THE MERGER.
(a) Action at the Effective Time. At the Effective Time, (i)
Management Co. shall merge with and into MAC and as a result thereof, the
separate existence of Management Co. shall cease; (ii) the Articles of
Incorporation of MAC, as in effect immediately prior to the Effective Time shall
be the Articles of Incorporation of the Surviving Corporation, provided that the
Articles of Incorporation of MAC shall be amended in the manner provided in
Article 3 hereof, (iii) the Bylaws of MAC as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, and (iv) the
directors and officers of MAC immediately prior to the Effective Time shall
become the directors and officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected or appointed, as the case may be.
(b) Surviving Corporation. At and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public as well as
Plan of Merger/Page 1
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of a private nature previously belonging to Management Co. and MAC; and all
property (real, personal and mixed), and all debts due on whatever account,
including subscriptions to shares, and all other choses in action, and all and
every other interest of or belonging to or due to each of Management Co. and MAC
shall be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all such property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter the property of
the Surviving Corporation as they were of Management Co. and MAC; and the title
to any real estate, or interest therein, whether by deed or otherwise, shall not
revert or be in any way impaired by reason of the Merger. The Surviving
Corporation shall be responsible and liable for all the liabilities and
obligations of Management Co. and MAC and any claim existing, or action or
proceeding pending, by or against Management Co. or MAC may be prosecuted
against the Surviving Corporation. Neither the rights of creditors nor any liens
upon the property of Management Co. or MAC shall be impaired by the Merger, and
all debts, liabilities and duties of each of Management Co. and MAC shall attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if such debts, liabilities and duties had been incurred or contracted by it,
all in accordance with Section 5.01, et seq., of the TBCA and the terms of this
Plan.
ARTICLE 2
CONVERSION OF STOCK;
EXCHANGE OF CERTIFICATES
2.1 CONVERSION OF STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
capital stock of Management Co. or MAC:
(a) MAC Capital Stock. Each share of capital stock of MAC issued and
outstanding at the Effective Time shall remain outstanding and shall be
unchanged after the Merger.
(b) Merger Consideration. Each share of Management Co. common stock,
par value $.001 per share ("Management Co. Common Stock") (other than shares to
be canceled in accordance with Section 2.2), shall be converted into the right
to receive one (1) validly issued, fully paid and nonassessable share of MAC
common stock, par value $.001 per share ("MAC Common Stock"); provided, however,
that if between the date of this Plan and the Effective Time, the outstanding
shares of MAC Common Stock, or the outstanding shares of Management Co. Common
Stock, shall have been changed into a different number of shares or a different
class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split-up, combination, or exchange of shares or the like, the
conversion formula in this Section 21 shall be correspondingly revised to
provide for the proportionate amount of MAC Common Stock or other securities
into which the Management Co. Common Stock would have been converted if the
Effective Time of the Merger had occurred on the date of this Plan.
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2.2 CANCELLATION OF MANAGEMENT CO. TREASURY STOCK. All shares of
Management Co. Common Stock that are owned by Management Co. as treasury stock
shall be canceled and retired and shall cease to exist and no MAC Common Stock
or other consideration shall be delivered in exchange therefor.
2.3 EXCHANGE OF CERTIFICATES.
(a) Exchange of Certificates. On the Effective Date, MAC shall deposit
the aggregate amount of MAC Common Stock required to be exchanged in accordance
with the terms of this Article 2 with the Secretary or Assistant Secretary of
MAC (the "Exchange Agent"). At and after the Effective Time, each shareholder
of Management Co. who shall surrender any outstanding certificate which prior
thereto represented shares of Management Co. Common Stock, together with duly
and properly executed stock powers, to the Exchange Agent, shall be entitled
upon such surrender to receive in exchange therefor MAC Common Stock into which
such shares so surrendered shall have been converted pursuant to this Plan.
Adoption of this Plan by the shareholders of each of Management Co. and MAC
shall constitute ratification of the appointment of such Exchange Agent.
(b) Rights Prior to Surrender of Certificates. After the Effective
Time and until the outstanding certificates formerly representing shares of
Management Co. Common Stock are so surrendered, each outstanding certificate
which, prior to the Effective Time, represented Management Co. Common Stock
shall be deemed for all corporate purposes (except the payment of dividends) to
evidence ownership of MAC Common Stock into which the shares of Management Co.
Common Stock represented thereby prior to such Effective Time shall have been
converted. Until certificates representing shares of Management Co. Common
Stock have been surrendered, no dividend payable to holders of record of MAC
Common Stock shall be paid to the holders of such outstanding stock certificates
of Management Co. in respect thereof. Upon surrender of such outstanding
certificates, however, there shall be paid to the holders of the certificate for
MAC Common Stock issued in exchange therefor the amount of dividends, if any,
which theretofore became payable with respect to such full shares of MAC Common
Stock, but which have not theretofore been paid on such stock. No interest shall
be payable with respect to the payment of any dividends.
(c) Rights of the Exchange Agent. To the fullest extent permitted by
the TBCA, Exchange Agent shall not be individually responsible or liable in any
manner whatsoever for anything which he may do or refrain from doing in
connection herewith. In the event Exchange Agent becomes involved in any
litigation, claim or controversy in connection with his actions under this Plan,
MAC shall indemnify, defend and save harmless Exchange Agent from all losses,
costs, damages, expenses and attorneys' fees suffered or incurred by Exchange
Agent as a result thereof.
(d) No Fractional Shares. Fractional shares of MAC Common Stock will
not be issued in exchange for Management Co. Common Stock.
Plan of Merger/Page 3
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ARTICLE 3
AMENDMENTS TO ARTICLES OF INCORPORATION
As of the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be amended to add new Article XIII and new Article XIV to the
Articles of Incorporation which shall read, in their entirety, as follows:
"ARTICLE XIII.
PROVISIONS APPLICABLE TO BUSINESS COMBINATIONS
1. Vote Required for Certain Business Combinations. In addition to any
affirmative vote required by law or these Articles of Incorporation or the
Bylaws of the Corporation, and except as otherwise expressly provided in Section
2 of this Article XIII, a Business Combination (as hereinafter defined) with, or
proposed by or on behalf of, any Interested Shareholder (as hereinafter defined)
or any Affiliate or Associate (as hereinafter defined) of any Interested
Shareholder or any person who thereafter would be an Affiliate or Associate of
such Interested Shareholder, shall require the affirmative vote of not less than
eighty percent (80%) of the votes entitled to be cast by the holders of all of
the then outstanding shares of Voting Stock (as hereinafter defined), voting
together as a single class, and the affirmative vote of not less than a majority
of the votes entitled to be cast by the Voting Stock beneficially owned by
persons other than such Interested Shareholder. Each share of Voting Stock
shall have the number of votes granted to it in, or duly fixed by the board of
directors pursuant to, Article IV of these Articles of Incorporation. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage or separate class vote may be specified,
by law, or in any agreement of the Corporation with any national securities
exchange or otherwise.
2. Exceptions to Higher Vote Requirement. The provisions of Section 1 of
this Article XIII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote, if any, as is required by law or by any other provision of these Articles
of Incorporation or the Bylaws of the Corporation, or any agreement with any
national securities exchange, if all of the conditions specified in either of
the following Paragraphs (a) or (b) are met or, in the case of a Business
Combination not involving the payment of consideration to the holders of the
Corporation's outstanding Capital Stock (as hereinafter defined), if the
condition specified in the following Paragraph (a) is met:
(a) The Business Combination shall have been approved either
specifically, or as a transaction which is within a series of related
transactions described with reasonable specificity, by at least an eighty
percent (80%) vote of the Continuing Directors (as hereinafter defined),
who shall at the time constitute at least a majority of the Whole Board
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(as hereinafter defined) (whether or not such approval occurs prior to or
subsequent to the acquisition of, or announcement or public disclosure of
the intention to acquire, beneficial ownership of the Voting Stock that
caused the Interested Shareholder to become a Interested Shareholder).
(b) All of the following conditions shall have been met:
(i) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be received
per share by holders of Common Stock of the Corporation in such
Business Combination shall be at least equal to the higher amount
determined under clauses (A) and (B) below:
(A) (If applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) ("Highest Purchase Price") paid by or on behalf of the
Interested Shareholder for any share of Common Stock in
connection with the acquisition by the Interested Shareholder of
beneficial ownership of shares of Common Stock,
(x) within the two-year period immediately prior to
the first public announcement of the proposed Business
Combination (the "Announcement Date"), or
(y) in the transaction in which it became a Interested
Shareholder,
whichever is higher, in either case, as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to the Common Stock; provided that
if the Business Combination is effected more than 180 days after
the last date upon which such Interested Shareholder paid the
Highest Purchase Price, then the consideration to be received by
the shareholders shall be increased by Interest (as hereinafter
defined) with respect to the period from the date the Interested
Shareholder paid the applicable Highest Purchase Price to the
effective date of the Business Combination ("Adjustment Period").
(B) The Fair Market Value per share of Common Stock on the
Announcement Date or on the date (the "Determination Date") on
which the Interested Shareholder became a Interested Shareholder,
whichever is higher, as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect to
the Common Stock.
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(ii) The aggregate amount of cash and the Fair Market Value, as
of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of
shares of any class or series of outstanding Capital Stock, other than
Common Stock shall be at least equal to the highest amount determined
under clauses (A), (B) and (C) below:
(A) (If applicable) the Highest Purchase Price paid by or on
behalf of the Interested Shareholder for any share of such class
or series of Capital Stock in connection with the acquisition by
the Interested Shareholder of beneficial ownership of shares of
such class or series of Capital Stock,
(x) within the two-year period immediately prior to the
Announcement Date, or
(y) in the transaction in which it became a Interested
Shareholder,
whichever is higher, in either case as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock; provided that if the Business Combination is effected more
than 180 days after the last date upon which such Interested
Shareholder paid the Highest Purchase Price, then the
consideration to be received by the shareholders shall be
increased by Interest with respect to the Adjustment Period.
(B) The Fair Market Value per share of such class or series
of Capital Stock on the Announcement Date or on the Determination
Date, whichever is higher, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock; and
(C) (If applicable) the highest preferential amount per
share to which the holders of shares of such class or series of
Capital Stock would be entitled, as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock, in the event of
any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation regardless of whether the
Business Combination to be consummated constitutes such an event.
(iii) The consideration to be received by holders of a particular
class or series of outstanding Capital Stock shall be in cash or in
the same form as previously has been paid by or on behalf of the
Interested Shareholder in connection with its direct or indirect
acquisition of beneficial ownership of shares of such class or series
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of Capital Stock. If the consideration so paid for shares of any
class or series of Capital Stock varies as to form, the form of
consideration for such class or series of Capital Stock shall be
either cash or the form used to acquire beneficial ownership of the
largest number of shares of such class or series of Capital Stock
previously acquired by the Interested Shareholder.
(iv) After the Determination Date and prior to the consummation
of such Business Combination:
(A) Except as approved by a majority of the Continuing
Directors, there shall have been no failure to declare and pay at
the regular date therefor any full quarterly dividends (whether
or not cumulative) payable in accordance with the terms of any
outstanding Capital Stock;
(B) There shall have been no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any stock split, stock dividend or subdivision of the
Common Stock of the Corporation), except as approved by a
majority of the Continuing Directors;
(C) There shall have been an increase in the annual rate of
dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that
has the effect of reducing the number of outstanding shares of
common stock of the Corporation, unless the failure to increase
such annual rate is approved by a majority of the Continuing
Directors; and
(D) Neither such Interested Shareholder nor any of its
Affiliates shall have become the beneficial owner of any
additional shares of Capital Stock or securities convertible into
Capital Stock except as part of the transaction that results in
such Interested Shareholder becoming a Interested Shareholder and
except in a transaction that, after giving effect thereto, would
not result in any increase in the percentage beneficial ownership
of the Interested Shareholder or any of its Affiliates of any
class or series of Capital Stock.
(v) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act") (or any subsequent
provisions replacing such Exchange Act, rules or regulations) shall be
mailed to all shareholders of the Corporation at least thirty (30)
days prior to the consummation of such Business Combination (whether
or not such proxy or
Plan of Merger/Page 7
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information statement is required to be mailed pursuant to the
Exchange Act or subsequent provisions).
(vi Such Interested Shareholder shall not have made any major
change in the Corporation's business or equity capital structure
without the approval of a majority of the Continuing Directors.
(vi The Interested Shareholder and any of its Affiliates shall
not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees,
pledges or other financial assistance or any tax credits or other tax
advantages provided by the Corporation or any Subsidiary, whether in
anticipation of or in connection with such Business Combination or
otherwise.
3. Certain Definitions. The following definitions shall apply with
respect to this Article XIII:
(a) The term "Business Combination" shall mean:
(i) Any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (A) any Interested
Shareholder or (B) any other company (whether or not itself a
Interested Shareholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate of a Interested
Shareholder which, in any case, involves the issuance, redemption,
cancellation, exchange or conversion of shares, obligations, evidences
of ownership, rights to purchase securities or other securities (in
one transaction or a series of transactions) having an aggregate Fair
Market Value (as hereinafter defined) of more than twenty percent
(20%) of the Total Assets of the Corporation (as hereinafter defined);
or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions),
including without limitation any other security device, to or with any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder of any assets, securities or commitments of the
Corporation or any Subsidiary (as hereinafter defined) having an
aggregate Fair Market Value of more than twenty percent (20%) of the
Total Assets of the Corporation; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of more
than twenty percent (20%) of the Total Assets of the Corporation; or
Plan of Merger/Page 8
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(iv) the adoption of any plan or proposal for the liquidation,
spinoff, splitoff, splitup or dissolution of the Corporation proposed
by or on behalf of any Interested Shareholder or any Affiliate or
Associate of any Interested Shareholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
any Interested Shareholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class or series of equity or convertible securities of
the Corporation or any Subsidiary which is beneficially owned (as
hereinafter defined) by any Interested Shareholder or any Affiliate of
any Interested Shareholder by more than one percent, except for
transactions described in subparagraphs (i), (ii) or (iii) of this
Paragraph 3(a) which involve assets, cash, securities or other
property of the Corporation with an aggregate Fair Market Value not in
excess of twenty percent (20%) of the Total Assets of the Corporation;
or
(vi) any agreement, contract or other arrangement providing for
any of the transactions described in this definition of Business
Combination.
(b) The term "Capital Stock" shall mean all capital stock of the
Corporation now or hereafter authorized to be issued from time to time by
the Corporation, and the term "Voting Stock" shall mean shares of Capital
Stock which are entitled to vote generally in the election of directors.
(c) The term "Total Assets of the Corporation" means the total assets
of the Corporation, as reflected on the most recent consolidated balance
sheet of the Corporation at the time the shareholders of the Corporation
would be required to approve or adopt the transaction in question.
(d) The term "person" shall mean any individual, firm, company,
corporation, partnership, limited liability company, or other entity and
shall include any "group" comprised of any person (as the term "group" is
defined in Section 13(d)(3) of the Exchange Act).
(e) "Interested Shareholder" means any person (other than the
Corporation or any Subsidiary) who or which is the beneficial owner (as
hereinafter defined), directly or indirectly, of ten percent or more of the
voting power of the outstanding Voting Stock; provided, however, the term
"Interested Shareholder" shall not include any employee stock ownership or
other employee benefit plan of the Corporation or any Subsidiary, or any
trustee of, or fiduciary with respect to, any such plan when acting in such
capacity.
(f) A person shall be a "beneficial owner" of, or shall "beneficially
own" any Capital Stock (i) which such person or any of its Affiliates or
Associates owns, directly or
Plan of Merger/Page 9
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indirectly; (ii) which such person or any of its Affiliates or Associates
has, directly or indirectly, (A) the right to acquire (whether such right
is exercisable immediately or only after the passage of any period of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding; or (iii) which are owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Capital Stock. For
the purposes of determining whether a person is a Interested Shareholder
pursuant to Paragraph (e) of this Section 3, the number of shares of
Capital Stock deemed to be outstanding shall include shares deemed
beneficially owned by such person through application of this Paragraph (f)
of Section 3, but shall not include any other shares of Capital Stock that
may be issuable pursuant to any arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(g) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act as in
effect on April 1, 1997.
(h) The term "Subsidiary" means any company of which a majority of any
class of Equity Security is beneficially owned, directly or indirectly, by
the Corporation; provided, however, that for the purposes of the definition
of Interested Shareholder set forth in Paragraph (e) of this Section 3, the
term "Subsidiary" shall mean only a company of which a majority of each
class of Equity Security is beneficially owned by the Corporation.
(i) The term "Continuing Director" means (i) any member of the board
of directors of the Corporation, while such person is a member of the board
of directors, who is not the Interested Shareholder, an Affiliate or
Associate of the Interested Shareholder or a representative of any such
person and who was a member of the board of directors prior to the
Determination Date, and (ii) any successor of a Continuing Director, while
such successor is a member of the board of directors, who is not the
Interested Shareholder, an Affiliate or Associate of the Interested
Shareholder or a representative of any such person and who is recommended
or elected to succeed the Continuing Director by a majority of Continuing
Directors.
(j) The term "Fair Market Value" means (i) in the case of stock, the
highest closing sales price during the 30-day period immediately preceding
the date in question of a share of such stock on the principal United
States securities exchange registered under the Exchange Act on which such
stock is listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock during
the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
similar system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors in good faith; and
(ii) in the case of
Plan of Merger/Page 10
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property other than stock, the fair market value of such property on the
date in question as determined by a majority of the Continuing Directors in
good faith.
(k) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs (b)(i) and (b)(ii) of Section 2 of this Article XIII shall
include the shares of Common Stock of the Corporation and/or the shares of
any other class or series of Capital Stock retained by the holders of such
shares.
(l) The term "Interest" means interest with respect to the applicable
Highest Purchase Price accrued daily at an annual rate equal to 110% of the
arithmetic average of the weekly per annum market discount rates for 3-
month U.S. Treasury bills during the Adjustment Period, as published by the
Board of Governors of the Federal Reserve System; provided, however, that
in respect of any portion of the Adjustment Period during which the
Corporation cannot determine Interest in the foregoing manner, Interest
shall be deemed to be ten percent (10%); and provided further that any such
amount shall be reduced, but not below zero, by the aggregate of the
regular quarterly cash dividends paid per share of Common Stock during the
Adjustment Period.
(m) The term "Equity Security" shall have the meaning ascribed to such
term in Section 3(a)(11) of the Exchange Act, as in effect on April 1,
1997.
(n) "Whole Board" means the total number of directors which this
Corporation would have if there were no vacancies.
4. A majority of the Whole Board, but only if a majority of the Whole
Board shall then consist of Continuing Directors or, if a majority of the Whole
Board shall not then consist of Continuing Directors, a majority of the then
Continuing Directors, shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article XIII, including, without limitation, (i)
whether a person is an Interested Shareholder, (ii) the number of shares of
Voting Stock beneficially owned by any person, (iii) whether a person is an
Affiliate or Associate of another, (iv) whether the applicable conditions set
forth in Paragraph (b) of Section 2 have been met with respect to any Business
Combination, (v) the Fair Market Value of stock or other property in accordance
with Paragraph (j) of Section 3 of this Article XIII, and (vi) whether the
securities which are the subject of any Business Combination referred to in
Paragraph (a)(i) of Section 3, or the assets, securities or commitments which
are the subject of any Business Combination referred to in Paragraph (a)(ii) of
Section 3, or the consideration to be received for the issuance or transfer of
securities by the Corporation or any Subsidiary in any Business Combination
referred to in Paragraph (a)(iii) of Section 3 have, in any such case, an
aggregate Fair Market Value of more than twenty percent (20%) of the Total
Assets of the Corporation.
Plan of Merger/Page 11
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5. A majority of the Whole Board shall have the right to demand, but only
if a majority of the Whole Board shall then consist of Continuing Directors, or,
if a majority of the Whole Board shall not then consist of Continuing Directors,
a majority of the then Continuing Directors shall have the right to demand, that
any person who it is reasonably believed is an Interested Shareholder (or holds
of record shares of Voting Stock beneficially owned by any Interested
Shareholder) supply the Corporation with complete information as to (i) the
record owner(s) of all shares beneficially owned by such person who it is
reasonably believed is an Interested Shareholder, (ii) the number of, and class
or series of, shares beneficially owned by such person who it is reasonably
believed is an Interested Shareholder and held of record by each such record
owner and the number(s) of the stock certificate(s) evidencing such shares, and
(iii) any other factual matter relating to the applicability or effect of this
Article XIII, as may be reasonably requested of such person, and such person
shall furnish such information within ten (10) days after receipt of such
demand.
6. Nothing contained in this Article XIII shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
7. Notwithstanding any other provisions of these Articles of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the board of directors
and the holders of any particular class or series of the Voting Stock required
by law or these Articles of Incorporation, to alter, amend or repeal this
Article XIII, as an additional requirement for such action, either (i) the
Continuing Directors who shall at the time shall constitute at least a majority
of the Whole Board, shall expressly approve such action by at least an eighty
percent (80%) vote of such Continuing Directors; or (ii) such action shall be
adopted or approved by the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class.
ARTICLE XIV.
CERTAIN ACQUISITIONS OF VOTING STOCK BY THE CORPORATION
1. The Corporation shall not acquire, directly or indirectly, any Voting
Stock, by purchase, exchange or otherwise from any Related Person (as
hereinafter defined) or any of its Affiliates or Associates.
2. This article shall not be applicable to any acquisition of Voting
Stock (i) pursuant to a Tender Offer made to all holders of any class of Voting
Stock on the same price, terms and conditions and, if for less than all of the
Voting Stock, subject to pro rata acceptance (except as to holders of fewer than
100 shares), (ii) in compliance with Rule 10b-18 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, as in effect
at the date of adoption of this article, or (iii) for a total consideration per
share, including payment for legal fees, investment banking fees, brokerage fees
and related costs and expenses of the holder in acquiring
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such Voting Stock, not in excess of the Fair Market Value per share, determined
as of the Acquisition Date.
3. The term "Acquisition Date" means the date on which the Related Person
became a Related Person.
4. The term "Related Person" means any person (other than the Corporation
or any Subsidiary) who or which is the beneficial owner directly or indirectly,
of five percent or more of the voting power of the then outstanding Voting
Stock.
5. The term "Tender Offer" means any tender offer for, or request or
invitation for tenders of, Voting Stock, within the meaning of Section 14(d)(1)
of the Securities Exchange Act of 1934, as amended, as in effect at the date of
adoption of this article, and any purchase or series of purchases of Voting
Stock at or above then prevailing market prices for such Voting Stock pursuant
to which more than five percent of the outstanding Voting Stock is acquired in
any two-year period.
6. Notwithstanding any other provisions of these Articles of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the board of directors
and the holders of any particular class or series of the Voting Stock required
by law or these Articles of Incorporation, to alter, amend or repeal this
Article XIV, as an additional requirement for such action, either (i) the
Continuing Directors who shall at the time shall constitute at least a majority
of the Whole Board, shall expressly approve such action by at least an eighty
percent (80%) vote of such Continuing Directors; or (ii) such action shall be
adopted or approved by the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class."
Plan of Merger/Page 13
<PAGE>
ARTICLES OF CORRECTION
OF
GROUP MAINTENANCE AMERICA CORP.
This correction is submitted pursuant to article 1302-7.01, Texas Miscellaneous
Corporation Laws Act, to correct a document which is an inaccurate record of
corporate action, contains an inaccurate or erroneous statement or was
defectively or erroneously executed, sealed, acknowledged or verified.
ARTICLE ONE
The name of the corporation is Group Maintenance America Corp. (the
"Corporation").
ARTICLE TWO
The document to be corrected is Articles of Merger which was filed in the Office
of the Secretary of State of Texas on the 30th day of April, 1997.
ARTICLE THREE
The inaccuracy, error, or defect to be corrected is contained in Paragraph 3 of
the Articles of Merger relating to (i) the number of shares outstanding of
GroupMAC Management Co., and (ii) the number of shares of GroupMAC Management
Co. that voted for the Plan of Merger attached to the Articles of Merger.
ARTICLE FOUR
As corrected, the inaccurate, erroneous, or defective portion of the Articles of
Merger reads as follows:
3. As to each of the undersigned domestic corporations, the approval of
whose shareholders is required, the number of shares outstanding and the total
number of shares voted for and against such Plan of Merger were as follows:
<TABLE>
<CAPTION>
Number of Number of Shares Voted
Name of Shares ----------------------
Corporation Class Outstanding For Against
- ------------------- --------------------- ---------------------- --------- -------
<S> <C> <C> <C> <C>
GroupMAC Common Stock, par 4,028,000 3,166,500 -0-
Management Co. value $.001 per share
Group Maintenance Common Stock, par 363 363 -0-
America Corp. value $.001 per share
</TABLE>
<PAGE>
DATED: May 1, 1997.
GROUP MAINTENANCE AMERICA CORP.
By
----------------------------------------
J. Patrick Millinor, Jr., President
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
GROUP MAINTENANCE AMERICA CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1.
Offices............................................................... 1
-------
Section 1.1 Principal Offices...................................... 1
-----------------
Section 1.2 Registered Offices..................................... 1
------------------
Section 1.3 Other Offices.......................................... 1
-------------
ARTICLE 2.
Shareholders Meetings................................................. 1
---------------------
Section 2.1 Annual Meeting......................................... 1
--------------
Section 2.2 Special Meetings....................................... 1
---------------------
Section 2.3 Notices of Meetings and Adjourned Meetings............. 2
------------------------------------------
Section 2.4 Voting Lists........................................... 2
------------
Section 2.5 Quorum................................................. 2
------
Section 2.6 Organization........................................... 3
------------
Section 2.7 Voting................................................. 3
------
Section 2.8 Voting of Shares by Certain Holders.................... 4
-----------------------------------
Section 2.9 Closing of Transfer Records or Fixing of Record Date... 4
----------------------------------------------------
Section 2.10 Order of Business...................................... 5
-----------------
Section 2.11 Action by Written Consent.............................. 5
-------------------------
Section 2.12 Authorization of Proxies............................... 5
------------------------
Section 2.13 Inspectors and Voting Procedures....................... 6
--------------------------------
ARTICLE 3.
Directors............................................................. 6
---------
Section 3.1 Management............................................. 6
----------
Section 3.2 Number and Term........................................ 6
---------------
Section 3.3 Quorum and Manner of Action............................ 6
---------------------------
Section 3.4 Vacancies.............................................. 7
---------
Section 3.5 Resignations........................................... 7
------------
Section 3.6 Removals............................................... 7
--------
Section 3.7 Annual Meetings........................................ 7
---------------
Section 3.8 Regular Meetings....................................... 8
----------------
Section 3.9 Special Meetings....................................... 8
----------------
Section 3.10 Organization of Meetings............................... 8
------------------------
Section 3.11 Place of Meetings...................................... 8
-----------------
Section 3.12 Compensation of Directors.............................. 9
-------------------------
Section 3.13 Action by Unanimous Written Consent.................... 9
-----------------------------------
Section 3.14 Participation in Meetings by Telephone................. 9
--------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 4.
Committees of the Board............................................... 9
-----------------------
Section 4.1 Membership and Authorities............................. 9
--------------------------
Section 4.2 Minutes................................................10
-------
Section 4.3 Vacancies..............................................10
---------
Section 4.4 Telephone Meetings.....................................10
------------------
Section 4.5 Action Without Meeting.................................10
----------------------
SECTION 5.
Officers..............................................................10
--------
Section 5.1 Number and Title.......................................10
----------------
Section 5.2 Term of Office; Vacancies..............................11
-------------------------
Section 5.3 Removal of Elected officers............................11
---------------------------
Section 5.4 Resignations...........................................11
------------
Section 5.5 The Chairman of the Board..............................11
-------------------------
Section 5.6 Chief Executive Officer................................11
-----------------------
Section 5.7 President..............................................12
---------
Section 5.8 Vice Presidents........................................12
---------------
Section 5.9 Corporate Secretary....................................12
-------------------
Section 5.10 Assistant Secretaries..................................12
---------------------
Section 5.11 Treasurer or Chief Financial Officer...................13
------------------------------------
Section 5.12 Assistant Treasurers...................................13
--------------------
Section 5.13 Subordinate Officers...................................13
--------------------
Section 5.14 Salaries and Compensation............................. 13
-------------------------
ARTICLE 6.
Indemnification.......................................................14
---------------
ARTICLE 7.
Capital Stock.........................................................15
-------------
Section 7.1 Certificates of Stock..................................15
---------------------
Section 7.2 Lost Certificates......................................15
-----------------
Section 7.3. Dividends..............................................16
---------
Section 7.4. Registered Shareholders................................16
-----------------------
Section 7.5. Transfer of Stock......................................16
-----------------
ARTICLE 8.
Miscellaneous Provisions..............................................16
------------------------
Section 8.1. Corporate Seal.........................................16
-------------
Section 8.2. Fiscal Year............................................16
-----------
Section 8.3. Checks, Drafts, Notes..................................17
---------------------
Section 8.4. Notice and Waiver of Notice............................17
---------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 8.5. Examination of Books and Records.......................17
--------------------------------
Section 8.6. Voting Upon Shares Held by the Corporation.............17
------------------------------------------
ARTICLE 9.
Amendments............................................................18
----------
</TABLE>
<PAGE>
BYLAWS
of
GROUP MAINTENANCE AMERICA CORP.
(the "Corporation")
ARTICLE 1.
Offices
-------
Section 1.1 Principal Offices.
-----------------
The principal office of the Corporation shall be in the City of Houston,
Texas.
Section 1.2 Registered Offices.
------------------
The registered office of the Corporation required to be maintained in the
State of Texas by the Texas Business Corporation Act (the "TBCA") may be, but
need not be, identical with the Corporation's principal office, and the address
of the registered office may be changed from time to time by the Board of
Directors.
Section 1.3 Other Offices.
-------------
The Corporation may also have offices at such other places both within and
without the State of Texas as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE 2.
Shareholders Meetings
---------------------
Section 2.1 Annual Meeting.
--------------
The annual meeting of the holders of shares of each class or series of
stock as are entitled to notice thereof and to vote at such meeting pursuant to
applicable law and the Corporation's Articles of Incorporation for the purpose
of electing directors and transacting such other proper business as may come
before it shall be held in each year, at such time, on such day and at such
place, within or without the State of Texas, as may be designated by the Board
of Directors.
Section 2.2 Special Meetings.
----------------
In addition to such special meetings as are provided by law or the
Corporation's Articles of Incorporation, special meetings of the holders of any
class or series or of all classes or series of the
<PAGE>
Corporation's stock for any purpose or purposes, may be called at any time by
(i) the President or the Board of Directors or (ii) the holders of at least
fifty percent (50%) of all the shares entitled to vote at such special meeting
and may be held on such day, at such time and at such place, within or without
the State of Texas, as shall be designated by the person or persons calling such
meeting.
Section 2.3 Notices of Meetings and Adjourned Meetings.
------------------------------------------
Except as otherwise provided by law or by the Corporation's Articles of
Incorporation, written or printed notice of any meeting of Shareholders (i)
shall be given either by personal delivery or by mail to each Shareholder of
record entitled to vote at such meeting, (ii) shall be in such form as approved
by the Board of Directors, and (iii) shall state the date, place and hour of the
meeting, and, in the case of a special meeting, the purpose for which the
meeting is called. Unless otherwise provided by law or by the Corporation's
Articles of Incorporation, such written notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting. Except when
a Shareholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened, presence in person or by proxy
of a Shareholder shall constitute a waiver of notice of such meeting. Further, a
written waiver of any notice required by law or by these Bylaws, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Except as otherwise provided by law or by
the Corporation's Articles of Incorporation, the business that may be transacted
at any special meeting of the Shareholders shall be limited to and consist of
the purpose or purposes stated in such notice. If a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken; provided, however, that if the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Shareholder of
record entitled to vote at the meeting.
Section 2.4 Voting Lists.
------------
The officer or agent having charge of the share transfer books for shares
of the Corporation shall make, at least ten (10) days before each meeting of
Shareholders, a complete list of Shareholders entitled to vote at meetings or
any adjournments thereof, arranged in alphabetical order, with the address of
and the number of shares held by each, in accordance with applicable law and
shall make same available prior to and during each Shareholders' meeting for
inspection by the Corporation's Shareholders as required by law. The
Corporation's original share transfer books shall be prima facie evidence as to
who are the Shareholders entitled to examine such list or transfer books or to
vote at any meeting of Shareholders.
Section 2.5 Quorum.
------
Except as otherwise provided by law or by the Corporation's Articles of
Incorporation, the holders of a majority of the Corporation's shares entitled to
vote at a meeting, represented at the meeting in person or represented by proxy,
without regard to class or series, shall constitute a quorum at all meetings of
the Shareholders for the transaction of business. If, however, such quorum
shall
2
<PAGE>
not be present or represented at any meeting of the Shareholders, the holders of
a majority of the shares represented in person or by proxy at that meeting may
adjourn any meeting from time to time without notice other than announcement at
the meeting, except as otherwise required by these Bylaws, until such time and
to such place as may be determined by a vote of the holders of a majority of the
shares represented in person or by proxy at that meeting. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 2.6 Organization.
------------
Meetings of the Shareholders shall be presided over by the Chairman of the
Board of Directors, if one shall be elected, or in his absence, by the President
or by any Vice President, or, in the absence of any such officers, by a chairman
to be chosen by a majority of the Shareholders entitled to vote at the meeting
who are present in person or by proxy. The secretary, or, in his absence, any
Assistant Secretary or any person appointed by the individual presiding over the
meeting, shall act as Secretary at meetings of the Shareholders.
Section 2.7 Voting.
------
Each Shareholder of record, as determined pursuant to Section 2.9, who is
-----------
entitled to vote in accordance with the terms of the Corporation's Articles of
Incorporation and in accordance with the provisions of these Bylaws, shall be
entitled to one vote, in person or by proxy, for each share of stock registered
in his name on the books of the Corporation. Every Shareholder entitled to vote
at any Shareholders' meeting may authorize another person or persons to act for
him by proxy executed in writing pursuant to Section 2.12, provided that no
------------
proxy shall be valid after eleven (11) months from the date of its execution,
unless the proxy provides for a longer period. A duly executed proxy shall be
revocable unless the proxy form conspicuously states that the proxy is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A Shareholder's attendance
at any meeting shall not have the effect of revoking a previously granted proxy
unless such Shareholder shall in writing so notify the Secretary of the meeting
prior to the voting of the proxy. Unless otherwise provided by law, no vote on
the election of directors or any question brought before the meeting need be by
ballot unless the chairman of the meeting shall determine that it shall be by
ballot or the holders of a majority of the shares of stock present in person or
by proxy and entitled to participate in such vote shall so demand. In a vote by
ballot, each ballot shall state the number of shares voted and the name of the
Shareholder or proxy voting. Except as otherwise provided by law, by the
Corporation's Articles of Incorporation or these Bylaws, all elections of
directors shall be elected by a plurality of votes cast by the holders of shares
entitled to vote in the election of directors at a meeting of Shareholders at
which a quorum is present. Except as otherwise provided by law or the
Corporation's Articles of Incorporation, all other matters before the
Shareholders shall be decided by the vote of the holders of a majority of the
shares entitled to vote on that matter and represented in person or by proxy at
a meeting of Shareholders at which a quorum is present. In the election of
directors, votes may not be cumulated.
3
<PAGE>
Section 2.8 Voting of Shares by Certain Holders.
-----------------------------------
Shares standing in the name of another corporation may be voted by an
officer, agent or proxy as designated in the bylaws of such corporation, or in
the absence of such designation, as the board of directors of such corporation
may determine. Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without transfer of such shares into his
name. Shares standing in the name of a receiver may be voted by such receiver
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer into his name if authority to do so be contained
in an appropriate order of the Court by which such receiver was appointed. A
Shareholder whose shares are pledged shall be entitled to vote such shares until
the shares have been transferred into the name of the pledgee, and thereafter
the pledgee shall be entitled to vote the shares so transferred. Shares
standing in the name of the Corporation or held by it in a fiduciary capacity
shall not be voted, directly or indirectly, at any meeting, and shall not be
counted in determining the total number of outstanding shares at any given time.
Section 2.9 Closing of Transfer Records or Fixing of Record Date.
----------------------------------------------------
(a) Fixing Record Dates for Matters Other than Consents to Action.
-------------------------------------------------------------
The Board of Directors of the Corporation may provide that the stock
transfer books be closed for a stated period not to exceed sixty (60) days
for the purpose of determining Shareholders entitled to notice of or to
vote at any meeting of Shareholders or any adjournment thereof, or
Shareholders entitled to receive payment of any distribution or share
dividend, or in order to make a determination of Shareholders for any other
proper purpose (other than a distribution involving a purchase or
redemption by the Corporation of any of its own shares). If the share
transfer records are closed as set forth in this Section, the records shall
be closed for at least ten (10) days immediately preceding the meeting. In
lieu of closing the share transfer records, the Board of Directors may fix
in advance a date as the record date for any such determination of
Shareholders, the date to be not more than sixty (60) days, and in case of
a meeting of Shareholders not less than ten (10) days, prior to the date on
which the particular action requiring determination of Shareholders is to
be taken. If the share transfer records are not closed and no record date
is fixed for determination of Shareholders entitled to notice of or to vote
at a meeting of Shareholders, or Shareholders entitled to receive payment
of a distribution or share dividend (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares), the
date on which notice of the meeting is mailed, or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for determination of
Shareholders. When a determination of Shareholders entitled to vote at any
meeting of Shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof except where the
determination has been made by closing the share transfer records and the
stated period of closing has expired.
(b) Fixing Record Dates for Consents to Action. Unless a record date
------------------------------------------
has previously been determined by the Board of Directors, whenever action
by Shareholders is
4
<PAGE>
proposed to be taken by consent in writing without a meeting of
Shareholders, the Board of Directors may fix a record date for the purpose
of determining Shareholders entitled to consent to that action, which
record date shall not proceed, and shall not be more than ten (10) days
after, the date on which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors and the prior action of the Board of Directors is not otherwise
required by statute, the record date for determining Shareholders entitled
to consent to action in writing without a meeting shall be the first date
on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office, its principal place of business, or an officer or agent
of the Corporation having custody of the books in which proceedings of
meetings of Shareholders are recorded. Delivery to the Corporation's
principal place of business shall be addressed to the President or the
principal executive officer of the Corporation. If no record date shall
have been fixed by the Board of Directors and prior action of the Board of
Directors is required by statute, the record date for determining
Shareholders entitled to consent to action in writing without a meeting
shall be at the close of business on the date on which the Board of
Directors adopts a resolution taking such prior action.
Section 2.10 Order of Business.
-----------------
The order of business at all meetings of Shareholders shall be as
determined by the chairman of the meeting or as is otherwise determined by the
vote of the holders of a majority of the shares of stock present in person or by
proxy and entitled to vote without regard to class or series at the meeting.
Section 2.11 Action by Written Consent.
-------------------------
Unless otherwise provided by law or the Corporation's Articles of
Incorporation, any action required or permitted to be taken by the Shareholders
of the Corporation may be taken without a meeting, without prior notice and
without a vote, if a consent in writing setting forth the action so taken, shall
have been signed by all of the Shareholders entitled to vote with respect to the
action that is the subject of the consent. Except as provided above, no action
shall be taken by the Shareholders by written consent.
Section 2.12 Authorization of Proxies.
------------------------
Any Shareholder may vote either in person or by proxy executed in writing
by the Shareholder. A telegram, telex, cablegram, or similar transmission by
the Shareholder, or a photographic, photostatic, facsimile, or similar
reproduction or a writing executed by the Shareholder, shall be treated as an
execution in writing. No proxy will be valid after eleven (11) months from the
date of its execution, unless otherwise provided in the proxy. A proxy shall be
revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
5
<PAGE>
Section 2.13 Inspectors and Voting Procedures.
--------------------------------
(a) The Corporation may, in advance of any meeting of Shareholders,
appoint one or more inspectors to act at the meeting and make a written
report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of Shareholders, the
person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his
ability.
(b) If any inspectors are elected, the inspectors shall (i) ascertain
the number of shares outstanding and the voting power of each share, the
number of shares represented at the meeting, the existence of a quorum, and
the authority, validity and effect of proxies, (ii) count and tabulate all
votes, assents and consents, and determine and announce results, and (iii)
do all other acts as may be proper to conduct elections or votes with
fairness to all Shareholders. The inspectors, if any are elected, may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors.
ARTICLE 3.
Directors
---------
Section 3.1 Management.
----------
The property, affairs and business of the Corporation shall be managed by
or under the direction of the Board of Directors which may exercise all powers
of the Corporation and do all lawful acts and things as are not by law, by the
Corporation's Articles of Incorporation or by these Bylaws directed or required
to be exercised or done by the Shareholders.
Section 3.2 Number and Term.
---------------
The number of directors may be fixed from time to time by resolution of the
Board of Directors adopted by the affirmative vote of a majority of the members
of the entire Board of Directors, but shall consist of not less than one (1)
member nor more than ten (10) members, who shall be elected annually by the
Shareholders except as provided in Section 3.4. Directors need not be
-----------
Shareholders. No decrease in the number of directors shall have the effect of
shortening the term of office of any incumbent director.
Section 3.3 Quorum and Manner of Action.
---------------------------
At all meetings of the Board of Directors a majority of the total number of
directors holding office shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by law, by the Corporation's Articles of
6
<PAGE>
Incorporation or these Bylaws. When the Board of Directors consists of one
director, the one director shall constitute a majority and a quorum. If at any
meeting of the Board of Directors there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given other than by
announcement at such adjourned meeting. Attendance by a director at a meeting
shall constitute a waiver of notice of such meeting except where a director
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 3.4 Vacancies.
---------
Except as otherwise provided by law or the Corporation's Articles of
Incorporation, in the case of any vacancy in the Board of Directors, however
created, the vacancy or vacancies may be filled by majority vote of the
directors remaining on the whole Board of Directors although less than a quorum,
or by a sole remaining director. In the event one or more directors shall
resign, effective at a future date, such vacancy or vacancies shall be filled by
election at an annual or special meeting of Shareholders called for that
purpose, or by a majority of the directors who will remain on the whole Board of
Directors, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any directorship to be filled by reason of an
increase in the number of Directors shall be filled by the Board of Directors
for a term of office continuing only until the next election of one or more
directors by the Shareholders; provided that the Board of Directors may not fill
more than two such directorships during the period between any two successive
annual meetings of Shareholders.
Section 3.5 Resignations.
------------
A director may resign at any time upon written notice of resignation to the
Corporation. Any resignation shall be effective immediately unless a certain
effective date is specified therein, in which event it will be effective upon
such date and acceptance of any resignation shall not be necessary to make it
effective.
Section 3.6 Removals.
--------
Any director or the entire Board of Directors may be removed, only for
cause, and another person or persons may be elected to serve for the remainder
of his or their term, by the holders of a majority of the shares of the
Corporation entitled to vote in the election of directors. In case any vacancy
so created shall not be filled by the Shareholders at such meeting, such vacancy
may be filled by the directors as provided in Section 3.4.
-----------
Section 3.7 Annual Meetings.
---------------
The annual meeting of the Board of Directors shall be held, if a quorum be
present, immediately following each annual meeting of the Shareholders at the
place such meeting of Shareholders took place, for the purpose of organization
and transaction of any business that might be transacted at a regular meeting of
the Board of Directors, and no notice of such meeting shall be
7
<PAGE>
necessary. If a quorum is not present, such annual meeting may be held at any
other time or place that may be specified in a notice given in the manner
provided in Section 3.9 for special meetings of the Board of Directors or in a
-----------
waiver of notice thereof.
Section 3.8 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice at
such places and times as shall be determined from time to time by resolution of
the Board of Directors. Except as otherwise provided by law, any business may
be transacted at any regular meeting of the Board of Directors.
Section 3.9 Special Meetings.
----------------
Special meetings of the Board of Directors may be called by the Chairman of
the Board, if any, the President, or by any director. Notice of any special
meeting, effective upon delivery in accordance herewith, shall be given at least
two (2) days prior thereto by written notice delivered personally, or by written
notice mailed or sent by facsimile transmission to each director at his business
address. If mailed, the notice shall be deemed to be delivered three (3) days
following its deposit in the United States mail so addressed, with postage
thereon prepaid. If given by facsimile transmission, the notice shall be deemed
to be delivered when sent and confirmed electronically. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
special meetings need be specified in any notice or written waiver of notice
unless so required by the Corporation's Articles of Incorporation or by these
Bylaws. Any and all business may be transacted at a special meeting, unless
limited by law, the Corporation's Articles of Incorporation or by these Bylaws.
Section 3.10 Organization of Meetings.
------------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as such Board of Directors may from time to time
determine, and all matters shall be determined by the vote of a majority of the
directors present at any meeting at which there is a quorum, except as otherwise
provided by the Corporation's Articles of Incorporation, these Bylaws or
required by law.
Section 3.11 Place of Meetings.
-----------------
The Board of Directors may hold its meetings and have one or more offices,
and keep the books of the Corporation, outside the State of Texas, at any office
or offices of the Corporation, or at any other place as it may from time to time
by resolution determine.
8
<PAGE>
Section 3.12 Compensation of Directors.
-------------------------
Directors shall not receive any stated salary for their services as
directors, but by resolution of the Board of Directors a fixed honorarium or
fees and expenses, if any, of attendance may be allowed for attendance at each
meeting. Nothing herein contained shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending such committee meetings.
Section 3.13 Action by Unanimous Written Consent.
-----------------------------------
Unless otherwise restricted by law, the Corporation's Articles of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or of such committee,
as the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or the
committee.
Section 3.14 Participation in Meetings by Telephone.
--------------------------------------
Unless otherwise restricted by the Corporation's Articles of Incorporation
or these Bylaws, members of the Board of Directors or of any committee thereof
may participate in a meeting of such Board of Directors or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting in such manner shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the grounds that the meeting is not lawfully called or convened.
ARTICLE 4.
Committees of the Board
-----------------------
Section 4.1 Membership and Authorities.
--------------------------
The Board of Directors may, by resolution or resolutions passed by a
majority of the whole Board of Directors, designate one (1) or more directors to
constitute such committees as the Board of Directors may determine, each of
which committees to the extent provided in such resolution or resolutions or in
these Bylaws, shall have and may exercise, subject to the provisions of Article
2.36 of the TBCA, all the powers of the Board of Directors in the management of
the business and affairs of the Corporation, except in those cases where the
authority of the Board of Directors is specifically denied to such committee or
committees by law, the Corporation's Articles of Incorporation or these Bylaws,
and may authorize the seal of the Corporation to be affixed to all papers that
may require such seal. The designation of any committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed upon it or him by law.
9
<PAGE>
Section 4.2 Minutes.
-------
Each committee designated by the Board of Directors shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required.
Section 4.3 Vacancies.
---------
The Board of Directors may designate one (1) or more of its members as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of such committee. If no alternate members have been
appointed, the committee member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. The Board of
Directors shall have the power at any time to fill vacancies in, to change the
membership of, and to dissolve, any committee.
Section 4.4 Telephone Meetings.
------------------
Members of any committee designated by the Board of Directors may
participate in or hold a meeting by use of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
Section 4.4 shall constitute presence in person at such meeting, except where a
- -----------
person participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
Section 4.5 Action Without Meeting.
----------------------
Any action required or permitted to be taken at a meeting of any committee
designated by the Board of Directors may be taken without a meeting if a consent
in writing, setting forth the action so taken, is signed by all the members of
the committee and filed with the minutes of the committee proceedings. Such
consent shall have the same force and effect as a unanimous vote at a meeting.
SECTION 5.
Officers
--------
Section 5.1 Number and Title.
----------------
The officers of the corporation shall be a President and a Corporate
Secretary, each of whom shall be elected by the Board of Directors and such
officers, including a Chairman of the Board, one (1) or more Vice Presidents,
the number thereof to be determined by the Board of Directors, a Chief Financial
Officer or Treasurer, and such other officers as the Board of Directors may deem
to be necessary, may be elected or appointed by the Board of Directors. Any two
(2) or more offices may be held by the same person. If any two (2) or more
offices are held by the same person, such person shall be entitled to exercise
the rights and duties of each office as set forth hereinafter. If the holder of
two (2) or more corporate offices is required to sign any corporate documents,
instruments,
10
<PAGE>
certificates, agreements, or any other documents on the Corporation's behalf,
then the signature of such person in any one (1) of his capacities shall be
sufficient to bind the Corporation. Any one or more of the Vice Presidents may
be designated as an Executive Vice President or Senior Vice President.
Section 5.2 Term of Office; Vacancies.
-------------------------
So far as is practicable, all elected officers shall be elected by the
Board of Directors at the annual meeting of the Board of Directors each year,
and except as otherwise provided in this Article 5, shall hold office until the
---------
next such meeting of the Board of Directors in the subsequent year and until
their respective successors are elected and qualified or until their earlier
resignation or removal. All appointed officers shall hold office at the pleasure
of the Board of Directors. If any vacancy shall occur in any office, the Board
of Directors may elect or appoint a successor to fill such vacancy for the
remainder of the term.
Section 5.3 Removal of Elected officers.
---------------------------
Any elected officer may be removed at any time, with or without cause, by
affirmative vote of a majority of the whole Board of Directors, at any regular
meeting or at any special meeting called for such purpose.
Section 5.4 Resignations.
------------
Any officer may resign at any time upon written notice of resignation to
the President, Secretary or Board of Directors of the Corporation. Any
resignation shall be effective immediately unless a date certain is specified
for it to take effect, in which event it shall be effective upon such date, and
acceptance of any resignation shall not be necessary to make it effective,
irrespective of whether the resignation is tendered subject to such acceptance.
Section 5.5 The Chairman of the Board.
-------------------------
The Chairman of the Board, if one shall be elected, shall preside at all
meetings of the Shareholders and Board of Directors. In addition, the Chairman
of the Board shall perform whatever duties and shall exercise all powers that
are given to him by the Board of Directors.
Section 5.6 Chief Executive Officer.
-----------------------
The Chief Executive Officer shall be the most senior executive officer of
the Corporation; shall (in the absence of the Chairman of the Board, if one be
elected) preside at meetings of the Shareholders and Board of Directors; shall
be ex officio a member of all standing committees; shall have general and active
management of business of the Corporation; shall implement the general
directives, plans and policies formulated by the Board of Directors; and shall
further have such duties, responsibilities and authorities as may be assigned to
him by the Board of Directors. He may sign, with any other proper officer,
certificates for shares of the Corporation and any deeds, bonds, mortgages,
contracts and other documents which the Board of Directors has authorized to be
11
<PAGE>
executed, except where required by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors or these Bylaws, to some other officer or agent of the
corporation. In the absence of the Chief Executive Officer, his duties shall be
performed and his authority may be exercised by the President of the
Corporation.
Section 5.7 President.
---------
The President shall, after the Chief Executive Officer, be the most senior
executive officer of the corporation and shall, subject to the authority of the
Chief Executive Officer, implement the general plans and directives of the Board
of Directors and perform such other duties as may be assigned to him by the
Board of Directors.
Section 5.8 Vice Presidents.
---------------
The several Vice Presidents, including Executive Vice Presidents and Senior
Vice Presidents, shall have such powers and duties as may be assigned to them by
these Bylaws and as may from time to time be assigned to them by the Board of
Directors and may sign, with any other proper officer, certificates for shares
of the Corporation.
Section 5.9 Corporate Secretary.
-------------------
The Corporate Secretary, if available, shall attend all meetings of the
Board of Directors and all meetings of the Shareholders and record the
proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for any committee of the Board of Directors as shall
designate him to serve. He shall give, or cause to be given, notice of all
meetings of the Shareholders and meetings of the Board of Directors and
committees thereof and shall perform such other duties incident to the office of
secretary or as may be prescribed by the Board of Directors or the President,
under whose supervision he shall be. He shall have custody of the corporate
seal of the Corporation and he, or any Assistant Secretary, or any other person
whom the Board of Directors may designate, shall have authority to affix the
same to any instrument requiring it, and when so affixed it may be attested by
his signature or by the signature of any Assistant Secretary or by the signature
of such other person so affixing such seal.
Section 5.10 Assistant Secretaries.
---------------------
Each Assistant Secretary shall have the usual powers and duties pertaining
to his office, together with such other powers and duties as may be assigned to
him by the Board of Directors, the President or the Secretary. The Assistant
Secretary or such other person as may be designated by the President shall
exercise the powers of the Secretary during that officer's absence or inability
to act.
12
<PAGE>
Section 5.11 Treasurer or Chief Financial Officer.
------------------------------------
The Treasurer or Chief Financial Officer shall have the custody of and be
responsible for the corporate funds and securities, shall keep full and separate
accounts of receipts and disbursements in the books belonging to the Corporation
and shall deposit all monies and other valuable effects in the name and the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer or Chief Financial Officer and of the financial
condition of the Corporation and he shall perform all other duties incident to
the position of Treasurer or Chief Financial Officer, or as may be prescribed by
the Board of Directors or the President. If required by the Board of Directors,
he shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation
Section 5.12 Assistant Treasurers.
--------------------
Each Assistant Treasurer shall have the usual powers and duties pertaining
to his office, together with such other powers and duties as may be assigned to
him by the Board of Directors, the President or the Treasurer. The Assistant
Treasurer or such other person designated by the President shall exercise the
power of the Treasurer during that officer's absence or inability to act.
Section 5.13 Subordinate Officers.
--------------------
The Board of Directors may (i) appoint such other subordinate officers and
agents as it shall deem necessary who shall hold their offices for such terms,
have such authority and perform such duties as the Board of Directors may from
time to time determine, or (ii) delegate to any committee or officer the power
to appoint any such subordinate officers or agents.
Section 5.14 Salaries and Compensation.
-------------------------
The salary or other compensation of officers shall be fixed from time to
time by the Board of Directors. The Board of Directors may delegate to any
committee or officer the power to fix from time to time the salary or other
compensation of subordinate officers and agents appointed in accordance with the
provisions of Section 5.2.
-----------
13
<PAGE>
ARTICLE 6.
Indemnification
---------------
(a) Right to Indemnification. Each person who was or is made a party or is
------------------------
threatened to be made a party to or is otherwise involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in such action, suit or
proceeding, and any inquiry or investigation that would lead to such action,
suit or proceeding (hereinafter a "proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the TBCA, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), against all judgments, fines, penalties (including excise tax and
similar taxes), settlements, and reasonable expenses actually incurred by such
indemnitee in connection therewith. The right to indemnification conferred in
this Section shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the TBCA
-------- -------
requires, an advancement of expenses incurred by an indemnitee shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by that such indemnitee is not entitled to be indemnified for such
expenses under this Section or otherwise.
(b) Insurance. The Corporation may purchase and maintain insurance, at its
---------
expense, on behalf of any indemnitee against any liability asserted against him
and incurred by him in such a capacity or arising out of his status as a
representative of the Corporation, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
TBCA.
(c) Indemnity of Employees and Agents of the Corporation. The Corporation
----------------------------------------------------
may, to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Corporation to the fullest extent of the provisions of this Article
or as otherwise permitted under the TBCA with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
14
<PAGE>
ARTICLE 7.
Capital Stock
-------------
Section 7.1 Certificates of Stock.
---------------------
Certificates of stock shall be issued to each Shareholder certifying the
number of shares owned by him in the Corporation and shall be in a form not
inconsistent with the Articles of Incorporation and as approved by the Board of
Directors. The certificates shall be signed by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary, or
the Treasurer, Chief Financial Officer or an Assistant Treasurer and may be
sealed with the seal of the Corporation or a facsimile thereof. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate ceases to hold such position, such certificate may
nevertheless be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
If the Corporation shall be authorized to issue more than one (1) class of
stock or more than one (1) series of any class, each certificate representing
shares shall conspicuously set forth in full or summarized on the face or back
of the certificate, either (i) the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof to the extent they have been filed and determined and the
authority of the Board of Directors to fix and determine the designations,
preferences, limitations and relative rights of subsequent series, or (ii) a
summary thereof; provided that, except as otherwise provided by statute, in lieu
of the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that such information is set forth in the Articles of
Incorporation on file in the office of the Secretary of State of the State of
Texas, and the Corporation will furnish without charge to each Shareholder who
so requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 7.2 Lost Certificates.
-----------------
The Board of Directors may direct a new certificate to be issued in place
of any certificate theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
owner of such certificate, or his legal representative. When authorizing the
issuance of a new certificate, the Board of Directors may in its discretion, as
a condition precedent to the issuance thereof, require the owner, or his legal
representative, to give a bond in such form and substance with such surety as it
may direct, to indemnify the Corporation against any claim that may be made on
account of the alleged loss, theft or destruction of such certificate or the
issuance of such new certificate.
15
<PAGE>
Section 7.3. Dividends.
---------
Subject to Article 2.38 of the TBCA and the provisions of the Corporation's
Articles of Incorporation, if any, and except as otherwise provided by law, the
directors may declare dividends upon the capital stock of the Corporation as and
when they deem it to be expedient. Such dividends may be paid in cash, in
property or in shares of the Corporation's capital stock. Before declaring any
dividend there may be set apart out of the funds of the Corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion determine to be proper for working capital or as a reserve fund to
meet contingencies or for equalizing dividends, or for such other purposes as
the directors shall determine to be in the best interest of the Corporation and
the directors may modify or abolish any such reserve in the manner in which it
was created.
Section 7.4. Registered Shareholders.
-----------------------
Except as expressly provided by law, the Corporation's Articles of
Incorporation or these Bylaws, the Corporation shall be entitled to treat
registered Shareholders as the only holders and owners in fact of the shares
standing in their respective names and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, regardless of whether it shall have express or other notice
thereof.
Section 7.5. Transfer of Stock.
-----------------
Transfers of shares of the capital stock of the Corporation shall be made
only on the books of the Corporation by the registered owners thereof, or by
their legal representatives or their duly authorized attorneys. Upon any such
transfers the old certificates shall be surrendered to the Corporation by the
delivery thereof to the person in charge of the stock transfer books and
ledgers, by whom they shall be canceled and new certificates shall thereupon be
issued.
ARTICLE 8.
Miscellaneous Provisions
------------------------
Section 8.1. Corporate Seal.
--------------
If one is adopted, the corporate seal shall have inscribed thereon the name
of the Corporation and shall be in such form as may be approved by the Board of
Directors. Such seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
Section 8.2. Fiscal Year.
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
16
<PAGE>
Section 8.3. Checks, Drafts, Notes.
---------------------
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner as shall from time to time be determined by resolution (whether general
or special) of the Board of Directors or may be prescribed by any officer or
officers, or any officer and agent jointly, thereunto duly authorized by the
Board of Directors.
Section 8.4. Notice and Waiver of Notice.
---------------------------
Whenever notice is required to be given to any director or Shareholder
under the provisions of applicable law, the Corporation's Articles of
Incorporation or these Bylaws, such notice shall be in writing and delivered
whether (i) personally, or (ii) by registered or certified mail, or (iii) by
telegram, telecopy, or similar facsimile means (delivered during the recipient's
regular business hours). Such notice shall be sent to such director or
Shareholder at the address or telecopy number as it appears on the records of
the Corporation, unless prior to the sending of such notice he has designated,
in a written request to the Secretary of the Corporation, another address or
telecopy number to which notices are to be sent. Notices shall be deemed given
when received, if sent by telegram, telex, telecopy or similar facsimile means
(confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communications sent by telex, telecopy or other facsimile means); and
when delivered and receipted for (or upon the date of attempted delivery where
delivery is refused), if hand delivered, sent by express courier or delivery
service, or sent by certified or registered mail. Whenever notice is required
to be given under any provision of law, the Corporation's Articles of
Incorporation or these Bylaws, a waiver thereof in writing, by telegraph, cable
or other form of recorded communication, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business on the ground that the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Shareholders, directors, or
members of a committee of directors need be specified in any written waiver of
notice unless so required by the Corporation's Articles of Incorporation or
these Bylaws.
Section 8.5. Examination of Books and Records.
--------------------------------
The Board of Directors shall determine from time to time whether, and if
allowed, when and under what conditions and regulations the accounts and books
of the Corporation (except such as may by statute be specifically opened to
inspection) or any of them shall be open to inspection by the Shareholders, and
the Shareholders' rights in this respect are and shall be restricted and limited
accordingly.
Section 8.6. Voting Upon Shares Held by the Corporation.
------------------------------------------
Unless otherwise provided by law or by the Board of Directors, the Chairman
of the Board of Directors, if one shall be elected, or the President, if a
Chairman of the Board of Directors shall
17
<PAGE>
not be elected, acting on behalf of the Corporation, shall have full power and
authority to attend and to act and to vote at any meeting of Shareholders of any
corporation, partnership, venture or limited liability company in which the
Corporation may hold stock or other equity interest and, at any such meeting,
shall possess and may exercise any and all of the rights and powers incident to
the ownership of such equity interest which, as the owner thereof, the
Corporation might have possessed and exercised, if present. The Board of
Directors by resolution from time to time may confer like powers upon any person
or persons.
ARTICLE 9.
Amendments
----------
Except as expressly provided in the Corporation's Articles of
Incorporation, the directors, by the affirmative vote of a majority of the
entire Board of Directors and without the assent or vote of the Shareholders,
may at any meeting, provided the substance of the proposed amendment shall have
been stated in the notice of the meeting, make, repeal, alter, amend or rescind
any of these Bylaws or to adopt new Bylaws. The Shareholders shall not make,
repeal, alter, amend or rescind any of the provisions of these Bylaws except by
the holders of not less than a majority of the shares of stock of the
Corporation entitled to vote in the election of directors.
I HEREBY CERTIFY, as Secretary of the Corporation, that the foregoing are
the Bylaws of the Corporation, as adopted by written consent of the Board of
Directors in lieu of organizational meeting as of the 25th of April, 1997.
/s/ Randolph W. Bryant
--------------------------------------------
Randolph W. Bryant, Secretary
18
<PAGE>
EXHIBIT 4.2
STOCK TRANSFER RESTRICTION AGREEMENT
This Stock Transfer Restriction Agreement (this "Agreement") is made this
____ day of _________________, 1997, between Group Maintenance America Corp., a
Texas corporation ("Parent") and the former holders of common stock of
_______________________, a __________ corporation ("Company") listed on the
signature pages hereto under the caption "Stockholders" ("Stockholders"), the
spouses of the Stockholders, if applicable, and any other persons or entities
who become parties to this Agreement as "Stockholders" pursuant to the terms of
this Agreement.
WHEREAS, Parent, _____________ Acquisition Corp., the Company and the
holders of common stock of the Company have entered into that certain Agreement
and Plan of Merger dated _____________________, 1997 ("Merger Agreement"); and
WHEREAS, as required by the Merger Agreement, certain restrictions are to
be placed on the disposition of shares of Common Stock, $.001 par value per
share, of Parent ("Parent Common Stock") to be issued to the Stockholders
pursuant to the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
1. Definitions. For purposes hereof, the term "Stock" shall mean any
-----------
capital stock of Parent now or at any time hereafter held of record or
beneficially by any Stockholder, including, without limitation, the Parent
Common Stock to be issued to the Stockholders pursuant to the Merger Agreement,
and the term "Disposition" shall mean any direct or indirect transfer,
assignment, gift, pledge, hypothecation, encumbrance or other disposition;
provided, however, that (i) a transfer of any Stock of a Stockholder upon such
Stockholder's death to his or her estate, heirs or devisees by will or the laws
of descent and distribution shall not be deemed a "Disposition" if each such
transferee agrees in writing to be bound by all of the provisions of this
Agreement to the same extent as if such transferee were a Stockholder by
execution of an Adoption Agreement in the form attached hereto as Exhibit A and
(ii) any gift of Stock by a Stockholder to such Stockholder's sibling(s) or
direct lineal ascendent(s) or descendent(s) (including any adopted children) (or
to a trust for the benefit of such Stockholder's sibling(s) or direct lineal
ascendent(s) or descendent(s) (including any adopted children)) may, at the
Company's discretion, not be deemed a "Disposition" if each such recipient of
such gift agrees in writing to be bound by all of the provisions of this
Agreement to the same extent as if such recipient were a Stockholder by
execution of an Adoption Agreement in the
<PAGE>
form attached hereto as Exhibit A (the transfers in clause (i) above and the
transfers in clause (ii) above, if permitted by the Company, shall be referred
to herein as "Permitted Dispositions").
2. Standstill Agreement; Securities Matters.
----------------------------------------
(a) Standstill. If Parent is engaged in an underwritten public
----------
offering of its securities, no Stockholder shall make any Disposition of any
Stock on a securities exchange or in the over-the-counter or any other public
trading market for whatever period of time Parent (upon the recommendation of
its underwriters) requests by written notice given to each Stockholder;
provided, however, that (i) such request shall not be for a period extending
longer than that applicable to management shareholders of Parent; (ii) this
Section 2(a) shall not limit any Stockholder's right to sell Stock pursuant to
any piggyback registration right that such Stockholder may have pursuant to any
registration rights or similar agreement binding upon Parent; and (iii) any
restrictions recommended by the underwriters are no more restrictive than those
imposed on the management shareholders of Parent.
(b) Securities Laws. No Stockholder shall make any Disposition of any
---------------
time if such action would constitute (i) a violation of the registration
requirements of any federal or state securities or blue sky laws, (ii) a breach
of any condition to any exemption from registration of the Parent Common Stock
under any such laws, or (iii) a breach of any undertaking or agreement of such
Stockholder entered into pursuant to such laws or in connection with obtaining
an exemption thereunder. Each Stockholder shall comply with the requirements of
Rule 144 of the Securities Act of 1933. Prior to any proposed Disposition of any
Stock by a Stockholder, such Stockholder shall provide to Parent an unqualified
written opinion of legal counsel, which counsel and opinion (in form and
substance) shall be reasonably satisfactory to Parent, to the effect that the
proposed Disposition is in compliance with this Section 2(b) and that the
proposed Disposition is permitted by this Agreement and any shareholder buy-
sell, stock transfer restriction or other agreement to which such Stockholder is
a party restricting the transferability of such Stock. Any certificate
representing shares of Stock shall bear appropriate legends restricting the sale
or other transfer of such Stock in accordance with applicable federal or state
securities or blue sky laws and in accordance with the provisions of this
Agreement.
(c) Limitations on Dispositions; Notices.
------------------------------------
(i) Notwithstanding anything to the contrary contained herein, no
Stockholder shall make any Disposition of any Stock during the period beginning
on the date of this agreement and for 365 days thereafter (the "One Year Holding
Period") (otherwise than pursuant to an effective registration statement). In
addition to the foregoing restrictions, during the period beginning upon the
expiration of the One Year Holding Period and expiring 365 days thereafter (the
-2-
<PAGE>
"Second Holding Period"), no Stockholder may make a Disposition or Dispositions
in any calendar month of a number of shares of Parent Common Stock (otherwise
than pursuant to an effective registration statement) in an amount greater than
3% of the number of shares of Parent Common Stock issued to such Stockholder
pursuant to the Merger Agreement or transferred to such Stockholder pursuant to
a Permitted Disposition, increasing cumulatively for months in which less than
3% was sold.
(ii) Until the later to expire of (a) 365 days following the
expiration of the Second Holding Period, (b) the date on which a Stockholder
ceases to be an officer or director of the Company or any of its subsidiaries,
if applicable, or (c) the date on which such Stockholder ceases to hold the
greater of (1) 50,000 shares of Parent Common Stock or (2) 20% of the number of
shares of Parent Common Stock issued to such Stockholder pursuant to the Merger
Agreement or transferred to such Stockholder pursuant to a Permitted
Disposition, as adjusted for stock splits, stock dividends and the like, each
Stockholder shall provide five business days' written notice to the Company,
pursuant to Section 12, of any proposed Disposition or plan of Disposition.
3. Legend; Stop Transfer Instructions. Parent shall place a legend on
----------------------------------
the reverse side of all certificates representing shares of Stock now owned or
hereafter acquired by each Stockholder, or any permitted transferee to provide
notice of the existence of this Agreement and its applicability to any
Disposition of Stock. The legend shall be in substantially the following form:
BY THE TERMS OF A STOCK TRANSFER RESTRICTION AGREEMENT, CERTAIN
RESTRICTIONS HAVE BEEN PLACED UPON THE TRANSFERABILITY OF THE SHARES
REPRESENTED BY THIS CERTIFICATE. THE COMPANY WILL FURNISH COPIES OF SUCH
AGREEMENTS TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.
Parent also shall place stop transfer instructions with respect to such shares
of Stock in its stock transfer records for such purpose.
4. Breach. Any Disposition or attempted Disposition in breach of this
------
Agreement shall be void and of no effect. In connection with any such voided
Disposition, Parent may hold and refuse to transfer any Stock or certificate
therefor tendered for transfer, in addition and without prejudice to any and all
other rights and remedies which may be available to Parent.
5. Termination. This Agreement shall terminate on the earlier to occur
-----------
of (i) 5 years from the date of this Agreement or (ii) as to any Stockholder,
the date on which such Stockholder
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<PAGE>
owns less than 10% of the shares of Parent Common Stock issued to such
Stockholder pursuant to the Merger Agreement or transferred to such Stockholder
pursuant to a Permitted Disposition.
6. Specific Enforcement. Each Stockholder expressly agrees that Parent
--------------------
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach or threatened breach of the terms, covenants and/or conditions of
this Agreement by a Stockholder, Parent shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions hereof, against such Stockholder.
7. Governing Law; Successors and Assigns. This Agreement shall be
-------------------------------------
governed by the laws of the State of Texas without regard to the choice of law
principles thereof and shall be binding upon the heirs, personal
representatives, executors, administrators, and permitted successors and assigns
of the parties.
8. Waivers. No waiver of any breach or default hereunder shall be
-------
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
9. Severability. If any provision of this Agreement shall be held to be
------------
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
10. Captions. Captions are for convenience only and are not deemed to be
--------
part of this Agreement.
11. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. Notices. Any notice, reply or other communication required or
-------
permitted to be given under this Agreement must be given in writing and may be
served by depositing the same in the United States mail, certified, postage
prepaid, and addressed to the party or parties to be notified, or by delivering
such notice in person to such party or parties. Such notice shall be effective
upon receipt by the party to whom the notice is to be given. For the purposes
of this Section 13, the address of Parent shall be:
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<PAGE>
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attention: President
The address of each Stockholder shall be such Stockholder's address as shown on
the signature pages hereto or, in the case of a Stockholder who receives Stock
in a Permitted Disposition, as shown on the Adoption Agreement executed and
delivered by such Stockholder, Parent and each Stockholder shall have the right
to change its, his or her address by giving at least fifteen (15) days prior
written notice of the new address to the other parties to this Agreement.
This Agreement is executed by the parties hereto and shall be
effective as of the date first above written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:_________________________________
Name:_______________________________
Title:______________________________
STOCKHOLDERS:
____________________________________
______________________
Address:____________________________
____________________________
____________________________
____________________________________
Spouse
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<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
October 24, 1996, by and among Maintenance Specialists of America, Inc., a Texas
corporation (the "Company"), and the Holders as defined herein, to be effective
as provided in Section 3.3.
Recitals
--------
WHEREAS, in connection with the sale and issuance of the common stock, par
value $.001 per share (the "Common Stock"), of the Company to certain persons,
the Company has agreed to enter into this Registration Rights Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms shall
-------------------
have the following respective meanings:
"best lawful efforts" shall mean the efforts that a prudent
business person desirous of achieving a result would use under similar
circumstances to ensure that such result is achieved as expeditiously as
possible.
"Cain Holders" shall mean Gordon A. Cain and any transferee(s) of
Registrable Securities initially issued to Gordon A. Cain in accordance
with that certain Subscription Agreement, dated the date hereof, between
the Company and Mr. Cain.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, par value $.001, of the
Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Holders" shall mean those persons listed on Schedule A hereto as
----------
a "Holder" under this Agreement, including the Cain Holders and Management
Holders.
"Initiating Holders" shall have the meaning assigned in Section
2.1(a) of this Agreement.
"Management Holders" shall mean those persons listed on Schedule
--------
A hereto and identified as "Management Holders" under this Agreement,
-
together with the designees identified in their respective Subscription
Agreements for issuance of shares.
<PAGE>
"Registrable Securities" means any Common Stock of the Company
issued or issuable by the Company to a Holder, and other securities issued
or issuable in respect of the above upon any stock split, stock dividend,
recapitalization, or similar event; excluding in all cases, however, any
Common Stock or other security transferred pursuant to a registration
statement, or Rule 144 under the Securities Act.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than
Selling Expenses (as defined below), incurred by the Company in complying
with Sections 2.1 and 2.2 hereof, including, without limitation, all
registration, qualification and filing fees, exchange listing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company) and the reasonable fees and disbursements of one
counsel for all Holders.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above, all fees and
disbursements of counsel for any Holder.
2. Registration Rights.
-------------------
2.1 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
(1) Cain Holders who in the aggregate hold at least 40% of the then outstanding
Registrable Securities held by all the Initiating Holders, or (2) Management
Holders who in the aggregate hold at least 40% of the then outstanding
Registrable Securities held by all of the Management Holders, a written request
that the Company effect any registration, qualification or compliance with
applicable registration provisions of the Securities Act with respect to shares
of Registrable Securities then outstanding (Holders providing such written
request shall be the "Initiating Holders"), the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best lawful efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate
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<PAGE>
compliance with applicable regulations issued under the Securities Act and
any other governmental requirements or regulations) as may be so requested
and as may be reasonably required to permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any Holders joining in such request as are
specified in a written request received by the Company within fifteen (15)
days after receipt by all of the Holders of such written notice from the
Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance
pursuant to this Section 2.1:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act;
(B) Prior to the earlier to occur of (1) five (5) years
after the date of this Agreement and (2) the date upon which the
Company shall have both (a) sold Common Stock to the public in an
underwritten offering at an offering price of at least $5.00 per share
(subject to appropriate adjustments for stock splits, dividends,
combinations and the like) and at an aggregate offering price to the
public of at least $7,500,000, pursuant to an effective registration
statement filed with the Securities and Exchange Commission and (b)
obtained the listing (or filed an application for the listing) of its
shares of Common Stock on a national securities exchange or the NASDAQ
National Market System;
(C) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the
date one hundred twenty (120) days immediately following the effective
date of, any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145
transaction or with respect to any employee benefit plan), provided
that (1) the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective, (2) the registration statement relates to a firm commitment
underwriting and the Initiating Holders were provided an opportunity
to include shares in such registration statement in accordance with
Section 2.2 hereof and (3) the Company cannot, pursuant to this
Section 2.1(a)(ii)(C), delay implementation of a demand for
registration more than once in any twelve (12) month period;
(D) After the Company has effected one such registration
pursuant to this subparagraph 2.1(a) and such registration has been
declared or ordered effective; provided, however, that in the event
that less than 80% of the shares requested to be registered by the
Initiating Holders are in fact registered and sold in connection with
any registration, such registration shall not be counted as the
registration permitted by this Section 2.1(a)(ii)(D); and provided
further that the Cain Holders on the one hand, and the Management
Holders, on the other hand, may
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<PAGE>
request three registrations on Form S-3 so long as the Company is
eligible to use Form S-3 and the other requirements and limitations of
this Section 2.1 are complied with.
(E) If the Company shall furnish to such Initiating Holders
a certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board of
Directors of the Company it would be seriously detrimental to the
Company or its shareholders for a registration statement to be filed
in the near future, or that delay in the filing of any registration
statement is necessary in light of a pending corporate development,
then the Company's obligation to use its best lawful efforts to
register, qualify or comply under this Section 2.1 shall be deferred
(with respect to any demand for registration hereunder) for a period
not to exceed one hundred twenty (120) days from the date of receipt
of written request from the Initiating Holders, provided that the
Company cannot, pursuant to this Section 2.1(a)(ii)(E), delay
implementation of a demand for registration more than once in any
twelve (12) month period; or
(F) If the registration or qualification requested does not
relate to at least 500,000 shares in the aggregate of Registrable
Securities held by the Initiating Holders making such request.
Subject to the foregoing clauses (A) through (F), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
------------
Section 2.1 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 2.1(a)(i). In such event, the right of any Holder to registration
pursuant to Section 2.1 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 2.1, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders and other holders of
Company securities who have rights to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Initiating Holders,
but subject to the Company's reasonable approval. Notwithstanding anything
herein to the contrary, if the managing underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Company shall so advise all Holders who have
requested to participate in the registration and the number of shares that may
be included in the registration and underwriting shall be allocated among all
Holders who have requested to participate in the registration in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by each of them at the time of filing the registration statement, but only after
eliminating from such registration the securities held by other holders of
Company securities whose rights to distribute their securities through such
underwriting are junior to those of the Holders, and provided further, that the
Registrable Securities held by all Holders that
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<PAGE>
are not Initiating Holders shall be reduced and eliminated from such
registration before the reduction or elimination of any Registrable Securities
held by any Initiating Holders and the Registrable Securities held by the
Initiating Holders shall be reduced only after all Registrable Securities held
by other Holders have been eliminated from the underwritten registration. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest one hundred (100) shares.
If any Holder disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the Initiating Holders. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall be withheld from the market for a period
of one hundred twenty (120) days after the effective date of such registration,
or such other shorter period of time as the underwriters may require.
(c) One Demand. Except as provided in Section 2.1(a)(ii)(D), the Cain
----------
Holders on the one hand, and the Management Holders, on the other hand, shall be
entitled to obtain, and the Corporation shall be obligated to effect, no more
than one effective registration statement under the Securities Act pursuant to
this Section 2.1, but the foregoing shall not otherwise restrict such Holders'
ability to participate in other registrations initiated by other Holders
hereunder.
(d) Prorata Reductions. The Company shall be entitled to register
------------------
securities for sale for its own account in any registration requested pursuant
to this Section 2.1 unless the underwriter shall indicate in writing to the
Initiating Holders that the inclusion of the shares to be sold for the account
of the Company will adversely affect the registration, the price of the shares
to be sold or the number of shares to be sold for the account of the Initiating
Holders. Without the consent of the Initiating Holders, the Company may not
otherwise cause any other registration of securities for sale for its own
account (other than a registration effected solely to implement a stock option
plan or other employee benefit plan or a transaction contemplated by Rule 145 of
the Commission) to become effective less than ninety (90) days after the
effective date of any registration requested pursuant to Section 2.1.
2.2 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than a (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof, and
(ii) use its best lawful efforts to include in such registration
(and any related qualification under blue sky laws or other compliance),
and in any underwriting
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<PAGE>
involved therein, all the Registrable Securities
specified in a written request or requests, made within fifteen (15) days
after receipt of such written notice from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.2(a)(i). In such event the right of any Holder's
participation in such underwriting, and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into any underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company.
Notwithstanding anything herein to the contrary, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit some or all of
the Registrable Securities that may be included in the registration and
underwriting as follows: the securities held by holders of Company securities
whose rights to distribute their securities through such underwriter are junior
to the Holders shall be cut back first in proportion to their respective
holdings to the extent required by such limitation; thereafter, if a limitation
is still required after eliminating the securities held by holders of Company
securities whose rights to distribute their securities through such underwriter
are junior to the Holders in their entirety from such registration, the number
of Registrable Securities that may be included in the registration and
underwriting by Holders shall be cut back, as nearly as practicable, in
proportion to the respective amounts of Registrable Securities then held by such
Holders to the extent required by such limitation. To facilitate the allocation
of shares in accordance with the above provisions, the Company may round the
number of shares allocable to any Holder to the nearest one hundred (100)
shares.
If any Holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and the
managing underwriter, delivered not less than seven days before the effective
date. Any securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration, and shall be withdrawn from the market for a
period of one hundred twenty (120) days after the effective date of the
registration statement relating thereto, or such other shorter period of time as
the underwriters may require.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 2.2
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
2.3 Limitations on Subsequent Registration Rights. The Company agrees and
---------------------------------------------
covenants that it will not grant or allow any persons any registration rights
with respect to any securities of the Company which are superior to the rights
granted hereunder without the prior written consent of the holders of at least
80% of the outstanding shares of Registrable Securities in which event the
additional holders may be added as parties to this Agreement with regard to any
or all securities of the Company held by them. Any such additional parties
shall execute a counterpart of this Agreement and, upon such execution by each
additional party and the Company, each additional party shall be
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<PAGE>
considered a Holder for all purposes of this Agreement. The additional parties
and the additional Registrable Securities shall be identified in an amendment to
this Agreement. In the event that the Company authorizes registration rights
which are superior in any way to those granted herein to the Holders without
such prior written consent, the Holders shall be entitled to the same rights.
2.4 Expenses of Registration. All Registration Expenses shall be borne by
------------------------
the Company. Unless otherwise stated, all Selling Expenses relating to
securities registered on behalf of the Holders shall be borne by the Holders pro
rata on the basis of the number of shares so registered.
2.5 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense, the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best lawful efforts to cause such
registration statement to become and remain effective for at least ninety (90)
days or until the distribution described in the Registration Statement has been
completed;
(b) Furnish to each underwriter such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such underwriter may reasonably
request in order to facilitate the public sale of the shares by such
underwriter, and promptly furnish to each underwriter and Holder notice of any
stop-order or similar notice issued by the Commission or any state agency
charged with the regulation of securities; and
(c) Use its best lawful efforts to cause all Registrable Securities to
be listed or authorized for inclusion on each securities exchange or similar
trading system on which similar securities issued by the Company are then listed
or authorized for trading.
2.6 Indemnification.
---------------
(a) To the extent permitted by law, the Company will indemnify each
Holder participating in a registration pursuant to this Agreement, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, to the extent such expenses, claims,
losses, damages or liabilities arise out of or are based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
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<PAGE>
misleading, or any violation by the Company of the Securities Act or any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided, however, that the indemnity
contained herein shall not apply to amounts paid in settlement of any claim,
loss, damage, liability or expense if settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), provided
further, that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by such Holder, controlling person or underwriter specifically for use
therein. Notwithstanding the foregoing, insofar as the foregoing indemnity
relates to any such untrue statement (or alleged untrue statement) or omission
(or alleged omission) made in a preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the final prospectus filed with
the Commission pursuant to Rule 424 of the Commission, the indemnity agreement
herein shall not inure to the benefit of any underwriter or (if there is no
underwriter) any Holder if a copy of the final prospectus filed pursuant to Rule
424 was not furnished to the person or entity asserting the loss, liability,
claim or damage at or prior to the time such furnishing is required by the
Securities Act.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities owned by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement by such
Holder of a material fact, which statement is made by such Holder within one
hundred twenty (120) days of the effective date of such registration statement
and is contained in any such registration statement, prospectus, offering
circular or other document, or any omission by such Holder (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by such Holder of
any rule or regulation promulgated under the Securities Act applicable to such
Holder and relating to action or inaction required of such Holder in connection
with any such registration, qualification or compliance, and such Holder will
reimburse the Company, such other Holders, such directors, officers,
underwriters or control persons for any legal or other expenses reasonably
incurred in connection with defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder specifically for use therein; provided, however,
that the indemnity contained herein shall not apply to amounts paid in
settlement of any claim, loss, damage, liability or expense if settlement is
effected without the consent
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<PAGE>
of the Holder from whom such payment is sought (which consent shall not be
unreasonably withheld). Notwithstanding the foregoing, the liability of each
Holder under this subsection (b) shall be limited to an amount equal to the net
proceeds from the sale of the shares sold by such Holder, unless such liability
arises out of or is based on intentional misstatements by such Holder. In
addition, insofar as the foregoing indemnity relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the Commission at the time the registration statement becomes
effective or in the final prospectus filed pursuant to Rule 424 of the
Commission, the indemnity agreement herein shall not inure to the benefit of the
Company, any underwriter or (if there is no underwriter) any other Holder if a
copy of the final prospectus filed pursuant to Rule 424 was not furnished to the
person or entity asserting the loss, liability, claim or damage at or prior to
the time such furnishing is required by the Securities Act.
(c) Each party entitled to indemnification under this Section 2.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate or different
defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified Party, consent to
the entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or
enter into any settlement without the consent of each Indemnifying Party.
(d) If the indemnification provided for in this Section 2.6 is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and all shareholders offering
securities in the offering (the "Selling Shareholders") on the other from the
offering of the Company securities, or (ii) if the allocation provided by the
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the Selling
Shareholders on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Selling Shareholders on the other shall be the
net proceeds from the offering (before deducting expenses) received by the
Company on the one hand and the Selling Shareholders on the other. The relative
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<PAGE>
fault of the Company on the one hand and the Selling Shareholders on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Selling Shareholders and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 2.6(d) were based solely upon
the number of entities from whom contribution was requested or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this Section 2.6(d). The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages and liabilities
referred to above in this Section 2.6(d) shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
defending any such action or claim, subject to the provisions of Section 2.6(c)
hereof. Notwithstanding the provisions of this Section 2.6(d) or any other
provision of this Article 2, no Holder shall be required to contribute any
amount or make any other payments under this Agreement which in the aggregate
exceed the net proceeds received in the offering by such Holder. No person
guilty of fraudulent misrepresentation (within the meaning of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(e) Notwithstanding the foregoing provisions of this Section 2.6, if
pursuant to an underwritten public offering of capital stock of the Company, the
Company, the selling shareholders and the underwriters enter into an
underwriting or purchase agreement relating to such offering which contains
provisions covering indemnification among the parties thereto in connection with
such offering, the indemnification provisions of this Section 2.6, to the extent
they are in conflict therewith, shall be deemed inoperative for the purpose of
such offering, except as to any parties to this Agreement who are not parties to
such subsequent underwriting or purchase agreement.
2.7 Certain Information.
-------------------
(a) As a condition to exercising the registration rights provided for
herein, each Holder, with respect to any Registrable Securities included in any
registration, shall furnish the Company such information regarding such Holder,
the Registrable Securities and the distribution proposed by such Holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in Section 2.
(b) The failure of any Holder to furnish the information requested
pursuant to Section 2.7(a) shall not affect the obligation of the Company under
Section 2 to the remaining Holder(s) who furnish such information unless, in the
reasonable opinion of counsel to the Company or the underwriters, such failure
impairs or may impair the legality of the Registration Statement or the
underlying offering.
(c) Each Holder, with respect to any Registrable Securities included
in any registration, shall cooperate in good faith with the Company and its
underwriters, if any, in connection with such registration, including placing
such shares in escrow or custody to facilitate the sale and distribution
thereof.
-10-
<PAGE>
(d) Each Holder, with respect to any Registrable Securities included
in any registration, shall make no further sales or other dispositions, or
offers therefor, of such shares under such registration statement if, during the
effectiveness of such registration statement, such Holder is informed that an
intervening event has occurred which, in the opinion of counsel to the Company,
makes the prospectus included in such registration statement no longer comply
with the Securities Act until such time as such holder has received from the
Company copies of a new, amended or supplemented prospectus complying with the
Securities Act.
2.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best lawful efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish to
such Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell any such securities
without registration. In addition, if at any time following the effective date
of the first registration of any of the Company's securities under the
Securities Act the Company shall cease to be subject to the requirements of
Section 15(d) of the Exchange Act, the Company will make available to any of the
Holders the information required by Rule 15c2-11(a)(4) of the Exchange Act (or
any corresponding rule hereafter in effect).
2.9 Transfer of Registration Rights. The rights granted to a Holder
-------------------------------
hereunder may be assigned to a transferee or assignee in connection with any
transfer or assignment of Registrable Securities by Holder provided that: (i)
such transfer is otherwise effected in accordance with applicable securities
laws, (ii) the Holder notifies the Company in writing prior to the transfer or
assignment and the assignee or transferee agrees in writing to be bound by the
provisions of this Agreement, and (iii) such transfer is not pursuant to a
registration statement under the Securities Act or Rule 144 promulgated under
the Securities Act.
-11-
<PAGE>
2.10 Standstill Agreement. Each Holder agrees, so long as such Holder
--------------------
holds at least five percent (5%) of the Company's outstanding voting equity
securities and upon request of the underwriters managing each of the first three
underwritten public offerings of the Company's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any equity securities of the Company (other than those included in the
registration) without the prior written consent of such underwriters, for such
period of time (not to exceed 120 days) following the effective date of the
registration statement relating to each such underwritten public offering as may
be requested by the underwriters; provided, that the officers and directors of
the Company who own stock of the Company also agree to such restrictions.
3. Miscellaneous.
-------------
3.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY
-------------
THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES
THEREOF.
3.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.3 Effective Date, Entire Agreement; Amendment. Notwithstanding anything
-------------------------------------------
in this Agreement to the contrary, this Agreement shall not be effective or
binding on the Company or the Holders until it has been executed by the Company
and persons or entities holding at least two-thirds (2/3) of the outstanding
shares of Registrable Securities. Upon its effectiveness as provided herein,
this Agreement shall constitute the full and entire understanding and agreement
between the parties with regard to the subject hereof. Except as expressly
provided herein, this Agreement, or any provision hereof, may be amended,
waived, discharged or terminated upon the written consent of the Company and the
Holders holding at least 80% of the then outstanding Registrable Securities.
3.4 Notices, Etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger
including Federal Express or similar courier service, addressed (a) if to a
Holder, at such person's address set forth on the signature page hereof, or at
such other address as such party shall have furnished to the Company in writing,
or (b) if to the Company, at 1225 North Loop West, Suite 324, Houston, Texas
77008, ATTN: Corporate Secretary, or at such other address as the Company shall
have furnished to the other parties hereto.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective upon receipt.
3.5 Delays or Omissions. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power, or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default
-12-
<PAGE>
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any party of any breach or default under
this Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party to this Agreement,
shall be cumulative and not alternative.
3.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.7 Validity. In the event that any provisions hereof are held to be
--------
invalid, illegal or against public policy, the remaining provisions hereof shall
not be affected thereby. In such event, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible with respect to those provisions which were held
to be invalid, illegal or against public policy.
3.8 Construction. Each party to this Agreement has had the opportunity to
------------
review this Agreement with legal counsel. This Agreement shall not be construed
or interpreted against any party on the basis that such party drafted or
authored a particular provision, parts of or the entirety of this Agreement.
3.9 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this agreement effective as
of the date first set forth above.
"COMPANY"
MAINTENANCE SPECIALISTS OF
AMERICA, INC.
By: /s/ J.Patrick Millinor, Jr.
---------------------------------------
J. Patrick Millinor, Jr., President
[SIGNATURES CONTINUED ON THE FOLLOWING TWO PAGES]
-13-
<PAGE>
"HOLDERS"
ROUSE DECENDENTS TRUST OF 1996
FOR THE BENEFIT OF RYAN
STEPHENS ROUSE /s/ ESTHER J. REILING-MARSHALL
-----------------------------------
Address: 1784 Rockwood Place
Concord, CA 94521
By:/s/ ROBERT LAFERTY
--------------------------------
Robert Lafferty, Trustee
Address: c/o Insurance
Network Systems
8895 North Military Trail /s/ RACHEL OWENS
-----------------------------------
Building E, Suite 201 RACHEL OWENS
Palm Beach Gardens, FL Address: 1573 Coburg Road#294
33410 Eugene, OR 97401
ROUSE DECENDENTS TRUST OF 1996
FOR THE BENEFIT OF REGAN
ANNE SCHOENEWOLF /s/ KENNETH ANDERSON
-----------------------------------
KENNETH ANDERSON
Address: 23007 Holly Hollow
By:/s/ ROBERT LAFFERTY Tomball, TX 77375
--------------------------------
Robert Lafferty, Trustee
Address: c/o Insurance Network
Systems
8895 North Military Trail /s/ PANSY ANDERSON
-----------------------------------
Building E, Suite 201 PANSY ANDERSON
Palm Beach Gardens, FL Address: 23007 Holly Hollow
33410 Tomball, TX 77375
/s/ NAOMI COLEMAN /s/ DORRIS REILING
- ----------------------------------- -----------------------------------
NAOMI COLEMAN DORRIS REILING
Address: City of Arlington Address: 1785 Snowbird Dr., N.W.
101 West Abrams Salem, OR 97304
Arlington, TX 76010
/s/ JENNIFER L. PARKER /s/ LUCIAN L. MORRISON, JR.
- ----------------------------------- -----------------------------------
JENNIFER L. PARKER LUCIAN L. MORRISON, JR.
Address: 3433 Birch Lane Address: 2001 Kirby Drive #1220
Deer Park, TX 77536 Houston, TX 77019
-14-
<PAGE>
PAULA ANN JACHIMIEC TRUST SARAH ELIZABETH JACHIMIEC TRUST
By:/s/ Chester J. Jachimiec By:/s/ Chester J. Jachimiec
-------------------------------- -------------------------------------
Chester J. Jachimiec, Trustee Chester J. Jachimiec, Trustee
Address: 2035 Island Oak Address: 2035 Island Oak
Houston, TX 77062 Houston, TX 77062
/s/ GORDON A. CAIN /s/ J. PATRICK MILLINOR, JR.
- ----------------------------------- -------------------------------------
GORDON A. CAIN J. PATRICK MILLINOR, JR.
Address: ___________________ Address: 8 Greenway Plaza, Suite 702
___________________ Houston, TX 77046
/s/ RICHAR S. ROUSE /s/ RICHARD K. REILING
- ----------------------------------- -------------------------------------
RICHARD S. ROUSE RICHARD K. REILING
Address: 2318 Twin Grove Address: 23007 Holly Hollow
Kingwood, TX 77339 Tomball, TX 77375
/s/ CHESTER J. JACHIMIEC /s/ DARREN MILLER
- ----------------------------------- -------------------------------------
CHESTER J. JACHIMIEC DARREN MILLER
Address: 2035 Island Oak Address: 4122 Saint Ives
Houston, TX 77062 Sugar Land, TX 77479
/s/ ARTHUR B. GOETZE /s/ EDWARD J. HOFFER
- ----------------------------------- -------------------------------------
ARTHUR B. GOETZE EDWARD J. HOFFER
Address: 9833 Warwana Address: 3218 Hillcroft
Houston, TX 77080 Houston, TX 77057
/s/ JAMES FORD
- -----------------------------------
JAMES FORD, TRUSTEE
Address: ________________
________________
-15-
<PAGE>
/s/ JOSEPH FOWLER /s/ JAMES T. RASH
- -------------------------------- -------------------------------------
JOSEPH FOWLER JAMES T. RASH
Address: ________________ Address: ______________________
________________ ______________________
-16-
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
__________, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Company"), and the holders of Registrable Securities (as
defined herein) whose names appear on the signature pages of this Agreement
under the caption "HOLDERS" (the "Holders").
Recitals
--------
WHEREAS, in connection with the issuance of the common stock, par value
$.001 per share (the "Common Stock"), of the Company to certain persons, the
Company has agreed to enter into this Registration Rights Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereby agree as follows;
1. Certain Definitions. As used in this Agreement, the following terms shall
-------------------
have the following respective meanings:
"best lawful efforts" shall mean the efforts that a prudent
business person desirous of achieving a result would use under similar
circumstances to ensure that such result is achieved as expeditiously as
possible.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, par value $.001, of the
Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Initial Public Offering" shall mean an underwritten public
offering of Common Stock pursuant to a registration statement filed under
the Securities Act, wherein the aggregate cash net proceeds to the Company
and, if any, any selling shareholders included in such offering (after
deducting all Registration Expenses and Selling Expenses) are at least
$20,000,000; provided, however, that the term "Initial Public Offering"
shall not include any offering pursuant to a registration statement (i)
relating to any capital stock of
<PAGE>
the Company or options, warrants or other rights to acquire any such
capital stock issued or to be issued primarily to directors, officers or
employees of the Company or any of its affiliated corporations, (ii)
relating to any employee benefit plan or interests therein, (iii) filed
pursuant to Rule 145 under the Securities Act or any successor or similar
provision, or (iv) relating principally to any preferred stock or debt
securities of the Company.
"Registrable Securities" means any Common Stock of the Company
issued or issuable by the Company to a Holder, and other securities issued
or issuable in respect of the above upon any stock split, stock dividend,
recapitalization, or similar event; excluding in all cases, however, any
Common Stock or other security transferred pursuant to a registration
statement or pursuant to Rule 144 under the Securities Act.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than
Selling Expenses (as defined below), incurred by the Company in complying
with Section 2.1 hereof, including, without limitation, all registration,
qualification and filing fees, exchange listing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky
fees and expenses, the expense of any special audits incident to or
required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Selling Shareholders (as defined below).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above, all fees and
disbursements of counsel for any Holder.
2. Piggyback Registration Rights.
-----------------------------
2.1 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register on a form that permits the sale of
Registrable Securities an underwritten public
-2-
<PAGE>
offering of any of its securities for cash, either for its own account or the
account of a security holder or holders, other than (i) on Form S-4 or S-8 or
any successor or similar form, (ii) in connection with the Initial Public
Offering, or before (but not in connection with) the Initial Public Offering,
(iii) relating to any capital stock of the Company under options, warrants or
other rights to acquire any such capital stock issued or to be issued primarily
to directors, officers or employees of the Company, or any of its subsidiaries
or affiliates, (iv) filed pursuant to Rule 145 under the Securities Act or any
successor or similar provision, (v) relating to any employee benefit plan or
interests therein, or (vi) relating principally to preferred stock or debt
securities of the Company, the Company will:
(A) promptly give to each Holder written notice thereof, and
(B) use its best lawful efforts to include in such registration
(and any related qualification under blue sky laws or other compliance),
all the Registrable Securities specified in a written request or requests,
made within fifteen (15) days after receipt of such written notice from the
Company, by any Holder.
(b) Underwriting Agreement. All Holders who have requested the
----------------------
inclusion of Registrable Securities in such registration shall (together with
the Company and the other holders whose securities are included in such
registration) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding anything herein to the contrary, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit some or all of
the Registrable Securities sought to be registered on behalf of the Holders
pursuant to Paragraph 2.1, above, as follows:
(A) the securities held by holders of Company securities whose
rights to include their securities in such registration are junior to the
Holders shall be cut back first in proportion to their respective holdings
to the extent required by such limitation;
(B) if a limitation is still required (after eliminating in
their entirety from such registration the securities held by the holders of
Company securities whose rights to include their securities in such
registration are junior to the Holders), the number of Registrable
Securities and the number of other Company securities ("Other Registrable
Securities") held by holders ("Other Registrable Securities Holders") of
Company securities whose rights to include their Other Registrable
Securities in such registration are not junior to the Holders that may be
included in the registration by the Holders and the Other Registrable
Securities Holders shall be cut back, to the extent required by such
limitation,
-3-
<PAGE>
in proportion to the respective amounts, as nearly as practicable, of
Registrable Securities and Other Registrable Securities requested to be
included in such registration by such Holders and such Other Registrable
Securities Holders. To facilitate the allocation of shares in accordance
with the above provisions, the Company may round the number of shares
allocable to any Holder or any Other Registrable Securities Holder to the
nearest one hundred (100) shares.
The rights of the Holders to include any of their Registrable
Securities in a registration are junior to the rights of certain Other
Registrable Securities Holders for purposes of Section 2.1 of that certain
Registration Rights Agreement dated October 24, 1996 among the Company and the
"Holders" as defined therein ("Founder Registration Rights Agreement") but are
pari-passu with the rights of such Other Registrable Securities Holders for
- ----------
purposes of Section 2.2(b) of the Founder Registration Rights Agreement.
If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw such Holder's Registrable Securities from the
registration statement covering such offering, by written notice to the Company
and the managing underwriter, delivered not less than seven days before the
effective date of such registration statement. Any Registrable Securities so
withdrawn from such underwriting shall be withdrawn from such registration, and
shall be withdrawn from the market for a period of one hundred twenty (120) days
after the effective date of the registration statement relating thereto, or such
other period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 2.1
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
2.2 Expenses of Registration. All Registration Expenses shall be borne by
------------------------
the Company. Unless otherwise agreed by the Company, all Selling Expenses
relating to securities registered on behalf of the Holders shall be borne by the
Holders pro rata on the basis of the number of shares so registered.
2.3 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense, the Company will:
(a) Subject to Section 2.1(c), prepare and file with the Commission a
registration statement with respect to such securities and use its best lawful
efforts to cause such registration
-4-
<PAGE>
statement to become and remain effective for at least ninety (90) days or until
the distribution described in the Registration Statement has been completed;
(b) Furnish to each underwriter such number of copies of a
prospectus, a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such underwriter may reasonably
request in order to facilitate the public sale of the shares by such
underwriter, and promptly furnish to each underwriter and Holder notice of any
stop-order or similar notice issued by the Commission or any state agency
charged with the regulation of securities; and
(c) Use its best lawful efforts to cause all Registrable Securities
included in such registration to be listed or authorized for inclusion on each
securities exchange or similar trading system on which similar securities issued
by the Company are then listed or authorized for trading.
2.4 Indemnification.
---------------
(a) To the extent permitted by law, the Company will indemnify each
shareholder participating in a registration pursuant to this Agreement ("Selling
Shareholder"), each of its officers and directors and partners, and each person
controlling such Selling Shareholder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter of the
Company's securities covered by such a registration and each person who controls
such underwriter within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, to the extent such expenses, claims,
losses, damages or liabilities arise out of or are based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement, prospectus, or any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Selling
Shareholder, each of its officers and directors and partners, and each person
controlling such Selling Shareholder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action; provided, however, that the indemnity
contained herein shall not apply to amounts paid in settlement of any claim,
loss, damage, liability or expense if settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld); and provided
further,
-5-
<PAGE>
that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by such Selling Shareholder, controlling person or underwriter
specifically for use therein. Notwithstanding the foregoing, insofar as the
foregoing indemnity relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the Commission
at the time the registration statement becomes effective or in the final
prospectus filed with the Commission pursuant to Rule 424 of the Commission, the
indemnity agreement herein shall not inure to the benefit of any underwriter if
a copy of the final prospectus filed pursuant to Rule 424 was not furnished to
the person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act.
(b) To the extent permitted by law, each Selling Shareholder will
indemnify the Company, each of its directors and officers, and each underwriter,
of the Company's securities covered by such a registration, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Selling Shareholder, each of its officers
and directors and partners and each person controlling such Selling Shareholder
within the meaning of Section 15 of the Securities Act, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, to the extent such expenses, claims, losses, damages or
liabilities arise out of or are based on any untrue statement (or alleged untrue
statement) by such Selling Shareholder of a material fact contained in any such
registration statement, prospectus, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on any
omission by such Selling Shareholder (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by such Selling Shareholder of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to such Selling Shareholder and relating to action or inaction
required of such Selling Shareholder in connection with any such registration,
qualification or compliance, and such Selling Shareholder will reimburse the
Company, such other Selling Shareholders, such directors, officers, underwriters
or control persons for any legal or other expenses reasonably incurred in
connection with defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement or prospectus, in reliance upon and in conformity with
written information furnished to the Company by such Selling Shareholder
specifically for use therein; provided, however, that the indemnity contained
herein shall not apply to amounts paid in settlement of any claim, loss, damage,
liability or expense if settlement is effected without the consent of the
Selling Shareholder from whom such payment is sought (which consent shall not be
unreasonably withheld). Notwithstanding the
-6-
<PAGE>
foregoing, the liability of each Selling Shareholder under this subsection (b)
shall be limited to an amount equal to the net proceeds from the sale of the
shares sold by such Selling Shareholder, unless such liability arises out of or
is based on intentional misstatements by such Selling Shareholder. In addition,
insofar as the foregoing indemnity relates to any such untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement becomes
effective or in the final prospectus filed pursuant to Rule 424 of the
Commission, the indemnity agreement herein shall not inure to the benefit of the
Company or any underwriter if a copy of the final prospectus filed pursuant to
Rule 424 was not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act.
(c) Each party entitled to indemnification under this Section 2.4
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate or different
defenses. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to the entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or enter
into any settlement without the consent of each Indemnifying Party.
(d) If the indemnification provided for in this Section 2.4 is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and all Selling Shareholders on
the other from the offering of the Company securities, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but
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<PAGE>
also the relative fault of the Company on the one hand and the Selling
Shareholders on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Selling Shareholders on the other shall be the net
proceeds from the offering (before deducting expenses) received by the Company
on the one hand and the Selling Shareholders on the other. The relative fault of
the Company on the one hand and the Selling Shareholders on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Selling
Shareholders and the parties' relevant intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Selling Shareholders agree that it would not be just and equitable if
contribution pursuant to this Section 2.4(d) were based solely upon the number
of entities from whom contribution was requested or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 2.4(d). The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages and liabilities referred to
above in this Section 2.4(d) shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
defending any such action or claim, subject to the provisions of Section 2.4(c)
hereof. Notwithstanding the provisions of this Section 2.4(d) or any other
provision of this Article 2, no Selling Shareholder shall be required to
contribute any amount or make any other payments under this Agreement which in
the aggregate exceed the net proceeds received in the offering by such Selling
Shareholder. No person guilty of fraudulent misrepresentation (within the
meaning of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing provisions of this Section 2.4, if
pursuant to an underwritten public offering of capital stock of the Company, the
Company, the Selling Shareholders and the underwriters enter into an
underwriting or purchase agreement relating to such offering which contains
provisions covering indemnification among the parties thereto in connection with
such offering, the indemnification provisions of this Section 2.4, to the extent
they are in conflict therewith, shall be deemed inoperative for the purpose of
such offering, except as to any parties to this Agreement who are not parties to
such subsequent underwriting or purchase agreement.
2.5 Certain Information.
-------------------
(a) As a condition to exercising the registration rights provided for
herein, each Holder, with respect to any Registrable Securities included in any
registration, shall furnish the Company such information regarding such Holder
and the Registrable Securities as the Company
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<PAGE>
may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in Section 2.
(b) The failure of any Holder to furnish the information requested
pursuant to Section 2.5(a) shall not affect the obligation of the Company under
Section 2 to the remaining Holder(s) who furnish such information unless, in the
reasonable opinion of counsel to the Company or the underwriters, such failure
impairs or may impair the legality of the Registration Statement or the
underlying offering.
(c) Each Holder, with respect to any Registrable Securities included
in any registration, shall cooperate in good faith with the Company and its
underwriters in connection with such registration, including placing such shares
in escrow or custody to facilitate the sale and distribution thereof.
(d) Each Holder, with respect to any Registrable Securities included
in any registration, shall make no further sales or other dispositions, or
offers therefor, of such shares under such registration statement if, during the
effectiveness of such registration statement, such Holder is informed that an
intervening event has occurred which, in the opinion of counsel to the Company,
makes the prospectus included in such registration statement no longer comply
with the Securities Act until such time as such holder has received from the
Company copies of a new, amended or supplemented prospectus complying with the
Securities Act.
2.6 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after the
Initial Public Offering of the Common Stock of the Company, the Company agrees
to use its best lawful efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish
to such Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public),
-9-
<PAGE>
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as a Holder may reasonably request in order to comply with any rule
or regulation of the Commission allowing such Holder to sell any such securities
without registration.
2.7 Transfer of Registration Rights. The rights granted to a Holder
-------------------------------
hereunder may not be assigned or transferred by such Holder.
2.7.1 Standstill Agreement. Each Holder agrees upon request of the
--------------------
underwriter(s) managing any underwritten public offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of or otherwise dispose of any equity securities of the Company (other
than those included in the registration) without the prior written consent of
such underwriter(s), for such period of time following the effective date of the
registration statement relating to each such underwritten public offering as may
be requested by the underwriter(s); provided, that the officers and directors of
the Company who own stock of the Company also agree to such restrictions.
3. Miscellaneous.
-------------
3.1 Term. The term of this Agreement shall begin on the date of this
----
Agreement and expire five years thereafter.
3.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY
-------------
THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES
THEREOF.
3.3 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of and be binding upon the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.4 Entire Agreement: Amendment. This Agreement shall constitute the
---------------------------
full and entire understanding and agreement between the parties with regard to
the subject hereof. Except as expressly provided herein, this Agreement or any
provision hereof may be amended, waived, discharged or terminated upon the
written consent of the Company and the Holders holding at least 80% of the then
outstanding Registrable Securities.
-10-
<PAGE>
3.5 Notices. Etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
including Federal Express or similar courier service, addressed (a) if to a
Holder, at such Holder's address set forth on the signature pages hereof or at
such other address as such party shall have furnished to the Company in writing,
or (b) if to the Company, at 1800 West Loop South, Suite 1375, Houston, Texas
77027, ATTN: Corporate Secretary, or at such other address as the Company shall
have furnished to the other parties hereto.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective upon receipt.
3.6 Delays or Omissions. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power, or remedy accruing to any party to
this Agreement shall impair any such right, power or remedy of such party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.
3.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.8 Validity. In the event that any provisions hereof are held to be
--------
invalid, illegal or against public policy, the remaining provisions hereof shall
not be affected thereby. In such event, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible with respect to those provisions which were held
to be invalid, illegal or against public policy.
3.9 Construction. Each party to this Agreement has had the opportunity
------------
to review this Agreement with legal counsel. This Agreement shall not be
construed or interpreted against any party on the basis that such party drafted
or authored a particular provision, parts of or the entirety of this Agreement.
-11-
<PAGE>
3.10 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this Agreement effective as
of the date first set forth above.
"COMPANY"
GROUP MAINTENANCE AMERICA CORP.
By:_________________________________
Name:_______________________________
Title:______________________________
-12-
<PAGE>
"HOLDERS"
______________________________
___________________
______________________________
Spouse
______________________________
___________________
______________________________
Spouse
______________________________
___________________
______________________________
Spouse
-13-
<PAGE>
Exhibit 10.15
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
ALL SERVICE ACQUISITION CORP.
ALL SERVICE ELECTRIC, INC.
AND
THE HOLDER OF THE
OUTSTANDING CAPITAL STOCK
OF
ALL SERVICE ELECTRIC, INC.
August 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE MERGER.......................................................................... 1
1.1 The Merger................................................................... 1
1.2 Effective Time of the Merger................................................. 1
1.3 Closing...................................................................... 1
1.4 Effects of the Merger........................................................ 2
1.4.1 At the Effective Time................................................. 2
1.4.2 Effects on the Surviving Corporation.................................. 2
1.5 Written Consents and Other Actions........................................... 3
1.5.1 Unanimous Written Consent of the Sole Shareholder; Other Matters...... 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub................. 3
1.5.3 All Other Necessary Actions........................................... 3
1.6 Conversion of Stock.......................................................... 3
1.6.1 Merger Sub Capital Stock.............................................. 3
1.6.2 Cancellation of the Company Treasury Stock............................ 3
1.6.3 Merger Consideration.................................................. 3
1.7 Exchange of and Payment for Stock............................................ 4
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration..... 4
1.7.2 Assignments........................................................... 4
1.7.3 Payment In Full Satisfaction of All Rights............................ 4
1.8 Determination of Closing Merger Consideration................................ 4
1.8.1 Delivery of IPO Price to Public; Statement............................ 4
1.9 Post-Closing Determination of Total Consideration............................ 4
1.9.1 Statement............................................................. 4
1.9.2 Review................................................................ 5
1.9.3 Disputes.............................................................. 5
1.9.4 Resolution by Parties................................................. 5
1.9.5 Final Determination................................................... 5
1.9.6 Expenses.............................................................. 6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER................... 6
2.1 Exhibit 2.................................................................... 6
2.2 Stock Ownership.............................................................. 6
2.3 Authority.................................................................... 6
2.4 Consents..................................................................... 6
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB......................... 7
</TABLE>
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<TABLE>
<S> <C>
3.1 Representations and Warranties.............................................. 7
3.1.1 Organization......................................................... 7
3.1.2 Capitalization of the Parent......................................... 7
3.1.3 Authority............................................................ 7
3.1.4 Consents............................................................. 7
3.1.5 Defaults............................................................. 7
3.1.6 Investment Company................................................... 8
3.1.7 Financial Statements................................................. 8
3.1.8 Taxes................................................................ 8
3.1.9 Full Authority....................................................... 8
3.1.10 Access............................................................... 8
3.1.11 Disclosure........................................................... 8
3.1.12 Parent Material Adverse Effect....................................... 9
3.1.13 Tax-Free Reorganization.............................................. 9
3.2 Representations and Warranties Concerning the Merger Sub.................... 10
3.2.1 Organization and Standing............................................ 10
3.2.2 Capital Structure.................................................... 10
3.2.3 Authority............................................................ 10
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS............................. 10
4.1 Agreements of the Shareholder to be Effective Upon Closing.................. 10
4.1.1 Covenant Not to Compete.............................................. 10
4.1.2 Release.............................................................. 11
4.2 Elimination of Expense...................................................... 11
4.3 Audit....................................................................... 11
4.4 Certain Payables and Receivables............................................ 12
4.5 Pre-Closing Covenants and Agreements........................................ 12
4.6 Confidentiality............................................................. 12
4.7 Tax-Free Reorganization..................................................... 12
4.8 Company Plans............................................................... 12
4.9 Purchase of Certain Receivables............................................ 12
4.10 Coverage for State Certified Electrical Contractors......................... 12
4.11 Income Tax Distribution..................................................... 13
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES.......................................... 13
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub........ 13
5.1.1 Accuracy of Representations and Warranties........................... 13
5.1.2 Performance of Covenants............................................. 13
5.1.3 Legal Actions or Proceedings......................................... 13
5.1.4 Approvals............................................................ 14
5.1.5 Closing Deliveries................................................... 14
5.1.6 No Casualty, Loss or Damage.......................................... 14
5.1.7 Licenses, etc........................................................ 14
</TABLE>
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<TABLE>
<S> <C>
5.1.8 No Material Adverse Change............................................ 14
5.1.9 IPO................................................................... 14
5.1.10 Certain Corporate Actions............................................. 14
5.1.11 Financing............................................................. 14
5.2 Conditions Precedent to the Obligations of the Shareholder and the Company.... 14
5.2.1 Accuracy of Representations and Warranties............................ 14
5.2.2 Performance of Covenants.............................................. 15
5.2.3 Approvals............................................................. 15
5.2.4 Closing Deliveries.................................................... 15
5.3 Deliveries by the Shareholder at the Closing.................................. 15
5.3.1 Closing Certificates.................................................. 15
5.3.2 Stock Transfer Restriction Agreement.................................. 15
5.3.3 Employment Agreements................................................. 15
5.3.4 Lease Agreement....................................................... 15
5.3.5 Registration Rights Agreement......................................... 15
5.3.6 Opinion of Counsel for the Shareholder and the Company................ 15
5.3.7 Documents, Stock Certificates......................................... 15
5.3.8 Discharge of Indebtedness, Releases, Etc.............................. 16
5.4 Deliveries by the Parent at the Closing....................................... 16
5.4.1 Closing Certificates.................................................. 16
5.4.2 Registration Rights Agreement......................................... 16
5.4.3 Opinion of Counsel for the Parent and Merger Sub...................... 16
5.4.4 Closing Merger Consideration.......................................... 16
6. SURVIVAL, INDEMNIFICATIONS.......................................................... 17
6.1 Survival...................................................................... 17
6.2 Indemnification............................................................... 17
6.2.1 Parent Indemnified Parties............................................ 17
6.2.2 Parent Indemnity...................................................... 18
6.3 Limitations................................................................... 18
6.4 Procedures for Indemnification................................................ 19
6.4.1 Notice................................................................ 19
6.4.2 Legal Defense......................................................... 19
6.4.3 Settlement............................................................ 19
6.4.4 Cooperation........................................................... 19
6.5 Subrogation................................................................... 20
7. TERMINATION......................................................................... 20
7.1 Grounds for Termination....................................................... 20
7.1.1 Mutual Consent........................................................ 20
7.1.2 Optional By the Company............................................... 20
7.1.3 Optional By the Parent................................................ 20
7.1.4 Breach By the Parent or Merger Sub.................................... 20
</TABLE>
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<TABLE>
<S> <C>
7.1.5 Breach by the Company or the Shareholder............................. 20
7.2 Effect of Termination....................................................... 20
8. MISCELLANEOUS...................................................................... 20
8.1 Notice...................................................................... 21
8.2 Further Documents........................................................... 21
8.3 Assignability............................................................... 21
8.4 Exhibits and Schedules...................................................... 21
8.5 Sections and Articles....................................................... 22
8.6 Entire Agreement............................................................ 22
8.7 Headings.................................................................... 22
8.8 CONTROLLING LAW............................................................. 22
8.9 Public Announcements........................................................ 22
8.10 No Third Party Beneficiaries................................................ 22
8.11 Amendments and Waivers...................................................... 22
8.12 No Employee Rights.......................................................... 23
8.13 Non-Recourse................................................................ 23
8.14 When Effective.............................................................. 23
8.15 Takeover Statutes........................................................... 23
8.16 Number and Gender of Words.................................................. 23
8.17 Invalid Provisions.......................................................... 23
8.18 Multiple Counterparts....................................................... 23
8.19 No Rule of Construction..................................................... 24
8.20 Expenses.................................................................... 24
</TABLE>
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<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit 1.....................................Determination of Final Merger Consideration
Exhibit 1.5.1...................................Unanimous Written Consent of Shareholders
Exhibit 1.5.2........Written Consent of Sole Shareholder of All Service Acquisition Corp.
Exhibit 1.7.........................................................Letter of Transmittal
Exhibit 2..............................................................Certain Statements
Exhibit 2.2.............................................Ownership of Company Common Stock
Exhibit 3.1.4..................................................Required Consents - Parent
Exhibit 4.5.............................................................Certain Covenants
Exhibit 4.9.............................................Company Plans to Remain in Effect
Exhibit 4.11.................................................................Form of Note
Exhibit 5.3.2........................................Stock Transfer Restriction Agreement
Exhibit 5.3.3A.......................................................Employment Agreement
Exhibit 5.3.4.............................................................Lease Agreement
Exhibit 5.3.5...............................................Registration Rights Agreement
Exhibit 5.3.6......................Opinion of Counsel to the Shareholders and the Company
Exhibit 5.3.8......................................................Terminated Obligations
Exhibit 5.4.3............................................Opinion of Counsel to the Parent
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accountants.......................................................................... 5
Agreement............................................................................ 1
Applicable Corporate Law............................................................. 1
Cash Product................................................................. Exhibit 1
Closing.............................................................................. 1
Closing Date......................................................................... 1
Closing Merger Consideration................................................. Exhibit 1
Closing Outstanding Common Stock Number...................................... Exhibit 1
Closing Per Share Cash Amount................................................ Exhibit 1
Closing Per Share Common Stock Amount........................................ Exhibit 1
Code................................................................................. 1
Company.............................................................................. 1
Company Accountants................................................................. 11
Company Common Stock................................................................. 1
Converted Share...................................................................... 3
Effective Time....................................................................... 1
Excess Expense Level Deduction............................................... Exhibit 1
Final Outstanding Common Stock Number........................................ Exhibit 1
Final Per Share Cash Amount.................................................. Exhibit 1
Final Per Share Common Stock Amount.......................................... Exhibit 1
GAAP......................................................................... Exhibit 1
Indemnified Party................................................................... 19
Indemnifying Party.................................................................. 19
Investments.................................................................. Exhibit 1
IPO.................................................................................. 1
IPO Price to the Public...................................................... Exhibit 1
Long-Term Debt............................................................... Exhibit 1
Losses.............................................................................. 17
Merger............................................................................... 1
Merger Sub........................................................................... 1
Minimum Proceeds..................................................................... 2
Net After-Tax Income......................................................... Exhibit 1
Notice................................................................... Exhibit 5.3.4
Notice of Dispute.................................................................... 5
Operating EBITDA Amount...................................................... Exhibit 1
Other Ownership Interests.................................................... Exhibit 1
Owner's Policies of Title Insurance........................................ Exhibit 4.5
Parent............................................................................... 1
Parent Common Stock.................................................................. 1
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Parent Financial Statements.......................................................... 8
Parent Indemnified Parties.......................................................... 17
Parent Material Adverse Effect....................................................... 9
Parent Preferred Stock............................................................... 7
Parent Related Documents............................................................. 7
Permitted Exceptions....................................................... Exhibit 4.5
Price Notice......................................................................... 4
Registration Statement............................................................... 7
SEC.................................................................................. 7
Securities Act....................................................................... 2
Settlement Notice................................................................... 19
Shareholder.......................................................................... 1
Shareholder Related Document......................................................... 6
Statement of Closing Consideration................................................... 4
Statement of Final Per Share Amounts................................................. 5
Stock Certificate.................................................................... 3
Surveys.................................................................... Exhibit 4.5
Survival Period..................................................................... 17
Surviving Corporation................................................................ 1
Terminated Obligations.............................................................. 16
Title Commitments.......................................................... Exhibit 4.5
Title Insurance Property................................................... Exhibit 4.5
Total Consideration.......................................................... Exhibit 1
Working Capital.............................................................. Exhibit 1
Working Capital Addition..................................................... Exhibit 1
Working Capital Deduction.................................................... Exhibit 1
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
---------
August ___, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), All Service Acquisition Corp., a Florida corporation
------
("Merger Sub"), All Service Electric, Inc., a Florida corporation (the
----------
"Company"), and the undersigned holder of all of the outstanding capital stock
-------
of the Company (the "Shareholder").
-----------
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
------
State of Florida, and pursuant to the Merger each issued and outstanding share
of Common Stock, $1.00 par value per share, of the Company ("Company Common
--------------
Stock") will be converted into the right to receive certain shares of common
- -----
stock, $.001 par value per share, of the Parent ("Parent Common Stock"), and
-------------------
certain cash consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholder;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
----------
accordance with the Florida Business Corporation Act (the "Applicable Corporate
--------------------
Law") upon the Effective Time (as defined in Section 1.2), the Company shall be
- ---
merged with and into Merger Sub. Merger Sub, as the surviving entity following
the Merger, is sometimes referred to in this Agreement as the "Surviving
---------
Corporation."
- -----------
1.2 Effective Time of the Merger. In accordance with the requirements of
----------------------------
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted for filing with the Secretary of
State of the State of Florida immediately following and on the same day as the
Closing (as defined below). The date of such filing is referred to in this
Agreement as the "Effective Time."
--------------
1.3 Closing. The closing of the Merger ("Closing") will take place at the
------- -------
offices of Bracewell & Patterson, L.L.P. in Houston, Texas on a date that is
contemporaneous with the closing of the Parent's IPO (as defined below), but in
no event later than November 15, 1997 ("Closing Date"); provided that each of
------------
the conditions precedent to the obligations of the parties to effect the Merger
set forth in Article 5 of this Agreement are then satisfied or waived by the
applicable party. The parties may agree in writing on another place for the
Closing. At the Closing, the parties will deliver or cause to be delivered the
documents described in Sections 5.3 and 5.4 below. The term "IPO" means any
---
underwritten public offering of Parent
<PAGE>
Common Stock resulting in net cash proceeds to the Parent of at least the
Minimum Proceeds, as defined below (other than any offering pursuant to any
registration statement relating to any capital stock of the Parent or options,
warrants or other rights to acquire any such capital stock issued or to be
issued primarily to directors, officers or employees of the Parent or any of its
subsidiaries, (i) relating to any employee benefit plan or interest therein,
(ii) relating principally to any preferred stock or debt securities of the
Parent, or (iii) filed pursuant to Rule 145 under the Securities Act of 1933, as
amended ( "Securities Act"), or any successor or similar provision). The term
--------------
"Minimum Proceeds" means the aggregate amount necessary to pay in full (i) all
----------------
indebtedness of the Parent or any of its subsidiaries outstanding at the closing
of the IPO and incurred for purposes of financing any acquisitions by the Parent
or any of its subsidiaries, (ii) the aggregate redemption prices for the
redemption of all of the Parent's preferred stock outstanding at the closing of
the IPO issued by the Parent in connection with then completed acquisitions by
the Parent or any of its subsidiaries, and (iii) the aggregate cash payable by
the Parent or any of its subsidiaries in connection with all then pending
acquisitions.
1.4 Effects of the Merger.
---------------------
1.4.1 At the Effective Time. At the Effective Time, (i) the Company
---------------------
shall merge with and into Merger Sub and as a result thereof, the separate
existence of the Company shall cease, (ii) the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, except that the Articles
of Incorporation of Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "All Service Electric, Inc.," (iii)
the Bylaws of Merger Sub as in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation, and (iv) the directors and
officers of Merger Sub immediately prior to the Effective Time shall become the
directors and officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected or
appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
------------------------------------
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with the Applicable Corporate Law and the terms of this Agreement.
-2-
<PAGE>
1.5 Written Consents and Other Actions.
----------------------------------
1.5.1 Unanimous Written Consent of the Sole Shareholder; Other
--------------------------------------------------------
Matters. Contemporaneously with the execution hereof, the Shareholder (i) is
- -------
executing and delivering to the Company a Unanimous Written Consent in
substantially the form of Exhibits Exhibit 1.5.1 attached hereto and (ii) hereby
acknowledges that he is aware of his dissenter's or appraisal rights and with
respect to the Merger and his receipt of a copy of the provisions of Section
607.1302 of the Applicable Corporate Law and have elected not to exercise such
rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
-----------------------------------------------------
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibits Exhibit 1.5.2 attached hereto, pursuant to the
applicable provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
---------------------------
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
-------------------
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of Merger
------------------------
Sub issued and outstanding at the Effective Time shall remain outstanding and
shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
------------------------------------------
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. Each share of Company Common Stock (other
--------------------
than shares to be canceled in accordance with Section 1.6.2) shall be converted
into the right to receive (i) that number of shares of Parent Common Stock equal
to the Final Per Share Common Stock Amount (as defined in Exhibits Exhibit 1
attached hereto), and (ii) cash equal to the Final Per Share Cash Amount (as
defined in Exhibit 1 attached hereto). Each share of Company Common Stock so
converted into the right to receive cash equal to the Final Per Share Cash
Amount and shares of Parent Common Stock equal to the Final Per Share Common
Stock Amount (a "Converted Share") shall, by virtue of the Merger and without
---------------
any action on the part of the holder thereof, at the Effective Time no longer be
outstanding and shall at such time be canceled and retired and shall cease at
such time to exist, and each holder of a certificate which prior to the
Effective Time validly evidenced any such Converted Share (a "Stock
-----
Certificate") shall thereafter cease to have any rights with respect to such
- -----------
Converted Share, except, upon the surrender of the Stock Certificate and a duly
executed and completed letter of transmittal in accordance with Section 1.7, the
right to receive such cash and Parent Common Stock at the times and in the
manner set forth herein.
-3-
<PAGE>
1.7 Exchange of and Payment for Stock.
---------------------------------
1.7.1 Delivery of Company Common Stock and Closing Merger
---------------------------------------------------
Consideration. Prior to the Closing, the Parent will deliver to the Shareholder
- -------------
a letter of transmittal, in substantially the form attached hereto as Exhibits
Exhibit 1.7, to be used for the purpose of surrendering to the Parent Stock
Certificates in exchange for the right to receive the Final Per Share Cash
Amount and the Final Per Share Common Stock Amount for each Converted Share
evidenced by such Stock Certificate. All of the Company Common Stock held by
the Shareholder will be surrendered by the Shareholder to the Parent together
with a properly completed and executed letter of transmittal (with such
signature guaranteed by a commercial bank or notarized by a notary public or
similar official reasonably satisfactory to the Parent), and the Parent shall
cause to be delivered to the Shareholder at the Closing the Closing Per Share
Cash Amount (as defined in Exhibit 1 attached hereto) and the Closing Per Share
Common Stock Amount (as defined in Exhibit 1 attached hereto) applicable to each
of the Converted Shares evidenced by the Stock Certificates properly surrendered
(with a properly executed and completed letter of transmittal) by the
Shareholder to the Parent.
1.7.2 Assignments. Except for the granting of options to employees of
-----------
the Company and the exercise or assignment thereof as permitted by Section 4.10,
the assignment, transfer or other disposition of record or beneficial ownership
of any shares of Company Common Stock may not be made on or after the date
hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of the
------------------------------------------
Closing Per Share Cash Amount and the Closing Per Share Common Stock Amount to
the Shareholder with respect to his Converted Shares shall be deemed to be
payment in full satisfaction of all rights pertaining to the outstanding
Converted Shares except for the right to receive additional shares of Parent
Common Stock and cash pursuant to Section 1.9.
1.8 Determination of Closing Merger Consideration.
---------------------------------------------
1.8.1 Delivery of IPO Price to Public; Statement. After the Parent
------------------------------------------
and its underwriters agree on the initial price to the public for a share of
Parent Common Stock offered in the IPO, as set forth in an executed underwriting
agreement, at the Closing, the Parent shall deliver to the Shareholder a written
notice (the "Price Notice") setting forth such initial price to the public and a
------------
statement setting forth a calculation of the Closing Outstanding Common Stock
Number (as defined in Exhibit 1 attached hereto), the Closing Per Share Cash
Amount, the Closing Per Share Common Stock Amount and the Closing Merger
Consideration (as defined in Exhibit 1 attached hereto), payable to the
Shareholder at Closing (the "Statement of Closing Consideration"). The initial
----------------------------------
price to the public of a share of Parent Common Stock, as set forth in the Price
Notice, and the Closing Outstanding Common Stock Number, the Closing Per Share
Cash Amount, the Closing Per Share Common Stock Amount and the Closing Merger
Consideration, as set forth in the Statement of Closing Consideration, shall be
final, conclusive and binding for purposes of this Agreement.
1.9 Post-Closing Determination of Total Consideration.
-------------------------------------------------
1.9.1 Statement. No later than 90 days after the Closing, the Parent
---------
shall deliver to the Shareholder a statement showing the Final Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the
-4-
<PAGE>
Total Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of
------------
Final Per Share Amounts"). For purposes of determining the Statement of Final
- -----------------------
Per Share Amounts, the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration shall be calculated or determined as of last day of the month
immediately preceding the month in which the Closing occurs (unless the Closing
occurs on the last day of the month, in which case the Closing Date will be
used).
1.9.2 Review. After delivery to the Shareholder of the Statement of
------
Final Per Share Amounts, the Shareholder and his representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number, the Final
--------
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration as shown on the Statement of Final Per Share Amounts shall be
final, conclusive and binding for purposes of this Agreement, unless the
Shareholder shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Per Share
-----------------
Amounts within 10 business days following receipt of the Statement of Final Per
Share Amounts, specifying in reasonable detail the nature and extent of such
disagreement; provided, however, that no Notice of Dispute may be given with
respect to any items unless such item involves an amount of $5,000 or more and
provided further that in the event such disagreement involves an amount less
than $5,000, the Statement of Final Per Share Amounts shall be final, conclusive
and binding. If a Notice of Dispute is not properly given within such time, the
Final Outstanding Common Stock Number, the Final Per Share Cash Amount, the
Final Per Share Common Stock Amount and the Total Consideration as set forth in
the Statement of Final Per Share Amounts shall be final, conclusive and binding
for purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
---------------------
given, the Parent and the Shareholder agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholder shall not reach such
resolution within 30 days following receipt by the Parent of a properly given
Notice of Dispute, KPMG Peat Marwick LLP ("Accountants") shall resolve such
-----------
dispute within 30 days after its submission to them. The Parent and the
Shareholder (if the dispute is resolved by them or the Statement of Final Per
Share Amounts otherwise becomes final pursuant hereto without referral to the
Accountants) or the Accountants (if a dispute is resolved by them) shall set
forth such resolution in writing and such writing shall (i) set forth the Final
Outstanding Common Stock Number, the Final Per Share Cash Amount, the Final Per
Share Common Stock Amount and the Total Consideration and (ii) be final,
conclusive and binding for purposes of this Agreement.
1.9.5 Final Determination. Within 10 business days following the
-------------------
final determination of the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration as provided in this Section 1.9, (i) the Parent shall deliver to
the Shareholder (a) the cash amount, if any, by which the aggregate of the Final
Per Share Cash Amounts payable to such Shareholder, as finally determined
pursuant hereto, exceeds the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing; and (b) the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Per Share Common Stock
Amounts deliverable to such Shareholder, as finally determined pursuant hereto,
exceeds the aggregate of the Closing
-5-
<PAGE>
Per Share Common Stock Amounts delivered to such Shareholder at the Closing; or
(ii) the Shareholder shall deliver to the Parent (a) the cash amount, if any, by
which the aggregate of the Closing Per Share Cash Amounts paid to such
Shareholder at the Closing exceeds the aggregate of the Final Per Share Cash
Amounts payable to such Shareholder as finally determined pursuant hereto; and
(b) the number of shares of Parent Common Stock, if any, by which the aggregate
of the Closing Per Share Common Stock Amounts delivered to such Shareholder at
the Closing exceeds the aggregate of the Final Per Share Common Stock Amounts
deliverable to such Shareholder as finally determined pursuant hereto.
1.9.6 Expenses. The Parent and the Shareholder shall each pay its own
--------
costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholder, jointly and severally, hereby represent
and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2 Stock Ownership. The Shareholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside the Shareholder's name on Exhibits Exhibit 2.2 and such shares are so
held by the Shareholder free and clear of all liens, encumbrances and adverse
claims whatsoever.
2.3 Authority. The Shareholder has full right, power, legal capacity and
---------
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Shareholder (each a "Shareholder
-----------
Related Document") and (ii) consummate the transactions contemplated herein and
- ----------------
thereby. This Agreement has been duly executed and delivered by the
Shareholders and constitutes, and any Shareholder Related Document, when duly
executed and delivered by the Shareholder named as a party therein will
constitute, legal, valid and binding obligations of the Shareholder enforceable
against the Shareholder in accordance with their respective terms and
conditions, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
--------
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholder of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by the Shareholder of this Agreement and any Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which the Shareholder is a party
or by which the Shareholder or the Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to the Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Shareholder.
-6-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
------------------------------
warrants to the Shareholder and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. As of the execution date of this
----------------------------
Agreement, the total authorized capital stock of the Parent is as set forth in
the Confidential Information Statement dated August __, 1997. The outstanding
shares of Parent Common Stock and Preferred Stock, par value $.001 ("Parent
------
Preferred Stock") have been duly and validly issued and are fully paid and non-
- ---------------
assessable.
3.1.3 Authority. The Parent has the requisite power and authority to
---------
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
------------------------
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent will
constitute, legal, valid and binding obligations of the Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4 Consents. Except as provided on Exhibits Exhibit 3.1.4, no
--------
approval, consent, order or action of or filing with any court, administrative
agency, governmental authority or other third party is required for the
execution, delivery or performance by the Parent of this Agreement or the Parent
Related Documents or the consummation by the Parent of the transactions
contemplated hereby, except for (i) the filing of the Parent's registration
statement with respect to the IPO ("Registration Statement") with the U.S.
----------------------
Securities and Exchange Commission ("SEC") pursuant to the Securities Act and
---
the SEC's declaration of effectiveness of such Registration Statement and the
completion of all necessary filings required under, and the obtaining of all
necessary consents and approvals required pursuant to, state securities or "blue
sky" laws in connection with the IPO, and (ii) the filing of the Articles of
Merger with the Secretary of State of Florida.
3.1.5 Defaults. The Parent is not in default under or in violation
--------
of, and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
is a party or by which the Parent or any of its properties or assets may be
bound or affected or (ii) any law, rule or regulation applicable to the Parent
or any court injunction, order or decree, or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Parent, which default or violation prevents the Parent from
-7-
<PAGE>
consummating the transactions contemplated hereby or is reasonably likely to
have a Parent Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company"
------------------
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain financial
--------------------
statements to the Shareholder ("Parent Financial Statements") and such Parent
---------------------------
Financial Statements have been prepared in accordance with GAAP and fairly
present the consolidated financial position, results of operations and cash
flows of the Parent and its then existing consolidated subsidiaries as of the
dates and for the periods indicated, subject to normal year-end adjustments and
any other adjustments described therein or in the notes or schedules thereto.
The books and records of the Parent have been kept in reasonable detail and
accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to
-----
be discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period ended covered by the Parent
Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and
--------------
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law, as
defined in Exhibit 2) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation,
the failure to obtain which is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental Law), ordinances, rules and regulations
of any governmental agency of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, all applicable court or
administrative agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition or
state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
------
Shareholder and his representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholder and his representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in
----------
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholder pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the
-8-
<PAGE>
statements herein or therein, in light of the circumstances under which
they are or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
------------------------------ ---------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
- --------------
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole, in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
-----------------------
the Merger as a reorganization within the meaning of Section 368(a) of the Code:
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code)
at the time of such transfer, or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of its
historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection with
the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
(viii) None of the Parent Common Stock received by the Shareholder as
a part of the Total Consideration will be separate consideration for, or
allocable to, any employment agreement.
-9-
<PAGE>
(ix) Neither the Parent nor Merger Sub is under the jurisdiction of
a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.2 Representations and Warranties Concerning the Merger Sub. The Parent
--------------------------------------------------------
and Merger Sub, jointly and severally, hereby represent and warrant to the
Shareholder and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
-------------------------
incorporated, validly existing and in good standing under the laws of the State
of Florida.
3.2.2 Capital Structure. The authorized capital stock of Merger Sub
-----------------
consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and authority to
---------
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by Merger Sub of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly authorized by its Board of
Directors and the Parent as its sole shareholder, and, except for the corporate
filings required by state law, no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholder to be Effective Upon Closing. Effective
----------------------------------------------------------
upon Closing, and without further action on the part of any party or other
person, the Shareholder covenants and agrees as follows:
4.1.1 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholder in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
the Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is two years following any termination of the
Shareholder's employment with the Company, the Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or indirectly, individually, as a member of a partnership or limited
liability company, equity owner, shareholder (other than as a shareholder
of less than one percent of the issued and outstanding stock of a publicly-
held company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant engage
in any business that involves
-10-
<PAGE>
electrical contracting, indoor air quality, heating, ventilation, air
conditioning, appliance, mechanical construction or sewer cleaning products
or services within a 100-mile radius of the city of Jacksonville, Florida;
provided, however, that the Shareholder may engage in the electrical
contracting business in the Jacksonville, Florida area in the event the
Company ceases operating such business for reasons not due to the
Shareholder's material mismanagement or malfeasance; provided further, that
in the event the Shareholder's employment with the Company is terminated
without cause, the Shareholder may immediately thereafter seek employment
in the electrical contracting business in the Jacksonville, Florida area
other than in an ownership or executive capacity, provided that the
Shareholder shall refrain from soliciting customers of the Company for two
years.
(ii) The Shareholder agrees that the limitations set forth herein on
his right to compete with the Parent and its affiliates as set forth in
clause (i) are reasonable and necessary for the protection of Parent and
its affiliates. In this regard, the Shareholder specifically agrees that
the limitations as to period of time and geographic area, as well as all
other restrictions on the Shareholder's activities specified herein, are
reasonable and necessary for the protection of the Parent and its
affiliates. The Shareholder agrees that, in the event that the provisions
of this Section should ever be deemed to exceed the scope of business, time
or geographic limitations permitted by applicable law, such provisions
shall be and are hereby reformed to the maximum scope of business, time or
geographic limitations permitted by applicable law.
(iii) The Shareholder agrees that the remedy at law for any breach by
him of this Section 4.1.1 will be inadequate and that the Parent shall be
entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, the Shareholder
-------
does hereby (i) release, acquit and forever discharge the Surviving Corporation
from any and all liabilities, obligations, claims, demands, actions or causes of
action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Effective Time, including,
without limitation, any claim for indemnity or contribution from the Surviving
Corporation in connection with the obligations or liabilities of the Shareholder
hereunder, except for salary and benefits payable to the Shareholder as an
employee in the ordinary course of business; (ii) waive all breaches, defaults
or violations of any agreement applicable to the Company Common Stock and agree
that any and all such agreements are terminated as of the Effective Time, and
(iii) waive any and all preemptive or other rights to acquire any shares of
capital stock of the Company and release any and all claims arising in
connection with any prior default, violation or failure to comply with or
satisfy any such preemptive or other rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholder will
----------------------
produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described in the Letter of Intent among the Parent,
the Company and the Shareholders dated May 2, 1997, have been eliminated as
expenses of the Surviving Corporation as of and following the Closing Date.
4.3 Audit. Prior to Closing, the Company's firm of independent
-----
accountants (the "Company Accountants") shall complete review work of the
-------------------
Company for the fiscal year ended December 31, 1996 and for the period from such
date through June 30, 1997, and such additional review work as may be requested
by the Parent through and including the Closing Date and provide its report to
the Parent and the Shareholder. The Accountants shall confirm the review work
of the Company Accountants.
-11-
<PAGE>
4.4 Certain Payables and Receivables. On or prior to Closing, the
--------------------------------
Shareholder shall cause to be paid in full in cash all accounts receivable,
notes receivable and advances payable by the Shareholder to the Company and the
Company shall pay in full in cash all accounts payable, notes payable and
advances payable (except any Tax Notes (as defined) which shall be paid
according to their terms) by the Company to the Shareholder.
4.5 Pre-Closing Covenants and Agreements. The Shareholder and the Company
------------------------------------
jointly and severally agree as set forth in Exhibits Exhibit 4.5 attached
hereto.
4.6 Confidentiality. Prior to the Effective Time, none of the Parent,
---------------
Merger Sub, the Company or the Shareholder will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Merger to its employees, vendors and customers to protect
the Company's goodwill and to facilitate the Closing. The Parent and Merger Sub
may disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities, and may describe this
Agreement and the transactions contemplated hereby in any registration statement
filed by the Parent under the Securities Act and in reports filed by the Parent
under the Securities Exchange Act of 1934, and may file this Agreement as an
exhibit to any thereof. The Parent may also make appropriate disclosures of the
general nature of the Merger and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the Parent's
efforts to effect additional acquisitions. Each party will have mutual approval
rights with respect to written employee presentations concerning the prospective
merger.
4.7 Tax-Free Reorganization. Unless the other parties shall otherwise
-----------------------
agree in writing, none of the Shareholder, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action,
that would jeopardize the qualification of the Merger as a reorganization
withing the meaning of Section 368(a) of the Code.
4.8 Company Plans. Except as otherwise contemplated by this Agreement,
-------------
the Company Plans (as defined in Exhibit 2) described on Exhibits Exhibit 4.9 in
effect at the date of this Agreement will remain in effect unless otherwise
determined by the Parent after the Effective Time.
4.9 Purchase of Certain Receivables. If any accounts receivable included
-------------------------------
in current assets of the Company for purposes of determining Working Capital (as
defined in Exhibit 1) remain unpaid in full on the date that occurs 120 days
following the Closing, the Shareholder shall, upon written request by the
Surviving Corporation made on or before the date that occurs 150 days following
the Closing, purchase the same from the Surviving Corporation, without recourse,
for the uncollected amount thereof (net of any reserve for bad debts on the
books of the Company on the Closing).
4.10 Coverage for State Certified Electrical Contractors. The Parent and
---------------------------------------------------
the Company shall cause employees of the Company who hold licenses as State
Certified Electrical Contractors to be named in the Company's commercial general
liability policies of insurance as additional insureds. The Company shall
provide the Parent with the names of such licensees, in writing, prior to
Closing.
-12-
<PAGE>
4.11 Income Tax Distribution. Prior to the Closing, the Shareholders may
-----------------------
cause the Company to pay to the Shareholders as a dividend and as a distribution
of accumulated S Corporation earnings of all tax periods through the Effective
Time a cash amount, which may be reasonably estimated, equal to the net taxable
income of the Company as determined for Federal income tax purposes for the
Company as an S Corporation less any prior distributions made by the Company to
the Shareholders with respect to such earnings ("Cash Tax Distribution"). In
the event that there is insufficient cash of the Company to make the Cash Tax
Distribution either in whole or in part, the Company may issue short term notes
payable to the Shareholders in amounts equal to the amount of the Cash Tax
Distribution less the amount of cash actually distributed to the Shareholders as
part of the Cash Tax Distribution ("Tax Notes") in the form of Exhibit 4.11. The
Tax Notes, if issued, shall (i) be issued prior to the Effective Time, (ii) bear
interest at a rate not to exceed six percent (6%) per annum, (iii) provide that
the principal and all accrued interest shall be due and payable six (6) months
after the date of the Tax Notes, and (iv) impose no prepayment penalty.
Notwithstanding the actual due date of such notes, the Tax Notes shall be
treated as Long Term Debt for purposes of the determination of the Total
Consideration in Exhibit 1 hereto. All cash payments of the Cash Tax
Distribution and all amounts of any Tax Notes shall be taken into account in
calculating the Closing Merger Consideration regardless of whether such payments
were made, or any Tax Notes were issued, after the Measurement Month Date used
for purposes of such calculation (through a reduction of Working Capital or
increase in Long Term Debt, as applicable).
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger
----------------------------------------------------------------
Sub. The obligations of the Parent and Merger Sub to effect the Merger under
- ---
this Agreement are subject to the satisfaction of each of the following
conditions, unless waived by the Parent in writing to the extent permitted by
applicable law:
5.1.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Shareholder and the Company contained in
this Agreement, in Exhibits Exhibit 2 and the Disclosure Schedule referred to
therein and the other Exhibits provided by the Shareholder or the Company
pursuant to this Agreement or in any closing certificate or document delivered
to the Parent pursuant hereto shall be true and correct at and as of the Closing
Date as though made at and as of that time other than such representations and
warranties as are specifically made as of another date, and the Shareholder and
the Company shall each have delivered to the Parent and Merger Sub a certificate
to that effect.
5.1.2 Performance of Covenants. The Shareholder and the Company
------------------------
shall have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholder and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or against
the Parent or Merger Sub arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (i) to restrain, prohibit
or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholder and the Company
shall each have delivered to the Parent and Merger Sub a certificate to that
effect.
-13-
<PAGE>
5.1.4 Approvals. The Company and the Shareholder shall have
---------
procured all of the consents, approvals and waivers of third parties or any
regulatory body or authority, whether required contractually or by applicable
law or otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholder prior to the Closing Date, and the
Shareholder and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Shareholder pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage
---------------------------
shall have occurred on or prior to the Effective Time to any of the properties
or assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such
-------------
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there
--------------------------
shall not have been any event that in the reasonable judgment of the Parent
adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
---
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
-------------------------
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.1.11 Financing. The Parent shall have obtained financing on terms
---------
and in amounts reasonably acceptable to it, to finance the payment of the cash
portion of the aggregate of the Final Per Share Cash Amounts and the ongoing
financing needs of the Surviving Corporation, and such financing shall be
available.
5.2 Conditions Precedent to the Obligations of the Shareholder and the
------------------------------------------------------------------
Company. The obligations of the Shareholder and the Company under this Agreement
- -------
are subject to the satisfaction of each of the following conditions, unless
waived by the Shareholder and the Company in writing to the extent permitted by
applicable law:
5.2.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered to the Shareholder
or the Company pursuant hereto shall be true and correct on and as of the
Closing Date as though made at and as of that date other than such
representations and warranties as are specifically made as of another date, and
the Parent and Merger Sub shall have delivered to the Shareholder and the
Company a certificate to that effect.
-14-
<PAGE>
5.2.2 Performance of Covenants. The Parent and Merger Sub shall
------------------------
have performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date and the Parent and
Merger Sub shall have delivered to the Shareholder and the Company a certificate
to such effect.
5.2.3 Approvals. The Parent shall have procured all of the
---------
consents, approvals and waivers specified in Exhibit 3.1.4 prior to the Closing
Date, and the Parent shall have delivered to the Shareholder and the Company a
certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.3 Deliveries by the Shareholder at the Closing. At the Closing,
--------------------------------------------
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholder and the
Company pursuant to any other transaction document at the Closing, the
Shareholder shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholder and the Company shall
--------------------
deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3 and
5.1.4.
5.3.2 Stock Transfer Restriction Agreement. The Shareholder shall
------------------------------------
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibits Exhibit 5.3.2.
5.3.3 Employment Agreements. Joseph Sullivan shall execute and
---------------------
deliver an Employment Agreement with the Company on the Closing Date, effective
as of the Effective Time, substantially in the form set forth in Exhibits
Exhibit 5.3.3A.
5.3.4 Lease Agreement. Joseph Sullivan, the owner of the property
---------------
located at 1556 Whitlock Avenue, Jacksonville, Florida 32211, shall execute and
deliver a lease agreement with the Company substantially in the form attached as
Exhibits Exhibit 5.3.4.
5.3.5 Registration Rights Agreement. The Shareholder shall execute
-----------------------------
and deliver a Registration Rights Agreement at the Closing, effective as of the
Effective Time, substantially in the form set forth in Exhibits Exhibit 5.3.5
attached hereto.
5.3.6 Opinion of Counsel for the Shareholder and the Company. The
------------------------------------------------------
Shareholder shall deliver the favorable opinion of Holbrook, Akel, Cold, Stiefel
& Ray, P.A., counsel to the Shareholder and the Company, dated the Effective
Time, substantially in the form and to the effect set forth in Exhibits Exhibit
5.3.6 attached hereto.
5.3.7 Documents, Stock Certificates. The Shareholder shall execute
-----------------------------
and deliver the documents, certificates, opinions, instruments and agreements
required to be executed and delivered by the Company or its officers or
directors or the Shareholder at the Closing as contemplated hereby or as may be
reasonably requested by the Parent and shall deliver or cause to be delivered
the documents and evidence required under Section 4. Stock Certificates
representing all of the outstanding Company Common Stock
-15-
<PAGE>
and properly executed and completed letters of transmittal shall be delivered by
the Shareholder to the Parent.
[5.3.8 Discharge of Indebtedness, Releases, Etc. The indebtedness
----------------------------------------
of the Company referred to in Exhibits Exhibit 5.3.8 attached hereto
("Terminated Obligations") shall be paid in full or refinanced on terms
----------------------
acceptable to the Parent, and the Shareholder shall cause all holders of any
such Terminated Obligations to deliver to the Parent, in form reasonably
satisfactory to the Parent and the lenders to the Parent or Merger Sub, such
customary releases, termination statements, consents, approvals or other
documents or instruments required, in the judgment of the Parent, to release and
terminate all liens, security interests, claims, or rights of such holders
against the Surviving Corporation or the Parent or any of their respective
assets in connection therewith.]
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholder hereunder for any breach of warranty, covenant or
agreement by the Company or the Shareholder herein irrespective of any knowledge
of or investigation made by or on behalf of the Parent or Merger Sub; provided,
however, that if the Company shall disclose in writing to the Parent prior to
the Closing Date a specified breach of a specifically identified representation,
warranty, covenant or agreement of the Company or the Shareholder herein by the
Company or the Shareholder, and requests a waiver thereof by the Parent, and the
Parent shall waive any such specifically identified breach in writing prior to
the Closing Date, the Parent and the Surviving Corporation, for themselves and
for each Parent Indemnified Party (as defined below) shall be deemed to have
waived their respective rights and remedies hereunder for, and the Shareholder
shall have no liability with respect to, any such specifically identified
breach, to the extent so identified by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
---------------------------------------
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholder the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall
--------------------
deliver the certificates required pursuant to Sections 5.2.1, 5.2.2 and 5.2.3.
5.4.2 Registration Rights Agreement. The Parent shall execute and
-----------------------------
deliver to the Shareholders a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The
------------------------------------------------
Parent shall deliver the favorable opinion of its legal counsel dated the
Effective Time, substantially in the form and to the effect set forth in
Exhibits Exhibit 5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver the
----------------------------
Closing Merger Consideration to the Shareholder.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholder of any of his rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the
-16-
<PAGE>
Parent or Merger Sub irrespective of any knowledge of or investigation with
respect thereto made by or on behalf of the Shareholder; provided, however, that
if the Parent shall disclose in writing to the Shareholder prior to the Closing
a specified breach of a specifically identified representation, warranty,
covenant or agreement of the Parent or Merger Sub contained herein by the Parent
or Merger Sub, and requests a waiver thereof by the Company and the Shareholder,
and the Company and the Shareholder shall waive any such specifically identified
breach in writing prior to the Closing, the Company and the Shareholder shall be
deemed to have waived their rights and remedies hereunder for, and the Parent
and Merger Sub shall have no liability or obligation to the Shareholder or the
Company with respect to, any such specifically identified breach, to the extent
so identified by the Parent and waived by the Company and the Shareholder.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholder and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholder and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2, 3, 6, 12 and 18 of Exhibit 2 shall survive for
a period of 36 months after the Closing Date and the representations and
warranties of the Shareholder and the Company contained in Sections 2.2, 2.3,
2.4 and in Sections 2, 3, 6, 12 and 18 of Exhibit 2 shall survive for the
maximum period permitted by applicable law. The representations and warranties
of the Parent herein and in the Parent Related Documents, other than those in
Sections 3.1.3 and 3.1.4, shall survive for a period of 36 months after the
Closing Date and the representations and warranties of the Parent contained in
Sections 3.1.3 and 3.1.4 shall survive for the maximum period permitted by
applicable law. The periods of survival of the representations and warranties
as stated above in this Section 6.1 are referred to herein as the "Survival
--------
Period." The liabilities of the parties under their respective representations
- ------
and warranties shall expire as of the expiration of the applicable Survival
Period and no claim for indemnification may be made with respect to any breach
of any representation or warranty, the applicable Survival Period of which shall
have expired, except to the extent that written notice of such breach shall have
been given to the party against which such claim is asserted on or before the
date of such expiration. The covenants and agreements of the parties herein
(including but not limited to Exhibit 4.6) and in other documents and
instruments executed and delivered in connection with the closing of the
transactions contemplated hereby shall survive for the maximum period permitted
by law.
6.2 Indemnification.
---------------
6.2.1 Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 6.1 and 6.3 hereof, the Shareholder shall indemnify, save and hold
harmless the Parent, the Surviving Corporation, Merger Sub and any of their
assignees (including lenders) and all of their respective officers, directors,
employees, representatives, agents, advisors and consultants and all of their
respective heirs, legal representatives, successors and assigns (collectively
the "Parent Indemnified Parties") from and against any and all damages,
--------------------------
liabilities, losses, loss of value (including the value of adverse effects on
cash flow or earnings), claims, deficiencies, penalties, interest, expenses,
fines, assessments, charges and costs, including reasonable attorneys' fees and
court costs (collectively "Losses") arising from, out of or in any manner
------
connected with or based on:
-17-
<PAGE>
(i) the breach of any covenant of the Shareholder or the Company or
the failure by the Shareholder or the Company to perform any obligation of
the Shareholder or the Company contained herein or in any Company Related
Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty
of the Shareholder contained herein or in any Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed with
reasonable specificity in the Disclosure Schedule or (b) disclosed in the
Company Financial Statements (as defined in Exhibit 2) or in working
capital or long term debt (in each case as determined for purposes of
calculating the Total Consideration).
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1 and
----------------
6.3, the Parent shall indemnify, save and hold harmless the Shareholder and the
Shareholder's heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty
of the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from the Shareholder's
acts or omissions after the Effective Time as an officer, director and/or
employee of the Parent, the Surviving Corporation and/or any other
affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The aggregate liability of the Shareholder under
-----------
Sections 6.2.1(ii) and (iii) shall not exceed the cash amount equal to the
Total Consideration with the Parent Common Stock being valued at the IPO Price
to the Public for such purpose. The aggregate liability of the Parent under
Section 6.2.2(ii)
-18-
<PAGE>
shall not exceed the cash amount equal to the Total Consideration with the
Parent Common Stock being valued at the IPO Price to the Public for such
purpose.
6.4 Procedures for Indemnification.
------------------------------
6.4.1 Notice. The party (the "Indemnified Party") that may be entitled
------ -----------------
to indemnity hereunder shall give prompt notice to any party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim, or
------------------
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought hereunder. Any failure on the part of any Indemnified Party to
give the notice described in this Section 6.4.1 shall relieve the Indemnifying
Party of its obligations under this Article 6 only to the extent that such
Indemnifying Party has been prejudiced by the lack of timely and adequate notice
(except that the Indemnifying Party shall not be liable for any expenses
incurred by the Indemnified Party during the period in which the Indemnified
Party failed to give such notice). Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party, promptly (and in any event within 10 days
thereof) after the Indemnified Party's receipt thereof, copies of all notices
and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
-------------
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholder shall at all times have the right, at his option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholder
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
---------
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
-----------------
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any such
-----------
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and
-19-
<PAGE>
records, and personnel in the possession or control of the Indemnified Party
that are pertinent to the defense. The Indemnified Party may join the
Indemnifying Party in any suit, action, claim or proceeding brought by a third
party, as to which any right of indemnity created by this Agreement would or
might apply, for the purpose of enforcing any right of the indemnity granted to
such Indemnified Party pursuant to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself,
-----------
himself or herself and its, his or her affiliates (as defined in Exhibit 2) any
rights to subrogation against any Indemnified Party or such Indemnified Party's
insurers for Losses arising from any third-party claims for which the
Indemnifying Party is liable or against which the Indemnifying Party
indemnifies any Indemnifying Party and, if necessary, each Indemnifying Party
shall obtain waivers of such subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and the
--------------
Parent; or
7.1.2 Optional By the Company. By the Company by written notice to
-----------------------
the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on November 15, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of their
respective obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to the
----------------------
Company, if the Closing shall have failed to occur by 5:00 p.m. Houston, Texas
time on November 15, 1997, but only if neither the Parent nor Merger Sub has
breached this Agreement or has failed to perform any of its obligations under
this Agreement;
7.1.4 Breach By the Parent or Merger Sub. By the Company, by written
----------------------------------
notice to the Parent, if either the Parent or Merger Sub has materially breached
this Agreement or materially failed to perform any of its obligations under this
Agreement; or
7.1.5 Breach by the Company or the Shareholder. By the Parent, by
----------------------------------------
written notice to the Company, if the Company or the Shareholder has materially
breached this Agreement or has materially failed to perform any of their
respective obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
-20-
<PAGE>
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Company (prior to the Effective Time) or the Shareholder:
All Service Electric, Inc.
1556 Whitlock Avenue
Jacksonville, Florida 32211
Attention: Mr. Joseph Sullivan
Telecopy: (904) 744-7117
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholder shall, at any time and from time
-----------------
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholder hereunder.
8.3 Assignability. The Shareholder shall not assign this Agreement in
-------------
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of the Shareholder or the Company. After the Effective Time, the
Surviving Corporation may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
the Shareholder.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
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<PAGE>
8.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
----------------
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
---------------
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
--------------------
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
----------------------
Merger Sub and the Company, by action taken by their Boards of Directors to the
extent permitted by applicable law; provided, however, that no such amendment
shall (i) alter or change any provision of this Agreement, the alteration or
change of which must be adopted by the holder of capital stock of the Company
under the certificate or articles of incorporation of the Company or the
Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless each
such alteration or change is adopted by the holders of shares of capital stock
of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent, Merger Sub, the Company and the
Shareholder. After the Effective Time, all amendments to this Agreement must be
by an instrument in writing signed on behalf of the Parent and the Shareholder.
Any term or provision of this Agreement (other than the
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<PAGE>
requirements for shareholder approvals) may be waived in writing at any time by
the party which is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever under or by reason of this Agreement, or shall cause the
employment status of any employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholder as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by each of
the Parent, Merger Sub, the Company and the Shareholder.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Parent and the Company
and their respective members of their Boards of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be automatically as a part of this Agreement, a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
---------------------
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
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<PAGE>
8.19 No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of its own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any broker, legal counsel, accountants (including the fees and costs of the
Accountants up to $5,000) or other advisors engaged by the Shareholder (to the
extent, and only to the extent, that any such payment will not jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code); and provided further that all fees, costs and expenses
incurred or payable by the Company in connection with the negotiation and
closing of this Agreement and the transactions contemplated hereby, except for
the fees paid by the Company to the Accountants, shall be included in current
liabilities for purposes of determining Working Capital. Notwithstanding
anything herein to the contrary, in the event the transactions contemplated
herein do not close due to the Parent's refusal to close such transactions, and
the Shareholder has otherwise performed his obligations hereunder or have
offered to perform his obligations hereunder, and the representations and
warranties made by the Shareholder hereunder are true and correct, the Parent
shall pay the fees and costs of the Accountants.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
_______________________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
ALL SERVICE ACQUISITION CORP.
By:____________________________________________
President
SHAREHOLDER:
_______________________________________________
Joseph Sullivan
-24-
<PAGE>
COMPANY:
ALL SERVICE ELECTRIC, INC.
By:____________________________________________
Name: Joseph Sullivan
Title: President
-25-
<PAGE>
Exhibit 10.16
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
AMS ACQUISITION CORP.
ARKANSAS MECHANICAL SERVICES, INC.
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
ARKANSAS MECHANICAL SERVICES, INC.
AUGUST 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE MERGER............................................................................... 1
1.1 The Merger..................................................................... 1
1.2 Effective Time of the Merger................................................... 1
1.3 Closing........................................................................ 1
1.4 Effects of the Merger.......................................................... 2
1.4.1 At the Effective Time................................................... 2
1.4.2 Effects on the Surviving Corporation.................................... 2
1.5 Written Consents and Other Actions............................................. 3
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters............ 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub................... 3
1.5.3 All Other Necessary Actions............................................. 3
1.6 Conversion of Stock............................................................ 3
1.6.1 Merger Sub Capital Stock................................................ 3
1.6.2 Cancellation of the Company Treasury Stock.............................. 3
1.6.3 Merger Consideration.................................................... 3
1.7 Exchange of and Payment for Stock.............................................. 4
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration....... 4
1.7.2 Assignments............................................................. 4
1.7.3 Payment In Full Satisfaction of All Rights.............................. 4
1.8 Determination of Closing Merger Consideration.................................. 4
1.8.1 Delivery of IPO Price to Public; Statement.............................. 4
1.9 Post-Closing Determination of Total Merger Consideration....................... 5
1.9.1 Statement............................................................... 5
1.9.2 Review.................................................................. 5
1.9.3 Disputes................................................................ 5
1.9.4 Resolution by Parties................................................... 5
1.9.5 Final Determination..................................................... 5
1.9.6 Expenses................................................................ 6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS....................... 6
2.1 Exhibit 2...................................................................... 6
2.2 Stock Ownership................................................................ 6
2.3 Authority...................................................................... 6
2.4 Consents....................................................................... 6
2.5 Access and Due Diligence....................................................... 7
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB.............................. 7
</TABLE>
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<TABLE>
<S> <C>
3.1 Representations and Warranties................................................. 7
3.1.1 Organization............................................................ 7
3.1.2 Capitalization of the Parent............................................ 7
3.1.3 Authority............................................................... 7
3.1.4 Consents................................................................ 7
3.1.5 Defaults................................................................ 8
3.1.6 Investment Company...................................................... 8
3.1.7 Financial Statements.................................................... 8
3.1.8 Taxes................................................................... 8
3.1.9 Full Authority.......................................................... 8
3.1.10 Access.................................................................. 9
3.1.11 Disclosure.............................................................. 9
3.1.12 Parent Material Adverse Effect.......................................... 9
3.1.13 Tax-Free Reorganization................................................. 9
3.2 Representations and Warranties Concerning the Merger Sub...................... 10
3.2.1 Organization and Standing.............................................. 10
3.2.2 Capital Structure...................................................... 10
3.2.3 Authority.............................................................. 10
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS................................... 10
4.1 Agreements of the Shareholders to be Effective Upon Closing................... 10
4.1.1 Covenant Not to Compete................................................ 11
4.1.2 Release................................................................ 11
4.2 Elimination of Expense........................................................ 12
4.3 Audit......................................................................... 12
4.4 Certain Payables and Receivables.............................................. 12
4.5 Purchase of Certain Receivables.............................................. 12
4.6 Pre-Closing Covenants and Agreements.......................................... 12
4.7 Confidentiality............................................................... 12
4.8 Tax-Free Reorganization....................................................... 13
4.9 Company Plans................................................................. 13
4.10 Income Tax Distribution....................................................... 13
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES................................................ 13
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.......... 13
5.1.1 Accuracy of Representations and Warranties............................. 13
5.1.2 Performance of Covenants............................................... 13
5.1.3 Legal Actions or Proceedings........................................... 14
5.1.4 Approvals.............................................................. 14
5.1.5 Closing Deliveries..................................................... 14
5.1.6 No Casualty, Loss or Damage............................................ 14
5.1.7 Licenses, etc.......................................................... 14
5.1.8 No Material Adverse Change............................................. 14
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5.1.9 IPO.................................................................... 14
5.1.10 Certain Corporate Actions.............................................. 14
5.1.11 Financing.............................................................. 14
5.1.12 Closing of MSI Merger.................................................. 15
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company... 15
5.2.1 Accuracy of Representations and Warranties............................. 15
5.2.2 Performance of Covenants............................................... 15
5.2.3 Approvals.............................................................. 15
5.2.4 Closing Deliveries..................................................... 15
5.2.5 Closing of MSI Merger.................................................. 15
5.3 Deliveries by the Shareholders at the Closing................................. 15
5.3.1 Closing Certificates................................................... 15
5.3.2 Stock Transfer Restriction Agreement................................... 15
5.3.3 Employment Agreements.................................................. 16
5.3.4 Lease Agreements....................................................... 16
5.3.5 Registration Rights Agreement.......................................... 16
5.3.6 Opinion of Counsel for the Shareholders and the Company................ 16
5.3.7 Documents, Stock Certificates.......................................... 16
5.3.8 Discharge of Indebtedness, Releases, Etc............................... 16
5.4 Deliveries by the Parent at the Closing....................................... 17
5.4.1 Closing Certificates................................................... 17
5.4.2 Registration Rights Agreement.......................................... 17
5.4.3 Opinion of Counsel for the Parent and Merger Sub....................... 17
5.4.4 Closing Merger Consideration........................................... 17
6. SURVIVAL, INDEMNIFICATIONS.............................................................. 17
6.1 Survival...................................................................... 17
6.2 Indemnification............................................................... 18
6.2.1 Parent Indemnified Parties............................................. 18
6.2.2 Parent Indemnity....................................................... 19
6.3 Limitations................................................................... 19
6.4 Procedures for Indemnification................................................ 19
6.4.1 Notice................................................................. 19
6.4.2 Legal Defense.......................................................... 19
6.4.3 Settlement............................................................. 20
6.4.4 Cooperation............................................................ 20
6.5 Subrogation................................................................... 20
7. TERMINATION............................................................................. 20
7.1 Grounds for Termination....................................................... 20
7.1.1 Mutual Consent......................................................... 20
7.1.2 Optional By the Company................................................ 21
7.1.3 Optional By the Parent................................................. 21
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7.1.4 Breach By the Parent or Merger Sub..................................... 21
7.1.5 Breach by the Company or any Shareholder............................... 21
7.2 Effect of Termination......................................................... 21
8. MISCELLANEOUS........................................................................... 21
8.1 Notice........................................................................ 21
8.2 Further Documents............................................................. 22
8.3 Assignability................................................................. 22
8.4 Exhibits and Schedules........................................................ 22
8.5 Sections and Articles......................................................... 22
8.6 Entire Agreement.............................................................. 22
8.7 Headings...................................................................... 23
8.8 Controlling Law............................................................... 23
8.9 Public Announcements.......................................................... 23
8.10 No Third Party Beneficiaries.................................................. 23
8.11 Amendments and Waivers........................................................ 23
8.12 No Employee Rights............................................................ 23
8.13 Non-Recourse.................................................................. 23
8.14 When Effective................................................................ 24
8.15 Takeover Statutes............................................................. 24
8.16 Number and Gender of Words.................................................... 24
8.17 Invalid Provisions............................................................ 24
8.18 Multiple Counterparts......................................................... 24
8.19 No Rule of Construction....................................................... 24
8.20 Expenses...................................................................... 24
</TABLE>
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<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 .................................................. Determination of Total Consideration
Exhibit 1.5.1 ... Unanimous Written Consent of Shareholders of Arkansas Mechanical Services, Inc.
Exhibit 1.5.2 ...................... Written Consent of Sole Shareholder of AMS Acquisition Corp.
Exhibit 1.7 ............................................................... Letter of Transmittal
Exhibit 2 .................................................................... Certain Statements
Exhibit 2.2 ................................................... Ownership of Company Common Stock
Exhibit 3.1.4 ........................................................ Required Consents - Parent
Exhibit 4.6 ................................................................... Certain Covenants
Exhibit 4.9 ................................................... Company Plans to Remain in Effect
Exhibit 4.10 ............................................................ Form of Promissory Note
Exhibit 5.3.2 .............................................. Stock Transfer Restriction Agreement
Exhibit 5.3.3 .................... List of Employees to Execute and Deliver Employment Agreements
Exhibit 5.3.3.A ............................................................ Employment Agreement
Exhibit 5.3.4-A ................................................................. Lease Agreement
Exhibit 5.3.4-B ................................................................. Lease Agreement
Exhibit 5.3.5 ..................................................... Registration Rights Agreement
Exhibit 5.3.6 ............................ Opinion of Counsel to the Shareholders and the Company
Exhibit 5.3.8 ............................................................ Terminated Obligations
Exhibit 5.4.3 .................................................. Opinion of Counsel to the Parent
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
<S> <C>
Affiliate ............................................................................. Exhibit 2
Accountants ................................................................................... 5
Agreement ..................................................................................... 1
AMC .......................................................................................... 12
Ancillary Agreements .............................................................. Exhibit 5.3.6
Applicable Corporate Law ...................................................................... 1
Base Rental ..................................................................... Exhibit 5.3.4.A
best lawful efforts ............................................................... Exhibit 5.3.5
Cascade Mortgages ..................................................................... Exhibit 1
Cash Percentage Notice ................................................................ Exhibit 1
Cash Tax Distribution ........................................................................ 13
Cause ........................................................................... Exhibit 5.3.3.A
Closing ....................................................................................... 1
Closing Date .................................................................................. 1
Closing Merger Consideration .......................................................... Exhibit 1
Closing Outstanding Common Stock Number ............................................... Exhibit 1
Closing Per Share Cash Amount ......................................................... Exhibit 1
Closing Per Share Common Stock Amount ................................................. Exhibit 1
Code .......................................................................................... 1
Commission ........................................................................ Exhibit 5.3.5
Common Stock ...................................................................... Exhibit 5.3.5
Company ....................................................................................... 1
Company Common Stock .......................................................................... 1
Company Material Adverse Effect ....................................................... Exhibit 2
Company Related Documents ............................................................. Exhibit 2
Control ............................................................................... Exhibit 2
Confidential Information ........................................................ Exhibit 5.3.3.A
Converted Share ............................................................................... 3
Corporation ....................................................................... Exhibit 1.5.1
Defined Expense Reductions Deficiency ................................................. Exhibit 1
Deferred Tax Liability ................................................................ Exhibit 1
Disclosure Schedule ................................................................... Exhibit 2
Due Date ..................................................................................... 29
Effective Time ................................................................................ 1
Employee Invention .............................................................. Exhibit 5.3.3.A
ERISA ................................................................................. Exhibit 2
Excess Expense Level Deduction ........................................................ Exhibit 1
Excess Long-Term Debt ................................................................. Exhibit 1
Exchange Act ...................................................................... Exhibit 5.3.5
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Final Per Share Cash Amount ........................................................... Exhibit 1
Final Outstanding Common Stock Number ................................................. Exhibit 1
GAAP .................................................................................. Exhibit 1
GE Capital Leases ..................................................................... Exhibit 1
GroupMAC ........................................................................ Exhibit 5.3.3.A
Indemnified Party ............................................................................ 19
Indemnifying Party ........................................................................... 19
Initial Public Offering ........................................................... Exhibit 5.3.5
IPO ........................................................................................... 2
IPO Price to the Public ............................................................... Exhibit 1
Investments ........................................................................... Exhibit 1
Lease ........................................................................... Exhibit 5.3.3.A
Long-Term Debt ........................................................................ Exhibit 1
Losses ....................................................................................... 18
Merger ........................................................................................ 1
Merger Sub .................................................................................... 1
Minimum Proceeds .............................................................................. 2
Net After-Tax Income .................................................................. Exhibit 1
MSI Merger Agreement ......................................................................... 14
Notice of Dispute ............................................................................. 5
One Year Holding Period ........................................................... Exhibit 5.3.2
Operating EBITDA Amount ............................................................... Exhibit 1
Other Ownership Interests ............................................................. Exhibit 1
Parent ........................................................................................ 1
Parent Ancillary Agreements ....................................................... Exhibit 5.4.3
Parent Common Stock ........................................................................... 1
Parent Financial Statements ................................................................... 8
Parent Indemnified Parties ................................................................... 18
Parent Material Adverse Effect ................................................................ 9
Parent Preferred Stock ........................................................................ 7
Parent Related Documents ...................................................................... 7
Payee ........................................................................................ 29
Permitted Exceptions ................................................................ Exhibit 4.6
Present Value of Aggregate Option Exercise Price ...................................... Exhibit 1
Price Notice .................................................................................. 4
Proprietary Rights .................................................................... Exhibit 2
register, registered, registration ................................................ Exhibit 5.3.5
Registrable Securities ............................................................ Exhibit 5.3.5
Registration Expenses ............................................................. Exhibit 5.3.5
Registration Statement ........................................................................ 7
SEC ........................................................................................... 7
Second Year Holding Period ........................................................ Exhibit 5.3.2
Securities Act ................................................................................ 2
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Selling Expenses .................................................................. Exhibit 5.3.5
Selling Shareholder ............................................................... Exhibit 5.3.5
Settlement Notice ............................................................................ 20
Shareholder ................................................................................... 1
Shareholder Related Document .................................................................. 6
Statement of Closing Consideration ............................................................ 4
Statement of Final Per Share Amounts .......................................................... 5
Stock Certificate ............................................................................. 4
Stockholders ...................................................................... Exhibit 5.3.2
Stock Transfer Restriction Agreement .............................................. Exhibit 5.3.2
Surveys ............................................................................. Exhibit 4.6
Survival Period .............................................................................. 17
Surviving Corporation ......................................................................... 1
Tax Notes .................................................................................... 13
Tax Returns ........................................................................... Exhibit 2
Terminated Obligations ....................................................................... 16
Total Consideration ................................................................... Exhibit 1
Working Capital ....................................................................... Exhibit 1
Working Capital Addition .............................................................. Exhibit 1
Working Capital Deduction ............................................................. Exhibit 1
Working Capital Positive Adjustment ................................................... Exhibit 1
Working Capital Negative Adjustment ................................................... Exhibit 1
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
---------
August ___, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), AMS Acquisition Corp., an Arkansas corporation
------
("Merger Sub"), Arkansas Mechanical Services, Inc., an Arkansas corporation (the
----------
"Company"), and the undersigned holders of all of the outstanding capital stock
-------
of the Company (the "Shareholders").
------------
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
------
State of Arkansas and pursuant to the Merger each issued and outstanding share
of Common Stock, $1.00 par value per share, of the Company ("Company Common
--------------
Stock") will be converted into the right to receive certain shares of common
- -----
stock, $.001 par value per share, of the Parent ("Parent Common Stock"), and
-------------------
certain cash consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholders,
as the holders of all of the outstanding capital stock of the Company;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
----------
accordance with the Arkansas Business Corporation Act of 1987 (the "Applicable
----------
Corporate Law") upon the Effective Time (as defined in Section 1.2), the Company
- -------------
shall be merged with and into Merger Sub. Merger Sub, as the surviving entity
following the Merger, is sometimes referred to in this Agreement as the
"Surviving Corporation".
---------------------
1.2 Effective Time of the Merger. In accordance with the requirements of
----------------------------
applicable law, appropriate Plan of Merger under the Applicable Corporate Law
shall be prepared, executed and submitted for filing with the Secretary of State
of the State of Arkansas immediately following and on the same day as the
Closing (as defined below). The date of such filing is referred to in this
Agreement as the "Effective Time."
--------------
1.3 Closing. The closing of the Merger ("Closing") will take place at
------- -------
10:00 a.m. at the offices of Bracewell & Patterson, L.L.P. in Houston, Texas on
a date that is contemporaneous with the closing of the Parent's IPO (as defined
below), but in no event later than December 31, 1997 ("Closing Date"); provided
------------
that each of the conditions precedent to the obligations of the parties to
effect the Merger set forth in Article 5 of this Agreement are then satisfied or
waived by the applicable party. The parties may agree in writing
<PAGE>
on another place for the Closing. At the Closing, the parties will deliver or
cause to be delivered the documents described in Sections 5.3 and 5.4 below. The
term "IPO" means any underwritten public offering of Parent Common Stock
---
resulting in net cash proceeds to the Parent of at least the Minimum Proceeds,
as defined below (other than any offering pursuant to any registration statement
(i) relating to any capital stock of the Parent or options, warrants or other
rights to acquire any such capital stock issued or to be issued primarily to
directors, officers or employees of the Parent or any of its subsidiaries, (ii)
relating to any employee benefit plan or interest therein, (iii) relating
principally to any preferred stock or debt securities of the Parent, or (iv)
filed pursuant to Rule 145 under the Securities Act of 1933, as amended
("Securities Act"), or any successor or similar provision). The term "Minimum
-------------- -------
Proceeds" means the aggregate amount necessary to pay in full (i) all
- --------
indebtedness of the Parent or any of its subsidiaries outstanding at the closing
of the IPO incurred for purposes of financing any acquisitions by the Parent or
any of its subsidiaries, (ii) the aggregate redemption prices for the redemption
of all of the Parent's preferred stock outstanding at the closing of the IPO
issued by the Parent in connection with then completed acquisitions by the
Parent or any of its subsidiaries, and (iii) the aggregate cash payable by the
Parent or any of its subsidiaries in connection with all then pending
acquisitions.
1.4 Effects of the Merger.
---------------------
1.4.1 At the Effective Time. At the Effective Time, (i) the Company
---------------------
shall merge with and into Merger Sub and as a result thereof, the separate
existence of the Company shall cease, (ii) the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, except that the Articles
of Incorporation of Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "Arkansas Mechanical Services, Inc.,"
(iii) the Bylaws of Merger Sub as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation, and (iv) the directors
and officers of Merger Sub immediately prior to the Effective Time shall become
the directors and officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected or appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
------------------------------------
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with the Applicable Corporate Law and the terms of this Agreement.
-2-
<PAGE>
1.5 Written Consents and Other Actions.
----------------------------------
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters.
------------------------------------------------------------
Contemporaneously with the execution hereof, the Shareholders (i) are executing
and delivering to the Company a Unanimous Written Consent in substantially the
form of Exhibit 1.5.1 attached hereto, and (ii) hereby acknowledge that they are
aware of their dissenter's or appraisal rights with respect to the Merger and
their receipt of a copy of the provisions of Subchapter 13 of the Applicable
Corporate Law and have elected not to exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
-----------------------------------------------------
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibit 1.5.2 attached hereto, pursuant to the applicable
provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
---------------------------
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
-------------------
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of Merger
------------------------
Sub issued and outstanding at the Effective Time shall remain outstanding and
shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
------------------------------------------
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. Each share of Company Common Stock (other
--------------------
than shares to be canceled in accordance with Section 1.6.2) shall be converted
into the right to receive (i) that number of shares of Parent Common Stock equal
to the Final Per Share Common Stock Amount (as defined in Exhibit 1 attached
hereto), and (ii) cash equal to the Final Per Share Cash Amount (as defined in
Exhibit 1 attached hereto). Each share of Company Common Stock so converted into
the right to receive cash equal to the Final Per Share Cash Amount and shares of
Parent Common Stock equal to the Final Per Share Common Stock Amount (a
"Converted Share") shall, by virtue of the Merger and without any action on the
---------------
part of the holder thereof, at the Effective Time no longer be outstanding and
shall at such time be canceled and retired and shall cease at such time to
exist, and each holder of a certificate which prior to the Effective Time
validly evidenced any such Converted Share (a "Stock Certificate") shall
-----------------
thereafter cease to have any rights with respect to such Converted Share,
except, upon the surrender of the Stock Certificate and a duly executed and
completed letter of transmittal in accordance with Section 1.7, the right to
receive such cash and Parent Common Stock at the times and in the manner set
forth herein.
-3-
<PAGE>
1.7 Exchange of and Payment for Stock.
---------------------------------
1.7.1 Delivery of Company Common Stock and Closing Merger
---------------------------------------------------
Consideration. Prior to the Closing, the Parent will deliver to each
Shareholder a letter of transmittal, in substantially the form attached hereto
as Exhibit 1.7, to be used for the purpose of surrendering to the Parent Stock
Certificates in exchange for the right to receive the Final Per Share Cash
Amount and the Final Per Share Common Stock Amount for each Converted Share
evidenced by such Stock Certificate. All of the Company Common Stock held by
the Shareholders will be surrendered by the Shareholders to the Parent together
with properly completed and executed letters of transmittal (with each such
signature guaranteed by a commercial bank or notarized by a notary public or
similar official reasonably satisfactory to the Parent), and the Parent shall
cause to be delivered to the Shareholders at the Closing the Closing Per Share
Cash Amount (as defined in Exhibit 1 attached hereto) and the Closing Per Share
Common Stock Amount (as defined in Exhibit 1 attached hereto) applicable to each
of the Converted Shares evidenced by the Stock Certificates properly surrendered
(with properly executed and completed letters of transmittal) by each
Shareholder to the Parent.
1.7.2 Assignments. The assignment, transfer or other disposition of
-----------
record or beneficial ownership of any shares of Company Common Stock may not be
made on or after the date hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of the
------------------------------------------
Closing Per Share Cash Amount and the Closing Per Share Common Stock Amount to
the Shareholders with respect to their Converted Shares shall be deemed to be
payment in full satisfaction of all rights pertaining to the outstanding
Converted Shares except for the right to receive additional shares of Parent
Common Stock and cash pursuant to Section 1.9.
1.8 Determination of Closing Merger Consideration.
---------------------------------------------
1.8.1 Delivery of IPO Price to Public; Statement. Within five
business days after the Parent and its underwriters agree on the initial price
to the public for a share of Parent Common Stock offered in the IPO, as set
forth in an executed underwriting agreement, the Parent shall deliver to the
Shareholders a written notice (the "Price Notice") setting forth such initial
------------
price to the public and a statement setting forth a calculation of the Closing
Outstanding Common Stock Number (as defined in Exhibit 1 attached hereto), the
Closing Per Share Cash Amount, the Closing Per Share Common Stock Amount and the
Closing Merger Consideration (as defined in Exhibit 1 attached hereto), payable
to the Shareholders at Closing (the "Statement of Closing Consideration"). The
----------------------------------
initial price to the public of a share of Parent Common Stock, as set forth in
the Price Notice, and the Closing Outstanding Common Stock Number, the Closing
Per Share Cash Amount, the Closing Per Share Common Stock Amount and the Closing
Merger Consideration, as set forth in the Statement of Closing Consideration,
shall be final, conclusive and binding for purposes of this Agreement.
1.9 Post-Closing Determination of Total Merger Consideration.
--------------------------------------------------------
1.9.1 Statement. No later than 90 days after the Closing, the Parent
---------
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total Merger
Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of Final
------------------
Per Share Amounts"). For purposes of determining the Statement of Final Per
- -----------------
Share Amounts, the Final Outstanding
-4-
<PAGE>
Common Stock Number, the Final Per Share Cash Amount, the Final Per Share Common
Stock Amount and the Total Consideration shall be calculated or determined as of
the last day of the month immediately preceding the Closing Date (unless the
Closing Date occurs on the last day of the month in which case the Closing Date
shall be used).
1.9.2 Review. After delivery to the Shareholders of the Statement of
------
Final Per Share Amounts, the Shareholders and their representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number, the Final
--------
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Merger Consideration as shown on the Statement of Final Per Share Amounts shall
be final, conclusive and binding for purposes of this Agreement, unless the
Shareholders shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Per Share
-----------------
Amounts within 10 business days following receipt of the Statement of Final Per
Share Amounts, specifying in reasonable detail the nature and extent of such
disagreement; provided, however, that no Notice of Dispute may be given with
respect to any items unless such item involves an amount of $25,000 or more. If
a Notice of Dispute is not properly given within such time, the Final
Outstanding Common Stock Number, the Final Per Share Cash Amount, the Final Per
Share Common Stock Amount and the Total Merger Consideration as set forth in the
Statement of Final Per Share Amounts shall be final, conclusive and binding for
purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
---------------------
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholders shall not reach
such resolution within 30 days following receipt by the Parent of a properly
given Notice of Dispute, the dispute shall be referred to the KPMG Peat Marwick
LLP ("Accountants"), who shall resolve such dispute within 30 days after its
submission to them. The Parent and the Shareholders (if the dispute is resolved
by them or the Statement of Final Per Share Amounts otherwise becomes final
pursuant hereto without referral to the Accountants) or the Accountants (if a
dispute is resolved by them) shall set forth such resolution in writing and such
writing shall (i) set forth the Final Outstanding Common Stock Number, the Final
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Merger Consideration and (ii) be final, conclusive and binding for purposes of
this Agreement.
1.9.5 Final Determination. Within 10 business days following the
-------------------
final determination of the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total Merger
Consideration as provided in this Section 1.9, (i) the Parent shall deliver to
each Shareholder (a) the cash amount, if any, by which the aggregate of the
Final Per Share Cash Amounts payable to such Shareholder, as finally determined
pursuant hereto, exceeds the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing; and (b) the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Per Share Common Stock
Amounts deliverable to such Shareholder, as finally determined pursuant hereto,
exceeds the aggregate of the Closing Per Share Common Stock Amounts delivered to
such Shareholder at the Closing; or (ii) each Shareholder shall deliver to the
Parent (a) the cash amount, if any, by which the aggregate of the Closing Per
Share Cash Amounts paid to such Shareholder at the Closing exceeds the aggregate
of the Final Per Share Cash Amounts
-5-
<PAGE>
payable to such Shareholder as finally determined pursuant hereto; and (b) the
number of shares of Parent Common Stock, if any, by which the aggregate of the
Closing Per Share Common Stock Amounts delivered to such Shareholder at the
Closing exceeds the aggregate of the Final Per Share Common Stock Amounts
deliverable to such Shareholder as finally determined pursuant hereto.
1.9.6 Expenses. The Parent and the Shareholders shall each pay their
--------
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, hereby represent
and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2 Stock Ownership. Each Shareholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibit 2.2 and such shares are so held by the
Shareholder free and clear of all liens, encumbrances and adverse claims
whatsoever .
2.3 Authority. The Shareholder has full right, power, legal capacity and
---------
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Shareholder (each a "Shareholder
-----------
Related Document") and (ii) consummate the transactions contemplated herein and
- ----------------
thereby. This Agreement has been duly executed and delivered by the
Shareholders and constitutes, and each Shareholder Related Document, when duly
executed and delivered by the Shareholders named as parties therein will
constitute, legal, valid and binding obligations of such Shareholders
enforceable against such Shareholders in accordance with their respective terms
and conditions, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
--------
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholders of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by the Shareholders of this Agreement and any Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which any Shareholder is a party
or by which any Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to any Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
any Shareholder.
2.5 Access and Due Diligence. The Company and the Shareholders have
------------------------
cooperated fully in permitting the Parent and its representatives to make a full
investigation of the properties, operations and
-6-
<PAGE>
financial conditions of the Company and have afforded the Parent and its
representatives reasonable access to the offices, buildings, real properties,
machinery and equipment, inventory and supplies, records, files, books of
account, tax returns, agreements and commitments and personnel of the Company.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
------------------------------
warrants to the Shareholders and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. As of the execution date of this
----------------------------
Agreement, the total authorized capital stock of the Parent is as set forth in
the Confidential Information Statement dated August __, 1997. The outstanding
shares of Parent Common Stock and Preferred Stock, par value $.001 ("Parent
------
Preferred Stock") have been duly and validly issued and are fully paid and non-
- ---------------
assessable.
3.1.3 Authority. The Parent has the requisite power and authority to
---------
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
------------------------
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent will
constitute, legal, valid and binding obligations of the Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4 Consents. Except as provided on Exhibit 3.1.4, no approval,
--------
consent, order or action of or filing with any court, administrative agency,
governmental authority or other third party is required for the execution,
delivery or performance by the Parent of this Agreement or the Parent Related
Documents or the consummation by the Parent of the transactions contemplated
hereby, except for (i) the filing of the Parent's registration statement with
respect to the IPO ("Registration Statement") with the U.S. Securities and
----------------------
Exchange Commission ("SEC") pursuant to the Securities Act and the SEC's
---
declaration of effectiveness of such Registration Statement and the completion
of all necessary filings required under, and the obtaining of all necessary
consents and approvals required pursuant to, state securities or "blue sky" laws
in connection with the IPO, and (ii) the filing of the Plan of Merger with the
Secretary of State of Arkansas.
3.1.5 Defaults. The Parent is not in default under or in violation
--------
of, and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
is a party or by which the Parent or any of its properties
-7-
<PAGE>
or assets may be bound or affected or (ii) any law, rule or regulation
applicable to the Parent or any court injunction, order or decree, or any valid
and enforceable order of any governmental agency in effect as of the date hereof
having jurisdiction over the Parent, which default or violation prevents the
Parent from consummating the transactions contemplated hereby or is reasonably
likely to have a Parent Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company"
------------------
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain financial
--------------------
statements to the Shareholders ("Parent Financial Statements") and such Parent
---------------------------
Financial Statements have been prepared in accordance with GAAP and fairly
present the consolidated financial position, results of operations and cash
flows of the Parent and its then existing consolidated subsidiaries as of the
dates and for the periods indicated, subject to normal year-end adjustments and
any other adjustments described therein or in the notes or schedules thereto.
The books and records of the Parent have been kept in reasonable detail and
accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to
-----
be discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period covered by the Parent
Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and
--------------
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law, as
defined in Exhibit 2) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation,
the failure to obtain which is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental Law), ordinances, rules and regulations
of any governmental agency of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, all applicable court or
administrative agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition or
state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
------
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of the Parent.
-8-
<PAGE>
3.1.11 Disclosure. No representation or warranty by the Parent in this
----------
Agreement, and no statement contained in any certificate delivered by the Parent
to the Shareholders pursuant to this Agreement, contains any untrue statement of
a material fact or omits any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they are
or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
------------------------------ ---------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
- --------------
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole, in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
-----------------------
the Merger as a reorganization within the meaning of Section 368(a) of the Code:
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code)
at the time of such transfer, or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of its
historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection with
the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
-9-
<PAGE>
(viii) None of the Parent Common Stock received by the Shareholders as
a part of the Total Merger Consideration will be separate consideration
for, or allocable to, any employment agreement.
(ix) Neither the Parent nor Merger Sub is under the jurisdiction of
a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.2 Representations and Warranties Concerning the Merger Sub. The Parent
--------------------------------------------------------
and Merger Sub, jointly and severally, hereby represent and warrant to the
Shareholders and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
-------------------------
incorporated, validly existing and in good standing under the laws of the State
of Arkansas.
3.2.2 Capital Structure. The authorized capital stock of Merger Sub
-----------------
consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and authority to
---------
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by Merger Sub of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly authorized by its Board of
Directors and the Parent as its sole shareholder, and, except for the corporate
filings required by state law, no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholders to be Effective Upon Closing.
-----------------------------------------------------------
Effective upon Closing, and without further action on the part of any party or
other person, the Shareholders covenant and agree as follows:
4.1.1 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is two years following any termination of such
Shareholder's employment with the Company, such Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or
-10-
<PAGE>
indirectly, individually, as a member of a partnership or limited liability
company, equity owner, shareholder (other than as a shareholder of less
than one percent of the issued and outstanding stock of a publicly-held
company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant engage
in any business that involves indoor air quality, heating, ventilation, air
conditioning, appliance, mechanical construction, plumbing, electrical
contracting or sewer cleaning products or services within a 100 mile radius
of the cities of Little Rock, Arkansas and Fayetteville, Arkansas;
provided, however that Harry Langley and his affiliates, Arkansas
Mechanical Contractors, Inc., d/b/a Hillcrest Plumbing and Heating ("AMC"),
may continue to engage in the mechanical contracting and plumbing service
businesses so long as (a) neither Mr. Langley nor any of his affiliates
market heating, ventilation or air conditioning maintenance and/or repair
services of the nature marketed by the Parent or any of its affiliates
within a 100 miles radius of the cities of Little Rock, Arkansas, and
Fayetteville, Arkansas, and Mr. Langley and his affiliates refer any such
marketing opportunities to the Parent and its affiliates, and (b) Mr.
Langley and his affiliates do not solicit or bid on any commercial
mechanical construction project if the Parent or any of its affiliates have
intend to bid on such project and so notify Langley or AMC within thirty
(30) days after its receipt of the solicitation for bids, unless Langley or
AMC have an existing or long-term relationship with the owner of such
project.
(ii) Each Shareholder agrees that the limitations set forth herein
on such Shareholder's rights to compete with the Parent and its affiliates
as set forth in clause (i) are reasonable and necessary for the protection
of Parent and its affiliates. In this regard, each Shareholder specifically
agrees that the limitations as to period of time and geographic area, as
well as all other restrictions on such Shareholder's activities specified
herein, are reasonable and necessary for the protection of the Parent and
its affiliates. Each Shareholder agrees that, in the event that the
provisions of this Section should ever be deemed to exceed the scope of
business, time or geographic limitations permitted by applicable law, such
provisions shall be and are hereby reformed to the maximum scope of
business, time or geographic limitations permitted by applicable law.
(iii) Each Shareholder agrees that the remedy at law for any breach
by such Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, each Shareholder
-------
does hereby (i) release, acquit and forever discharge the Surviving Corporation
from any and all liabilities, obligations, claims, demands, actions or causes of
action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Effective Time, including,
without limitation, any claim for indemnity or contribution from the Surviving
Corporation in connection with the obligations or liabilities of such
Shareholder hereunder, except for salary and benefits payable to such
Shareholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Effective Time, and (iii) waive any and all preemptive or other rights to
acquire any shares of capital stock of the Company and release any and all
claims arising in connection with any prior default, violation or failure to
comply with or satisfy any such preemptive or other rights.
4.2 Elimination of Expense. Prior to the Closing, the Shareholders will
----------------------
produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described in Attachment A, Part 2, of the Letter of
Intent between the Parent and the Shareholders dated May 30, 1997, have been
-11-
<PAGE>
eliminated. Nothing contained herein shall be construed to prevent the Parent or
its affiliates and AMC from entering into any cost-sharing agreement relating to
office expenses or the like.
4.3 Audit. Prior to Closing, the Accountants shall complete an audit of
-----
the Company for the fiscal year ended December 31, 1996 and for the period from
such date through June 30, 1997 and such additional audit and/or review work as
may be requested by the Parent through and including the Closing Date, and
provide its report to the Parent and the Shareholders.
4.4 Certain Payables and Receivables. On or prior to Closing, the
--------------------------------
Shareholders shall pay in full in cash all accounts receivable, notes receivable
and advances payable by any Shareholder to the Company and the Company shall pay
in full in cash all accounts payable, notes payable and advances payable (except
any Tax Note (as defined) which shall be paid according to their terms) by the
Company to any Shareholder.
4.5 Purchase of Certain Receivables. If any accounts receivable included
--------------------------------
in current assets of the Company for purposes of determining Working Capital (as
defined in Exhibit 1) remain unpaid in full for 60 days or more after the
Closing, the Shareholders shall, upon written request by the Surviving
Corporation made within 90 days after the Closing, purchase the same from the
Surviving Corporation, without recourse, for the uncollected amount thereof.
4.6 Pre-Closing Covenants and Agreements. The Shareholders and the
------------------------------------
Company jointly and severally agree as set forth in Exhibit 4.6 attached
hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the Parent,
---------------
Merger Sub, the Company or the Shareholders will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Merger to its employees, vendors and customers to protect
the Company's goodwill and to facilitate the Closing. The Parent and Merger Sub
may disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities, and may describe this
Agreement and the transactions contemplated hereby in any registration statement
filed by the Parent under the Securities Act and in reports filed by the Parent
under the Securities Exchange Act of 1934, and may file this Agreement as an
exhibit to any thereof. The Parent may also make appropriate disclosures of the
general nature of the Merger and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the Parent's
efforts to effect additional acquisitions. Each party will have mutual approval
rights with respect to written employee presentations concerning the prospective
merger.
4.8 Tax-Free Reorganization. Unless the other parties shall otherwise
-----------------------
agree in writing, none of the Shareholders, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action
that would jeopardize the qualification of the Merger as a reorganization
withing the meaning of Section 368(a) of the Code.
4.9 Company Plans. Except as otherwise contemplated by this Agreement,
-------------
the Company Plans (as defined in Exhibit 2) described on Exhibit 4.9 in effect
at the date of this Agreement will remain in effect unless otherwise determined
by the Parent after the Effective Time.
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<PAGE>
4.10 Income Tax Distribution. Prior to the Closing, the Shareholders may
-----------------------
cause the Company to pay to the Shareholders as a dividend and as a distribution
of accumulated S Corporation earnings of all tax periods through the Effective
Time a cash amount, which may be reasonably estimated, equal to the net taxable
income of the Company as determined for Federal income tax purposes for the
Company as an S Corporation less any prior distributions made by the Company to
the Shareholders with respect to such earnings ("Cash Tax Distribution"). In
the event that there is insufficient cash of the Company to make the Cash Tax
Distribution either in whole or in part, the Company may issue short term notes
payable to the Shareholders in amounts equal to the amount of the Cash Tax
Distribution less the amount of cash actually distributed to the Shareholders as
part of the Cash Tax Distribution ("Tax Notes") in the form of Exhibit 4.10. The
Tax Notes, if issued, shall (i) be issued prior to the Effective Time, (ii) bear
interest at a rate not to exceed six percent (6%) per annum, (iii) provide that
the principal and all accrued interest shall be due and payable six (6) months
after the date of the Tax Notes, and (iv) impose no prepayment penalty.
Notwithstanding the actual due date of such notes, the Tax Notes shall be
treated as Long Term Debt for purposes of the determination of the Total
Consideration in Exhibit 1 hereto. All cash payments of the Cash Tax
Distribution and all amounts of any Tax Notes shall be taken into account in
calculating the Closing Merger Consideration regardless of whether such payments
were made, or any Tax Notes were issued, after the Measurement Month Date used
for purposes of such calculation (through a reduction of Working Capital or
increase in Long Term Debt, as applicable).
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
--------------------------------------------------------------------
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of the Shareholders and the Company contained in this Agreement,
in Exhibit 2 and the Disclosure Schedule referred to therein and the other
Exhibits provided by the Shareholders or the Company pursuant to this Agreement
or in any closing certificate or document delivered to the Parent pursuant
hereto shall be true and correct at and as of the Closing Date as though made at
and as of that time other than such representations and warranties as are
specifically made as of another date, and the Shareholders and the Company shall
each have delivered to the Parent and Merger Sub a certificate to that effect.
5.1.2 Performance of Covenants. The Shareholders and the Company
------------------------
shall have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholders and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or against
the Parent or Merger Sub arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (i) to restrain, prohibit
or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholders and the
Company shall each have delivered to the Parent and Merger Sub a certificate to
that effect.
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<PAGE>
5.1.4 Approvals. The Company and the Shareholders shall have
---------
procured all of the consents, approvals and waivers of third parties or any
regulatory body or authority, whether required contractually or by applicable
law or otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholder prior to the Closing Date, and the
Shareholders and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage shall
---------------------------
have occurred on or prior to the Effective Time to any of the properties or
assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such
-------------
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there
--------------------------
shall not have been any event that in the reasonable judgment of the Parent
adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
---
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
-------------------------
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.1.11 Financing. The Parent shall have obtained financing on terms
---------
and in amounts reasonably acceptable to it, to finance the payment of the cash
portion of the aggregate of the Final Per Share Cash Amounts and the ongoing
financing needs of the Surviving Corporation, and such financing shall be
available.
5.1.12 Closing of MSI Merger. The Parent shall have been satisfied
---------------------
that the closing under that certain Agreement and Plan of Merger of even date
herewith among the Parent, AMS Acquisition Corp., Mechanical Services, Inc. and
the shareholders of Mechanical Services, Inc. (the "MSI Merger Agreement") has
--------------------
occurred or will occur contemporaneously with or immediately after the Effective
Time.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
-------------------------------------------------------------------
Company. The obligations of the Shareholders and the Company under this
- -------
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholders and the Company in writing to the extent
permitted by applicable law:
5.2.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered to the
Shareholders or the Company pursuant hereto shall be true and correct on and as
of the Closing Date
-14-
<PAGE>
as though made at and as of that date other than such representations and
warranties as are specifically made as of another date, and the Parent and
Merger Sub shall have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall have
------------------------
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Closing Date and the Parent and Merger
Sub shall have delivered to the Shareholders and the Company a certificate to
such effect.
5.2.3 Approvals. The Parent shall have procured all of the consents,
---------
approvals and waivers specified in Exhibit 3.1.4 prior to the Closing Date, and
the Parent shall have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.2.5 Closing of MSI Merger. The Shareholders shall have been
---------------------
satisfied that the closing under the MSI Merger Agreement has occurred or will
occur contemporaneously with or immediately after the Effective Time.
5.3 Deliveries by the Shareholders at the Closing. At the Closing,
---------------------------------------------
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders and
the Company pursuant to any other transaction document at the Closing, the
Shareholders shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders and the Company shall
--------------------
deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3 and
5.1.4.
5.3.2 Stock Transfer Restriction Agreement. The Shareholders shall
------------------------------------
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.2.
5.3.3 Employment Agreements. The persons listed on Exhibit 5.3.3
---------------------
shall execute and deliver an Employment Agreement with the Company on the
Closing Date, effective as of the Effective Time, substantially in the form set
forth in Exhibit 5.3.3A.
5.3.4 Lease Agreements. The Shareholders shall cause the owner of the
----------------
property located at 2201 Lincoln, North Little Rock, Arkansas 72115 to execute
and deliver a lease agreement with the Company in substantially the form
attached as Exhibit 5.3.4.-A, and shall cause the owners of the property located
at 521 W. Ash, Fayetteville, Arkansas 72354 to execute and deliver a lease
agreement with the Company in substantially the form attached as Exhibit 5.3.4-
B.
5.3.5 Registration Rights Agreement. The Shareholders shall execute
-----------------------------
and deliver a Registration Rights Agreement at the Closing, effective as of the
Effective Time, substantially in the form set forth in Exhibit 5.3.5 attached
hereto.
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<PAGE>
5.3.6 Opinion of Counsel for the Shareholders and the Company. The
-------------------------------------------------------
Shareholders shall deliver the favorable opinion of Thurman, Lawrence & Heurer,
counsel to the Shareholders and the Company, dated the Effective Time,
substantially in the form and to the effect set forth in Exhibit 5.3.6 attached
hereto.
5.3.7 Documents, Stock Certificates. The Shareholders shall execute
-----------------------------
and deliver, and shall cause the Company to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Company or its officers or directors or the Shareholders at the
Closing as contemplated hereby or as may be reasonably requested by the Parent
and shall deliver or cause to be delivered the documents and evidence required
under Section 4. Stock Certificates representing all of the outstanding Company
Common Stock and properly executed and completed letters of transmittal shall be
delivered by the Shareholders to the Parent.
5.3.8 Discharge of Indebtedness, Releases, Etc. The indebtedness of
----------------------------------------
the Company referred to in Exhibit 5.3.8 attached hereto ("Terminated
----------
Obligations") shall be paid in full or refinanced on terms acceptable to the
- -----------
Parent, and the Shareholders shall cause all holders of any such Terminated
Obligations to deliver to the Parent, in form reasonably satisfactory to the
Parent and the lenders to the Parent or Merger Sub, such customary releases,
termination statements, consents, approvals or other documents or instruments
required, in the judgment of the Parent, to release and terminate all liens,
security interests, claims, or rights of such holders against the Surviving
Corporation or the Parent or any of their respective assets in connection
therewith.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholders hereunder for any breach of warranty, covenant or
agreement by the Company or the Shareholders herein irrespective of any
knowledge of or investigation made by or on behalf of the Parent or Merger Sub;
provided, however, that if the Company shall disclose in writing to the Parent
prior to the Closing Date a specified breach of a specifically identified
representation, warranty, covenant or agreement of the Company or any
Shareholder herein by the Company or any Shareholder, and requests a waiver
thereof by the Parent, and the Parent shall waive any such specifically
identified breach in writing prior to the Closing Date, the Parent and the
Surviving Corporation, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Shareholders shall have no liability with
respect to, any such specifically identified breach, to the extent so identified
by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
---------------------------------------
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall deliver
--------------------
the certificates required pursuant to Sections 5.2.1, 5.2.2 and 5.2.3.
5.4.2 Registration Rights Agreement. The Parent shall execute and
-----------------------------
deliver to the Shareholders a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
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<PAGE>
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The Parent
------------------------------------------------
shall deliver the favorable opinion of its legal counsel dated the Effective
Time, substantially in the form and to the effect set forth in Exhibit 5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver the
----------------------------
Closing Merger Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of any Shareholder; provided, however, that if the Parent shall disclose in
writing to the Shareholders prior to the Closing a specified breach of a
specifically identified representation, warranty, covenant or agreement of the
Parent or Merger Sub contained herein by the Parent or Merger Sub, and requests
a waiver thereof by the Company and the Shareholders, and the Company and the
Shareholders shall waive any such specifically identified breach in writing
prior to the Closing, the Company and the Shareholders shall be deemed to have
waived their rights and remedies hereunder for, and the Parent and Merger Sub
shall have no liability or obligation to the Shareholders or the Company with
respect to, any such specifically identified breach, to the extent so identified
by the Parent and waived by the Company and the Shareholders.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2 shall survive for a period of
36 months after the Closing Date and the representations and warranties of the
Shareholders and the Company contained in Sections 2.2, 2.3, 2.4 and in Sections
2 and 3 of Exhibit 2 shall survive for the maximum period permitted by
applicable law. The representations and warranties of the Parent herein and in
the Parent Related Documents, other than those in Sections 3.1.3 and 3.1.4,
shall survive for a period of 36 months after the Closing Date and the
representations and warranties of the Parent contained in Sections 3.1.3 and
3.1.4 shall survive for the maximum period permitted by applicable law. The
periods of survival of the representations and warranties as stated above in
this Section 6.1 are referred to herein as the "Survival Period." The
---------------
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable Survival Period and no claim
for indemnification may be made with respect to any breach of any representation
or warranty, the applicable Survival Period of which shall have expired, except
to the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration. The covenants and agreements of the parties herein (including but
not limited to Exhibit 4.6) and in other documents and instruments executed and
delivered in connection with the closing of the transactions contemplated hereby
shall survive for the maximum period permitted by law.
6.2 Indemnification.
---------------
6.2.1 Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 6.1 and 6.3 hereof, the Shareholders shall indemnify, save and hold
harmless the Parent, the Surviving Corporation, Merger Sub
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<PAGE>
and any of their assignees (including lenders) and all of their respective
officers, directors, employees, representatives, agents, advisors and
consultants and all of their respective heirs, legal representatives, successors
and assigns (collectively the "Parent Indemnified Parties") from and against any
--------------------------
and all damages, liabilities, losses, loss of value (including the value of
adverse effects on cash flow or earnings), claims, deficiencies, penalties,
interest, expenses, fines, assessments, charges and costs, including reasonable
attorneys' fees and court costs (collectively "Losses") arising from, out of or
------
in any manner connected with or based on:
(i) the breach of any covenant of the Shareholders or the Company or
the failure by the Shareholders or the Company to perform any obligation of
the Shareholders or the Company contained herein or in any Company Related
Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty of
the Shareholders contained herein or in any Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty of
the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed with
reasonable specificity in the Disclosure Schedule or (b) disclosed in the
Company Financial Statements (as defined in Exhibit 2) or in working
capital or long term debt (in each case as determined for purposes of
calculating the Total Merger Consideration).
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1 and
----------------
6.3, the Parent shall indemnify, save and hold harmless the Shareholders and the
Shareholders' heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty of
the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring or
existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from any Shareholder's
acts or omissions after the
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<PAGE>
Effective Time as an officer, director and/or employee of the Parent, the
Surviving Corporation and/or any other affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The aggregate liability of the Shareholders under
-----------
Sections 6.2.1 (ii) and (iii) shall not exceed the cash amount equal to the
Total Merger Consideration, with the Parent Common Stock being valued at the IPO
Price to the Public for such purpose. The aggregate liability of the Parent
under Section 6.2.2 (ii) shall not exceed the cash amount equal to the Total
Merger Consideration, with the Parent Common Stock being valued at the IPO Price
to the Public for such purpose.
6.4 Procedures for Indemnification.
------------------------------
6.4.1 Notice. The party (the "Indemnified Party") that may be
------ -----------------
entitled to indemnity hereunder shall give prompt notice to any party obligated
to give indemnity hereunder (the "Indemnifying Party") of the assertion of any
------------------
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 6.4.1 shall relieve the
Indemnifying Party of its obligations under this Article 6 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice (except that the Indemnifying Party shall not be liable for any
expenses incurred by the Indemnified Party during the period in which the
Indemnified Party failed to give such notice). Thereafter, the Indemnified Party
shall deliver to the Indemnifying Party, promptly (and in any event within 10
days thereof) after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
-------------
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholders shall at all times have the right, at their option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
----------
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
-----------------
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the
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<PAGE>
Indemnifying Party shall not be liable for Losses arising from such third-party
suit, action, proceeding or investigation in excess of the amount proposed in
such settlement offer. Notwithstanding the foregoing, no Indemnifying Party will
consent to the entry of any judgment or enter into any settlement without the
consent of the Indemnified Party, if such judgment or settlement imposes any
obligation or liability upon the Indemnified Party other than the execution,
delivery or approval thereof and customary releases of claims with respect to
the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any such
-----------
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and records, and personnel in the
possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself,
-----------
himself or herself and such Indemnifying Party's affiliates (as defined in
Exhibit 2) any rights to subrogation against any Indemnified Party or such
Indemnified Party's insurers for Losses arising from any third-party claims for
which the Indemnifying Party is liable or against which the Indemnifying Party
indemnifies any Indemnified Party and, if necessary, each Indemnifying Party
shall obtain waivers of such subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and the
--------------
Parent; or
7.1.2 Optional By the Company. By the Company by written notice to
-----------------------
the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of their
respective obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to the
----------------------
Company, if the Closing shall have failed to occur by 5:00 p.m. Houston, Texas
time on December 31, 1997, but only if neither the Parent nor Merger Sub has
breached this Agreement or has failed to perform any of its obligations under
this Agreement;
7.1.4 Breach By the Parent or Merger Sub. By the Company, by written
----------------------------------
notice to the Parent, if either the Parent or Merger Sub has breached this
Agreement or failed to perform any of its obligations under this Agreement; or
7.1.5 Breach by the Company or any Shareholder. By the Parent, by
----------------------------------------
written notice to the Company, if the Company or any Shareholder has breached
this Agreement or has failed to perform any of their respective obligations
under this Agreement.
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<PAGE>
7.2 Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement. If this Agreement is terminated by the Company pursuant to Section
7.1.4 and the Company and the Shareholders have not breached this Agreement or
failed to perform any of their obligations under this Agreement and all of the
representations and warranties made by them herein are true and correct in all
material respects, the Parent shall pay the costs of the Accountants referred to
in Section 8.20.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Company (prior to the Effective Time) or the Shareholders:
Arkansas Mechanical Services, Inc.
P.O. Box 548
N. Little Rock, Arkansas 72115
Attention: President
Telecopy: (501) 945-4090
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholders hereunder.
8.3 Assignability. The Shareholders shall not assign this Agreement in
-------------
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under
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this Agreement, the Company Related Documents and the Shareholder Related
Documents without the consent of any Shareholder or the Company. After the
Effective Time, the Surviving Corporation may assign its rights under this
Agreement, the Company Related Documents and the Shareholder Related Documents
without the consent of any Shareholder.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
----------------
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
---------------
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
--------------------
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
----------------------
Merger Sub and the Company, by action taken by their Boards of Directors to the
extent permitted by applicable law;
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provided, however, that no such amendment shall (i) alter or change any
provision of this Agreement, the alteration or change of which must be adopted
by the holders of capital stock of the Company under the certificate or articles
of incorporation of the Company or the Applicable Corporate Law, or (ii) alter
or change this Section 8.11, unless each such alteration or change is adopted by
the holders of shares of capital stock of the Company as may be required by the
certificate or articles of incorporation of the Company or the Applicable
Corporate Law. Prior to the Effective Time, all amendments to this Agreement
must be by an instrument in writing signed on behalf of the Parent, Merger Sub,
the Company and the Shareholders. After the Effective Time, all amendments to
this Agreement must be by an instrument in writing signed on behalf of the
Parent and the Shareholders. Any term or provision of this Agreement (other than
the requirements for shareholder approvals) may be waived in writing at any time
by the party which is, or whose shareholders are, entitled to the benefits
thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever under or by reason of this Agreement, or shall cause the
employment status of any employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by each of
the Parent, Merger Sub, the Company and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Parent and the Company
and their respective members of their Boards of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or
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<PAGE>
unenforceable provision, there shall be automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
---------------------
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any business broker, legal counsel, accountants or other advisors engaged by the
Shareholders and shall pay the accounting and auditing fees and expenses of the
Accountants for their work required to consummate the transactions provided
herein (to the extent, and only to the extent, that any such payments will not
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code); and provided further, that all fees,
costs and expenses incurred or payable by the Company in connection with the
negotiation and closing of this Agreement and the transactions contemplated
hereby shall be included in current liabilities for purposes of determining
Working Capital; and provided further, that the Parent will pay such fees and
expenses of the Accountants under the circumstances described in Section 7.2.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:
____________________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
AMS ACQUISITION CORP.
By:
________________________________________
President
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<PAGE>
SHAREHOLDERS:
___________________________________________
Name: Harry Langley
___________________________________________
Name: Arthur Erwin
COMPANY:
ARKANSAS MECHANICAL SERVICES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
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<PAGE>
EXHIBIT 10.17
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
CENTRAL CAROLINA ACQUISITION CORP.
CENTRAL CAROLINA AIR CONDITIONING COMPANY
AND
THE HOLDERS OF ALL OF THE
OUTSTANDING CAPITAL STOCK
OF
CENTRAL CAROLINA AIR CONDITIONING COMPANY
August 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE MERGER...................................................................................... 1
1.1 The Merger.............................................................................. 1
1.2 Effective Time of the Merger............................................................ 1
1.3 Closing................................................................................. 1
1.4 Effects of the Merger................................................................... 2
1.4.1 At the Effective Time............................................................ 2
1.4.2 Effects on the Surviving Corporation............................................. 2
1.5 Written Consents and Other Actions...................................................... 3
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters..................... 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub............................ 3
1.5.3 All Other Necessary Actions...................................................... 3
1.6 Conversion of Stock..................................................................... 3
1.6.1 Merger Sub Capital Stock......................................................... 3
1.6.2 Cancellation of the Company Treasury Stock....................................... 3
1.6.3 Merger Consideration............................................................. 3
1.7 Exchange of and Payment for Stock....................................................... 4
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration................ 4
1.7.2 Assignments...................................................................... 4
1.7.3 Payment In Full Satisfaction of All Rights....................................... 4
1.8 Determination of Closing Merger Consideration........................................... 4
1.8.1 Delivery of IPO Price to Public; Statement....................................... 4
1.9 Post-Closing Determination of Total Merger Consideration................................ 5
1.9.1 Statement........................................................................ 5
1.9.2 Review........................................................................... 5
1.9.3 Disputes......................................................................... 5
1.9.4 Resolution by Parties............................................................ 5
1.9.5 Final Determination.............................................................. 6
1.9.6 Expenses......................................................................... 6
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDER........................................................... 6
2.1 Stock Ownership......................................................................... 6
2.2 Authority............................................................................... 6
2.3 Consents................................................................................ 7
</TABLE>
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<S> <C>
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB................................................................. 7
3.1 Representations and Warranties......................................................... 7
3.1.1 Organization................................................................... 7
3.1.2 Capitalization of the Parent................................................... 7
3.1.3 Authority...................................................................... 7
3.1.4 Consents....................................................................... 8
3.1.5 Defaults....................................................................... 8
3.1.6 Investment Company............................................................. 8
3.1.7 Financial Statements........................................................... 8
3.1.8 Taxes.......................................................................... 9
3.1.9 Full Authority................................................................. 9
3.1.10 Access......................................................................... 9
3.1.11 Disclosure..................................................................... 9
3.1.12 Parent Material Adverse Effect................................................. 9
3.1.13 Tax-Free Reorganization........................................................ 9
3.2 Representations and Warranties Concerning the Merger Sub............................... 10
3.2.1 Organization and Standing...................................................... 10
3.2.2 Capital Structure.............................................................. 10
3.2.3 Authority...................................................................... 11
3.2.4 Defaults....................................................................... 11
3.2.5 Consents....................................................................... 11
3.2.6 Prior History.................................................................. 11
3.2.7 Disclosure..................................................................... 12
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS.......................................... 12
4.1 Agreements of the Shareholders to be Effective Upon Closing............................ 12
4.1.1 Covenant Not to Compete......................................................... 12
4.1.2 Release......................................................................... 12
4.2 Elimination of Expense................................................................. 13
4.3 Deferred Compensation Plans............................................................ 13
4.4 Audit.................................................................................. 13
4.5 Certain Payables and Receivables....................................................... 13
4.6 Pre-Closing Covenants and Agreements................................................... 13
4.7 Confidentiality........................................................................ 13
4.8 Tax-Free Reorganization................................................................ 14
4.9 Company Plans.......................................................................... 14
4.10 Purchase of Certain Receivables....................................................... 14
4.11 Income Tax Distribution................................................................ 14
4.12 Current Public Information Regarding Parent............................................ 15
4.13 Release of Shareholders................................................................ 15
4.14 Certain Tax Matters.................................................................... 15
</TABLE>
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<TABLE>
<S> <C>
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES....................................................... 16
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub................... 16
5.1.1 Accuracy of Representations and Warranties..................................... 16
5.1.2 Performance of Covenants....................................................... 16
5.1.3 Legal Actions or Proceedings................................................... 17
5.1.4 Approvals...................................................................... 17
5.1.5 Closing Deliveries............................................................. 17
5.1.6 No Casualty, Loss or Damage.................................................... 17
5.1.7 Licenses, etc.................................................................. 17
5.1.8 No Material Adverse Change..................................................... 17
5.1.9 IPO............................................................................ 17
5.1.10 Certain Corporate Actions...................................................... 17
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company............ 17
5.2.1 Accuracy of Representations and Warranties..................................... 18
5.2.2 Performance of Covenants....................................................... 18
5.2.3 Approvals...................................................................... 18
5.2.4 Closing Deliveries............................................................. 18
5.2.5 Legal Actions or Proceedings................................................... 18
5.2.6 Certain Corporate Actions...................................................... 18
5.2.7 IPO............................................................................ 18
5.3 Deliveries by the Shareholders at the Closing.......................................... 18
5.3.1 Closing Certificates........................................................... 18
5.3.2 Stock Transfer Restriction Agreement........................................... 19
5.3.3 Employment Agreements.......................................................... 19
5.3.4 Lease Agreement................................................................ 19
5.3.5 Registration Rights Agreement.................................................. 19
5.3.6 Opinion of Counsel for the Shareholders and the Company........................ 19
5.3.7 Documents, Stock Certificates.................................................. 19
5.4 Deliveries by the Parent at the Closing................................................ 20
5.4.1 Closing Certificates........................................................... 20
5.4.2 Registration Rights Agreement.................................................. 20
5.4.3 Opinion of Counsel for the Parent and Merger Sub............................... 20
5.4.4 Closing Merger Consideration................................................... 20
5.4.5 Stock Transfer Restriction Agreement........................................... 20
5.4.6 Lease Guaranty Agreement....................................................... 20
5.4.7 Documents; Stock Certificates.................................................. 20
6. SURVIVAL; INDEMNIFICATIONS..................................................................... 21
6.1 Survival............................................................................... 21
6.2 Indemnification........................................................................ 21
</TABLE>
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<TABLE>
<S> <C>
6.2.1 Shareholders Indemnity.......................................................... 21
6.2.2 Parent Indemnity................................................................ 22
6.3 Limitations on Shareholders Liability.................................................. 22
6.3.1 Several Liability of Shareholders............................................... 22
6.3.2 Basket; Method of Payment....................................................... 22
6.3.3 Maximum Liability............................................................... 22
6.3.4 Benefit of Tax Write-Offs, Insurance and Reimbursements......................... 23
6.4 Limitations on Parents' Liability...................................................... 23
6.4.1 Basket.......................................................................... 23
6.4.2 Maximum Liability............................................................... 23
6.4.3 Benefit of Tax Write-Offs, Insurance and Reimbursements......................... 23
6.5 Procedures for Indemnification......................................................... 23
6.5.1 Notice.......................................................................... 23
6.5.2 Legal Defense................................................................... 24
6.5.3 Settlement...................................................................... 24
6.5.4 Cooperation..................................................................... 24
6.6 Subrogation............................................................................ 24
7. TERMINATION.................................................................................... 25
7.1 Grounds for Termination................................................................ 25
7.1.1 Mutual Consent.................................................................. 25
7.1.2 Optional By the Shareholders.................................................... 25
7.1.3 Optional By the Parent.......................................................... 25
7.1.4 Breach By the Parent or Merger Sub.............................................. 25
7.1.5 Breach by the Company or any Shareholder........................................ 25
7.2 Effect of Termination.................................................................. 25
8. MISCELLANEOUS................................................................................... 25
8.1 Notice................................................................................. 25
8.2 Further Documents...................................................................... 26
8.2.1 By the Shareholders............................................................. 26
8.2.2 By the Parent or Surviving Corporation.......................................... 26
8.3 Assignability.......................................................................... 26
8.4 Exhibits and Schedules................................................................. 27
8.5 Sections and Articles.................................................................. 27
8.6 Entire Agreement....................................................................... 27
8.7 Headings............................................................................... 27
8.8 CONTROLLING LAW........................................................................ 27
8.9 Public Announcements................................................................... 27
8.10 No Third Party Beneficiaries........................................................... 27
8.11 Amendments and Waivers................................................................. 27
8.12 No Employee Rights..................................................................... 28
</TABLE>
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<S> <C>
8.13 Non-Recourse........................................................................... 28
8.14 When Effective......................................................................... 28
8.15 Takeover Statutes...................................................................... 28
8.16 Number and Gender of Words............................................................. 28
8.17 Invalid Provisions..................................................................... 28
8.18 Multiple Counterparts.................................................................. 29
8.19 No Rule of Construction................................................................ 29
8.20 Expenses............................................................................... 29
</TABLE>
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<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1............................................. Determination of Final Merger Consideration
Exhibit 1.5.1........................................... Unanimous Written Consent of Shareholders
Exhibit 1.5.2........... Written Consent of Sole Shareholder of Central Carolina Acquisition Corp.
Exhibit 1.7................................................................. Letter of Transmittal
Exhibit 2...................................................................... Certain Statements
Exhibit 2.1..................................................... Ownership of Company Common Stock
Exhibit 3.1.4.......................................................... Required Consents - Parent
Exhibit 4.6..................................................................... Certain Covenants
Exhibit 4.9..................................................... Company Plans to Remain in Effect
Exhibit 4.11.............................................................. Form of Promissory Note
Exhibit 5.3.2................................................ Stock Transfer Restriction Agreement
Exhibit 5.3.3-A.............................................. Employment Agreement-Richard R. Lacy
Exhibit 5.3.3-B............................................ Employment Agreement-Robert J. Allison
Exhibit 5.3.4..................................................................... Lease Agreement
Exhibit 5.3.5....................................................... Registration Rights Agreement
Exhibit 5.3.6.............................. Opinion of Counsel to the Shareholders and the Company
Exhibit 5.4.3.....................................................Opinion of Counsel to the Parent
Exhibit 5.4.6........................................................... Parent Guaranty of Lease
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accountants....................................................................................... 5
Agreement......................................................................................... 1
Applicable Corporate Law.......................................................................... 1
Balance Sheet Date........................................................................ Exhibit 2
Cash Tax Distribution............................................................................ 14
Closing........................................................................................... 1
Closing Date...................................................................................... 1
Closing Merger Consideration.............................................................. Exhibit 1
Closing Outstanding Common Stock Number................................................... Exhibit 1
Closing Per Share Cash Amount............................................................. Exhibit 1
Closing Per Share Common Stock Amount..................................................... Exhibit 1
Code.............................................................................................. 1
Company........................................................................................... 1
Company Accountants.............................................................................. 13
Company Common Stock.............................................................................. 1
Company Common Stock.............................................................................. 1
Company Plans............................................................................. Exhibit 2
Converted Share................................................................................... 4
Customer......................................................................................... 22
Disclosure Schedule....................................................................... Exhibit 2
Effective Time.................................................................................... 1
Effective Time.................................................................................... 1
Environmental Law......................................................................... Exhibit 2
Final Outstanding Common Stock Number..................................................... Exhibit 1
Final Per Share Cash Amount............................................................... Exhibit 1
Final Per Share Common Stock Amount....................................................... Exhibit 1
GAAP...................................................................................... Exhibit 1
Indemnified Party................................................................................ 23
Indemnifying Party............................................................................... 23
Investments............................................................................... Exhibit 2
IPO............................................................................................... 2
IPO Price to the Public................................................................... Exhibit 1
Long-Term Debt............................................................................ Exhibit 1
Losses........................................................................................... 21
Measurement Month Date.................................................................... Exhibit 1
Merger............................................................................................ 1
Merger Sub........................................................................................ 1
Minimum Proceeds.................................................................................. 2
</TABLE>
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<TABLE>
<S> <C>
Monthly Balance Sheet................................................................... Exhibit 4.6
Notice of Dispute................................................................................. 5
Operating EBITDA Amount................................................................... Exhibit 1
Other Ownership Interests................................................................. Exhibit 1
Owner's Policies of Title Insurance..................................................... Exhibit 4.6
Parent............................................................................................ 1
Parent Common Stock............................................................................... 1
Parent Financial Statements...................................................................... 8
Parent Indemnified Parties....................................................................... 21
Parent Material Adverse Effect.................................................................... 9
Parent Related Documents.......................................................................... 7
Permitted Exceptions.................................................................... Exhibit 4.6
Price Notice...................................................................................... 4
Proprietary Rights........................................................................ Exhibit 2
Registration Statement............................................................................ 8
SEC............................................................................................... 8
Securities Act.................................................................................... 2
Settlement Notice................................................................................ 24
Shareholder Related Document...................................................................... 6
Shareholders...................................................................................... 1
Statement of Closing Consideration................................................................ 4
Statement of Final Per Share Amounts.............................................................. 5
Stock Certificate................................................................................. 4
Surveys..................................................................................Exhibit 4.6
Survival Period.................................................................................. 21
Surviving Corporation............................................................................. 1
Tax Notes........................................................................................ 14
Tax Returns............................................................................... Exhibit 2
Third Accountants................................................................................. 5
Title Commitments....................................................................... Exhibit 4.6
Title Insurance Property................................................................ Exhibit 4.6
Total Merger Consideration................................................................ Exhibit 1
Working Capital........................................................................... Exhibit 1
Working Capital Addition.................................................................. Exhibit 1
Working Capital Deduction................................................................. Exhibit 1
Undisclosed Customer Claim....................................................................... 22
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
---------
August __, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), Central Carolina Acquisition Corp., a North Carolina
------
corporation ("Merger Sub"), Central Carolina Air Conditioning Company, a North
----------
Carolina corporation (the "Company"), and the undersigned holders of all of the
-------
outstanding capital stock of the Company (the "Shareholders").
------------
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
------
State of North Carolina, and pursuant to the Merger each issued and outstanding
share of Class A Common Stock, $10.00 par value per share, of the Company
("Company Common Stock") will be converted into the right to receive certain
- ----------------------
shares of common stock, $.001 par value per share, of the Parent ("Parent Common
-------------
Stock"), and certain cash consideration, all as provided herein;
- -----
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholders;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
----------
accordance with the North Carolina statute (the "Applicable Corporate Law") upon
------------------------
the Effective Time (as defined in Section 1.2), the Company shall be merged with
and into Merger Sub. Merger Sub, as the surviving entity following the Merger,
is sometimes referred to in this Agreement as the "Surviving Corporation."
---------------------
1.2 Effective Time of the Merger. In accordance with the requirements of
----------------------------
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted for filing with the Secretary of
State of the State of North Carolina as soon as practicable following the
Closing (as defined below). The date of such filing is referred to in this
Agreement as the "Effective Time."
--------------
1.3 Closing. The closing of the Merger ("Closing") will take place at
------- -------
10:00 a.m. at the offices of Bracewell & Patterson, L.L.P. in Houston, Texas on
a date that is contemporaneous with the closing of the Parent's IPO (as defined
below), but in no event later than December 31, 1997 ("Closing Date"); provided
------------
that each of the conditions precedent to the obligations of the parties to
effect the Merger set forth in Article 5 of this Agreement are then satisfied or
waived by the applicable party. The parties may agree in writing on another
time of day or place for the Closing. At the Closing, the parties will deliver
or cause to be
<PAGE>
delivered the documents described in Sections 5.3 and 5.4 below. The term "IPO"
---
means any underwritten public offering of Parent Common Stock resulting in net
cash proceeds to the Parent of at least the Minimum Proceeds, as defined below
(other than any offering pursuant to any registration statement relating to any
capital stock of the Parent or options, warrants or other rights to acquire any
such capital stock issued or to be issued primarily to directors, officers or
employees of the Parent or any of its subsidiaries, (i) relating to any employee
benefit plan or interest therein, (ii) relating principally to any preferred
stock or debt securities of the Parent, or (iii) filed pursuant to Rule 145
under the Securities Act of 1933, as amended ("Securities Act"), or any
--------------
successor or similar provision). The term "Minimum Proceeds" means the lesser
----------------
of (a) the aggregate amount necessary to pay in full (i) all indebtedness of the
Parent or any of its subsidiaries outstanding at the closing of the IPO and
incurred for purposes of financing any acquisitions by the Parent or any of its
subsidiaries, (ii) the aggregate redemption prices for the redemption of all of
the Parent's preferred stock outstanding at the closing of the IPO issued by the
Parent in connection with then completed acquisitions by the Parent or any of
its subsidiaries, and (iii) the aggregate cash payable by the Parent or any of
its subsidiaries in connection with all then pending acquisitions, and (b) the
sum of One Hundred Million Dollars ($100,000,000).
1.4 Effects of the Merger.
---------------------
1.4.1 At the Effective Time. At the Effective Time, (i) the Company
---------------------
shall merge with and into Merger Sub and as a result thereof, the separate
existence of the Company shall cease, (ii) the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, except that the Articles
of Incorporation of Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "Central Carolina Air Conditioning
Company," (iii) the Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, and (iv) the
directors and officers of Merger Sub immediately prior to the Effective Time
shall become the directors and officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected or appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
------------------------------------
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and
-2-
<PAGE>
duties had been incurred or contracted by it, all in accordance with the
Applicable Corporate Law and the terms of this Agreement.
1.5 Written Consents and Other Actions.
----------------------------------
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters.
------------------------------------------------------------
Contemporaneously with the execution hereof, the Shareholders (i) are executing
and delivering to the Company a Unanimous Written Consent in substantially the
form of Exhibits Exhibit 1.5.1 attached hereto, (ii) hereby acknowledge that
they are aware of their dissenter's or appraisal rights with respect to the
Merger and their receipt of a copy of the provisions of Article 13 of Chapter 55
of the Applicable Corporate Law and have elected not to exercise such rights,
and (iii) are delivering to the Company a statement from each Shareholder
acknowledging that they are aware of their dissenter's or appraisal rights with
respect to the Merger and their receipt of a copy of the provisions of Article
13 of Chapter 55 of the Applicable Corporate Law and have elected not to
exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
-----------------------------------------------------
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibits Exhibit 1.5.2 attached hereto, pursuant to the
applicable provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
---------------------------
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
-------------------
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of
------------------------
Merger Sub issued and outstanding at the Effective Time shall remain outstanding
and shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
------------------------------------------
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. Each share of Company Common Stock
--------------------
(other than shares to be canceled in accordance with Section 1.6.2) shall be
converted into the right to receive (i) that number of shares of Parent Common
Stock equal to the Final Per Share Common Stock Amount (as defined in Exhibits
Exhibit 1 attached hereto), and (ii) cash equal to the Final Per Share Cash
Amount (as defined in Exhibit 1 attached hereto). Each share of Company Common
Stock so converted into the right to receive cash equal to the Final Per Share
Cash Amount and shares of Parent Common Stock equal to the Final Per Share
-3-
<PAGE>
Common Stock Amount (a "Converted Share") shall, by virtue of the Merger and
---------------
without any action on the part of the holder thereof, at the Effective Time no
longer be outstanding and shall at such time be canceled and retired and shall
cease at such time to exist, and each holder of a certificate which prior to the
Effective Time validly evidenced any such Converted Share (a "Stock
-----
Certificate") shall thereafter cease to have any rights with respect to such
- -----------
Converted Share, except, upon the surrender of the Stock Certificate and a duly
executed and completed letter of transmittal in accordance with Section 1.7, the
right to receive such cash and Parent Common Stock at the times and in the
manner set forth herein. Fifty thousand dollars ($50,000.00) of the Final Cash
Amount shall be allocated as consideration for the covenant not to compete set
forth in Section 4.1.1 below.
1.7 Exchange of and Payment for Stock.
---------------------------------
1.7.1 Delivery of Company Common Stock and Closing Merger
---------------------------------------------------
Consideration. Prior to the Closing, the Parent will deliver to each
Shareholder a letter of transmittal, in substantially the form attached hereto
as Exhibits Exhibit 1.7, to be used for the purpose of surrendering Stock
Certificates to the Parent in exchange for the right to receive the Final Per
Share Cash Amount and the Final Per Share Common Stock Amount for each Converted
Share evidenced by such Stock Certificate. All of the Company Common Stock held
by the Shareholders will be surrendered by the Shareholders to the Parent
together with properly completed and executed letters of transmittal (with each
such signature guaranteed by a commercial bank or notarized by a notary public
or similar official reasonably satisfactory to the Parent), and the Parent shall
cause to be delivered to the Shareholders at the Closing the Closing Per Share
Cash Amount (as defined in Exhibit 1 attached hereto) and the Closing Per Share
Common Stock Amount (as defined in Exhibit 1 attached hereto) applicable to each
of the Converted Shares evidenced by the Stock Certificates properly surrendered
(with properly executed and completed letters of transmittal) by each
Shareholder to the Parent.
1.7.2 Assignments. The assignment, transfer or other disposition of
-----------
record or beneficial ownership of any shares of Company Common Stock may not be
made on or after the date hereof except as provided in this Agreement or with
the prior written consent of Parent.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of
------------------------------------------
the Closing Per Share Cash Amount and the Closing Per Share Common Stock Amount
to the Shareholders with respect to their Converted Shares shall be deemed to be
payment in full satisfaction of all rights pertaining to the outstanding
Converted Shares except for the right to receive additional shares of Parent
Common Stock and cash pursuant to Section 1.9.
1.8 Determination of Closing Merger Consideration.
---------------------------------------------
1.8.1 Delivery of IPO Price to Public; Statement. Prior to the
------------------------------------------
Closing, the Parent shall deliver to the Shareholders a written notice (the
"Price Notice") setting forth the initial price to the public for a share of
- -------------
Parent Common Stock offered in the IPO, as set forth in an executed underwriting
agreement, and a statement setting forth a calculation of the Closing
Outstanding Common Stock Number (as defined in Exhibit 1 attached hereto), the
Closing Per Share Cash Amount, the Closing Per Share Common Stock Amount and the
Closing Merger Consideration (as defined in Exhibit 1 attached hereto), payable
to the Shareholders at Closing (the "Statement of Closing Consideration"). The
----------------------------------
initial price to the public of a share of Parent Common Stock, as set forth in
the Price Notice, and the Closing Outstanding Common Stock
-4-
<PAGE>
Number, the Closing Per Share Cash Amount, the Closing Per Share Common Stock
Amount and the Closing Merger Consideration, as set forth in the Statement of
Closing Consideration, shall be final, conclusive and binding for purposes of
this Agreement.
1.9 Post-Closing Determination of Total Merger Consideration.
--------------------------------------------------------
1.9.1 Statement. No later than 90 days after the Closing, the Parent
---------
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total Merger
Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of Final
------------------
Per Share Amounts"). For purposes of determining the Statement of Final Per
- -----------------
Share Amounts, the Final Outstanding Common Stock Number, the Final Per Share
Cash Amount, the Final Per Share Common Stock Amount and the Total Merger
Consideration shall be calculated or determined as of the Closing Date and not
as of the Measurement Month Date (as defined in Exhibit 1).
1.9.2 Review. After delivery to the Shareholders of the Statement of
------
Final Per Share Amounts, the Shareholders and their representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number, the Final
--------
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Merger Consideration as shown on the Statement of Final Per Share Amounts shall
be final, conclusive and binding for purposes of this Agreement, unless the
Shareholders shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Per Share
- -------------------
Amounts within 10 business days following receipt of the Statement of Final Per
Share Amounts, specifying in reasonable detail the nature and extent of such
disagreement; provided, however, that no Notice of Dispute may be given with
respect to any items unless such items involve an amount of $5,000 or more and
provided further that in the event such disagreement involves an amount less
than $5,000, the Statement of Final Per Share Amounts shall be final, conclusive
and binding. If a Notice of Dispute is not properly given within such time, the
Final Outstanding Common Stock Number, the Final Per Share Cash Amount, the
Final Per Share Common Stock Amount and the Total Merger Consideration as set
forth in the Statement of Final Per Share Amounts shall be final, conclusive and
binding for purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
---------------------
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholders shall not reach
such resolution within 30 days following receipt by the Parent of a properly
given Notice of Dispute, KPMG Peat Marwick LLP ("Accountants") and the Company's
-----------
firm of independent accountants shall together choose a qualified third party
firm of independent accountants ("Third Accountants") within 10 days after a
-----------------
Notice of Dispute is submitted to them and such Third Accountants shall resolve
such dispute within 30 days after its submission to them. The Parent and the
Shareholders (if the dispute is resolved by them or the Statement of Final Per
Share Amounts otherwise becomes final pursuant hereto without referral to the
Accountants) or the Third Accountants (if a dispute is resolved by them) shall
set forth such resolution in writing and such
-5-
<PAGE>
writing shall (i) set forth the Final Outstanding Common Stock Number, the Final
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Merger Consideration and (ii) be final, conclusive and binding for purposes of
this Agreement.
1.9.5 Final Determination. Within 10 business days following the
-------------------
final determination of the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total Merger
Consideration as provided in this Section 1.9, (i) the Parent shall deliver to
each Shareholder (a) the cash amount, if any, by which the aggregate of the
Final Per Share Cash Amounts payable to such Shareholder, as finally determined
pursuant hereto, exceeds the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing; and (b) the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Per Share Common Stock
Amounts deliverable to such Shareholder, as finally determined pursuant hereto,
exceeds the aggregate of the Closing Per Share Common Stock Amounts delivered to
such Shareholder at the Closing; or (ii) each Shareholder shall deliver to the
Parent (a) the cash amount, if any, by which the aggregate of the Closing Per
Share Cash Amounts paid to such Shareholder at the Closing exceeds the aggregate
of the Final Per Share Cash Amounts payable to such Shareholder as finally
determined pursuant hereto; and (b) the number of shares of Parent Common Stock,
if any, by which the aggregate of the Closing Per Share Common Stock Amounts
delivered to such Shareholder at the Closing exceeds the aggregate of the Final
Per Share Common Stock Amounts deliverable to such Shareholder as finally
determined pursuant hereto.
1.9.6 Expenses. The Parent and the Shareholders shall each pay their
--------
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any. The fees and
expenses of the Third Accountants will be shared equally between Parent and the
Shareholders.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, make the
representations and warranties to the Parent and the Merger Sub set forth in
Exhibits Exhibit 2 attached hereto. Each Shareholder severally, and not
jointly, hereby represents and warrants to the Parent and Merger Sub as follows:
2.1 Stock Ownership. Such Shareholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibits Exhibit 2.1 and such shares are so
held by such Shareholder free and clear of all liens, encumbrances and adverse
claims whatsoever except for the lien on the shares of Company Common Stock
noted in Exhibit 2.1, which lien shall be released and terminated prior to the
Closing.
2.2 Authority. Such Shareholder has full right, power, legal capacity
---------
and authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by such Shareholder (each a "Shareholder
-----------
Related Document") and (ii) consummate the transactions contemplated herein and
- ----------------
thereby. This Agreement has been duly executed and delivered by the Shareholder
and constitutes, and any Shareholder Related Document, when duly executed and
delivered by the Shareholder named as a party therein will constitute,
-6-
<PAGE>
legal, valid and binding obligations of such Shareholder enforceable against
such Shareholders in accordance with their respective terms and conditions,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
2.3 Consents. No approval, consent, order or action of or filing with
--------
any court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholder of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by the Shareholder of this Agreement and any Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which such Shareholder is a party
or by which such Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to such Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
such Shareholder.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent and the Merger Sub,
------------------------------
jointly and severally, hereby represent and warrant to each of the Shareholders
and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. As of the execution date of this
----------------------------
Agreement, the total authorized capital stock of the Parent is as set forth in
the Confidential Information Statement of the Parent delivered to each of the
Shareholders by the Parent prior to the date hereof. The outstanding shares of
Parent Common Stock and Preferred Stock, $.001 par value, of the Parent have
been duly and validly issued and are fully paid and non-assessable, and were not
issued in violation of the preemptive rights of any past or present shareholder.
Except as disclosed in the Confidential Information Statement, there are no
outstanding convertible or exchangeable securities, shares of capital stock,
subscriptions, calls, options, warrants, rights or other agreements or
commitments of any character relating to the issuance or sale of any shares of
capital stock of, or other equity ownership interest in, the Parent. The Parent
has no liability, contingent or otherwise, to any person or entity in connection
with preemptive or contractual subscription rights or the offer, sale, purchase,
surrender or cancellation of any shares of capital stock, warrants, options or
other equity or voting interests or securities of the Parent.
3.1.3 Authority. The Parent has the requisite power and authority to
---------
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
------------------------
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent will
constitute, legal, valid and binding obligations
-7-
<PAGE>
of the Parent, enforceable in accordance with their respective terms and
conditions except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
3.1.4 Consents. Except as provided on Exhibits Exhibit 3.1.4, no
--------
approval, consent, order or action of or filing with any court, administrative
agency, governmental authority or other third party is required for the
execution, delivery or performance by the Parent of this Agreement or the Parent
Related Documents or the consummation by the Parent of the transactions
contemplated hereby, except for (i) the filing of the Parent's registration
statement with respect to the IPO ("Registration Statement") with the U.S.
----------------------
Securities and Exchange Commission ("SEC") pursuant to the Securities Act and
---
the SEC's declaration of effectiveness of such Registration Statement and the
completion of all necessary filings required under, and the obtaining of all
necessary consents and approvals required pursuant to, state securities or "blue
sky" laws in connection with the IPO, and (ii) the filing of the Articles of
Merger with the Secretary of State of North Carolina.
3.1.5 Defaults. The Parent is not in default under or in violation
--------
of, and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
or any of its subsidiaries is a party or by which the Parent or any of its
subsidiaries or any of their respective properties or assets may be bound or
affected or (ii) any law, rule or regulation applicable to the Parent or any of
its subsidiaries or any court injunction, order or decree, or any valid and
enforceable order of any governmental agency in effect as of the date hereof
having jurisdiction over the Parent or any of its subsidiaries, which default or
violation prevents the Parent from consummating the transactions contemplated
hereby or is reasonably likely to have a Parent Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company"
------------------
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain
--------------------
financial statements to the Shareholders ("Parent Financial Statements") and
---------------------------
such Parent Financial Statements have been prepared in accordance with GAAP and
fairly present the consolidated financial position, results of operations and
cash flows of the Parent and its then existing consolidated subsidiaries as of
the dates and for the periods indicated, subject to normal year-end adjustments
and any other adjustments described therein or in the notes or schedules
thereto. The Parent does not have any material liabilities or obligations of a
type which should be included or reflected in the Parent Financial Statements if
prepared in accordance with GAAP, whether related to tax or non-tax matters,
accrued or contingent, due or not yet due, liquidated or unliquidated, or
otherwise, except as and to the extent disclosed or reflected in the Parent
Financial Statements. The books and records of the Parent have been kept in
reasonable detail and accurately and fairly reflect the transactions of the
Parent.
-8-
<PAGE>
3.1.8 Taxes. The Parent has either accrued, discharged or caused
-----
to be discharged, as the same have become due, or the Parent Financial
Statements contain adequate accruals and reserves for, all taxes, interest
thereon, fines and penalties of every kind and character, attributable or
relating to the properties and business of the Parent for the period ended
covered by the Parent Financial Statements.
3.1.9 Full Authority. The Parent has, and each of its subsidiaries
--------------
has, respectively, the corporate power and authority and has obtained all
licenses, permits, qualifications, and other documentation (including permits
required under applicable Environmental Law, as defined in Exhibit 2) necessary
to own and/or operate their respective businesses, properties and assets and to
carry on their respective businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation
which the failure to obtain is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental Law), ordinances, rules and regulations
of any governmental agency of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, all applicable court or
administrative agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition or
state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
3.1.10 Access. The Parent and each of its subsidiaries have
------
cooperated fully in permitting the Shareholders and their representatives to
make a full investigation of the properties, operations and financial condition
of the Parent and has afforded the Shareholders and their representatives
reasonable access to the offices, buildings, real properties, machinery and
equipment, inventory and supplies, records, files, books of account, tax
returns, agreements and commitments and personnel of Parent and each of its
subsidiaries.
3.1.11 Disclosure. No representation or warranty by the Parent in
----------
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholders pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under which
they are or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
------------------------------ ---------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
- --------------
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole, in an amount of $250,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
-----------------------
the Merger as a reorganization within the meaning of Section 368(a) of the Code:
(i) The Parent has no plan or intention to sell, exchange or otherwise
dispose or liquidate the Surviving Corporation, to merge the Surviving
Corporation with or into any other corporation, to sell or otherwise
dispose of its Surviving Corporation Common Stock except for transfers of
Surviving Corporation Common Stock to corporations of which the Parent has
control
-9-
<PAGE>
(within the meaning of Section 368(a) of the Code) at the time of such
transfer, or to cause the Surviving Corporation to sell or otherwise
dispose of any of its assets or of any assets acquired in the Merger,
except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(ii) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of its
historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection with
the Merger is voting stock as such term is used in Section 368 of the Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vi) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
(vi) None of the Parent Common Stock received by the Shareholders as
a part of the Total Merger Consideration will be separate consideration
for, or allocable to, any employment agreement.
(ix) Neither the Parent nor Merger Sub is under the jurisdiction of
a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.2 Representations and Warranties Concerning the Merger Sub. The Parent
--------------------------------------------------------
and Merger Sub, jointly and severally, hereby represent and warrant to the
Shareholders and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
-------------------------
incorporated, validly existing and in good standing under the laws of the State
of North Carolina.
3.2.2 Capital Structure. The authorized capital stock of Merger Sub
-----------------
consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse claims
and were not issued in violation of the preemptive rights of any past or present
shareholder. There
-10-
<PAGE>
are no outstanding convertible or exchangeable securities, shares of capital
stock, subscriptions, calls, options, warrants, rights or other agreements or
commitments of any character relating to the issuance or sale of any shares of
capital stock of, or other equity ownership interest in, the Merger Sub. The
Merger Sub has no liability, contingent or otherwise, to any person or entity in
connection with preemptive or contractual subscription rights or the offer,
sale, purchase, surrender or cancellation of any shares of capital stock,
warrants, options or other equity or voting interests or securities of the
Merger Sub.
3.2.3 Authority. Merger Sub has the corporate power and authority to
---------
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by Merger Sub of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly authorized by its Board of
Directors and the Parent as its sole shareholder, and, except for the corporate
filings required by state law, no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
3.2.4 Defaults. The Merger Sub is not in default under or in
--------
violation of, and the execution, delivery and performance of this Agreement and
the Parent Related Documents and the consummation by the Merger Sub of the
transactions contemplated hereby and thereby will not result in a default under
or in violation of (i) any mortgage, indenture, charter or bylaw provision,
contract, agreement, lease, commitment or other instrument of any kind to which
the Merger Sub is a party or by which the Merger Sub or any of its properties or
assets may be bound or affected or (ii) any law, rule or regulation applicable
to the Merger Sub or any court injunction, order or decree, or any valid and
enforceable order of any governmental agency in effect as of the date hereof
having jurisdiction over the Merger Sub, which default or violation prevents the
Merger Sub from consummating the transactions contemplated hereby.
3.2.5 Consents. No approval, consent, order or action of or filing
--------
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by the Merger Sub
of this Agreement or the Parent Related Documents or the consummation by the
Merger Sub of the transactions contemplated hereby, except for (i) the filing of
the Parent's registration statement with respect to the IPO with the U.S.
Securities and Exchange Commission pursuant to the Securities Act and the SEC's
declaration of effectiveness of such Registration Statement and the completion
of all necessary filings required under, and the obtaining of all necessary
consents and approvals required pursuant to, state securities or "blue sky" laws
in connection with the IPO, and (ii) the filing of the Articles of Merger with
the Secretary of State of North Carolina.
3.2.6 Prior History. Merger Sub has been incorporated and
-------------
organized by Parent for the sole purpose of consummating the transactions
contemplated hereby. Merger Sub has not heretofore engaged in any type of
business activity and except for the consideration paid by Parent for the stock
of Merger Sub, has no assets nor liabilities of any kind whatsoever.
-11-
<PAGE>
3.2.7 Disclosure. No representation or warranty by the Merger Sub in
----------
this Agreement, and no statement contained in any certificate delivered by the
Merger Sub to the Shareholders pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under which
they are or were made, not misleading.
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholders to be Effective Upon Closing.
-----------------------------------------------------------
Effective upon Closing, and without further action on the part of any party or
other person, each of the Shareholders covenants and agrees as follows:
4.1.1 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is one year following any termination of such
Shareholder's employment with the Company, such Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or indirectly, individually, as a member of a partnership or limited
liability company, equity owner, shareholder (other than as a shareholder
of less than one percent of the issued and outstanding stock of a publicly-
held company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant engage
in any business that involves indoor air quality, heating, ventilation, air
conditioning, appliance, mechanical construction or sewer cleaning products
or services within Guilford County, North Carolina, or within a 50-mile
radius of Guilford County, North Carolina.
(ii) Each Shareholder agrees that the limitations set forth herein
on such Shareholder's rights to compete with the Parent and its affiliates
as set forth in clause (i) are reasonable and necessary for the protection
of Parent and its affiliates. In this regard, each Shareholder specifically
agrees that the limitations as to period of time and geographic area, as
well as all other restrictions on such Shareholder's activities specified
herein, are reasonable and necessary for the protection of the Parent and
its affiliates. Each Shareholder agrees that, in the event that the
provisions of this Section should ever be deemed to exceed the scope of
business, time or geographic limitations permitted by applicable law, such
provisions shall be and are hereby reformed to the maximum scope of
business, time or geographic limitations permitted by applicable law.
(iii) Each Shareholder agrees that the remedy at law for any breach
by such Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, each Shareholder
-------
does hereby (i) release, acquit and forever discharge the Surviving Corporation
from any and all liabilities, obligations, claims, demands, actions or causes of
action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Effective Time, including,
without limitation, any claim
-12-
<PAGE>
for indemnity or contribution from the Surviving Corporation in connection with
the obligations or liabilities of such Shareholder hereunder, except for salary
and benefits payable to such Shareholder as an employee in the ordinary course
of business; (ii) waive all breaches, defaults or violations of any agreement
applicable to the Company Common Stock and agree that any and all such
agreements are terminated as of the Effective Time, and (iii) waive any and all
preemptive or other rights to acquire any shares of capital stock of the Company
and release any and all claims arising in connection with any prior default,
violation or failure to comply with or satisfy any such preemptive or other
rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholders will
----------------------
cause the Company to discontinue its present policy of paying bonuses to
employees other than officers previously paid at an aggregate level of
approximately $40,000 and the Company shall have made no commitments to commit
or bind the Company to pay such bonuses for any period after the Closing Date
and will produce evidence to the satisfaction of the Parent and its lenders that
such expenses of the Company have been eliminated as expenses of the Surviving
Corporation as of and following the Closing Date except as disclosed in Schedule
8(ii) to Exhibit 2.
4.3 Deferred Compensation Plans. Prior to Closing, the Shareholders will
---------------------------
cause all current or future obligations of the Company under the split dollar
life and other deferred compensation plans covering any Shareholder or any
employee of the Company to be satisfied in full (including current or deferred
tax liabilities arising therefrom).
4.4 Audit. Prior to Closing, the Accountants shall complete an audit of
-----
the Company for the fiscal year ended October 31, 1996, and for the period from
such date through June 30, 1997, and such additional audit and/or review work as
may be requested by the Parent through and including the Closing Date and
provide its report to the Parent and the Shareholders.
4.5 Certain Payables and Receivables. On or prior to Closing, the
--------------------------------
Shareholders shall cause to be paid in full in cash all accounts receivable,
notes receivable and advances payable by any Shareholder to the Company and the
Company shall pay in full in cash all accounts payable, notes payable and
advances payable by the Company to any Shareholder.
4.6 Pre-Closing Covenants and Agreements. The Shareholders and the
------------------------------------
Company jointly and severally agree as set forth in Exhibits Exhibit 4.6
attached hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the Parent,
---------------
Merger Sub, the Company or the Shareholders will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Merger to its employees, vendors and customers to protect
the Company's goodwill and to facilitate the Closing. The Parent and Merger Sub
may disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities, and may describe this
Agreement and the transactions contemplated hereby in any registration statement
filed by the Parent under the Securities Act and in reports filed by the Parent
under the Securities Exchange Act of 1934, and may file this Agreement as an
exhibit to any thereof. The Parent may also make appropriate
-13-
<PAGE>
disclosures of the general nature of the Merger and the identity, nature and
scope of the Company's operations to prospective acquisition candidates in
connection with the Parent's efforts to effect additional acquisitions. Each
party will have mutual approval rights with respect to written employee
presentations concerning the prospective Merger.
4.8 Tax-Free Reorganization. Unless the other parties shall otherwise
-----------------------
agree in writing, none of the Shareholders, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action,
that would jeopardize the qualification of the Merger as a reorganization
withing the meaning of Section 368(a) of the Code.
4.9 Company Plans. Except as otherwise contemplated by this Agreement,
-------------
the Company Plans (as defined in Exhibit 2) described on Exhibits Exhibit 4.9 in
effect at the date of this Agreement will remain in effect unless otherwise
determined by the Parent after the Effective Time.
4.10 Purchase of Certain Receivables. If any accounts receivable included
-------------------------------
in current assets of the Company for purposes of determining Working Capital (as
defined in Exhibit 1) remain unpaid in full for 180 days after the Closing, the
Shareholders shall, upon written request by the Surviving Corporation made
within 210 days after the Closing, purchase the same from the Surviving
Corporation, without recourse, for the uncollected amount thereof (net of the
reserve for bad debts included in the determination of such Working Capital).
During the 180 days following the Closing, the Surviving Corporation shall use
its best efforts consistent with sound business judgment to collect all of the
accounts receivable of the Company. For the purpose of determining amounts
collected by the Surviving Corporation with respect to the said accounts
receivable, all payments by an account debtor shall first be applied to the
oldest outstanding invoice due from the account debtor that are not otherwise
specified by the account debtor to be contested in good faith, it being
understood and agreed that the Surviving Corporation will continue to use its
best efforts (consistent with sound business judgment and consistent with the
Company's past practices with respect to account debtors who have been placed on
a cash basis) to collect the accounts receivable with respect to such account
debtors.
4.11 Income Tax Distribution. Prior to the Closing, the Shareholders may
-----------------------
cause the Company to pay to the Shareholders as a dividend and as a distribution
of accumulated S Corporation earnings of the Company for all tax periods through
the Effective Time a cash amount, which may be reasonably estimated, equal to
the net taxable income of the Company as determined for Federal income tax
purposes for the Company as an S Corporation less any prior distributions made
by the Company to the Shareholders with respect to such earnings ("Cash Tax
--------
Distribution"). In the event that there is insufficient cash of the Company to
- ------------
make the Cash Tax Distribution either in whole or in part, the Company may issue
short term notes payable to the Shareholders in amounts equal to the amount of
the Cash Tax Distribution less the amount of cash actually distributed to the
Shareholders as part of the Cash Tax Distribution ("Tax Notes") in the form
---------
attached hereto as Exhibit 4.11. The Tax Notes, if issued, shall (i) be issued
prior to the Effective Time, (ii) bear interest at a rate not to exceed six
percent (6%) per annum, (iii) provide that the principal and all accrued
interest shall be due and payable not less than six (6) months after the date of
the Tax Notes, and (iv) impose no prepayment penalty. Notwithstanding the
actual due date of such notes, the Tax Notes shall be treated as Long Term Debt
for purposes of the determination of the Total Merger Consideration in Exhibit 1
hereto.
-14-
<PAGE>
4.12 Current Public Information Regarding Parent. During such time as
-------------------------------------------
Parent is a public company subject to the reporting requirements of the
Securities and Exchange Act of 1934, as amended, but for a period not more than
three (3) years after the Effective Time, there shall be available at all times
adeqate current public information with respect to the Parent and the Parent
Common Stock to satisfy the requirements of Rule 144 as set forth in Reg.
Section 230.144 of the Securities and Exchange Commission.
4.13 Release of Shareholders. Except as provided in Section 6 (Survival;
-----------------------
Indemnification) hereof and as to the representations, warranties, covenants and
agreements of the Shareholders contained herein and in any of the Shareholder
Related Documents or Company Related Documents, and as to the information and
documents provided to Parent by the Company or the Shareholders as part of
Parent's due diligence in connection with the Merger, effective as of the
Effective Time, the Surviving Corporation does hereby release, acquit and
forever discharge each of the Shareholders from any and all liabilities,
obligations, claims, demands, actions or causes of action arising from or
relating to any event, occurrence, act, omission or condition occurring on or
prior to the Effective Time.
4.14 Certain Tax Matters. The Shareholders shall file, or cause to be
-------------------
filed, all tax returns of the Company required to be filed with respect to any
periods ending on or before the Effective Time (and the Surviving Corporation
shall designate a Shareholder as an authorized person of the Surviving
Corporation for purposes of signing and filing the returns). The Shareholders
shall make available for review, by the Parent, 20 business days before filing,
all returns of the Company required to be filed with respect to any periods
ending on or before the Effective Time. Parent shall prepare and file any and
all tax returns of the Company or the Surviving Corporation which are required
to be filed with respect to any periods ending after the Effective Time.
Parent, Merger Sub, Surviving Corporation, and the Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the preparation of any tax return, any audit, litigation or
other proceeding with respect to taxes. Such cooperation shall include
particularly the preparation and timely filing of the final Subchapter S
corporate tax return for the taxable period ending as of the Effective Time and
the retention and (upon the other party's request) the provision of records and
information which includes but is not limited to hardcopy and microfiche copy of
financial statements, general ledger detail, accounts payable records (including
any expense invoices located on premises or at third party storage locations),
customer sales invoices, payroll records, book and tax fixed asset records, and
state apportionment records (which includes sales, payroll, property, inventory
and rent expense by location), which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The parties agree (i) to retain all books and
records with respect to tax matters pertinent to the Company relating to any
taxable period beginning before the Effective Time until the expiration of the
statute of limitations (and, to the extent notified by the other party, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements, entered into with any taxing authority, and (ii) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests, it
shall be allowed to take possession of such books and records.
Each Shareholder agrees that he shall not, without Parent's prior written
consent, make any retroactive tax election or other amendment or supplement to
any of the Company's or the Shareholders' tax
-15-
<PAGE>
returns with any local, state, Federal or foreign governmental authority
following the Merger that could reasonably be expected to have an adverse
financial impact on Parent or the Surviving Corporation following the Effective
Time. Parent agrees that it shall not, without the Shareholders' prior written
consent, make any retroactive tax election or other amendment or supplement to
any of the Surviving Corporation's tax returns with any local, state, Federal or
foreign governmental authority following the Merger that could reasonably be
expected to have an adverse financial impact on the Shareholders following the
Effective Time.
Parent shall (i) promptly notify the Shareholders of the commencement of
any examination with respect to the tax liability of the Company for any taxable
year that includes any period prior to the Effective Time, (ii) promptly provide
the Shareholders with copies of all correspondence with any taxing authority
with respect to that tax liability, (iii) solely at the Shareholders' expense,
permit the Shareholders to control the defense with respect to such examination
and any administrative and court proceedings resulting therefrom to the extent
such proceedings affect the tax liability of the Shareholders or the tax
liability of the Company with respect to which the Shareholders may be liable to
indemnify Parent; provided, if Parent reasonably determines that such
examination or proceedings could have an adverse effect on Parent or the
Surviving Corporation, Parent shall have the right to control the defense of
such examination or proceeding and the Shareholders shall be permitted to
participate therein at their own expense, and (iv) not enter into any settlement
of tax liability of the Shareholders or the tax liability of the Company with
respect to which the Shareholders may be liable to indemnify Parent without the
written approval of the Shareholders (which approval shall not be unreasonably
withheld). If the Shareholders are controlling the defense of any such
examination or proceeding pursuant to the foregoing sentence, the Shareholders
shall not enter into any settlement of tax liability of the Company without
Parent's prior written approval (which approval shall not be unreasonably
withheld).
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger
----------------------------------------------------------------
Sub. The obligations of the Parent and Merger Sub to effect the Merger under
- ---
this Agreement are subject to the satisfaction of each of the following
conditions, unless waived by the Parent in writing to the extent permitted by
applicable law:
5.1.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Shareholders and the Company contained in
this Agreement, in Exhibits Exhibit 2 and the Disclosure Schedule referred to
therein, and in the other Exhibits provided by the Shareholders or the Company
pursuant to this Agreement or in any closing certificate or document delivered
to the Parent pursuant hereto shall be true and correct at and as of the Closing
Date as though made at and as of that time other than such representations and
warranties as are specifically made as of another date, and the Shareholders and
the Company shall each have delivered to the Parent and Merger Sub a certificate
to that effect.
5.1.2 Performance of Covenants. The Shareholders and the Company
------------------------
shall have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholders and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
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<PAGE>
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or the
Shareholders or against the Parent or Merger Sub arising by reason of the
acquisition of the Company pursuant to this Agreement, which is reasonably
likely (i) to restrain, prohibit or invalidate the consummation of the
transactions contemplated by this Agreement, (ii) to have a Company Material
Adverse Effect or (iii) to have a Parent Material Adverse Effect after giving
effect to the consummation of the transactions contemplated by this Agreement,
and the Shareholders and the Company shall each have delivered to the Parent and
Merger Sub a certificate to that effect as such circumstance relates solely to
the Company and the Shareholders.
5.1.4 Approvals. The Company and the Shareholders shall have
---------
procured all of the consents, approvals and waivers of third parties or any
regulatory body or authority, whether required contractually or by applicable
law or otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholders prior to the Closing Date, and
the Shareholders and the Company shall each have delivered to the Parent and
Merger Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No material casualty, loss or
---------------------------
damage shall have occurred after the date of this Agreement and on or prior to
the Effective Time to any of the properties or assets of the Company which
(after giving consideration to all applicable insurance coverage) is reasonably
likely to have a Company Material Adverse Effect.
5.1.7 Licenses, etc. The Company shall have obtained all such
-------------
licenses and permits as are legally required for the continued operation of the
business of the Company after the Effective Time, except such licenses and
permits, the absence of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since June 30, 1997, there shall
--------------------------
not have been any event that adversely affects the properties, assets, financial
condition, results of operations, cash flows, businesses or prospects of the
Company and is likely to have a Company Material Adverse Effect.
5.1.9 IPO. The Parent shall have completed the IPO, and the net
---
proceeds thereof shall have been received by the Parent.
5.1.10 Certain Corporate Actions. All necessary resolutions, waivers
-------------------------
and consents of the directors and shareholders of the Company required to
consummate the transactions contemplated hereunder shall have been executed and
delivered.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
-------------------------------------------------------------------
Company. The obligations of the Shareholders and the Company under this
- -------
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholders and the Company in writing to the extent
permitted by applicable law:
-17-
<PAGE>
5.2.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Parent and Merger Sub contained in this
Agreement, or the Exhibits provided by the Parent or Merger Sub pursuant to this
Agreement, or in any closing certificate or document delivered to the
Shareholders or the Company pursuant hereto shall be true and correct on and as
of the Closing Date as though made at and as of that date other than such
representations and warranties as are specifically made as of another date, and
the Parent and Merger Sub shall each have delivered to the Shareholders and the
Company a certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall
------------------------
have performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date and the Parent and
Merger Sub shall each have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.3 Approvals. The Parent shall have procured all of the
---------
consents, approvals and waivers of third parties or any regulatory body or
authority, whether contractually or by applicable law or otherwise necessary for
the execution, delivery and performance of this Agreement, including without
limitation those consents, approvals and waivers specified in Exhibit 3.1.4
prior to the Closing Date, and the Parent shall have delivered to the
Shareholders and the Company a certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.2.5 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or the
Shareholders or against the Parent or Merger Sub arising by reason of the
acquisition of the Company pursuant to this Agreement, which is reasonably
likely to restrain, prohibit or invalidate the consummation of the transactions
contemplated by this Agreement, and the Parent and Merger Sub shall each have
delivered to the Shareholders a certificate to that effect as such circumstance
relates solely to the Parent and Merger Sub.
5.2.6 Certain Corporate Actions. All necessary resolutions, waivers
-------------------------
and consents of the directors and shareholders of Parent and Merger Sub required
to consummate the transactions contemplated hereunder shall have been executed
and delivered.
5.2.7 IPO. The Parent shall have completed the IPO, and the net
---
proceeds thereof shall have been received by the Parent.
5.3 Deliveries by the Shareholders at the Closing. At the Closing,
---------------------------------------------
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders and
the Company pursuant to any other transaction document at the Closing, the
Shareholders shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders and the Company shall
--------------------
deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3,
5.1.4 and 5.1.5.
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<PAGE>
5.3.2 Stock Transfer Restriction Agreement. The Shareholders shall
------------------------------------
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibits Exhibit 5.3.2.
5.3.3 Employment Agreements. Richard R. Lacy and Robert J. Allison
---------------------
shall execute and deliver Employment Agreements with the Company on the Closing
Date, effective as of the Effective Time, substantially in the form set forth
respectively for each individual in Exhibits Exhibits 5.3.3-A and 5.3.3-B.
5.3.4 Lease Agreement. The Shareholders shall cause Richard R. Lacy
---------------
and his spouse, Janet Crisp-Lacy, the owners of the property located at 1800
Fairfax Road, Greensboro, Guilford County, North Carolina, to execute and
deliver a lease agreement with the Company substantially in the form attached as
Exhibits Exhibit 5.3.4.
5.3.5 Registration Rights Agreement. The Shareholders shall execute
-----------------------------
and deliver a Registration Rights Agreement at the Closing, effective as of the
Effective Time, substantially in the form set forth in Exhibits Exhibit 5.3.5
attached hereto.
5.3.6 Opinion of Counsel for the Shareholders and the Company. The
-------------------------------------------------------
Shareholders shall deliver the favorable opinion of Carruthers & Roth, P.A., of
Greensboro, North Carolina, counsel to the Shareholders and the Company, dated
as of the Effective Time, substantially in the form and to the effect set forth
in Exhibits Exhibit 5.3.6 attached hereto.
5.3.7 Documents, Stock Certificates. The Shareholders shall execute
-----------------------------
and deliver, and shall cause the Company and the Shareholder to execute and
deliver, the documents, certificates, opinions, instruments and agreements
required to be executed and delivered by the Company or its officers or
directors or the Shareholders at the Closing as contemplated hereby or as may be
reasonably requested by the Parent and shall deliver or cause to be delivered
the documents and evidence required under Section 4. Stock Certificates
representing all of the outstanding Company Common Stock and properly executed
and completed letters of transmittal shall be delivered by the Shareholders to
the Parent.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholders hereunder for any breach of warranty, covenant or
agreement by the Company or the Shareholders herein irrespective of any
knowledge of or investigation made by or on behalf of the Parent or Merger Sub;
provided, however, that if the Shareholders shall disclose in writing to the
Parent prior to the Closing Date a specified breach of a specifically identified
representation, warranty, covenant or agreement of the Company or any
Shareholder herein by the Company or any Shareholder, and request a waiver
thereof by the Parent, and the Parent shall waive any such specifically
identified breach in writing prior to the Closing Date, the Parent and the
Surviving Corporation, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Shareholders shall have no liability with
respect to, any such specifically identified breach, to the extent so identified
by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
---------------------------------------
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the
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<PAGE>
Parent and Merger Sub pursuant to any other transaction document at the Closing,
the Parent shall deliver or cause to be delivered to the Shareholders the
following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall deliver
--------------------
the certificates required pursuant to Sections 5.2.1, 5.2.2, 5.2.3, 5.2.4 and
5.2.5.
5.4.2 Registration Rights Agreement. The Parent shall execute and
-----------------------------
deliver to the Shareholders a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The Parent
------------------------------------------------
shall deliver the favorable opinion of Bracewell & Patterson, L.L.P., Houston,
Texas, its legal counsel dated as of the Effective Time, substantially in the
form and to the effect set forth in Exhibits Exhibit 5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver the
----------------------------
Closing Merger Consideration to the Shareholders.
5.4.5 Stock Transfer Restriction Agreement. The Parent shall
------------------------------------
execute and deliver to the Shareholders a Stock Transfer Restriction Agreement
on the Closing Date, effective as of the Effective Time, substantially in the
form set forth in Exhibits Exhibit 5.3.2.
5.4.6 Lease Guaranty Agreement. The Parent shall execute and
------------------------
deliver to Richard R. Lacy and Janet Crisp-Lacy a guaranty agreement
substantially in the form attached hereto as Exhibits Exhibit 5.4.6. under which
the Parent shall guarantee the performance and payment by the Surviving
Corporation of all of its obligations under the lease agreement attached hereto
as Exhibit 5.3.4.
5.4.7 Documents; Stock Certificates. The Parent shall execute and
-----------------------------
deliver, and shall cause the Merger Sub to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Parent or the Merger Sub or its officers or directors at the
Closing as contemplated hereby.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of any Shareholder; provided, however, that if the Parent shall disclose in
writing to the Shareholders prior to the Closing a specified breach of a
specifically identified representation, warranty, covenant or agreement of the
Parent or Merger Sub contained herein by the Parent or Merger Sub, and requests
a waiver thereof by the Company and the Shareholders, and the Company and the
Shareholders shall waive any such specifically identified breach in writing
prior to the Closing, the Company and the Shareholders shall be deemed to have
waived their rights and remedies hereunder for, and the Parent and Merger Sub
shall have no liability or obligation to the Shareholders or the Company with
respect to, any such specifically identified breach, to the extent so identified
by the Parent and waived by the Company and the Shareholders.
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<PAGE>
6. SURVIVAL; INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders and the Company in Sections
2.1, 2.2 and 2.3 hereof and in Sections 2, 3, 6, 12 and 18 of Exhibit 2 shall
survive until April 1, 1999. The representations and warranties of the
Shareholders and the Company contained in Sections 2.1, 2.2 and 2.3 and in
Sections 2, 3, 6, 12 and 18 of Exhibit 2 shall survive for the maximum period
permitted by the law applicable to the factual and legal matters with respect to
which such representations and warranties are made.
The representations and warranties of the Parent and the Merger Sub herein
and in the Parent Related Documents, other than those in Sections 3.1.1, 3.1.2,
3.1.3, 3.1.4, 3.1.13, 3.2.1, 3.2.2, 3.2.3 and 3.2.5 shall survive until April 1,
1999, and the representations and warranties of the Parent and the Merger Sub
contained in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.13, 3.2.1, 3.2.2, 3.2.3
and 3.2.5 shall survive for the maximum period permitted by the law applicable
to the factual and legal matters with respect to which such representations and
warranties are made.
The periods of survival of the representations and warranties as stated
above in this Section 6.1 are referred to herein as the "Survival Period." The
---------------
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable Survival Period and no claim
for indemnification may be made with respect to any breach of any representation
or warranty, the applicable Survival Period of which shall have expired, except
to the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration.
6.2 Indemnification.
---------------
6.2.1 Shareholders Indemnity. Subject to the provisions of Sections
----------------------
6.1 and 6.3 hereof, each of the Shareholders severally agrees to indemnify, save
and hold harmless the Parent, the Surviving Corporation, Merger Sub and any of
their assignees (including lenders) and all of their respective officers,
directors, employee s, representatives, agents, advisors and consultants and all
their respective heirs, legal representatives, successors and assigns
(collectively, the "Parent Indemnified Parties") from and against any and all
--------------------------
damages, liabilities, losses, loss of value (including the value of adverse
effects on cash flow or earnings), claims, deficiencies, penalties, interest,
expenses, fines, assessments, charges and costs, including reasonable attorneys'
fees and court costs (collectively, "Losses") arising from, out of or in any
------
manner connected with or based on:
(i) The breach of any covenant of the Shareholders or the
Company or the failure by the Shareholders or the Company to perform any
obligation of the Shareholders or the Company contained herein or in any
Company Related Document or Shareholder Related Document;
(ii) Any inaccuracy in or breach of any representation or
warranty of the Shareholders contained herein or in any Shareholder Related
Document;
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(iii) Any inaccuracy in or breach of any representation or
warranty of the Company contained herein or in any Company Related
Document; and
(iv) Any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time on or before the Effective
Time which involves a claim or cause of action (a) made or brought by a
customer or former customer of the Company (together, a "Customer"), or by
--------
a person or entity that is a successor to such Customer or has otherwise
succeeded to or been assigned the rights to such Customer' s claim or cause
of action, or is a legal representative of such Customer or successor, (b)
is based on an alleged act, failure to act or defect in service,
workmanship, equipment, parts or materials performed or furnished by the
Company on or prior to the Effective Time, and (c) is made or brought prior
to the date which is two years after the Closing Date (any such claim or
cause of action being hereinafter referred to as an "Undisclosed Customer
--------------------
Claim"). Any Parent Indemnified Party seeking indemnification with respect
-----
to any Undisclosed Customer Claim must notify the Shareholders of a claim
for indemnification in writing no later than March 31, 2000.
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1
----------------
and 6.4, the Parent shall indemnify, save and hold harmless the Shareholders and
the Shareholders' heirs, legal representatives, successors and assigns from and
against all Losses arising from out of or in any manner connected with or based
on:
(i) The breach of any covenant of the Parent or Merger Sub or
the failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in any Parent Related Document; and
(ii) Any inaccuracy in or breach of any representation or
warranty of the Parent or Merger Sub contained herein or in any Parent
Related Document.
6.3 Limitations on Shareholders Liability.
-------------------------------------
6.3.1 Several Liability of Shareholders. The Shareholders'
---------------------------------
liability under Section 6.2.1 shall be in proportion to their ownership of the
Company Common Stock immediately prior to the Effective Time.
6.3.2 Basket; Method of Payment. No indemnification shall be
-------------------------
required to be made under Section 6.2.1 until the aggregate amount of all claims
under such Section exceeds One Hundred Thousand Dollars ($100,000), in which
case the Shareholders shall be liable for the full amount of such claims;
provided, however, that any breach by the Shareholders of the covenant contained
in Section 4.2 hereof shall not be subject to or included in the foregoing
limitation on liability.
6.3.3 Maximum Liability. With respect to any liability under
-----------------
Section 6.2.1, including Undisclosed Customer Claims known to either Shareholder
on or prior to the Effective Time, the aggregate liability of the Shareholders
shall not exceed the cash amount equal to the Total Merger Consideration with
the Parent Common Stock being valued at the IPO Price to the Public for such
purpose; provided, however, that the aggregate liability of the Shareholders
with respect to Undisclosed Customer Claims which were not
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<PAGE>
known to either Shareholder on or prior to the Effective Time (whether such
liability arises under item (ii), (iii) or (iv) of Section 6.2.1) shall not
exceed the cash amount equal to one-half of the Total Merger Consideration with
the Parent Common Stock being valued at the IPO Price to the Public for such
purpose. A Shareholder may in his sole discretion elect to satisfy all or any
portion of any liability under Section 6.2.1 by assigning and delivering to the
Parent a number of shares of the Parent Common Stock received by such
Shareholder pursuant to the provisions of Sections 1.8 and 1.9 having a value
equal to such liability with each share of the Parent Common Stock to be valued
at the IPO Price to the Public for such purpose.
6.3.4 Benefit of Tax Write-Offs, Insurance and Reimbursements. Any
-------------------------------------------------------
payments for indemnification provided pursuant to Section 6.2.1 shall be net of
any tax benefit available to the Surviving Corporation or the Parent (whether or
not actually realized currently or at some undetermined time in the future) as a
result of the action, event, occurrence, condition, or status causing the
liability of the Shareholders under Section 6.2.1, and shall also be net of any
insurance proceeds received and other direct benefits received by the Surviving
Corporation or the Parent in connection with the facts giving rise to the right
of indemnification including, without limitation, any amounts actually received
from any fund created under federal or state law for cleanup of environmental
contamination, or any similar fund from which any recovery is available and
actually received.
6.4 Limitations on Parents' Liability.
---------------------------------
6.4.1 Basket. No indemnification shall be required to be made under
------
Section 6.2.2 until the aggregate amount of all claims under such Section
exceeds One Hundred Thousand Dollars ($100,000), in which case the Parent shall
be liable for the full amount of such claims.
6.4.2 Maximum Liability. With respect to any liability under
-----------------
Section 6.2.2, the aggregate liability of the Parent shall not exceed the cash
amount equal to the Total Merger Consideration with the Parent Common Stock
being valued at the IPO Price to the Public for such purpose.
6.4.3 Benefit of Tax Write-Offs, Insurance and Reimbursements. Any
-------------------------------------------------------
payments for indemnification provided pursuant to Section 6.2.2 shall be net of
any tax benefit available to the Shareholders (whether or not actually realized
currently or at some undetermined time in the future) as a result of the action,
event, occurrence, condition, or status causing the liability of the Parent
under Section 6.2.2, and shall also be net of any insurance proceeds received
and other direct benefits received by the Shareholders in connection with the
facts giving rise to the right of indemnification including, without limitation,
any amounts actually received from any fund created under federal or state law
for cleanup of environmental contamination, or any similar fund from which any
recovery is available and actually received.
6.5 Procedures for Indemnification.
------------------------------
6.5.1 Notice. The party (the "Indemnified Party") that may be
------ -----------------
entitled to indemnity hereun der shall give prompt notice to any party obligated
to give indemnity hereunder (the "Indemnifying Party") of the assertion of any
------------------
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 6.5.1 shall relieve the
Indemnifying Party of its obligations under this Article
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6 only to the extent that such Indemnifying Party has been prejudiced by the
lack of timely and adequate notice (except that the Indemnifying Party shall not
be liable for any expenses incurred by the Indemnified Party during the period
in which the Indemnified Party failed to give such notice). Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party, promptly (and in any
event within 10 days thereof) after the Indemnified Party's receipt thereof,
copies of all notices and documents (including court papers) received by the
Indemnified Party relating to such claim, action, suit or proceeding.
6.5.2 Legal Defense. The Parent shall have the obligation to assume
-------------
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholders shall at all times have the right, at their option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 business days after
receipt of notice of such third-party claim, suit, action or proceeding, the
Shareholders shall have the right, but not the obligation, to undertake the
defense of any such third-party claim, suit, action or proceeding.
6.5.3 Settlement. The Indemnifying Party shall not be required to
----------
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 business days' prior written notice to the Indemnifying
Party if such third-party suit, action, proceeding or investigation is then
unreasonably interfering with the business or operations of the Company or the
Surviving Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
business days' prior written notice to the Indemnified Party of a settlement
offer which the Indemnifying Party desires to accept and to pay all Losses with
respect thereto ("Settlement Notice") and the Indemnified Party fails or refuses
-----------------
to consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.5.3, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.5.4 Cooperation. The parties shall cooperate in defending any
-----------
such third-party suit, action, proceeding or investigation, and the defending
party shall have reasonable access to the books and records, and personnel in
the possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of indemnity granted to such Indemnified Party pursuant to
this Agreement.
6.6 Subrogation. Each Indemnifying Party hereby waives for itself, himself
-----------
or herself and its, his or her affiliates (as defined in Exhibit 2) any rights
to subrogation against any Indemnified Party or such Indemnified Party's
insurers for Losses arising from any third-party claims for which the
Indemnifying Party
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is liable or against which the Indemnifying Party indemnifies any Indemnified
Party and, if necessary, each Indemnifying Party shall obtain waivers of such
subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Shareholders
--------------
and the Parent;
7.1.2 Optional By the Shareholders. By the Shareholders by written
----------------------------
notice to the Parent if (i) the Closing shall have failed to occur by 5:00 p.m.
Houston, Texas time on December 31, 1997 or (ii) a Parent Material Adverse
Effect has occurred (a) after the effectiveness of the Parent's registration
statement in connection with the IPO, or if Parent elects to rely on Rule 430A
of the Securities and Exchange Commission, after the time the Parent has filed
the final prospectus of the Parent pursuant to Rule 424(b) of the Securities and
Exchange Commission in connection with the IPO and (b) before the Closing Date,
but only if in the case of either (i) or (ii) neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of their
respective obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to
----------------------
the Company, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Parent nor Merger Sub
has breached this Agreement or has failed to perform any of its obligations
under this Agreement;
7.1.4 Breach By the Parent or Merger Sub. By the Shareholders, by
----------------------------------
written notice to the Parent, if either the Parent or Merger Sub has breached
this Agreement or failed to perform any of its obligations under this Agreement;
or
7.1.5 Breach by the Company or any Shareholder. By the Parent, by
----------------------------------------
written notice to the Shareholders, if the Company or any Shareholder has
breached this Agreement or has failed to perform any of their respective
obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
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<PAGE>
To the Company (prior to the Effective Time) or the Shareholders:
Central Carolina Air Conditioning Company
1800 Fairfax Road
Greensboro, North Carolina 27407-4124
Attention: Mr. Richard R. Lacy
Telecopy: (910) 852-7340
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attention: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents.
-----------------
8.2.1 By the Shareholders. The Shareholders shall, at any time and
-------------------
from time to time after the date hereof, upon request by the Parent and without
further consideration, execute and deliver such instruments or other documents
and take such further action as may be reasonably required in order to perfect
any other undertaking made by the Shareholders hereunder.
8.2.2 By the Parent or Surviving Corporation. The Parent or the
--------------------------------------
Surviving Corporation shall, at any time and from time to time after the date
hereof, upon request by the Shareholders and without further consideration,
execute and deliver such instruments or other documents and take such further
action as may be reasonably required in order to perfect any other undertaking
made by the Parent or the Surviving Corporation hereunder.
8.3 Assignability. The Shareholders shall not assign this Agreement in
-------------
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents to a wholly-
owned direct or indirect subsidiary of the Parent, if the Parent remains bound
hereby, without the consent of any Shareholder or the Company. After the
Effective Time, the Surviving Corporation may assign its rights under this
Agreement, the Company Related Documents and the Shareholder Related Documents
without the consent of any Shareholder to a wholly-owned direct or indirect
subsidiary of the Parent, if the
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<PAGE>
Parent remains bound hereby, or to any purchaser of substantially all of the
business of Parent or of the Surviving Corporation.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
----------------
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
---------------
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
--------------------
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
----------------------
Merger Sub and the Company, by action taken by their Boards of Directors to the
extent permitted by applicable law; provided, however, that no such amendment
shall (i) alter or change any provision of this Agreement, the alteration or
change of which must be adopted by the holders of capital stock of the Company
under the
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<PAGE>
certificate or articles of incorporation of the Company or the Applicable
Corporate Law, or (ii) alter or change this Section 8.11, unless each such
alteration or change is adopted by the holders of shares of capital stock of the
Company as may be required by the certificate or articles of incorporation of
the Company or the Applicable Corporate Law. Prior to the Effective Time, all
amendments to this Agreement must be by an instrument in writing signed on
behalf of the Parent, Merger Sub, the Company and the Shareholders. After the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent and the Shareholders. Any term or
provision of this Agreement (other than the requirements for shareholder
approvals) may be waived in writing at any time by the party which is, or whose
shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever under or by reason of this Agreement, or shall cause the
employment status of any employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by each of
the Parent, Merger Sub, the Company and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Parent and the Company
and their respective members of their Boards of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal,
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<PAGE>
invalid or unenforceable provision, there shall be automatically as a part of
this Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
---------------------
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. The Company shall pay all of the fees and expenses of the
--------
Accountants incurred in connection with the audits contemplated in Section 4.4
of this Agreement. Each of the parties shall bear all of their own expenses in
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any broker, legal counsel, accountants or other advisors engaged by the
Shareholders (to the extent, and only to the extent, that any such payment will
not jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code); and provided further that all fees,
costs and expenses incurred or payable by the Company in connection with the
negotiation and closing of this Agreement and the transactions contemplated
hereby (including those paid to the Accountants) shall be included in current
liabilities for purposes of determining Working Capital.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
__________________________________________
J. Patrick Millinor, Jr., President
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MERGER SUB:
CENTRAL CAROLINA ACQUISITION CORP.
By:________________________________________
J. Patrick Millinor, Jr., President
SHAREHOLDERS:
___________________________________________
Richard R. Lacy
___________________________________________
Robert J. Allison
COMPANY:
CENTRAL CAROLINA AIR CONDITIONING
COMPANY
By:________________________________________
Name: Richard R. Lacy
Title: President
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<PAGE>
EXHIBIT 10.18
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.,
EVANS ACQUISITION CORP.,
EVANS SERVICES, INC.,
AND
THE HOLDER OF THE
OUTSTANDING CAPITAL STOCK
OF
EVANS SERVICES, INC.
DATED AS OF
August 18, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
1. THE MERGER.............................................................. 5
1.1 The Merger....................................................... 5
1.2 Effective Time of the Merger..................................... 5
1.3 Closing.......................................................... 5
1.4 Effects of the Merger............................................ 6
1.4.1 At the Effective Time..................................... 6
1.4.2 Effects on the Surviving Corporation...................... 6
1.5 Written Consents and Other Actions............................... 6
1.5.1 Written Consent of the Shareholder; Other Matters......... 6
1.5.2 Written Consent of the Sole Shareholder of Merger Sub..... 6
1.5.3 All Other Necessary Actions............................... 6
1.6 Conversion of Stock.............................................. 7
1.6.1 Merger Sub Capital Stock.................................. 7
1.6.2 Cancellation of the Company Treasury Stock................ 7
1.6.3 Merger Consideration...................................... 7
1.7 Exchange of and Payment for Stock................................ 7
1.7.1 Delivery of Company Common Stock and
Closing Merger Consideration............................ 7
1.7.2 Assignments............................................... 7
1.7.3 Payment In Full Satisfaction of All Rights................ 7
1.8 Determination of Closing Merger Consideration.................... 7
1.8.1 Delivery of IPO Price to Public; Statement................ 7
1.9 Post-Closing Determination of Final Merger Consideration......... 8
1.9.1 Statement................................................. 8
1.9.2 Review.................................................... 8
1.9.3 Disputes.................................................. 8
1.9.4 Resolution by Parties..................................... 8
1.9.5 Final Determination....................................... 9
1.9.6 Expenses.................................................. 9
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER....... 9
2.1 Exhibit 2........................................................ 9
2.2 Stock Ownership.................................................. 9
2.3 Authority........................................................ 9
2.4 Consents......................................................... 9
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB............. 10
3.1 Representations and Warranties................................... 10
3.1.1 Organization.............................................. 10
3.1.2 Capitalization of the Parent.............................. 10
3.1.3 Authority................................................. 10
3.1.4 Consents.................................................. 10
3.1.5 Defaults.................................................. 10
3.1.6 Investment Company........................................ 11
3.1.7 Financial Statements...................................... 11
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3.1.8 Taxes.................................................... 11
3.1.9 Full Authority........................................... 11
3.1.10 Access.................................................. 11
3.1.11 Disclosure.............................................. 11
3.1.12 Parent Material Adverse Effect.......................... 12
3.1.13 Tax-Free Reorganization................................. 12
3.2 Representations and Warranties Concerning the Merger Sub........ 12
3.2.1 Organization and Standing................................ 12
3.2.2 Capital Structure........................................ 13
3.2.3 Authority................................................ 13
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS................... 13
4.1 Agreements of Shareholder to be Effective Upon Closing.......... 13
4.1.1 Covenant Not to Compete.................................. 13
4.1.2 Release.................................................. 13
4.2 Elimination of Expense.......................................... 14
4.3 Repayment of Shareholder Indebtedness........................... 14
4.4 Audit........................................................... 14
4.5 Acquisition of Leased Equipment................................. 14
4.6 Pre-Closing Covenants and Agreements............................ 14
4.7 Confidentiality................................................. 14
4.8 Tax-Free Reorganization......................................... 14
4.9 Exclusivity..................................................... 15
4.10 Bonus Compensation Agreement.................................... 15
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES................................ 15
5.1 Conditions Precedent to the Obligations of the
Parent and Merger Sub......................................... 15
5.1.1 Accuracy of Representations and Warranties............... 15
5.1.2 Performance of Covenants................................. 15
5.1.3 Legal Actions or Proceedings............................. 15
5.1.4 Approvals................................................ 15
5.1.5 Closing Deliveries....................................... 15
5.1.6 No Casualty, Loss or Damage.............................. 16
5.1.7 Licenses, etc............................................ 16
5.1.8 No Material Adverse Change............................... 16
5.1.9 IPO...................................................... 16
5.1.10 Certain Corporate Actions................................ 16
5.2 Conditions Precedent to the Obligations of the
Shareholder and the Company................................... 16
5.2.1 Accuracy of Representations and Warranties............... 16
5.2.2 Performance of Covenants................................. 16
5.2.3 Approvals................................................ 16
5.2.4 Closing Deliveries....................................... 16
5.3 Deliveries by the Shareholder at the Closing.................... 16
5.3.1 Closing Certificates..................................... 16
5.3.2 Stock Transfer Restriction Agreement..................... 17
5.3.3 Employment Agreement..................................... 17
5.3.4 Registration Rights Agreement............................ 17
5.3.5 Opinion of Counsel for the Shareholder and the Company... 17
5.3.6 Documents, Stock Certificates............................ 17
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5.4 Deliveries by the Parent at the Closing......................... 17
5.4.1 Closing Certificates..................................... 17
5.4.2 Registration Rights Agreement............................ 17
5.4.3 Opinion of Counsel for the Parent and Merger Sub......... 18
5.4.4 Closing Merger Consideration............................. 18
6. SURVIVAL, INDEMNIFICATIONS............................................... 18
6.1 Survival........................................................ 18
6.2 Indemnification................................................. 18
6.2.1 Parent Indemnified Parties............................... 18
6.2.2 Parent Indemnity......................................... 19
6.3 Limitations..................................................... 19
6.4 Procedures for Indemnification.................................. 19
6.4.1 Notice................................................... 20
6.4.2 Legal Defense............................................ 20
6.4.3 Settlement............................................... 20
6.4.4 Cooperation.............................................. 20
6.5 Subrogation..................................................... 20
7. TERMINATION............................................................. 21
7.1 Grounds for Termination......................................... 21
7.1.1 Mutual Consent........................................... 21
7.1.2 Optional by the Company.................................. 21
7.1.3 Optional by the Parent................................... 21
7.1.4 Breach by the Parent or Merger Sub....................... 21
7.1.5 Breach by the Company or the Shareholder................. 21
7.2 Effect of Termination........................................... 21
8. MISCELLANEOUS........................................................... 21
8.1 Notice.......................................................... 21
8.2 Further Documents............................................... 22
8.3 Assignability................................................... 22
8.4 Exhibits and Schedules.......................................... 22
8.5 Sections and Articles........................................... 22
8.6 Entire Agreement................................................ 22
8.7 Headings........................................................ 23
8.8 CONTROLLING LAW................................................. 23
8.9 Public Announcements............................................ 23
8.10 No Third Party Beneficiaries.................................... 23
8.11 Amendments and Waivers.......................................... 23
8.12 No Employee Rights.............................................. 23
8.13 Non-Recourse.................................................... 23
8.14 When Effective.................................................. 23
8.15 Takeover Statutes............................................... 24
8.16 Number and Gender of Words...................................... 24
8.17 Invalid Provisions.............................................. 24
8.18 Multiple Counterparts........................................... 24
8.19 No Rule of Construction......................................... 24
8.20 Expenses........................................................ 24
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EXHIBITS:
Exhibit 1
Exhibit 1.5.1 - Written Consent of the Shareholder
Exhibit 1.5.2 - Written Consent of the Sole Shareholder of Merger Sub
Exhibit 1.7 - Letter of Transmittal; Delivery of Company Common Stock
Exhibit 2
Exhibit 2.2 - Stock Ownership
Exhibit 4 - Elimination of Expenses
Exhibit 4 - Pre-Closing Covenants and Agreements
Exhibit 5.3.2 - Stock Transfer Restriction Agreement
Exhibit 5.3.3A - Employment Agreement
Exhibit 5.3.3B - Employment Agreement
Exhibit 5.3.4 - Registration Rights Agreement
Exhibit 5.3.5 - Opinion of Counsel for the Shareholder and the Company
Exhibit 5.4.3 - Opinion of Counsel for the Parent and Merger Sub
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
August ___, 1997, by and among GROUP MAINTENANCE AMERICA CORP., a Texas
corporation (the "Parent"), EVANS ACQUISITION CORP., an Alabama corporation
("Merger Sub"), EVANS SERVICES, INC., an Alabama corporation (the "Company"),
and THE UNDERSIGNED HOLDER OF ALL OF THE OUTSTANDING CAPITAL STOCK OF THE
COMPANY (the "Shareholder").
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
States of Alabama and Texas, and pursuant to the Merger each issued and
outstanding share of Common Stock, $10.00 par value per share, of the Company
("Company Common Stock") will be converted into the right to receive certain
shares of common stock, $.001 par value per share, of the Parent ("Parent Common
Stock"), and certain cash consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholder, as
the holder of all of the outstanding capital stock of the Company;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
accordance with the Alabama Business Corporation Act (the "Applicable Corporate
Law") upon the Effective Time (as defined in Section 1.2), the Company shall be
merged with and into Merger Sub. Merger Sub, as the surviving entity following
the Merger, is sometimes referred to in this Agreement as the "Surviving
Corporation."
1.2 Effective Time of the Merger. In accordance with the requirements of
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted for filing with the Secretary of
State of the State of Alabama as soon as practicable following the Closing (as
defined below). The date of such filing is referred to in this Agreement as the
"Effective Time."
1.3 Closing. The closing of the Merger ("Closing") will take place at
10:00 a.m. at the offices of Chamberlain, Hrdlicka, White, Williams & Martin in
Houston, Texas on a date that is not more than 10 business days after the
Closing of the Parent's IPO (as defined below), but in no event later than
December 31, 1997 ("Closing Date"); provided that each of the conditions
precedent to the obligations of the parties to effect the Merger set forth in
Article 5 of this Agreement are then satisfied or waived by the applicable
party. The parties may agree in writing on another date, time or place for the
Closing. At the Closing, the parties will deliver or cause to be delivered the
documents described in Sections 5.3 and 5.4 below. The term "IPO" means any
underwritten public offering of Parent Common Stock resulting in net cash
proceeds to the Parent of at least $20,000,000 (other than any offering pursuant
to any registration statement (i) relating to any capital stock of Parent or
options, warrants or other rights to acquire any such capital stock issued or to
be issued primarily to
<PAGE>
directors, officers or employees of the Parent or any of its subsidiaries, (ii)
relating to any employee benefit plan or interest therein, (iii) relating
principally to any preferred stock or debt securities of the Parent, or (iv)
filed pursuant to Rule 145 under the Securities Act of 1933, as amended
("Securities Act"), or any successor or similar provision).
1.4 Effects of the Merger.
1.4.1 At the Effective Time. At the Effective Time, (i) the Company
shall merge with and into Merger Sub and as a result thereof, the separate
existence of the Company shall cease, (ii) the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, except that the Articles
of Incorporation of Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "Evans Services, Inc.," (iii) the
Bylaws of Merger Sub as in effect immediately prior to the Effective Time shall
be the Bylaws of the Surviving Corporation, and (iv) the directors and officers
of Merger Sub immediately prior to the Effective Time shall become the directors
and officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected or
appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with Section 10-2B-11.01 et seq., of the Applicable Corporate Law and
the terms of this Agreement.
1.5 Written Consents and Other Actions.
1.5.1 Written Consent of the Shareholder; Other Matters.
Contemporaneously with the execution hereof, the Shareholder (i) is executing
and delivering to the Company a Written Consent in substantially the form of
Exhibit 1.5.1 attached hereto, and (ii) hereby acknowledges that he is aware of
his dissenter's or appraisal rights with respect to the Merger and his receipt
of a copy of the provisions of Section 10-2B-13.22 of the Applicable Corporate
Law and has elected not to exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibit 1.5.2 attached hereto, pursuant to the applicable
provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable
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Corporate Law and their respective articles of incorporation and bylaws to cause
the Merger to be consummated on, and subject to, the terms set forth in this
Agreement and the Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of
Merger Sub issued and outstanding at the Effective Time shall remain outstanding
and shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
Company Common Stock that are owned by the Company or any of its subsidiaries as
treasury stock shall be canceled and retired and shall cease to exist and no
stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. The issued and outstanding shares of
Company Common Stock (other than shares to be canceled in accordance with
Section 1.6.2) shall be converted into the right to receive the Final Merger
Consideration (as determined in accordance with Exhibit 1 attached hereto)
consisting of the number of shares of Parent Common Stock having a value of
$1,420,131 and cash in the amount of approximately $1,161,925, as such number of
shares and amount of cash are finally determined and adjusted in accordance with
Exhibit 1 attached hereto. The shares of Company Common Stock so converted into
the right to receive the Final Merger Consideration (a "Converted Share") shall,
by virtue of the Merger and without any action on the part of the holder
thereof, at the Effective Time no longer be outstanding and shall at such time
be canceled and retired and shall cease at such time to exist, and each holder
of a certificate which prior to the Effective Time validly evidenced any such
Converted Share (a "Stock Certificate") shall thereafter cease to have any
rights with respect to such Converted Share, except, upon the surrender of the
Stock Certificate and a duly executed and completed letter of transmittal in
accordance with Section 1.7, the right to receive such cash and Parent Common
Stock at the times and in the manner set forth herein.
1.7 Exchange of and Payment for Stock.
1.7.1 Delivery of Company Common Stock and Closing Merger
Consideration. Prior to the Closing, the Parent will deliver to the
Shareholder a letter of transmittal, in substantially the form attached hereto
as Exhibit 1.7, to be used for the purpose of surrendering to the Parent Stock
Certificates in exchange for the right to receive the Final Merger
Consideration. All of the Company Common Stock held by the Shareholder will be
surrendered by the Shareholder to the Parent together with properly completed
and executed letter of transmittal (with such signature guaranteed by a
commercial bank or notarized by a notary public or similar official reasonably
satisfactory to the Parent), and the Parent shall cause to be delivered to the
Shareholder at the Closing, the Closing Merger Consideration (as determined in
accordance with Exhibit 1 attached hereto).
1.7.2 Assignments. The assignment, transfer or other disposition of
record or beneficial ownership of any shares of Company Common Stock may not be
made on or after the date hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of
the Closing Merger Consideration to the Shareholder with respect to his
Converted Shares shall be deemed to be payment in full satisfaction of all
rights pertaining to the outstanding Converted Shares except for the right to
receive additional cash pursuant to Section 1.9.
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1.8 Determination of Closing Merger Consideration.
1.8.1 Delivery of IPO Price to Public; Statement. Within five
business days after the Parent and its underwriters agree on the initial price
to the public for a share of Parent Common Stock offered in the IPO, as set
forth in an executed underwriting agreement, the Parent shall deliver to the
Shareholder a written notice (the "Price Notice") setting forth such initial
price to the public and a statement setting forth a calculation, reviewed by
KPMG Peat Marwick LLP, of the Closing Outstanding Common Stock Number (as
determined in accordance with Exhibit 1 attached hereto), the Closing Per Share
Cash Amount (as determined in accordance with Exhibit 1 attached hereto), the
Closing Per Share Common Stock Amount (as determined in accordance with Exhibit
1 attached hereto), and the Closing Merger Consideration, payable to the
Shareholder at Closing (the "Statement of Closing Consideration"). The initial
price to the public of a share of Parent Common Stock, as set forth in the Price
Notice, the Closing Outstanding Common Stock Number, the Closing Per Share Cash
Amount, the Closing Per Share Common Stock Amount and the Closing Merger
Consideration as set forth in the Statement of Closing Consideration shall be
final, conclusive and binding for purposes of this Agreement.
1.9 Post-Closing Determination of Final Merger Consideration.
1.9.1 Statement. No later than 60 days after the Closing, the
Parent shall deliver to the Shareholder a statement showing the Final
Outstanding Common Stock Number (as determined in accordance with Exhibit 1
attached hereto), the Final Per Share Cash Amount (as determined in accordance
with Exhibit 1 attached hereto), the Final Per Share Common Stock Amount (as
determined in accordance with Exhibit 1 attached hereto) and the Final Merger
Consideration (the "Statement of Final Per Share Amounts").
1.9.2 Review. After delivery to the Shareholder of the Statement of
Final Per Share Amounts, the Shareholder and his representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number, the
Final Per Share Cash Amount, the Final Per Share Common Stock Amount and the
Final Merger Consideration as shown on the Statement of Final Per Share Amounts
shall be final, conclusive and binding for purposes of this Agreement, unless
the Shareholder shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Per Share
Amounts within 30 business days following receipt of the Statement of Final Per
Share Amounts, specifying in reasonable detail the nature and extent of such
disagreement; provided, however, that no Notice of Dispute may be given with
respect to any items unless such item involves an amount of $10,000 or more. If
a Notice of Dispute is not properly given within such time, the Final
Outstanding Common Stock Number, the Final Per Share Cash Amount, the Final Per
Share Common Stock Amount and the Final Merger Consideration as set forth in the
Statement of Final Per Share Amounts shall be final, conclusive and binding for
purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
given, the Parent and the Shareholder agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholder shall not reach such
resolution within 30 days following receipt by the Parent of a properly given
Notice of Dispute, the dispute shall be referred to Ernst & Young
("Accountants"), who shall resolve such dispute within 30 days after its
submission to them. The Parent and the Shareholder (if the dispute is resolved
by them or the Statement of Final Per Share Amounts otherwise becomes final
pursuant hereto without referral to the Accountants) or the Accountants (if a
dispute is resolved by them) shall set forth such resolution in writing and such
writing shall (i) set forth the Final
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<PAGE>
Outstanding Common Stock Number, the Final Per Share Cash Amount, the Final Per
Share Common Stock Amount and the Final Merger Consideration and (ii) be final,
conclusive and binding for purposes of this Agreement.
1.9.5 Final Determination. Within 10 business days following the
final determination of the Final Outstanding Common Stock Number and the Final
Merger Consideration as provided in this Section 1.9 (i) the Parent shall
deliver to the Shareholder the cash amount, if any, by which the aggregate of
the cash amount included in the Final Merger Consideration payable to such
Shareholder, as finally determined pursuant hereto, exceeds the aggregate of the
cash amount included in the Closing Merger Consideration paid to such
Shareholder at the Closing; or (ii) the Shareholder shall deliver to the Parent
the cash amount, if any, by which the aggregate of the cash amount included in
the Closing Merger Consideration paid to the Shareholder at the Closing exceeds
the aggregate of the cash amount included in the Final Merger Consideration
payable to the Shareholder as finally determined pursuant hereto.
Notwithstanding anything in this Section 1.9 to the contrary, in the event that
the Parent concludes, in its sole discretion, that the foregoing cash payments
would jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code, the parties agree to reallocate the
amount of cash and the number of shares of Parent Common Stock payable to
Shareholder pursuant to this Agreement such that the Final Merger Consideration
received by the Shareholder satisfies the requirements for a tax-deferred
reorganization pursuant to such Code section, and the parties agree to amend the
provisions of this Section 1.9 as necessary to cause the Merger to comply with
the provisions of Section 368(a).
1.9.6 Expenses. The Parent and the Shareholder shall each pay their
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any, provided,
however, that the Parent and the Shareholder shall share equally the costs
incurred and payable to the Accountants in connection with the resolution of
disputes pursuant to Section 1.9.4.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDER
The Company and the Shareholder, jointly and severally, hereby represent
and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
correct.
2.2 Stock Ownership. The Shareholder owns, beneficially and of record,
with full power to vote, the number of shares of Company Common Stock set forth
beside the Shareholder's name on Exhibit 2.2 and such shares are so held by the
Shareholder free and clear of all liens, encumbrances and adverse claims
whatsoever.
2.3 Authority. The Shareholder has full right, power, legal capacity
and authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Shareholder (each a "Shareholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by the Shareholder
and constitutes, and each Shareholder Related Document, when duly executed and
delivered by the Shareholder who is a party thereto will constitute, legal,
valid and binding obligations of the Shareholder enforceable against the
Shareholder in accordance with their respective terms and conditions, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
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2.4 Consents. No approval, consent, order or action of or filing with
any court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholder of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by the Shareholder of this Agreement and the Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which the Shareholder is a party
or by which the Shareholder or the Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to the Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Shareholder.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
warrants to the Shareholder and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. As of the execution date of
this Agreement, the total authorized capital stock of the Parent is 100,000,000
shares of Parent Common Stock, of which 16,424,446 shares are issued and
outstanding and of which [ 0 ] are held in the treasury of the Parent, and,
50,000,000 shares of Preferred Stock, $.001 par value ("Parent Preferred
Stock"), divided into 5,000,000 shares of Series A Preferred Stock, of which
45,137 shares are issued and outstanding, 678,920 shares of Series B Preferred
Stock, of which 678,920 shares are issued and outstanding, 130,000 shares of
Series C Preferred Stock, of which 100,000 shares are issued and outstanding,
1,800,000 shares of Series D Preferred Stock, of which [0] shares are issued and
outstanding, 600,000 shares of Series E Preferred Stock, of which [0] shares are
issued and outstanding, and 800,000 shares of Series F Preferred Stock, of which
[0] shares are issued and outstanding. The outstanding shares of Parent Common
Stock and Parent Preferred Stock have been duly and validly issued and are fully
paid and non-assessable.
3.1.3 Authority. The Parent has the requisite, power and
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby (the "Parent Related
Documents") and to consummate the transactions contemplated herein and thereby.
This Agreement has been duly executed and delivered by the Parent and
constitutes, and all the Parent Related Documents, when executed and delivered
by the Parent will constitute, legal, valid and binding obligations of the
Parent, enforceable in accordance with their respective terms and conditions
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
3.1.4 Consents. No approval, consent, order or action of or
filing with any court, administrative agency, governmental authority or other
third party is required for the execution, delivery or performance by the Parent
of this Agreement or the Parent Related Documents or the consummation by the
Parent of the transactions contemplated hereby, except for (i) the filing of the
Parent's registration statement with respect to the IPO ("Registration
Statement") with the U.S. Securities and Exchange Commission ("SEC") pursuant to
the Securities Act and the SEC's declaration of effectiveness of such
Registration Statement and the completion
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<PAGE>
of all necessary filings required under, and the obtaining of all necessary
consents and approvals required pursuant to, state securities or "blue sky" laws
in connection with the IPO, and (ii) the filing of the Articles of Merger with
the Secretary of State of Alabama.
3.1.5 Defaults. The Parent is not in default under or in
violation of, and the execution, delivery and performance of this Agreement and
the Parent Related Documents and the consummation by the Parent of the
transactions contemplated hereby and thereby will not result in a default under
or in violation of (i) any mortgage, indenture, charter or bylaw provision,
contract, agreement, lease, commitment or other instrument of any kind to which
the Parent is a party or by which the Parent or any of its properties or assets
may be bound or affected or (ii) any law, rule or regulation applicable to the
Parent or any court injunction, order or decree, or any valid and enforceable
order of any governmental agency in effect as of the date hereof having
jurisdiction over the Parent, which default or violation prevents the Parent
from consummating the transactions contemplated hereby or is reasonably likely
to have a Parent Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain
financial statements to the Shareholder ("Parent Financial Statements") and such
Parent Financial Statements have been prepared in accordance with GAAP and
fairly present the consolidated financial position, results of operations and
cash flows of the Parent and its then existing consolidated subsidiaries as of
the dates and for the periods indicated, subject to normal year-end adjustments
and any other adjustments described therein or in the notes or schedules
thereto. The books and records of the Parent have been kept in reasonable
detail and accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused
to be discharged, as the same have become due, or the Parent Financial
Statements contain adequate accruals and reserves for, all taxes, interest
thereon, fines and penalties of every kind and character, attributable or
relating to the properties and business of the Parent for the periods ended as
stated in the Parent Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law, as
defined in Exhibit 2) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation,
the failure to obtain which is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental Law), ordinances, rules and regulations
of any governmental agency of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, all applicable court or
administrative agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition or
state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
Shareholder and his representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholder and his representatives reasonable access to the offices,
buildings, real properties,
-7-
<PAGE>
machinery and equipment, inventory and supplies, records, files, books of
account, tax returns, agreements and commitments and personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholder pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under which
they are or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole in an amount of $50,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification
of the Merger as a reorganization within the meaning of Section 368(a) of the
Code:
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code)
at the time of such transfer, or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of its
historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection with
the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
(viii) None of the Parent Common Stock received by the Shareholder as
a part of the Merger Consideration will be separate consideration for, or
allocable to, any employment agreement.
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(ix) Neither the Parent nor Merger Sub is under the jurisdiction of
a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.2 Representations and Warranties Concerning the Merger Sub. The Parent
and Merger Sub, jointly and severally, hereby represent and warrant to the
Shareholder and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Alabama.
3.2.2 Capital Structure. The authorized capital stock of Merger
Sub consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and authority
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by Merger Sub of its obligations hereunder and the consummation
of the transactions contemplated hereby have been duly authorized by its Board
of Directors and the Parent as its sole shareholder, and, except for the
corporate filings required by state law, no other corporate proceedings on the
part of Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of Shareholder to be Effective Upon Closing. Effective
upon Closing, and without further action on the part of any party or other
person, the Shareholder covenants and agrees as follows:
4.1.1 Covenant Not to Compete.
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholder in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
the Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is two years following any termination of the
Shareholder's employment by the Company, the Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or indirectly, individually, as a member of a partnership or limited
liability company, equity owner, shareholder (other than as a shareholder
of less than one percent of the issued and outstanding stock of a publicly-
held company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant, any
business that involves indoor air quality, heating, ventilation and air
conditioning, plumbing or electrical contracting services within a 100 mile
radius of Birmingham, Alabama.
(ii) The Shareholder agrees that the limitations set forth herein on
the Shareholder's rights to compete with the Parent and its affiliates as
set forth in clause (i) are reasonable and necessary for the protection of
Parent and its affiliates. In this regard, the Shareholder specifically
agrees that the limitations as to period of time and geographic area, as
well as all other restrictions on the Shareholder's
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activities specified herein, are reasonable and necessary for the
protection of the Parent and its affiliates. The Shareholder agrees that,
in the event that the provisions of this Section should ever be deemed to
exceed the scope of business, time or geographic limitations permitted by
applicable law, such provisions shall be and are hereby reformed to the
maximum scope of business, time or geographic limitations permitted by
applicable law.
(iii) The Shareholder agrees that the remedy at law for any breach by
the Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time and upon the
receipt of the Final Merger Consideration, the Shareholder does hereby (i)
release, acquit and forever discharge the Surviving Corporation from any and all
liabilities, obligations, claims, demands, actions or causes of action arising
from or relating to any event, occurrence, act, omission or condition occurring
or existing on or prior to the Effective Time, including, without limitation,
any claim for indemnity or contribution from the Surviving Corporation in
connection with the obligations or liabilities of the Shareholder hereunder,
except for salary and benefits payable to the Shareholder as an employee in the
ordinary course of business; (ii) waive all breaches, defaults or violations of
any agreement applicable to the Company Common Stock and agree that any and all
such agreements are terminated as of the Effective Time, and (iii) waive any and
all preemptive or other rights to acquire any shares of capital stock of the
Company and release any and all claims arising in connection with any prior
default, violation or failure to comply with or satisfy any such preemptive or
other rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholder will
produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described on Exhibit 4.2 hereto have been eliminated
as expenses of the Company as of and following the Closing Date.
4.3 Repayment of Shareholder Indebtedness. Prior to Closing, the
Shareholder will produce evidence to the satisfaction of the Parent and its
lenders that all receivables, notes or advances to the Shareholder on the books
of the Company have been paid or otherwise satisfied in full on or before the
Closing Date.
4.4 Audit. Prior to Closing, KPMG Peat Marwick LLP shall complete an
audit of the Company through April 30, 1997 (if an audit is deemed necessary by
KPMG Peat Marwick LLP) and such additional review work as may be requested by
the Parent through and including the Closing Date (or other periods subsequent
to April 30, 1997), and provide its report to the Parent and the Shareholder.
4.5 Acquisition of Leased Equipment. Prior to Closing, the Company shall
acquire ownership of the equipment currently being leased from the entity known
as the "Child's Trust" and the Shareholder shall provide to the Parent evidence
of same satisfactory to the Parent.
4.6 Pre-Closing Covenants and Agreements. The Shareholder and the
Company jointly and severally agree as set forth in Exhibit 4.6 attached hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the Parent,
Merger Sub, the Company or the Shareholder will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Merger to its employees, vendors and customers to protect
the Company's goodwill and to facilitate the Closing. The Parent and Merger Sub
may disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities may describe this
Agreement and the transactions
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contemplated hereby in any registration statement filed by the Parent under the
Securities Act and in reports filed by the Parent under the Securities Exchange
Act of 1934, and may file this Agreement as an exhibit to any thereof. The
Parent may also make appropriate disclosures of the general nature of the Merger
and the identity, nature and scope of the Company's operations to prospective
acquisition candidates in connection with the Parent's efforts to effect
additional acquisitions. Each party will have mutual approval rights with
respect to written employee presentations concerning the prospective merger.
4.8 Tax-Free Reorganization. Unless the other parties shall otherwise
agree in writing, none of the Shareholder, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action,
which action or failure to act would jeopardize the qualification of the Merger
as a reorganization withing the meaning of Section 368(a) of the Code.
4.9 Exclusivity. Prior to Closing, Parent shall not solicit, initiate
or encourage the submission of any proposal or offer from any person or entity
relating to the acquisition of any capital stock or other voting securities, or
any substantial position of the assets (including any acquisition structured as
a merger, consolidation or share exchange) of any company engaged in operations
substantially similar to those presently concluded by the Company within a 100-
mile radius of Birmingham, Alabama.
4.10 Bonus Compensation Agreement. The parties acknowledge and agree
that prior to the Closing Date, the Company will enter into an agreement with
Mr. Michael Tortomase (the "Bonus Agreement") pursuant to which the Company will
agree to pay bonus compensation in the amount of $150,000 according to the terms
and conditions set forth therein. The Parent agrees that the Company's
liabilities under the Bonus Agreement shall be assumed by Surviving Corporation
incident to the Merger; provided, however, that the Parent shall be entitled to
approve the form of the Bonus Agreement prior to its execution.
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. The
representations and warranties of the Shareholder and the Company contained in
this Agreement, in Exhibit 2 and the Disclosure Schedule referred to therein and
the other Exhibits provided by the Shareholder or the Company pursuant to this
Agreement or in any closing certificate or document delivered to the Parent
pursuant hereto shall be true and correct at and as of the Closing Date as
though made at and as of that time other than such representations and
warranties as are specifically made as of another date, and the Shareholder and
the Company shall each have delivered to the Parent and Merger Sub a certificate
to that effect.
5.1.2 Performance of Covenants. The Shareholder and the Company
shall have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholder and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
shall have been instituted after the date hereof against the Company or against
the Parent or Merger Sub arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (i) to restrain, prohibit
or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions
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contemplated by this Agreement, and the Shareholder and the Company shall each
have delivered to the Parent and Merger Sub a certificate to that effect.
5.1.4 Approvals. The Company and the Shareholder shall have
procured all of the consents, approvals and waivers of third parties or any
regulatory body or authority, whether required contractually or by applicable
law or otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholder prior to the Closing Date, and
Shareholder and the Company shall each have delivered to the Parent and the
Merger Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed
or delivered at Closing by the Shareholder pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage
shall have occurred on or prior to the Effective Time to any of the properties
or assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since March 31, 1997, there shall
not have been any event that in the reasonable judgment of the Parent adversely
affects the properties, assets, financial condition, results of operations, cash
flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.2 Conditions Precedent to the Obligations of the Shareholder and the
Company. The obligations of the Shareholder and the Company under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholder and the Company in writing:
5.2.1 Accuracy of Representations and Warranties. The
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered to the Shareholder
or the Company pursuant hereto shall be true and correct on and as of the
Closing Date as though made at and as of that date other than such
representations and warranties as are specifically made as of another date, and
the Parent and Merger Sub shall have delivered to the Shareholder and the
Company a certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall
have performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date and the Parent and
Merger Sub shall have delivered to the Shareholder and the Company a certificate
to such effect.
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5.2.3 Approvals. The Parent shall have procured all of the
consents, approvals and waivers specified in Section 3.1.4 prior to the Closing
Date, and the Parent shall deliver to the Shareholder and the Company a
certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed
or delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.3 Deliveries by the Shareholder at the Closing. At the Closing,
simultaneously with the deliveries by the Parent specified in Section 5.4
below, and in addition to any deliveries required to be made by the Shareholder
and the Company pursuant to any other transaction document at the Closing, the
Shareholder shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholder and the Company shall
deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3,
5.1.4 and 5.1.5.
5.3.2 Stock Transfer Restriction Agreement. The Shareholder shall
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.2.
5.3.3 Employment Agreement. The Shareholder and certain other
employees of the Company specified on Exhibit 5.3.3 shall execute and deliver an
Employment Agreement with the Company on the Closing Date, effective as of the
Effective Time, substantially in the form set forth in Exhibits 5.3.3A or
5.3.3B.
5.3.4 Registration Rights Agreement. The Shareholder shall
execute and deliver a Registration Rights Agreement at the Closing, effective as
of the Effective Time, substantially in the form set forth in Exhibit 5.3.4
attached hereto, as applicable.
5.3.5 Opinion of Counsel for the Shareholder and the Company. The
Shareholder shall deliver the favorable opinion of Najjar Denaburg, P.C.,
counsel to the Shareholder and the Company, dated the Effective Time,
substantially in the form and to the effect set forth in Exhibit 5.3.5 attached
hereto.
5.3.6 Documents, Stock Certificates. The Shareholder shall execute
and deliver, and shall cause the Company to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Company or its officers or directors or the Shareholder at the
Closing as contemplated hereby or as may be reasonably requested by the Parent
and shall deliver or cause to be delivered the documents and evidence required
under Section 4. Stock Certificates representing all of the outstanding Company
Common Stock and a properly executed and completed letter of transmittal shall
be delivered by the Shareholder to the Parent.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholder hereunder for any breach of warranty, covenant or
agreement by the Company or the Shareholder herein irrespective of any knowledge
of or investigation made by or on behalf of the Parent or Merger Sub; provided,
however, that if the Company shall disclose in writing to the Parent prior to
the Closing Date a specified breach of a specifically identified representation,
warranty, covenant or agreement of the Company or the Shareholder herein by the
Company or the Shareholder, and requests a waiver thereof by the Parent, and the
Parent shall waive any such specifically identified breach in writing prior to
the Closing Date, the Parent and the Surviving Corporation, for themselves and
for each Parent Indemnified Party (as defined below) shall be deemed to have
waived their respective rights
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and remedies hereunder for, and the Shareholder shall have no liability with
respect to, any such specifically identified breach, to the extent so identified
by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
simultaneously with the deliveries by the Shareholder specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholder the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall
deliver the certificates required pursuant to Sections 5.2.1, 5.2.2, 5.2.3,
and 5.2.4.
5.4.2 Registration Rights Agreement. The Parent shall execute and
deliver to the Shareholder a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.4.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The
Parent shall deliver the favorable opinion of its legal counsel dated the
Effective Time, substantially in the form and to the effect set forth in
Exhibit 5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver the
Closing Merger Consideration to the Shareholder.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholder of any of his rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of the Shareholder; provided, however, that if the Parent shall disclose in
writing to the Shareholder prior to the Closing a specified breach of a
specifically identified representation, warranty, covenant or agreement of the
Parent or Merger Sub contained herein by the Parent or Merger Sub, and requests
a waiver thereof by the Company and the Shareholder, and the Company and the
Shareholder shall waive any such specifically identified breach in writing prior
to the Closing, the Company and the Shareholder shall be deemed to have waived
their rights and remedies hereunder for, and the Parent and Merger Sub shall
have no liability or obligation to the Shareholder or the Company with respect
to, any such specifically identified breach, to the extent so identified by the
Parent and waived by the Company and the Shareholder.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholder and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholder and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2 shall survive for a period of
36 months after the date hereof and the representations and warranties of the
Shareholder and the Company contained in Sections 2.2, 2.3, 2.4 and in Sections
2 and 3 of Exhibit 2 shall survive for the maximum period permitted by
applicable law. The representations and warranties of the Parent herein and in
the Parent Related Documents, other than those in Sections 3.1.3 and 3.1.4,
shall survive for a period of 36 months after the date hereof and the
representations and warranties of the Parent contained in Sections 3.1.3 and
3.1.4 shall survive for the maximum period permitted by applicable law. The
periods of survival of the representations and warranties as stated above in
this Section 6.1 are referred to herein as the "Survival Period." The
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable
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Survival Period and no claim for indemnification may be made with respect to any
breach of any representation or warranty, the applicable Survival Period of
which shall have expired, except to the extent that written notice of such
breach shall have been given to the party against which such claim is asserted
on or before the date of such expiration. The covenants and agreements of the
parties herein (including but not limited to Exhibit 4.6) and in other documents
and instruments executed and delivered in connection with the closing of the
transactions contemplated hereby shall survive for the maximum period permitted
by law.
6.2 Indemnification.
6.2.1 Parent Indemnified Parties. Subject to the provisions of
Sections 6.1 and 6.3 hereof, the Shareholder shall indemnify, save and hold
harmless the Parent, the Surviving Corporation, Merger Sub and any of their
assignees (including lenders) and all of their respective officers, directors,
employees, representatives, agents, advisors and consultants and all of their
respective heirs, legal representatives, successors and assigns (collectively
the "Parent Indemnified Parties") from and against any and all damages,
liabilities, losses, loss of value (including the value of adverse effects on
cash flow or earnings), claims, deficiencies, penalties, interest, expenses,
fines, assessments, charges and costs, including reasonable attorneys' fees and
court costs (collectively "Losses") arising from, out of or in any manner
connected with or based on:
(i) the breach of any covenant of the Shareholder or the Company or
the failure by any Shareholder or the Company to perform any obligation of
any Shareholder or the Company contained herein or in any Company Related
Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty
of any Shareholder contained herein or in any Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed in the
Disclosure Schedule or (b) disclosed in the Company Financial Statements
(as defined in Exhibit 2).
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1
and 6.3, the Parent shall indemnify, save and hold harmless the Shareholder and
the Shareholder's heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty
of the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring or
existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties,
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businesses or operations of the Company; provided, however, that this
clause (iii) shall not apply to any Losses to the extent that such Losses
result from any Shareholder's acts or omissions after the Effective Time as
an officer, director and/or employee of the Parent, the Surviving
Corporation and/or any other affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The Shareholder shall have no liability under Section
6.2.1 until the total of all Losses with respect to such matters exceeds
$25,000; provided, however, that the aggregate liability of the Shareholder
under Section 6.2.1 shall not exceed $2,582,056. The Parent shall have no
liability under Section 6.2.2 until the total of all Losses with respect to such
matters exceeds $25,000; provided, however, that the aggregate liability of the
Parent under Section 6.2.2 shall not exceed $2,582,056.
6.4 Procedures for Indemnification.
6.4.1 Notice. The party (the "Indemnified Party") that may be
entitled to indemnity hereunder shall give notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") within 30 days after the
Indemnified Party obtains actual knowledge of the assertion of any claim, or the
commencement of any suit, action or proceeding in respect of which indemnity may
be sought hereunder. Any failure on the part of any Indemnified Party to give
the notice described in this Section 6.4.1 shall relieve the Indemnifying Party
of its obligations under this Article 6 only to the extent that such
Indemnifying Party has been prejudiced by the lack of timely and adequate notice
(except that the Indemnifying Party shall not be liable for any expenses
incurred by the Indemnified Party during the period in which the Indemnified
Party failed to give such notice). Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party, promptly (and in any event within 30 days
thereof) after the Indemnified Party's receipt thereof, copies of all notices
and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholder shall at all times have the right, at his option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholder
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 20 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter
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into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any
such third-party suit, action, proceeding or investigation, and the defending
party shall have reasonable access to the books and records, and personnel in
the possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself and
its affiliates (as defined in Exhibit 2) any rights to subrogation against any
Indemnified Party or its insurers for Losses arising from any third-party claims
for which it is liable or against which it indemnifies any Indemnified Party
and, if necessary, each Indemnifying Party shall obtain waivers of such
subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any
time prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and
the Parent; or
7.1.2 Optional by the Company. By the Company by written notice to
the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of its, his
or her obligations under this Agreement;
7.1.3 Optional by the Parent. By the Parent, by written notice to
the Company, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Parent nor Merger Sub
has breached this Agreement or has failed to perform any of its obligations
under this Agreement;
7.1.4 Breach by the Parent or Merger Sub. By the Company, by
written notice to the Parent, if either the Parent or Merger Sub has breached
this Agreement or failed to perform any of its obligations under this Agreement;
or
7.1.5 Breach by the Company or the Shareholder. By the Parent, by
written notice to the Company, if either the Company or any Shareholder has
breached this Agreement or has failed to perform any of its, his or her
obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
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8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Shareholder:
Mr. L. John Mancin, III
Evans Services, Inc.
2406 Valleydale Rd.
Birmingham, Alabama 35244
Telecopy: (205) 982-7265
With copies to:
Mr. Charles Denaburg Mr. Edmond R. Denaburg
Najjar Denaburg, P.C. Christian & Denaburg, P.C.
2125 Morris Avenue P.O. Box 43428
Birmingham, Alabama 35203 5300 Cahaba River Road, Suite 200
Telecopy: (205) 326-3837 Birmingham, Alabama 35243
Telecopy: (205) 967-2378
To the Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been given
as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholder shall, at any time and from
time to time after the date hereof, upon request by the Parent and without
further consideration, execute and deliver such instruments or other documents
and take such further action as may be reasonably required in order to perfect
any other undertaking made by the Shareholder hereunder.
8.3 Assignability. The Shareholder shall not assign this Agreement in
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of either the Shareholder or the Company. After the Effective Time, the
Surviving Corporation may assign its rights
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<PAGE>
under this Agreement, the Company Related Documents and the Shareholder Related
Documents without the consent of any of the Shareholder.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires, all
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full
understanding of the parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of their agreement
relating to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement,
no conditions, usage of trade, course of dealing or performance, understanding
or agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF
THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ALABAMA EXCEPT TO THE
EXTENT THE APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, the Shareholder
shall not make any press release, public announcement, or public confirmation or
disclose any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
Merger Sub and the Company, by action taken by their Boards of Directors to the
extent permitted by applicable law; provided, however, that no such amendment
shall (i) alter or change any provision of this Agreement, the alteration or
change of which must be adopted by the holders of capital stock of the Company
under the certificate or articles of incorporation of the Company or the
Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless each
such alteration or change is adopted by the holders of shares of capital stock
of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent, Merger Sub, the Company and the
Shareholder. After the Effective Time, all amendments to this
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<PAGE>
Agreement must be by an instrument in writing signed on behalf of the Parent and
the Shareholder. Any term or provision of this Agreement (other than the
requirements for shareholder approvals) may be waived in writing at any time by
the party which is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall
confer upon any employee of the Company, any other employee or legal
representatives or beneficiaries of any thereof any rights or remedies,
including any right to employment or continued employment for any specified
period, of any nature or kind whatsoever under or by reason of this Agreement,
or shall cause the employment status of any employee to be other than terminable
at will.
8.13 Non-Recourse. Except to the extent that any claim is based upon
fraud or deliberate misrepresentation, no recourse for the payment of any
amounts due hereunder or for any claim based on this Agreement or the
transactions contemplated hereby or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Parent in
this Agreement shall be had against any incorporator, organizer, promoter,
shareholder, officer, director, employee or representative as such (other than
the Shareholder as set forth herein), past, present or future, of the Parent or
of any successor corporation, whether by virtue of any constitution, statute or
rule of law, or by enforcement of any assessment or penalty or otherwise; it
being expressly understood that all such liability is hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Agreement.
8.14 When Effective. This Agreement shall become effective only upon
the execution and delivery of one or more counterparts of this Agreement by each
of the Parent, Merger Sub, the Company and the Shareholder.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control
share acquisition" or other form of anti-takeover statute or regulation shall
become applicable to the transactions contemplated hereby, Parent and the
Company and their respective members of their Boards of Directors shall grant
such approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws, such
provisions shall be fully severable as if such invalid or unenforceable
provisions had never comprised a part of the Agreement; and the remaining
provisions of the Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number
of identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
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<PAGE>
8.19 No Rule of Construction. All of the parties hereto have been
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of their own expenses
in connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company shall pay the costs
of any broker or finder engaged by the Shareholder and the accounting and
auditing fees and expenses of KPMG Peat Marwick LLP (up to a maximum of $10,000
in auditing fees and expenses); provided further that all fees, costs and
expenses incurred or payable by the Company (other than such accounting and
auditing fees and expenses) in connection with the negotiation and closing of
this Agreement and the transactions contemplated hereby and the costs of any
such broker or finder shall not be included in current liabilities for purposes
of determining Working Capital; and provided further that in the event the
Parent decides not to close the Merger notwithstanding the fact that (i) the
representations and warranties of the Company and the Shareholder contained
herein are true and correct in all material respects, and (ii) the Company and
the Shareholder have performed or have agreed to perform all of their respective
agreements and covenants contained herein, the Parent shall pay the accounting
and auditing costs (up to a maximum of $10,000) incurred by the Company.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:___________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
EVANS ACQUISITION CORP.
By:___________________________________
J. Patrick Millinor, Jr., President
SHAREHOLDER:
/s/ L. John Mancin, III
______________________________________
L. John Mancin, III, as Shareholder
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<PAGE>
COMPANY:
EVANS SERVICES, INC.
/s/ L. John Mancin, III
By:___________________________________
L. John Mancin, III, President
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<PAGE>
EXHIBIT 10.20
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
MACDONALD-MILLER ACQUISITION CORP.
MACDONALD-MILLER INDUSTRIES, INC.
THE PRINCIPAL HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
MACDONALD-MILLER INDUSTRIES, INC.
AND
THE TRUSTEE OF THE
MACDONALD-MILLER INDUSTRIES, INC. EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST
August 18, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER.............................................................. 1
1.1 The Merger......................................................... 1
1.2 Effective Time of the Merger....................................... 1
1.3 Closing............................................................ 1
1.4 Effects of the Merger.............................................. 2
1.4.1 At the Effective Time....................................... 2
1.4.2 Effects on the Surviving Corporation........................ 2
1.5 Written Agreement and Other Actions
1.5.1 Voting and Instruction Agreement; Other Matters............. 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub....... 3
1.5.3 All Other Necessary Actions................................. 3
1.6 Conversion of Stock................................................ 3
1.6.1 Merger Sub Capital Stock.................................... 3
1.6.2 Cancellation of the Company Treasury Stock and
Authorized but Unissued Stock............................. 3
1.6.3 Merger Consideration........................................ 3
1.7 Exchange of and Payment for Stock.................................. 4
1.7.1 Delivery of Company Common Stock and Closing Merger
Consideration; Appraisal Rights........................... 4
1.7.2 Return of Stock Certificates................................ 4
1.7.3 Assignments................................................. 5
1.7.4 Payment In Full Satisfaction of All Rights.................. 5
1.8 Determination of Closing Merger Consideration...................... 5
1.8.1 Delivery of IPO Price to Public; Statement.................. 5
1.9 Post-Closing Determination of Total Consideration.................. 5
1.9.1 Statement................................................... 5
1.9.2 Review...................................................... 5
1.9.3 Disputes.................................................... 6
1.9.4 Resolution by Parties....................................... 6
1.9.5 Final Determination......................................... 6
1.9.6 Expenses.................................................... 7
1.10 Additional Consideration........................................... 7
2. REPRESENTATIONS AND WARRANTIES OF THE
TRUSTEE, THE COMPANY AND THE PRINCIPAL SHAREHOLDER.................... 8
2.1 Representations and Warranties of the Trustee...................... 8
2.2 Representations and Warranties of the Company and the Principal
Shareholders..................................................... 8
2.2.1 Exhibit 2................................................... 8
2.2.2 Stock Ownership............................................. 8
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2.2.3 Authority................................................... 8
2.2.4 Consents.................................................... 8
2.2.5 No Warranties of Future Performance......................... 8
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB............. 9
3.1 Representations and Warranties..................................... 9
3.1.1 Organization................................................ 9
3.1.2 Capitalization of the Parent................................ 9
3.1.3 Authority................................................... 9
3.1.4 Consents.................................................... 9
3.1.5 Defaults.................................................... 9
3.1.6 Investment Company.......................................... 10
3.1.7 Financial Statements........................................ 10
3.1.8 Taxes....................................................... 10
3.1.9 Full Authority.............................................. 10
3.1.10 Access...................................................... 10
3.1.11 Disclosure.................................................. 10
3.1.12 Parent Material Adverse Effect.............................. 11
3.1.13 Tax-Free Reorganization..................................... 11
3.1.14 No Warranties of Future Performance......................... 12
3.2 Representations and Warranties Concerning the Merger Sub........... 12
3.2.1 Organization and Standing................................... 12
3.2.2 Capital Structure........................................... 12
3.2.3 Authority................................................... 12
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS................... 12
4.1 Agreements of the Principal Shareholders to be Effective Upon
Closing.......................................................... 12
4.1.1 Covenant Not to Compete..................................... 12
4.1.2 Release..................................................... 13
4.2 Elimination of Expense............................................. 14
4.3 Deferred Compensation Plans........................................ 14
4.4 Audit.............................................................. 14
4.5 Certain Payables and Receivables................................... 14
4.6 Pre-Closing Covenants and Agreements............................... 14
4.7 Confidentiality.................................................... 14
4.8 Tax-Free Reorganization............................................ 15
4.9 Company Plans...................................................... 15
4.10 HSR Act............................................................ 15
4.11 Purchase of Certain Receivables................................... 15
4.12 Certain Condominiums............................................... 15
4.13 Certain Matters Related to the ESOP................................ 15
4.13.1 Suspension of ESOP Contributions.......................... 15
4.13.2 Amendment of ESOP; Distribution of ESOP Investments........ 16
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4.14 ESOP Expenses..................................................... 16
4.15 Indemnification of Officers and Directors of the Company.......... 16
4.16 Errors and Omissions Insurance.................................... 16
4.17 Other Insurance................................................... 16
4.18 Releases.......................................................... 16
4.19 Parent Guaranty................................................... 16
4.20 Recommendation by the Company; Cooperation in Preparation of
Registration Statement and Proxy and in Meeting of
Shareholders.................................................... 16
4.21 Sale of MMR....................................................... 17
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES............................... 17
5.1 Conditions Precedent to the Obligations of the Parent
and Merger Sub.................................................. 17
5.1.1 Accuracy of Representations and Warranties................. 17
5.1.2 Performance of Covenants................................... 17
5.1.3 Legal Actions or Proceedings............................... 17
5.1.4 Approvals.................................................. 17
5.1.5 Closing Deliveries......................................... 17
5.1.6 No Casualty, Loss or Damage................................ 17
5.1.7 Licenses, etc.............................................. 18
5.1.8 No Material Adverse Change................................. 18
5.1.9 IPO........................................................ 18
5.1.10 Certain Corporate Actions.................................. 18
5.1.11 HSR Act.................................................... 18
5.2 Conditions Precedent to the Obligations of the Principal
Shareholders and the Company.................................... 18
5.2.1 Accuracy of Representations and Warranties................. 18
5.2.2 Performance of Covenants................................... 18
5.2.3 Approvals.................................................. 18
5.2.4 Closing Deliveries......................................... 18
5.2.5 HSR Act.................................................... 18
5.3 Deliveries by the Principal Shareholders at the Closing........... 19
5.3.1 Closing Certificates....................................... 19
5.3.2 Stock Transfer Restriction Agreement....................... 19
5.3.3 Employment Agreements...................................... 19
5.3.4 Lease Agreement............................................ 19
5.3.5 Opinion of Counsel for the Principal Shareholders
and the Company.......................................... 19
5.3.6 Documents, Stock Certificates.............................. 19
5.3.7 Discharge of Indebtedness, Releases, Etc................... 19
5.4 Deliveries by the Parent at the Closing........................... 20
5.4.1 Closing Certificates....................................... 21
5.4.2 Registration Rights Agreement.............................. 21
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5.4.3 Opinion of Counsel for the Parent and Merger Sub........... 21
5.4.4 Closing Merger Consideration............................... 21
6. SURVIVAL, INDEMNIFICATIONS............................................. 21
6.1 Survival.......................................................... 21
6.2 Indemnification................................................... 22
6.2.1 Parent Indemnified Parties................................. 22
6.2.2 Parent Indemnity........................................... 23
6.3 Limitations....................................................... 23
6.3.1 Aggregate Liability........................................ 23
6.3.2 Threshold.................................................. 23
6.4 Procedures for Indemnification.................................... 24
6.4.1 Notice..................................................... 24
6.4.2 Legal Defense.............................................. 24
6.4.3 Settlement................................................. 24
6.4.4 Cooperation................................................ 24
6.5 Subrogation....................................................... 25
7. TERMINATION............................................................ 25
7.1 Grounds for Termination........................................... 25
7.1.1 Mutual Consent............................................. 25
7.1.2 Optional By the Company.................................... 25
7.1.3 Optional By the Parent..................................... 25
7.1.4 Breach By the Parent or Merger Sub......................... 25
7.1.5 Breach by the Company or any Principal Shareholder......... 25
7.2 Effect of Termination............................................. 25
8. MISCELLANEOUS........................................................... 25
8.1 Notice............................................................ 25
8.2 Further Documents................................................. 26
8.3 Assignability..................................................... 26
8.4 Exhibits and Schedules............................................ 27
8.5 Sections and Articles............................................. 27
8.6 Entire Agreement.................................................. 27
8.7 Headings.......................................................... 27
8.8 CONTROLLING LAW................................................... 27
8.9 Public Announcements.............................................. 27
8.10 No Third Party Beneficiaries...................................... 27
8.11 Amendments and Waivers............................................ 27
8.12 No Employee Rights................................................ 28
8.13 Non-Recourse...................................................... 28
8.14 When Effective.................................................... 28
8.15 Takeover Statutes................................................. 28
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8.16 Number and Gender of Words........................................ 28
8.17 Invalid Provisions................................................ 28
8.18 Multiple Counterparts............................................. 29
8.19 No Rule of Construction........................................... 29
8.20 Expenses.......................................................... 29
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<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit 1 ............................... Determination of Final Merger Consideration
Exhibit 1.5.1 ........................... Voting and Instruction Agreement
Exhibit 1.5.2 ........................... Written Consent of Sole Shareholder of MacDonald-Miller Acquisition Corp.
Exhibit 1.7 ............................. Letter of Transmittal
Exhibit 2 ............................... Certain Statements
Exhibit 2.2 ............................. Ownership of Company Common Stock
Exhibit 2.4 ............................. Consents
Exhibit 3.1.4 ........................... Required Consents - Parent
Exhibit 4.3 ............................. Procedure for Satisfaction of Deferred Compensation Plan Liabilities
and Split-Dollar Life Insurance Policies
Exhibit 4.6 ............................. Certain Covenants
Exhibit 4.9 ............................. Company Plans to Remain in Effect
Exhibit 4.12 ............................ Certain Properties
Exhibit 5.3.2 ........................... Stock Transfer Restriction Agreement
Exhibit 5.3.3 ........................... List of Employees to Execute and Deliver Employment Agreements
Exhibit 5.3.3A .......................... Employment Agreement
Exhibit 5.3.4 ........................... Lease Agreement
Exhibit 5.3.5-A ......................... Opinion of Counsel to the Shareholders and the Company
Exhibit 5.3.5-B ......................... Opinion of Counsel to the Trustee
Exhibit 5.3.7 ........................... Terminated Obligations
Exhibit 5.4.3 ........................... Opinion of Counsel to the Parent
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
Page
1042 Shares................................................................ 3
Accountants................................................................ 6
Additional Consideration................................................... 7
Additional Net After-Tax Income............................................ 7
Agreement.................................................................. 1
Applicable Corporate Law................................................... 1
Approval Shareholders...................................................... 1
AR Reserve................................................................. 15
Closing.................................................................... 1
Closing Date............................................................... 1
Code....................................................................... 1
Company.................................................................... 1
Company Accountants........................................................ 14
Company Common Stock....................................................... 1
Converted Share............................................................ 4
Dissenting Shares.......................................................... 4
Earn-Out Period............................................................ 7
EBITDA..................................................................... 7
Effective Time............................................................. 1
ESOP....................................................................... 15
HSR Act.................................................................... 15
Indemnified Party.......................................................... 24
Indemnifying Party......................................................... 24
IPO........................................................................ 2
Losses..................................................................... 22
Merger..................................................................... 1
Merger Sub................................................................. 1
Minimum Proceeds........................................................... 2
MMR........................................................................ 7
Notice of Dispute.......................................................... 6
Operating EBITDA........................................................... 7
Parent..................................................................... 1
Parent Common Stock........................................................ 1
Parent Financial Statements................................................ 10
Parent Indemnified Parties................................................. 22
Parent Material Adverse Effect............................................. 11
Parent Related Documents................................................... 9
Pre-Closing Period......................................................... 7
Price Notice............................................................... 5
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Principal Shareholders..................................................... 1
Property................................................................... 14
Registration Statement..................................................... 9
SEC........................................................................ 9
Securities Act............................................................. 2
Settlement Notice.......................................................... 24
Shareholder................................................................ 4
Shareholder Related Document............................................... 8
Statement of Closing Consideration......................................... 5
Statement of Final Per Share Amounts....................................... 5
Stock Certificate.......................................................... 4
Stock Value................................................................ 7
Survival Period............................................................ 21
Surviving Corporation...................................................... 1
Terminated Obligations..................................................... 19
Third Accountants.......................................................... 6
Threshold.................................................................. 23
Trustee.................................................................... 1
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as
of August ___, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), MacDonald-Miller Acquisition Corp., a Washington
corporation ("Merger Sub"), MacDonald-Miller Industries, Inc., a Washington
corporation (the "Company"), the undersigned holders of a portion of the
outstanding capital stock of the Company (the "Principal Shareholders"), and the
Trustee of the MacDonald-Miller Industries, Inc. Employee Stock Ownership Plan
and Trust (the "Trustee").
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub
and the Company have each approved the merger of the Company with and into
Merger Sub (the "Merger") pursuant to this Agreement and the applicable statutes
of the State of Washington, and pursuant to the Merger each issued and
outstanding share of Common Stock of the Company ("Company Common Stock") will
be converted into the right to receive certain shares of common stock, $.001 par
value per share, of the Parent ("Parent Common Stock"), and certain cash
consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law,
by the Parent, acting as sole shareholder of Merger Sub, and by the requisite
number of shareholders of the outstanding capital stock of the Company (the
"Approval Shareholders")
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
accordance with Section RCW 23B.11.010 of the Washington Business Corporation
Act (the "Applicable Corporate Law"), upon the Effective Time (as defined in
Section 1.2), the Company shall be merged with and into Merger Sub. Merger Sub,
as the surviving entity following the Merger, is sometimes referred to in this
Agreement as the "Surviving Corporation."
1.2 Effective Time of the Merger. In accordance with the
requirements of applicable law, appropriate Articles of Merger under the
Applicable Corporate Law shall be prepared, executed and submitted for filing
with the Secretary of State of the State of Washington immediately following and
on the same day as the Closing (as defined below). The date of such filing is
referred to in this Agreement as the "Effective Time."
1.3 Closing. The closing of the Merger ("Closing") will take place
at the offices of Bracewell & Patterson, L.L.P. in Houston, Texas on a date that
is contemporaneous with the closing of the Parent's IPO (as defined below), but
in no event later than December 31, 1997 ("Closing Date"); provided that each of
the conditions precedent to the obligations of the parties to effect the Merger
set forth in Article 5 of this
<PAGE>
Agreement are then satisfied or waived by the applicable party. The parties may
agree in writing on another place for the Closing. At the Closing, the parties
will deliver or cause to be delivered the documents and consideration described
in Sections 5.3 and 5.4 below. The term "IPO" means the first underwritten
public offering of Parent Common Stock resulting in net cash proceeds to the
Parent of at least the Minimum Proceeds, as defined below (other than any
offering pursuant to any registration statement relating to any capital stock of
the Parent or options, warrants or other rights to acquire any such capital
stock issued or to be issued primarily to directors, officers or employees of
the Parent or any of its subsidiaries, (i) relating to any employee benefit plan
or interest therein, (ii) relating principally to any preferred stock or debt
securities of the Parent, or (iii) filed pursuant to Rule 145 under the
Securities Act of 1933, as amended ("Securities Act"), or any successor or
similar provision). The term "Minimum Proceeds" means the aggregate amount
necessary to pay in full (i) all indebtedness of the Parent and any of its
subsidiaries outstanding at the closing of the IPO and incurred for purposes of
financing any acquisitions by the Parent or any of its subsidiaries (including
the refinancing of acquired Company indebtedness), (ii) the aggregate redemption
prices for the redemption of all of the Parent's preferred stock outstanding at
the closing of the IPO issued by the Parent in connection with then completed
acquisitions by the Parent or any of its subsidiaries, and (iii) the aggregate
cash payable by the Parent or any of its subsidiaries in connection with all
then pending acquisitions.
1.4 Effects of the Merger.
1.4.1 At the Effective Time. At the Effective Time, (i) the
Company shall merge with and into Merger Sub and as a result thereof, the
separate existence of the Company shall cease, (ii) the Articles of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation,
except that the Articles of Incorporation of Merger Sub shall be amended to
provide that the name of the Surviving Corporation shall be changed to
"MacDonald-Miller Industries, Inc.," (iii) the Bylaws of Merger Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation, and (iv) the directors and officers of Merger Sub immediately prior
to the Effective Time shall become the directors and officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected or appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and
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duties had been incurred or contracted by it, all in accordance with the
Applicable Corporate Law and the terms of this Agreement.
1.5 Written Agreement and Other Actions.
1.5.1 Voting and Instruction Agreement; Other Matters.
Contemporaneously with the execution hereof, the Approval Shareholders are
executing and delivering to the Company a Voting and Instruction Agreement in
substantially the form of Exhibit 1.5.1 attached hereto and in which they
acknowledge that they are aware of their dissenter's or appraisal rights and
with respect to the Merger and their receipt of a copy of the provisions of
Section RCW 23B.13.020 of the Applicable Corporate Law and have elected not to
exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibit 1.5.2 attached hereto, pursuant to the applicable
provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions
set forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company
will take all actions necessary in accordance with the Applicable Corporate Law
and their respective articles of incorporation and bylaws to cause the Merger to
be consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of
Merger Sub issued and outstanding at the Effective Time shall remain outstanding
and shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock and Authorized
but Unissued Stock. All shares of Company Common Stock that are owned by the
Company as treasury stock or by any of its subsidiaries shall be canceled and
retired and shall cease to exist and no stock of the Parent or other
consideration shall be delivered in exchange therefor. All shares of Company
Common Stock that are authorized but not issued shall be canceled and retired
and shall cease to exist and any options, warrants or subscriptions related
thereto shall be terminated and no stock of Parent or other consideration shall
be delivered in exchange therefor.
1.6.3 Merger Consideration. Each share of Company Common Stock
(other than shares to be canceled in accordance with Section 1.6.2) shall be
converted into the right to receive (i) that number of shares of Parent Common
Stock equal to the Final Per Share Common Stock Amount (as defined in Exhibit 1
attached hereto), and (ii) cash equal to the Final Per Share Cash Amount (as
defined in Exhibit 1 attached hereto); provided, however, that the Trustee shall
allocate the Parent Common Stock received by it first to shares of Company
Common Stock most recently acquired by the Trustee (i.e., the "1042 Shares").
Each share of Company Common Stock so converted into the right to receive cash
equal to the Final Per
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Share Cash Amount and shares of Parent Common Stock equal to the Final Per Share
Common Stock Amount (a "Converted Share") shall, by virtue of the Merger and
without any action on the part of the holder thereof, at the Effective Time no
longer be outstanding and shall at such time be canceled and retired and shall
cease at such time to exist, and each holder of a certificate which prior to the
Effective Time validly evidenced any such Converted Share (a "Stock
Certificate") shall thereafter cease to have any rights with respect to such
Converted Share, except, upon the surrender of the Stock Certificate and a duly
executed and completed letter of transmittal in accordance with Section 1.7, the
right to receive such cash and Parent Common Stock at the times and in the
manner set forth herein.
1.7 Exchange of and Payment for Stock.
1.7.1 Delivery of Company Common Stock and Closing Merger
Consideration; Appraisal Rights. Prior to the Closing, the Parent will deliver
to each Principal Shareholder and the Principal Shareholders shall distribute to
each shareholder of the Company ("Shareholder") a letter of transmittal, in
substantially the form attached hereto as Exhibit 1.7, to be used for the
purpose of surrendering Stock Certificates to the Parent in exchange for the
right to receive the Final Per Share Cash Amount and the Final Per Share Common
Stock Amount for each Converted Share evidenced by such Stock Certificate. All
of the Company Common Stock held by the Shareholders will be surrendered by the
Principal Shareholders to the Parent together with properly completed and
executed letters of transmittal (with each such signature guaranteed by a
commercial bank or notarized by a notary public or similar official reasonably
satisfactory to the Parent), and the Parent shall cause to be delivered to the
Shareholders at the Closing the Closing Per Share Cash Amount (as defined in
Exhibit 1 attached hereto) and the Closing Per Share Common Stock Amount (as
defined in Exhibit 1 attached hereto) applicable to each of the Converted Shares
evidenced by the Stock Certificates properly surrendered (with properly executed
and completed letters of transmittal) by each Shareholder to the Parent. If
required by the Applicable Corporate Law but only to the extent required
thereby, shares of Company Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by holders of such
shares of Company Common Stock who exercise appraisal rights with respect
thereto in accordance with Section RCW 23B.13.020 of the Applicable Corporate
Law (the "Dissenting Shares") will not be converted into or be exchangeable for
the right to receive the Closing Per Share Cash Amount, the Closing Per Share
Common Stock Amount, the Final Per Share Cash Amount or the Final Per Share
Common Stock Amount, and holders of such shares of Company Common Stock will be
entitled to receive payment of the appraised value of such shares of Company
Common Stock in accordance with the provisions of such Section RCW 23B.13.020 of
the Applicable Corporate Law unless and until such holders fail to perfect or
effectively withdraw or lose their rights to appraisal and payment under the
Applicable Corporate Law. If, after the Effective Time, any such holder fails to
perfect or effectively withdraws or loses such right, such shares of Company
Common Stock will thereupon be treated as if they had been converted into and to
have become exchangeable for, at the Effective Time, the right to receive the
Closing Per Share Cash Amount, the Closing Per Share Common Stock Amount, the
Final Per Share Cash Amount or the Final Per Share Common Stock Amount as
provided hereby and any unpaid dividends and distributions to which the holder
of such shares of Company Common Stock is entitled, without any interest
thereon.
1.7.2 Return of Stock Certificates. In the event the Closing
does not occur by December 31, 1997, any letters of transmittal and Stock
Certificates previously delivered to the Parent shall promptly be returned to
the Shareholders.
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1.7.3 Assignments. Except for the granting of options to
employees of the Company and the exercise or assignment thereof as permitted by
Section 4.10, the assignment, transfer or other disposition of record or
beneficial ownership of any shares of Company Common Stock may not be made on or
after the date hereof.
1.7.4 Payment In Full Satisfaction of All Rights. The delivery
of the Closing Per Share Cash Amount and the Closing Per Share Common Stock
Amount to the Shareholders with respect to their Converted Shares shall be
deemed to be payment in full satisfaction of all rights pertaining to the
outstanding Converted Shares except for the right to receive additional shares
of Parent Common Stock and cash pursuant to Section 1.9.
1.8 Determination of Closing Merger Consideration.
1.8.1 Delivery of IPO Price to Public; Statement. After the
Parent and its underwriters agree on the initial price to the public for a share
of Parent Common Stock offered in the IPO, at the Closing as set forth in an
executed underwriting agreement, the Parent shall deliver to the Principal
Shareholders a written notice (the "Price Notice") setting forth such initial
price to the public and a statement setting forth a calculation of the Closing
Outstanding Common Stock Number (as defined in Exhibit 1 attached hereto), the
Closing Per Share Cash Amount, the Closing Per Share Common Stock Amount and the
Closing Merger Consideration (as defined in Exhibit 1 attached hereto), payable
to the Shareholders at Closing (the "Statement of Closing Consideration"). The
initial price to the public of a share of Parent Common Stock, as set forth in
the Price Notice, and the Closing Outstanding Common Stock Number, the Closing
Per Share Cash Amount, the Closing Per Share Common Stock Amount and the Closing
Merger Consideration, as set forth in the Statement of Closing Consideration,
shall be final, conclusive and binding for purposes of this Agreement.
1.9 Post-Closing Determination of Total Consideration.
1.9.1 Statement. No later than 30 days after the Closing, the
Parent shall deliver to the Principal Shareholders a statement showing the Final
Outstanding Common Stock Number (as defined in Exhibit 1 attached hereto), the
Final Per Share Cash Amount, the Final Per Share Common Stock Amount and the
Total Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of
Final Per Share Amounts"). For purposes of determining the Statement of Final
Per Share Amounts, the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount, and the Total
Consideration shall be calculated or determined as of the last day of the month
immediately preceding the month in which the Closing occurs (unless the Closing
occurs on the last day of the month, in which case the month of Closing shall be
used).
1.9.2 Review. After delivery to the Principal Shareholders of
the Statement of Final Per Share Amounts, the Principal Shareholders, the
Trustee and their representatives shall be afforded the opportunity to review
and inspect all of the financial records, work papers, schedules and other
supporting papers relating to the preparation of the Statement of Final Per
Share Amounts, and to consult with the Parent and its representatives regarding
the methods used in the preparation of the Statement of Final Per Share Amounts.
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1.9.3 Disputes. The Final Outstanding Common Stock Number, the
Final Per Share Cash Amount, the Final Per Share Common Stock Amount and the
Total Consideration as shown on the Statement of Final Per Share Amounts shall
be final, conclusive and binding for purposes of this Agreement, unless the
Principal Shareholders and the Trustee shall deliver to the Parent a written
notice of disagreement ("Notice of Dispute") with any item or items in the
Statement of Final Per Share Amounts within 10 business days following receipt
of the Statement of Final Per Share Amounts, specifying in reasonable detail the
nature and extent of such disagreement; provided, however, that no Notice of
Dispute may be given with respect to any items unless such item involves an
amount of $25,000 or more and provided further that in the event such
disagreement involves an amount less than $25,000, the Statement of Final Per
Share Amounts shall be final, conclusive and binding. If a Notice of Dispute is
not properly given within such time, the Final Outstanding Common Stock Number,
the Final Per Share Cash Amount, the Final Per Share Common Stock Amount and the
Total Consideration as set forth in the Statement of Final Per Share Amounts
shall be final, conclusive and binding for purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
given, the Parent, the Principal Shareholders and the Trustee agree to negotiate
in good faith and use their best efforts to resolve any disagreement with
respect to the Statement of Final Per Share Amounts. If a resolution is not
reached within 30 days following receipt by the Parent of a properly given
Notice of Dispute, KPMG Peat Marwick LLP ("Accountants") and the Company
Accountants (as defined below ) shall together choose a qualified third party
firm of independent accountants ("Third Accountants") within 10 days after a
Notice of Dispute is submitted to them and such Third Accountants shall resolve
such dispute within 30 days after its submission to them. The Parent, the
Principal Shareholders and the Trustee (if the dispute is resolved by them or
the Statement of Final Per Share Amounts otherwise becomes final pursuant hereto
without referral to the Accountants) or the Third Accountants (if a dispute is
resolved by them) shall set forth such resolution in writing and such writing
shall (i) set forth the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration and (ii) be final, conclusive and binding for purposes of this
Agreement.
1.9.5 Final Determination. Within 10 business days following the
final determination of the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration as provided in this Section 1.9, (i) the Parent shall deliver to
each Shareholder (a) the cash amount, if any, by which the aggregate of the
Final Per Share Cash Amounts payable to such Shareholder, as finally determined
pursuant hereto, exceeds the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing; and (b) the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Per Share Common Stock
Amounts deliverable to such Shareholder, as finally determined pursuant hereto,
exceeds the aggregate of the Closing Per Share Common Stock Amounts delivered to
such Shareholder at the Closing; or (ii) each Principal Shareholder shall
deliver and shall cause each Shareholder to deliver to the Parent (a) the cash
amount, if any, by which the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing exceeds the aggregate of the Final Per
Share Cash Amounts payable to such Shareholder as finally determined pursuant
hereto; and (b) the number of shares of Parent Common Stock, if any, by which
the aggregate of the Closing Per Share Common Stock Amounts delivered to such
Shareholder at the Closing exceeds the aggregate of the Final Per Share Common
Stock Amounts deliverable to such Shareholder as finally determined pursuant
hereto.
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1.9.6 Expenses. Except as set forth on Exhibit 1, the Parent and
the Principal Shareholders shall each pay their own costs incurred in connection
with this Section 1.9, including the fees and expenses of their respective
attorneys and accountants, if any.
1.10 Additional Consideration. On or before April 30, 1998, the
Parent shall pay to the Shareholders additional consideration ("Additional
Consideration") in an amount equal to the product of 2 times the excess, if any
of (i) EBITDA (as defined below) over (ii) Operating EBITDA (as defined below).
The cash portion of the Additional Consideration shall bear interest at the
prime rate of interest charged by Texas Commerce Bank National Association from
January 1, 1998 through the date of payment of the Additional Consideration.
The Additional Consideration shall be apportioned between cash and Parent Common
Stock in the same ratios as set forth in Exhibit 1 for the Final Per Share Cash
Amount and the Final Per Share Common Stock Amount. The term "EBITDA" means the
sum of (i) Additional Net After-Tax Income (as defined below), plus (ii) the
amount of state, local and federal income and franchise taxes deducted from
Additional Net After-Tax Income, plus (iii) the amount of depreciation and
amortization deducted from Additional Net After-Tax Income, plus (iv) the amount
of interest expense deducted from Additional Net After-Tax Income, plus (v) the
increase to Additional Net After-Tax Income that would result from application
of the annual savings of the type described in the Letter of Intent among the
Parent, the Company and the Principal Shareholders dated June 3, 1997 to the
period from January 1, 1997 through the Closing Date (the "Pre-Closing Period"),
plus (vi) the stock and related tax bonuses contemplated for certain key
employees, the bonuses paid to certain employees related to their exercise of
stock options, and an adjustment to exclude any net income (or loss)
attributable to MacDonald-Miller Residential ("MMR") for the Pre-Closing Period
(the amounts in clauses (i) through (vi) to be determined in accordance with
GAAP). The term "Additional Net After-Tax Income" shall mean the net income (or
loss) of the Company for the period January 1, 1997 through December 31, 1997
(the "Earn-Out Period") after deduction for state, local and federal income and
franchise taxes and without giving effect to extraordinary or non-recurring
items, non-recurring gains and losses (including the sale of the Condominiums
(as defined)), interest income or investment income, determined in accordance
with GAAP. The term "Operating EBITDA" means $2,613,012.80.
For the portion of any Additional Consideration that shall be paid in
Parent Common Stock, the value of such Parent Common Stock ("Stock Value") shall
be calculated using the average of the daily closing prices (or if no closing
price is reported, the average of the daily closing bid and asked prices) of a
share of the Parent Common Stock for the ten consecutive trading days ending on
and including the date which is three trading days prior to the end of the Earn-
Out Period on the principal national securities exchange if any, on which such
shares are admitted for trading, on the National Association of Securities
Dealers, Inc. National Market System if such shares are quoted thereon or, if
such shares are not quoted thereon, in the over-the-counter market in the United
States on which such shares are publicly traded; provided that if the Parent
Common Stock is not then admitted to trading on any national securities exchange
or quoted on the National Association of Securities Dealers, Inc. National
Market System or otherwise traded in the over-the-counter market, the Stock
Value shall be the value of a share of Parent Common Stock as of the last day of
the Earn-Out Period as reasonably determined by the Board of Directors of the
Parent.
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2. REPRESENTATIONS AND WARRANTIES OF THE
TRUSTEE, THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
2.1 Representations and Warranties of the Trustee. The Trustee
hereby represents and warrants to the Parent and Merger Sub that the Trustee
owns, beneficially and of record, with full power to vote, the number of shares
of Company Common Stock set forth beside the Trustee's name on Exhibit 2.2 and
such shares are so held by the Trustee free and clear of all liens, encumbrances
and adverse claims whatsoever.
2.2 Representations and Warranties of the Company and the Principal
Shareholders. The Company and the Principal Shareholders, jointly and
severally, hereby represent and warrant to the Parent and Merger Sub as follows:
2.2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are
true and correct.
2.2.2 Stock Ownership. Each Shareholder owns, beneficially and
of record, with full power to vote, the number of shares of Company Common Stock
set forth beside such Shareholder's name on Exhibits Exhibit 2.2 and such shares
are so held by such Shareholder free and clear of all liens, encumbrances and
adverse claims whatsoever.
2.2.3 Authority. Each Principal Shareholder has full right,
power, legal capacity and authority to (i) execute, deliver and perform this
Agreement, and all other documents and instruments referred to herein or
contemplated hereby to be executed, delivered and performed by such Principal
Shareholder (each a "Shareholder Related Document") and (ii) consummate the
transactions contemplated herein and thereby. This Agreement has been duly
executed and delivered by the Principal Shareholders and constitutes, and any
Shareholder Related Document, when duly executed and delivered by the Principal
Shareholders named as parties therein will constitute, legal, valid and binding
obligations of such Principal Shareholders enforceable against such Principal
Shareholders in accordance with their respective terms and conditions, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
2.2.4 Consents. Except as set forth on Exhibit 2.2.4, no
approval, consent, order or action of or filing with any court, administrative
agency, governmental authority or other third party is required for the
execution, delivery or performance by the Principal Shareholders of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by the Principal Shareholders of this Agreement and any Shareholder
Related Documents do not violate any mortgage, indenture, contract, agreement,
lease or commitment or other instrument of any kind to which any Principal
Shareholder is a party or by which any Principal Shareholder or such Principal
Shareholder's assets or properties may be bound or affected or any law, rule or
regulation applicable to any Principal Shareholder or any court injunction,
order or decree or any valid and enforceable order of any governmental agency in
effect as of the date hereof having jurisdiction over any Principal Shareholder.
2.2.5 No Warranties of Future Performance. The Principal
Shareholders and the Company acknowledge that they have had the opportunity to
inspect the Parent's and Merger Sub's business and properties, and understand
that no warranties of future performance of the Parent or Merger Sub have been
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or are being made by the Parent or Merger Sub, irrespective of any forecasts,
budgets or other financial information relating to the future that may have been
provided by the Parent or Merger Sub.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
warrants to the Principal Shareholders and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. As of the execution date of
this Agreement, the total authorized capital stock of the Parent is as set forth
in the Confidential Information Statement dated August __, 1997. The
outstanding shares of Parent Common Stock and Preferred Stock, par value $.001
(Parent Preferred Stock"), have been duly and validly issued and are fully paid
and non-assessable.
3.1.3 Authority. The Parent has the requisite power and
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby (the "Parent Related
Documents") and to consummate the transactions contemplated herein and thereby.
This Agreement has been duly executed and delivered by the Parent and
constitutes, and all the Parent Related Documents, when executed and delivered
by the Parent will constitute, legal, valid and binding obligations of the
Parent, enforceable in accordance with their respective terms and conditions
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
3.1.4 Consents. Except as provided on Exhibit 3.1.4, no
approval, consent, order or action of or filing with any court, administrative
agency, governmental authority or other third party is required for the
execution, delivery or performance by the Parent of this Agreement or the Parent
Related Documents or the consummation by the Parent of the transactions
contemplated hereby, except for (i) the filing of the Parent's registration
statement with respect to the IPO ("Registration Statement") with the U.S.
Securities and Exchange Commission ("SEC") pursuant to the Securities Act and
the SEC's declaration of effectiveness of such Registration Statement and the
completion of all necessary filings required under, and the obtaining of all
necessary consents and approvals required pursuant to, state securities or "blue
sky" laws in connection with the IPO, and (ii) the filing of the Articles of
Merger with the Secretary of State of Washington.
3.1.5 Defaults. The Parent is not in default under or in
violation of, and the execution, delivery and performance of this Agreement and
the Parent Related Documents and the consummation by the Parent of the
transactions contemplated hereby and thereby will not result in a default under
or in violation of (i) any mortgage, indenture, charter or bylaw provision,
contract, agreement, lease, commitment or other instrument of any kind to which
the Parent is a party or by which the Parent or any of its properties or assets
may be bound or affected or (ii) any law, rule or regulation applicable to the
Parent or any court
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injunction, order or decree, or any valid and enforceable order of any
governmental agency in effect as of the date hereof having jurisdiction over the
Parent, which default or violation prevents the Parent from consummating the
transactions contemplated hereby or is reasonably likely to have a Parent
Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain
financial statements to the Principal Shareholders ("Parent Financial
Statements") and such Parent Financial Statements have been prepared in
accordance with GAAP and fairly present the consolidated financial position,
results of operations and cash flows of the Parent and its then existing
consolidated subsidiaries as of the dates and for the periods indicated, subject
to normal year-end adjustments and any other adjustments described therein or in
the notes or schedules thereto. The books and records of the Parent have been
kept in reasonable detail and accurately and fairly reflect the transactions of
the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or
caused to be discharged, as the same have become due, or the Parent Financial
Statements contain adequate accruals and reserves for, all taxes, interest
thereon, fines and penalties of every kind and character, attributable or
relating to the properties and business of the Parent for the period ended
covered by the Parent Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law, as
defined in Exhibit 2) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation,
the failure to obtain which is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental Law), ordinances, rules and regulations
of any governmental agency of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, all applicable court or
administrative agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition or
state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
Principal Shareholders and their representatives to make a full investigation of
the properties, operations and financial condition of the Parent and has
afforded the Principal Shareholders and their representatives reasonable access
to the offices, buildings, real properties, machinery and equipment, inventory
and supplies, records, files, books of account, tax returns, agreements and
commitments and personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent
in this Agreement, and no statement contained in any certificate delivered by
the Parent to the Principal Shareholders pursuant to this
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Agreement, contains any untrue statement of a material fact or omits any
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they are or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole, in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code:
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code)
at the time of such transfer, or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will
continue the Company's historic business or use a significant portion of
its historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection
with the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub
will have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company
as defined in Section 368(a)(2)(F) of the Code.
(viii) None of the Parent Common Stock received by the
Shareholders as a part of the Final Merger Consideration will be separate
consideration for, or allocable to, any employment agreement.
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(ix) Neither the Parent nor Merger Sub is under the
jurisdiction of a court in a case under Title 11 of the United States Code,
or a receivership, foreclosure, or similar proceeding in a federal or state
court.
3.1.14 No Warranties of Future Performance. The Parent and
Merger Sub acknowledge that they have had the opportunity to inspect the
Principal Shareholders' and the Company's business and properties, and
understand that no warranties of future performance of the Principal
Shareholders or the Company have been or are being made by the Principal
Shareholders or the Company, irrespective of any forecasts, budgets or other
financial information relating to the future that may have been provided by the
Principal Shareholders or the Company.
3.2 Representations and Warranties Concerning the Merger Sub. The
Parent and Merger Sub, jointly and severally, hereby represent and warrant to
the Principal Shareholders and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Washington.
3.2.2 Capital Structure. The authorized capital stock of Merger
Sub consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by Merger Sub of its obligations hereunder and the consummation
of the transactions contemplated hereby have been duly authorized by its Board
of Directors and the Parent as its sole shareholder, and, except for the
corporate filings required by state law, no other corporate proceedings on the
part of Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Principal Shareholders to be Effective Upon
Closing. Effective upon Closing, and without further action on the part of any
party or other person, the Principal Shareholders covenant and agree as follows:
4.1.1 Covenant Not to Compete.
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Principal Shareholders in this
Section are a material inducement to the Parent to
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enter into and perform this Agreement, each Principal Shareholder agrees
that for the period from the Closing Date to the later to occur of (a) the
date which is three years after the Closing Date or (b) the date which is
one year following any termination of such Principal Shareholder's
employment with the Company, such Principal Shareholder will not represent,
engage in, carry on, or have a financial interest in, directly or
indirectly, individually, as a member of a partnership or limited liability
company, equity owner, shareholder (other than as a shareholder of the
Parent or as a shareholder of less than one percent of the issued and
outstanding stock of a publicly-held company whose gross assets exceed $100
million), investor, officer, director, trustee, manager, employee, agent,
associate or consultant engage in any business that involves indoor air
quality, heating, ventilation, air conditioning, appliance, mechanical
construction or sewer cleaning products or services within a 100-mile
radius of the cities of Seattle, Washington and Portland, Oregon; provided,
however, that for each Principal Shareholder other than Fredric J. Sigmund,
(i) if such Principal Shareholder's employment is terminated without Cause
(as such term is defined in the Employment Agreement attached hereto as
Exhibit 5.3.3A for such Principal Shareholder) the noncompete period
applicable thereafter to such Principal Shareholder in Section 4.1.1(i)(b)
of this Agreement shall be reduced to six months and (ii) if the Employment
Agreement for such Principal Shareholder expires, the non-compete period
applicable thereafter to such Principal Shareholder shall be equal to the
then in effect severance period for such Principal Shareholder; provided
further that (i) the Principal Shareholders (other than Gary S. Kuhlman)
may continue to engage in the business of residential indoor air quality,
heating, ventilation and air conditioning installation, replacement, repair
and maintenance services through MMR and (ii) that in the event the
Principal Shareholders cease at any time to hold a controlling interest in
MMR, the words "MacDonald" or "Miller" shall not be used in the name or
marketing of MMR following such loss of such controlling interest.
(ii) Each Principal Shareholder agrees that the limitations
set forth herein on such Principal Shareholder's rights to compete with the
Parent and its affiliates as set forth in clause (i) are reasonable and
necessary for the protection of Parent and its affiliates. In this regard,
each Principal Shareholder specifically agrees that the limitations as to
period of time and geographic area, as well as all other restrictions on
such Principal Shareholder's activities specified herein, are reasonable
and necessary for the protection of the Parent and its affiliates. Each
Principal Shareholder agrees that, in the event that the provisions of this
Section should ever be deemed to exceed the scope of business, time or
geographic limitations permitted by applicable law, such provisions shall
be and are hereby reformed to the maximum scope of business, time or
geographic limitations permitted by applicable law.
(iii) Each Principal Shareholder agrees that the remedy at law
for any breach by such Principal Shareholder of this Section 4.1.1 will be
inadequate and that the Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, each
Principal Shareholder does hereby (i) release, acquit and forever discharge the
Surviving Corporation from any and all liabilities, obligations, claims,
demands, actions or causes of action arising from or relating to any event,
occurrence, act, omission or condition occurring or existing on or prior to the
Effective Time, including, without limitation, any claim for indemnity or
contribution from the Surviving Corporation in connection with the obligations
or liabilities of such Principal Shareholder hereunder, except for salary and
benefits payable to such Principal Shareholder
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as an employee in the ordinary course of business and lease payments payable to
F&V Investments for the property located at 7717 Detroit S.W., Seattle,
Washington 98106-1903 (the "Property"); (ii) waive all breaches, defaults or
violations of any agreement applicable to the Company Common Stock (other than
this Agreement) and agree that any and all such agreements (other than this
Agreement) are terminated as of the Effective Time, and (iii) waive any and all
preemptive or other rights to acquire any shares of capital stock of the Company
and release any and all claims arising in connection with any prior default,
violation or failure to comply with or satisfy any such preemptive or other
rights.
4.2 Elimination of Expense. Prior to Closing, the Principal
Shareholders will produce evidence to the reasonable satisfaction of the Parent
and its lenders that the expenses of the Company as described in the Letter of
Intent between the Parent, the Company and the Principal Shareholder dated June
3, 1997 have been eliminated as expenses of the Surviving Corporation as of and
following the Closing Date.
4.3 Deferred Compensation Plans. Prior to Closing, the
Principal Shareholders will cause all current or future obligations of the
Company under the split dollar life and other deferred compensation plans
covering any Shareholder or any employee of the Company to be satisfied in full
(including current or deferred tax liabilities arising therefrom) all in
accordance with the provisions of Exhibits Exhibit 4.3 attached hereto.
4.4 Audit. Prior to Closing, the Company's firm of independent
accountants (the "Company Accountants") shall complete an audit of the Company
for the fiscal year ended December 31, 1996 and for the period from such date
through June 30, 1997, and such additional audit and/or review work as may be
requested by the Parent through and including the Closing Date and provide its
report to the Parent and the Principal Shareholders. The Accountants shall
confirm the audit/review work of the Company Accountants.
4.5 Certain Payables and Receivables. On or prior to Closing,
the Principal Shareholders shall cause to be paid in full in cash all accounts
receivable, notes receivable and advances payable by any Shareholder to the
Company and the Company shall pay in full in cash all accounts payable, notes
payable and advances payable by the Company to any Shareholder.
4.6 Pre-Closing Covenants and Agreements. The Principal
Shareholders and the Company jointly and severally agree as set forth in
Exhibit 4.6 attached hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the
Parent, Merger Sub, the Company or the Principal Shareholders will disclose the
terms of this Agreement or the Merger to any person other than their respective
directors, officers, agents or representatives, except as otherwise provided
herein or unless required by law. The Company may make appropriate disclosures
of the general nature of the Merger to its employees, vendors and customers to
protect the Company's goodwill and to facilitate the Closing. The Parent and
Merger Sub may disclose pertinent information regarding the Merger to its
existing and prospective investors, lenders, or investment bankers or financial
advisors for the purpose of obtaining financing, including, without limitation,
financing related to the IPO or other offerings of its securities, and may
describe this Agreement and the transactions contemplated hereby in any
registration statement filed by the Parent under the Securities Act and in
reports filed by the Parent under the Securities Exchange Act of 1934, and may
file this Agreement as an exhibit to any thereof. The Parent may also make
appropriate disclosures of the general nature of the Merger and the identity,
nature and scope of the Company's operations to prospective acquisition
candidates in connection with the Parent's efforts to effect additional
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acquisitions. Each party will have mutual approval rights with respect to
outlines of press releases or other communications (including employee
presentations) concerning the prospective merger.
4.8 Tax-Free Reorganization. Unless the other parties shall
otherwise agree in writing, each of the Principal Shareholders, the Parent,
Merger Sub, the Company or the Surviving Corporation shall use their best
efforts to qualify the Merger as a reorganization within the meaning of Section
368(a) of the Code and none of them shall knowingly take or fail to take any
action, that would jeopardize the qualification of the Merger as such a
reorganization.
4.9 Company Plans. Except as otherwise contemplated by this
Agreement, the Company Plans (as defined in Exhibit 2) described on Exhibit 4.9
in effect at the date of this Agreement will remain in effect for three years
following the Closing unless otherwise agreed to by the Parent and the Principal
Shareholders.
4.10 HSR Act. The Parent, the Principal Shareholders and the
Company shall take all reasonable actions necessary to make all filings, if any,
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR Act") in connection with the transaction contemplated hereby and
to obtain the termination or expiration of the waiting period thereunder.
4.11 Purchase of Certain Receivables. If any accounts receivable
included in current assets of the Company for purposes of determining Working
Capital (as defined in Exhibit 1) remain unpaid in full on the second
anniversary of the Closing, the Principal Shareholders shall, upon written
request by the Surviving Corporation made within 30 days after the second
anniversary of the Closing, purchase the same from the Surviving Corporation,
without recourse, for the uncollected amount thereof minus the sum of (i) the
unused portion of the reserves for bad debts that were on the books of the
Company as of the Closing and (ii) the amount of any billings in excess of costs
on the books of the Company as of the Closing which are directly traceable to
such accounts receivable. Prior to the date the Additional Consideration, if
any, is disbursed, the Principal Shareholders shall make a good faith estimate
of the amount of accounts receivable to be purchased hereunder and such amount
(net of the reserve for bad debts and the amount of any related billings in
excess of costs, as provided above), if any, shall be deducted from the
Additional Consideration and applied as a reserve against such purchase
obligation (the "AR Reserve"). If the AR Reserve is insufficient, 8% interest
per annum from the Closing to the date of payment will be charged on the
shortfall. If the AR Reserve is more than sufficient, the excess will be
disbursed to the Shareholders in the same manner as Additional Consideration was
disbursed. Collections from an account debtor after the Closing shall be applied
first to reduction of the oldest account receivable of such account debtor
unless there is a dispute and an adjustment on a specific invoice.
4.12 Certain Condominiums. The purchase price delivered to the
Company for the sale of the properties listed on Exhibit 4.12 (the
"Condominiums") shall be included in current assets for the purposes of
determining Working Capital but shall be excluded from Additional Net After-Tax
Income. The Principal Shareholders shall release, acquit and forever discharge
the Company from any and all liabilities, obligations, claims, demands, actions,
or causes of action arising from or relating to any event, occurrence, act,
omission or condition relating to such properties, including, without
limitation, any claim for indemnity or contribution from the Company in
connection with the obligations or liabilities of the Principal Shareholders
hereunder.
4.13 Certain Matters Related to the ESOP.
4.13.1 Suspension of ESOP Contributions. Prior to the
Closing Date, the Company shall not make any contributions to the MacDonald-
Miller Industries, Inc. Employee Stock Ownership Plan ("ESOP").
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4.13.2 Amendment of ESOP; Distribution of ESOP
Investments. Upon receipt of an IRS favorable determination letter and prior to
the second anniversary of the Closing, the Parent and the Company shall
distribute the ESOP accounts to the ESOP participants.
4.14 ESOP Expenses. Expenses of the ESOP's operation
(including post-Merger operation), transition and eventual termination shall be
paid by the Company.
4.15 Indemnification of Officers and Directors of the Company.
The Parent agrees that the Company shall maintain in effect for at least five
(5) years from the Closing Date the indemnification provisions in the Articles
of Incorporation of the Company and its subsidiaries as presently in effect to
the extent such indemnification provisions would apply to acts or omissions of
the present officers and directors and the Company shall maintain in effect
director and officer liability insurance coverage for its officers and directors
with coverage of $10,000,000 and a deductible not in excess of $50,000 and to
the extent it does not increase premiums on such director and officer policies,
the Parent will procure tail coverage for such directors and officers at the
expiration of such five (5) year period.
4.16 Errors and Omissions Insurance. The Parent agrees that
the Company shall maintain in effect a policy covering professional errors and
omissions for engineering and related coverage for the Company and the Company's
professional engineers with coverage of $1,000,000 and a deductible not in
excess of $100,000. In the event any such coverage is canceled for a
professional engineer, the Parent shall purchase appropriate "tail" coverage for
a period not to exceed the applicable statute of limitations for the applicable
errors and omissions.
4.17 Other Insurance. The Parent agrees that the Company shall
maintain in effect insurance policies for general liability, automobile,
property, completed operations, equipment, workers' compensation, employer
practices liability, employee benefits liability, pollution/indoor air quality,
employee dishonesty and depositor's forgery liability and umbrella liability
coverage with coverage amounts and deductible amounts as agreed by the Parent
and the Company.
4.18 Releases. On or prior to the Closing, the Parent shall
procure the release of the Principal Shareholders under any guaranty or
indemnity agreement relating to the business or operations of the Company.
4.19 Parent Guaranty. The Parent hereby unconditionally
guarantees the performance of all Merger Sub's obligations under this Agreement
(including any obligations of the Merger Sub in any Exhibits hereto).
4.20 Recommendation by the Company; Cooperation in Preparation
of Registration Statement and Proxy and in Meeting of Shareholders. The
Company's Board of Directors shall recommend that the Shareholders vote in favor
of the Merger. The Company, the Principal Shareholders and the Trustee shall
cooperate fully with the Parent and Merger Sub in the (i) preparation of a
registration statement on Form S-4 for the registration of the Parent Common
Stock to be delivered to the Shareholders pursuant to this Agreement, (ii)
preparation of a proxy statement in connection with such registration and the
Merger, and (iii) planning, preparation and carrying out of any meetings of
Shareholders in connection with such registration and the Merger.
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4.21 Sale of MMR. The Company shall divest itself of MMR prior
to the Closing. To the extent that the Company realizes actual value as a result
of such divestiture, such value shall be taken into account in the calculation
of Working Capital or Long-Term Debt, as the case may be.
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger
Sub. The obligations of the Parent and Merger Sub to effect the Merger under
this Agreement are subject to the satisfaction of each of the following
conditions, unless waived by the Parent in writing to the extent permitted by
applicable law:
5.1.1 Accuracy of Representations and Warranties. The
representations and warranties of the Principal Shareholders and the Company
contained in this Agreement, in Exhibit 2 and the Disclosure Schedule referred
to therein and the other Exhibits provided by the Principal Shareholders or the
Company pursuant to this Agreement or in any closing certificate or document
delivered to the Parent pursuant hereto shall be true and correct at and as of
the Closing Date as though made at and as of that time other than such
representations and warranties as are specifically made as of another date, and
the Principal Shareholders and the Company shall each have delivered to the
Parent and Merger Sub a certificate to that effect.
5.1.2 Performance of Covenants. The Principal Shareholders and
the Company shall have performed and complied with all covenants of this
Agreement to be performed or complied with by them at or prior to the Closing
Date, and the Principal Shareholders and the Company shall each have delivered
to the Parent and Merger Sub a certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted after the date hereof against the Company
or against the Parent or Merger Sub arising by reason of the acquisition of the
Company pursuant to this Agreement, which is reasonably likely (i) to restrain,
prohibit or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Principal Shareholders and
the Company shall each have delivered to the Parent and Merger Sub a certificate
to that effect.
5.1.4 Approvals. The Company and the Principal Shareholders
shall have procured all of the consents, approvals and waivers of third parties
or any regulatory body or authority, whether required contractually or by
applicable law or otherwise necessary for the execution, delivery and
performance of this Agreement (including the Company Related Documents and the
Shareholder Related Documents) by the Company and the Shareholders prior to the
Closing Date, and the Shareholders and the Company shall each have delivered to
the Parent and Merger Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed
or delivered at Closing by the Principal Shareholders pursuant to Section 5.3 of
this Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage
shall have occurred on or prior to the Effective Time to any of the properties
or assets of the Company.
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5.1.7 Licenses, etc. The Company shall have obtained all such
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996,
there shall not have been any event that in the reasonable judgment of the
Parent adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.1.11 HSR Act. All required filings, if any, under the HSR Act
with respect to the transactions contemplated hereby shall have been made and
the waiting periods thereunder shall have been terminated or shall have expired.
5.2 Conditions Precedent to the Obligations of the Principal
Shareholders and the Company. The obligations of the Principal Shareholders and
the Company under this Agreement are subject to the satisfaction of each of the
following conditions, unless waived by the Principal Shareholders and the
Company in writing to the extent permitted by applicable law:
5.2.1 Accuracy of Representations and Warranties. The
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered to the Principal
Shareholders or the Company pursuant hereto shall be true and correct on and as
of the Closing Date as though made at and as of that date other than such
representations and warranties as are specifically made as of another date, and
the Parent and Merger Sub shall have delivered to the Principal Shareholders and
the Company a certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall
have performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date and the Parent and
Merger Sub shall have delivered to the Principal Shareholders and the Company a
certificate to such effect.
5.2.3 Approvals. The Parent shall have procured all of the
consents, approvals and waivers specified in Exhibit 3.1.4 prior to the Closing
Date, and the Parent shall have delivered to the Principal Shareholders and the
Company a certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed
or delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.2.5 HSR Act. All required filings, if any, under the HSR Act
with respect to the transactions contemplated hereby shall have been made and
the waiting periods thereunder shall have been terminated or shall have expired.
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5.3 Deliveries by the Principal Shareholders at the Closing. At the
Closing, simultaneously with the deliveries by the Parent specified in Section
5.4 below, and in addition to any deliveries required to be made by the
Principal Shareholders and the Company pursuant to any other transaction
document at the Closing, the Principal Shareholders shall deliver or cause to be
delivered to the Parent the following:
5.3.1 Closing Certificates. The Principal Shareholders and the
Company shall deliver the certificates required pursuant to Sections 5.1.1,
5.1.2, 5.1.3, 5.1.4 and 5.1.5.
5.3.2 Stock Transfer Restriction Agreement. The Principal
Shareholders shall execute and deliver and shall cause the Shareholders to
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.2.
5.3.3 Employment Agreements. Each Principal Shareholder and
certain other employees of the Company specified on Exhibit 5.3.3 shall execute
and deliver an Employment Agreement (with the insertion of the appropriate
Section 7(b) based on whether such Principal Shareholder or any such employee is
designated an "Executive or Key Employee" or "Manager" on Exhibit 5.3.3 and with
the blanks appropriately completed as set forth in a confidential letter between
the Company and the Parent) with the Company on the Closing Date, effective as
of the Effective Time, substantially in the form set forth in Exhibit 5.3.3A.
5.3.4 Lease Agreement. Frederic J. Sigmund shall cause F&V
Investments, the owner of the Property, to execute and deliver a lease agreement
with the Company substantially in the form attached as Exhibit 5.3.4.
5.3.5 Opinion of Counsel for the Principal Shareholders and the
Company. The Principal Shareholders shall deliver the favorable opinion of
Lasher Holzapfel Sperry & Ebberson, P.L.L.C., counsel to the Principal
Shareholders and the Company, and Patricia Parks, counsel to the ESOP, each
dated the Effective Time, substantially in the form and to the effect set forth
in Exhibit 5.3.5-A and Exhibit 5.3.5-B, respectively, attached hereto.
5.3.6 Documents, Stock Certificates. The Principal Shareholders
shall execute and deliver, and shall cause the Company and the Shareholders to
execute and deliver, the documents, certificates, opinions, instruments and
agreements required to be executed and delivered by the Company or its officers
or directors or the Shareholders at the Closing as contemplated hereby or as may
be reasonably requested by the Parent and shall deliver or cause to be delivered
the documents and evidence required under Section 4. Stock Certificates
representing all of the outstanding Company Common Stock and properly executed
and completed letters of transmittal shall be delivered by the Principal
Shareholders to the Parent.
5.3.7 Discharge of Indebtedness, Releases, Etc. The
indebtedness of the Company referred to in Exhibit 5.3.8 attached hereto,
including, but not limited to, any debt of the Company in any way related to the
Condominiums, ("Terminated Obligations") shall be paid in full or refinanced on
terms acceptable to the Parent, and the Principal Shareholders shall cause all
holders of any such Terminated Obligations to deliver to the Parent, in form
reasonably satisfactory to the Parent and the lenders to the Parent or Merger
Sub, such customary releases, termination statements, consents, approvals or
other documents or instruments required, in the judgment of the Parent, to
release and terminate all liens, security interests,
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claims, or rights of such holders against the Surviving Corporation or the
Parent or any of their respective assets in connection therewith.
Except as set forth in the next paragraph of this Section 5.3.8, the
consummation of the Closing shall not be deemed to be a waiver by the Parent or
the Surviving Corporation of any of their rights or remedies against the
Principal Shareholders hereunder for any breach of warranty, covenant or
agreement by the Company or the Principal Shareholders herein irrespective of
any knowledge of or investigation made by or on behalf of the Parent or Merger
Sub; provided, however, that if the Company shall disclose in writing to the
Parent prior to the Closing Date a specified breach of a specifically identified
representation, warranty, covenant or agreement of the Company or any Principal
Shareholder herein by the Company or any Principal Shareholder, and requests a
waiver thereof by the Parent, and the Parent shall waive any such specifically
identified breach in writing prior to the Closing Date, the Parent and the
Surviving Corporation, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Principal Shareholders shall have no liability
with respect to, any such specifically identified breach, to the extent so
identified by the Company and so waived by the Parent.
Prior to the Closing, the Parent investigated and reviewed the books
and records relating to the operation of the Company, and inspected the Company
assets as it considered necessary to satisfy itself as to the condition of the
Company's business and properties. The Parent has notified the Company, the
Principal Shareholders and the Trustee of any material discrepancy, statement or
state of facts that was discovered up until the Closing which may affect or
render any of the Company's, the Principal Shareholders' or the Trustee's
representations or warranties contained herein untrue or misleading. To the
extent that the Parent has actual knowledge of any such discrepancy, statement
or state of facts (and the significance of such discrepancy, statement or state
of facts as such relates to the Company's, the Principal Shareholders' or the
Trustee's representations or warranties), and fails to notify the Company, the
Principal Shareholders, and the Trustee, the applicable representation or
warranty known to be untrue or misleading shall be unenforceable. In all other
respects, the representations and warranties of the Company, the Principal
Shareholders and the Trustee shall remain unaffected. Likewise, prior to the
Closing, the Company, the Principal Shareholders and the Trustee investigated
and reviewed the books and records relating to the operation of the Parent and
Merger Sub, and inspected the Parent's and Merger Sub's assets as they
considered necessary to satisfy them as to the condition of the Parents' and
Merger Sub's business and properties. The Company, the Principal Shareholders
and the Trustee have notified the Parent and Merger Sub of any material
discrepancy, statement or state of facts that was discovered up until the
Closing which may affect or render any of the Parent's or Merger Sub's
representations or warranties contained herein untrue or misleading. To the
extent that the Company, the Principal Shareholders or the Trustee have actual
knowledge of any such discrepancy, statement or state of facts (and the
significance of such discrepancy, statement or state of facts as such relates to
the Parent's or Merger Sub's representations or warranties), and fails to notify
the Parent and Merger Sub, the applicable representation or warranty known to be
untrue or misleading shall be unenforceable. In all other respects, the
representations and warranties of the Parent and Merger Sub shall remain
unaffected.
5.4 Deliveries by the Parent at the Closing. At the Closing,
simultaneously with the deliveries by the Principal Shareholders specified in
Section 5.3 above, and in addition to any other deliveries to be made by the
Parent and Merger Sub pursuant to any other transaction document at the Closing,
the Parent shall deliver or cause to be delivered to the Principal Shareholders
the following:
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5.4.1 Closing Certificates. The Parent and Merger Sub shall
deliver the certificates required pursuant to Sections 5.2.1, 5.2.2, 5.2.3 and
5.2.4.
5.4.2 Registration Rights Agreement. The Parent shall execute
and deliver to the Principal Shareholders a Registration Rights Agreement at the
Closing, effective as of the Effective Time, substantially in the form set forth
in Exhibit 5.3.5.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The
Parent shall deliver the favorable opinion of its legal counsel dated the
Effective Time, substantially in the form and to the effect set forth in
Exhibit 5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver
the Closing Merger Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Principal Shareholders of any of their rights or remedies hereunder for
breach of any warranty, covenant or agreement herein by the Parent or Merger Sub
irrespective of any knowledge of or investigation with respect thereto made by
or on behalf of any Principal Shareholder; provided, however, that if the Parent
shall disclose in writing to the Principal Shareholders prior to the Closing a
specified breach of a specifically identified representation, warranty, covenant
or agreement of the Parent or Merger Sub contained herein by the Parent or
Merger Sub, and requests a waiver thereof by the Company and the Principal
Shareholders, and the Company and the Principal Shareholders shall waive any
such specifically identified breach in writing prior to the Closing, the Company
and the Principal Shareholders shall be deemed to have waived their rights and
remedies hereunder for, and the Parent and Merger Sub shall have no liability or
obligation to the Principal Shareholders or the Company with respect to, any
such specifically identified breach, to the extent so identified by the Parent
and waived by the Company and the Principal Shareholders.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Principal Shareholders and the Company
herein and in the Shareholder Related Documents and the Company Related
Documents (as defined in Exhibit 2) other than those of the Principal
Shareholders and the Company in Sections 2.2, 2.3, 2.4 and in Sections 2, 3 and
12 of Exhibit 2 shall survive for a period of 24 months after the Closing Date
and the representations and warranties of the Principal Shareholders and the
Company contained in Sections 2.2, 2.3, 2.4 and in Sections 2, 3 and 12 of
Exhibit 2 shall survive for the maximum period permitted by applicable law. The
representations and warranties of the Parent herein and in the Parent Related
Documents, other than those in Sections 3.1.3, 3.1.4 and 3.1.8 shall survive for
a period of 24 months after the Closing Date and the representations and
warranties of the Parent contained in Sections 3.1.3, 3.1.4 and 3.1.8 shall
survive for the maximum period permitted by applicable law. The periods of
survival of the representations and warranties as stated above in this Section
6.1 are referred to herein as the "Survival Period." The liabilities of the
parties under their respective representations and warranties shall expire as of
the expiration of the applicable Survival Period and no claim for
indemnification may be made with respect to any breach of any representation or
warranty, the applicable Survival Period of which shall have expired, except to
the extent that written notice of such breach shall have been given to the party
against which such claim is asserted on
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or before the date of such expiration. The covenants and agreements of the
parties herein (including but not limited to Exhibit 4.6) and in other documents
and instruments executed and delivered in connection with the closing of the
transactions contemplated hereby shall survive for the maximum period permitted
by law.
6.2 Indemnification.
6.2.1 Parent Indemnified Parties. Subject to the provisions of
Sections 6.1 and 6.3 hereof, the Principal Shareholders shall indemnify, save
and hold harmless the Parent, the Surviving Corporation, Merger Sub and any of
their assignees (including lenders) and all of their respective officers,
directors, employees, representatives, agents, advisors and consultants and all
of their respective heirs, legal representatives, successors and assigns
(collectively the "Parent Indemnified Parties") from and against any and all
damages, liabilities, losses, loss of value (including the value of adverse
effects on cash flow or earnings), claims, deficiencies, penalties, interest,
expenses, fines, assessments, charges and costs, including reasonable attorneys'
fees and court costs (collectively "Losses") arising from, out of or in any
manner connected with or based on:
(i) the breach of any covenant of the Principal Shareholders
or the Company or the failure by the Shareholders or the Company to perform
any obligation of the Principal Shareholders or the Company contained
herein or in any Company Related Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or
warranty of the Principal Shareholders contained herein or in any
Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or
warranty of the Company contained herein or in any Company Related
Document;
(iv) any factual misrepresentations provided by the Company or
the Principal Shareholders to the Parent for inclusion and which was
included in the Registration Statement;
(v) indemnification payments made by the Company or the
Surviving Corporation to the Company's present or former officers,
directors, employees, agents, consultants, advisors or representatives in
respect of actions taken or omitted to be taken prior to the Closing to the
extent such indemnification payments are not covered by insurance; and
(vi) any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time on or before the Effective
Time and involving or related to the assets, properties, business or
operations now or previously owned or operated by the Company, including,
but not limited to, the Condominiums, and not (a) disclosed with reasonable
specificity in the Disclosure Schedule, (b) disclosed in the Company
Financial Statements (as defined in Exhibit 2) or in working capital or
long term debt (in each case as determined for purposes of calculating the
Final Merger Consideration) or (c) not otherwise permitted by this
Agreement.
The foregoing indemnities shall not limit or otherwise adversely
affect the Principal Shareholders' Indemnified Parties' rights to indemnity for
Losses under Section 6.2.2.
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6.2.2 Parent Indemnity. Subject to the provisions of Sections
6.1 and 6.3, the Parent shall indemnify, save and hold harmless the Principal
Shareholders and the Principal Shareholders' heirs, legal representatives,
successors and assigns from and against all Losses arising from, out of or in
any manner connected with or based on:
(i) any breach of any covenant of the Parent or Merger Sub or
the failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any factual misrepresentation made by the Parent in the
Registration Statement (other than factual misrepresentations provided by
the Principal Shareholders or the Company);
(iii) any inaccuracy in or breach of any representation or
warranty of the Parent or Merger Sub contained herein or in the Parent
Related Documents; and
(iv) any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time after (but not on or before)
the Effective Time and involving or relating to the assets, properties,
businesses or operations of the Company; provided, however, that this
clause (iv) shall not apply to any Losses to the extent that such Losses
result from any Shareholder's acts or omissions after the Effective Time as
an officer, director and/or employee of the Parent, the Surviving
Corporation and/or any other affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations.
6.3.1 Aggregate Liability. The aggregate liability of the
Principal Shareholders under Section 6.2.1 shall not exceed the cash amount
equal to the Total Consideration with the Parent Common Stock being valued at
the IPO Price to the Public for such purpose. The aggregate liability of the
Parent under Section 6.2.2 shall not exceed the cash amount equal to the Total
Consideration with the Parent Common Stock being valued at the IPO Price to the
Public for such purpose.
6.3.2 Threshold. Notwithstanding any other provision of this
Agreement, the Principal Shareholders shall not be liable to the Parent
Indemnified Parties under Section 6.2.1 regarding any claim(s), loss(es),
expense(s), obligation(s), or other liability(ies) that do not exceed $100,000
(the "Threshold"); provided, however, that when the aggregate amount of all such
claims, losses, expenses, obligations, and liabilities not exceeding the
Threshold reaches the Threshold, the Principal Shareholders or the Trustee, as
the case may be, shall thereafter be liable in full regarding all such claims,
losses, expenses, obligations, and liabilities (including the amount of the
Threshold); provided further that the Parent Indemnified Parties shall not seek
indemnification hereunder for insurance deductibles until the aggregate of such
deductibles exceeds the Threshold, in which case the Parent may only seek
indemnification for amounts in excess of the Threshold. In the event the Parent
procures insurance policies with deductibles that are in excess of deductibles
in force immediately prior to the Effective Time, for purposes of determining
any indemnification by the Principal Shareholders or the Trustee hereunder, the
deductible in force immediately prior to the Effective Time shall be used.
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6.4 Procedures for Indemnification.
6.4.1 Notice. The party (the "Indemnified Party") that may be
entitled to indemnity hereunder shall give prompt notice to any party obligated
to give indemnity hereunder (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 6.4.1 shall relieve the
Indemnifying Party of its obligations under this Article 6 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice (except that the Indemnifying Party shall not be liable for any
expenses incurred by the Indemnified Party during the period in which the
Indemnified Party failed to give such notice). Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, promptly (and in any event within
10 days thereof) after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to
assume the defense or settlement of any third-party claim, suit, action or
proceeding in respect of which indemnity may be sought hereunder, provided that
(i) the Principal Shareholders shall at all times have the right, at their
option, to participate fully therein, and (ii) if the Parent does not proceed
diligently to defend the third-party claim, suit, action or proceeding within 10
days after receipt of notice of such third-party claim, suit, action or
proceeding, the Principal Shareholders shall have the right, but not the
obligation, to undertake the defense of any such third-party claim, suit, action
or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required
to indemnify the Indemnified Party with respect to any amounts paid in
settlement of any third-party suit, action, proceeding or investigation entered
into without the written consent of the Indemnifying Party; provided, however,
that if the Indemnified Party is a Parent Indemnified Party, such third-party
suit, action, proceeding or investigation may be settled without the consent of
the Indemnifying Party on 10 days' prior written notice to the Indemnifying
Party if such third-party suit, action, proceeding or investigation is then
unreasonably interfering with the business or operations of the Company or the
Surviving Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any
such third-party suit, action, proceeding or investigation, and the defending
party shall have reasonable access to the books and records, and personnel in
the possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the
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purpose of enforcing any right of the indemnity granted to such Indemnified
Party pursuant to this Agreement.
6.5 Subrogation. Each of the Parent, the Company and the Principal
Shareholders shall make a good faith attempt (which shall not be deemed to
include an obligation to commence any litigation) to seek indemnification from
any third parties, including insurers, who may be liable upon any claims made
against the Parent, the Company or the Principal Shareholders and for which the
other party would be liable under this Agreement. To the extent a party
indemnifies the other party for claims upon which third parties, including
insurers, may be liable, the indemnified party shall, to the extent permissible,
subrogate to the indemnifying party its rights with respect to such claims.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any
time prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company
and the Parent; or
7.1.2 Optional By the Company. By the Company by written notice
to the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Principal Shareholder has materially breached this Agreement or has failed to
perform any of their respective obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice
to the Company, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Parent nor Merger Sub
has materially breached this Agreement or has failed to perform any of its
obligations under this Agreement;
7.1.4 Breach By the Parent or Merger Sub. By the Company, by
written notice to the Parent, if either the Parent or Merger Sub has materially
breached this Agreement or materially failed to perform any of its obligations
under this Agreement; or
7.1.5 Breach by the Company or any Principal Shareholder. By
the Parent, by written notice to the Company, if the Company or any Principal
Shareholder has materially breached this Agreement or has materially failed to
perform any of their respective obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as
permitted under Section 7.1, such termination shall be without liability of any
party to any other party, except that such termination shall be without
prejudice to any and all remedies the parties may have against each other for
breach of this Agreement.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or
permitted to be given under this Agreement shall be in writing, and shall be
mailed, postage prepaid, or delivered, to the addresses given below, or sent by
telecopy to the telecopy numbers set forth below, as follows:
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To the Company (prior to the Effective Time) or the Principal Shareholders:
MacDonald-Miller Industries, Inc.
7717 Detroit S.W.
Seattle, Washington 98106-1903
Attention: Mr. Fredric J. Sigmund
Telecopy: (206) 768-4181
With a copy to:
Mr. George S. Holzapfel
Lasher Holzapfel Sperry & Ebberson, P.L.L.C.
2600 Two Union Square
601 Union Street
Seattle, Washington 98101-4000
Telecopy: (206) 340-2563
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Principal Shareholders shall, at any time
and from time to time after the date hereof, upon request by the Parent and
without further consideration, execute and deliver such instruments or other
documents and take such further action as may be reasonably required in order to
perfect any other undertaking made by the Principal Shareholders hereunder.
8.3 Assignability. The Principal Shareholders shall not assign this
Agreement in whole or in part without the prior written consent of the Parent,
except by the operation of law. The Parent shall not assign this Agreement in
whole or in part without the prior written consent of the Principal
Shareholders, which consent shall not be unreasonably withheld, except by the
operation of law. After the Effective Time, the Surviving Corporation may
assign its rights under this Agreement, the Company Related Documents and the
Shareholder Related Documents without the consent of any Shareholder.
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8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires,
all Sections, Articles and Exhibits referred to herein are, respectively,
sections and articles of, and exhibits to, this Agreement and all Schedules
referred to herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full
understanding of the parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of their agreement
relating to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement, no
conditions, usage of trade, course of dealing or performance, understanding or
agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF
THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT
THE APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Principal
Shareholder shall make any press release, public announcement, or public
confirmation or disclose any other information regarding this Agreement or the
contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6,
no person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the
Parent, Merger Sub and the Company, by action taken by their Boards of Directors
to the extent permitted by applicable law; provided, however, that no such
amendment shall (i) alter or change any provision of this Agreement, the
alteration or change of which must be adopted by the holders of capital stock of
the Company under the certificate or articles of incorporation of the Company or
the Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless
each such alteration or change is adopted by the holders of shares of capital
stock of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by
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an instrument in writing signed on behalf of the Parent, Merger Sub, the Company
and the Principal Shareholders. After the Effective Time, all amendments to
this Agreement must be by an instrument in writing signed on behalf of the
Parent and the Principal Shareholders. Any term or provision of this Agreement
(other than the requirements for shareholder approvals) may be waived in writing
at any time by the party which is, or whose shareholders are, entitled to the
benefits thereof.
8.12 No Employee Rights. Except as set forth in Section 5.3.3,
nothing herein expressed or implied shall confer upon any employee of the
Company, any other employee or legal representatives or beneficiaries of any
thereof any rights or remedies, including any right to employment or continued
employment for any specified period, of any nature or kind whatsoever under or
by reason of this Agreement, or shall cause the employment status of any
employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement;
provided, however, that the foregoing provisions of this Section 8.13 shall not
apply to acts or omissions that constitute fraud, gross negligence or bad faith.
8.14 When Effective. This Agreement shall become effective only upon
the execution and delivery of one or more counterparts of this Agreement by each
of the Parent, Merger Sub, the Company and the Principal Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control
share acquisition" or other form of anti-takeover statute or regulation shall
become applicable to the transactions contemplated hereby, the Parent and the
Company and their respective members of their Boards of Directors shall grant
such approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number
is used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future laws, such
provisions shall be fully severable as if such invalid or unenforceable
provisions had never comprised a part of the Agreement; and the remaining
provisions of the Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
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8.18 Multiple Counterparts. This Agreement may be executed in a
number of identical counterparts. If so executed, each of such counterparts is
to be deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart. For purposes of this Agreement and any Exhibits hereto, facsimile
signatures shall be deemed to be original signatures. In addition, if any of the
parties sign facsimile copies of this Agreement or any of the Exhibits, such
copies shall be deemed originals.
8.19 No Rule of Construction. All of the parties hereto have been
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of their own
expenses in connection with the negotiation and closing of this Agreement and
the transactions contemplated hereby; provided that the Company may pay the
costs of any broker, legal counsel, accountants, Company Accountants, the
Accountants (up to $50,000) or other advisors engaged by the Shareholders (to
the extent, and only to the extent, that any such payment will not jeopardize
the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code); and provided further that all fees, costs and
expenses (limited to $50,000 for fees, costs and expenses of the Accountants)
incurred or payable by the Company, but not yet paid, in connection with the
negotiation and closing of this Agreement and the transactions contemplated
hereby shall be included in current liabilities for purposes of determining
Working Capital.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
on the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
_________________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
MACDONALD-MILLER ACQUISITION CORP.
By:______________________________________
President
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PRINCIPAL SHAREHOLDERS:
_________________________________________
Fredric J. Sigmund
_________________________________________
Steven C. Lovely
_________________________________________
Gary S. Kuhlman
_________________________________________
James A. MacDonald
_________________________________________
Joel Smith
_________________________________________
Charles H. Orton
TRUSTEE:
_________________________________________
Fredric J. Sigmund
_________________________________________
Steven C. Lovely
_________________________________________
Gary S. Kuhlman
_________________________________________
James A. MacDonald
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_________________________________________
B. Joel Smith
_________________________________________
Charles H. Orton
COMPANY:
MACDONALD-MILLER INDUSTRIES, INC.
By:______________________________________
Name: Fredric J. Sigmund
Title: Chief Executive Officer
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EXHIBIT 10.21
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
MASTERS ACQUISITION CORP.
MASTERS, INC.
AND
THE HOLDER OF THE
OUTSTANDING CAPITAL STOCK
OF
MASTERS, INC.
August 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1.THE MERGER....................................................................... 1
1.1 The Merger............................................................... 1
1.2 Effective Time of the Merger............................................. 1
1.3 Closing.................................................................. 1
1.4 Effects of the Merger.................................................... 2
1.4.1 At the Effective Time............................................. 2
1.4.2 Effects on the Surviving Corporation.............................. 2
1.5 Written Consents and Other Actions....................................... 3
1.5.1 Written Consent of the Shareholder; Other Matters................. 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub............. 3
1.5.3 All Other Necessary Actions....................................... 3
1.6 Conversion of Stock...................................................... 3
1.6.1 Merger Sub Capital Stock.......................................... 3
1.6.2 Cancellation of the Company Treasury Stock........................ 3
1.6.3 Merger Consideration.............................................. 3
1.7 Exchange of and Payment for Stock........................................ 4
1.7.1 Delivery of Company Common Stock and Merger Consideration......... 4
1.7.2 Assignments....................................................... 4
1.7.3 Payment In Full Satisfaction of All Rights........................ 4
1.8 Determination of Total Consideration..................................... 4
1.8.1 Delivery of IPO Price to Public; Statement........................ 4
1.9 Cash Tax Distribution Addition........................................... 4
1.9.1 Determination and Payment of the Cash Tax Distribution Addition... 4
1.9.2 Statement......................................................... 5
1.9.3 Review............................................................ 5
1.9.4 Disputes.......................................................... 5
1.9.5 Resolution by Parties............................................. 5
1.9.6 Final Determination............................................... 5
2.REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDER............................................ 6
2.1 Exhibit 2................................................................ 6
2.2 Stock Ownership.......................................................... 6
2.3 Authority................................................................ 6
2.4 Consents................................................................. 6
3.REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB................................................... 6
</TABLE>
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<TABLE>
<S> <C>
3.1 Representations and Warranties............................................. 6
3.1.1 Organization....................................................... 6
3.1.2 Capitalization of the Parent....................................... 7
3.1.3 Authority.......................................................... 7
3.1.4 Consents........................................................... 7
3.1.5 Defaults........................................................... 7
3.1.6 Investment Company................................................. 7
3.1.7 Financial Statements............................................... 7
3.1.8 Taxes.............................................................. 8
3.1.9 Full Authority..................................................... 8
3.1.10 Access............................................................. 8
3.1.11 Disclosure......................................................... 8
3.1.12 Parent Material Adverse Effect..................................... 8
3.1.13 Tax-Free Reorganization............................................ 8
3.1.14 Tax Elections...................................................... 9
3.2 Representations and Warranties Concerning the Merger Sub................... 10
3.2.1 Organization and Standing.......................................... 10
3.2.2 Capital Structure.................................................. 10
3.2.3 Authority.......................................................... 10
4.CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS.............................. 10
4.1 Agreements of the Shareholder to be Effective Upon Closing................. 10
4.1.1 Covenant Not to Compete............................................ 10
4.1.2 Release............................................................ 11
4.2 Audit...................................................................... 11
4.3 Certain Payables and Receivables........................................... 11
4.4 Pre-Closing Covenants and Agreements....................................... 11
4.5 Confidentiality............................................................ 11
4.6 Tax-Free Reorganization.................................................... 12
4.7 Company Plans.............................................................. 12
4.8 Guaranteed Indebtedness.................................................... 12
4.9 HSR Act.................................................................... 12
4.10 Coverage for License Holders............................................... 12
4.11 Dynamic Software........................................................... 12
4.12 Accounts Receivable........................................................ 13
5.CONDITIONS PRECEDENT; CLOSING DELIVERIES........................................... 13
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub....... 13
5.1.1 Accuracy of Representations and Warranties.......................... 13
5.1.2 Performance of Covenants............................................ 13
5.1.3 Legal Actions or Proceedings........................................ 13
5.1.4 Approvals........................................................... 13
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
5.1.5 Closing Deliveries................................................... 13
5.1.6 No Casualty, Loss or Damage.......................................... 13
5.1.7 Licenses, etc........................................................ 14
5.1.8 No Material Adverse Change........................................... 14
5.1.9 IPO.................................................................. 14
5.1.10 Certain Corporate Actions............................................ 14
5.1.11 Financing............................................................ 14
5.1.12 HSR Act.............................................................. 14
5.1.13 Closing of Asset Purchase and Sale................................... 14
5.2 Conditions Precedent to the Obligations of the Shareholder and the Company.. 14
5.2.1 Accuracy of Representations and Warranties........................... 14
5.2.2 Performance of Covenants............................................. 14
5.2.3 Approvals............................................................ 15
5.2.4 Closing Deliveries................................................... 15
5.2.5 HSR Act.............................................................. 15
5.2.6 Closing of Asset Purchase and Sale................................... 15
5.3 Deliveries by the Shareholder at the Closing................................ 15
5.3.1 Closing Certificates................................................. 15
5.3.2 Stock Transfer Restriction Agreement................................. 15
5.3.3 Employment Agreements................................................ 15
5.3.4 Lease Agreement...................................................... 15
5.3.5 Registration Rights Agreement........................................ 15
5.3.6 Opinion of Counsel for the Shareholder and the Company............... 15
5.3.7 Documents, Stock Certificates........................................ 16
5.3.8 Discharge of Notes and Leases; Releases, Etc......................... 16
5.4 Deliveries by the Parent at the Closing..................................... 16
5.4.1 Closing Certificates................................................. 16
5.4.2 Registration Rights Agreement........................................ 16
5.4.3 Opinion of Counsel for the Parent and Merger Sub..................... 16
5.4.4 Merger Consideration................................................. 17
6.SURVIVAL, INDEMNIFICATIONS.......................................................... 17
6.1 Survival.................................................................... 17
6.2 Indemnification............................................................. 17
6.2.1 Parent Indemnified Parties........................................... 17
6.2.2 Parent Indemnity..................................................... 18
6.3 Limitations................................................................. 19
6.4 Procedures for Indemnification.............................................. 19
6.4.1 Notice............................................................... 19
6.4.2 Legal Defense........................................................ 19
6.4.3 Settlement........................................................... 19
6.4.4 Cooperation.......................................................... 20
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
6.5 Subrogation................................................................ 20
6.6 Warranty Work............................................................... 20
7.TERMINATION......................................................................... 20
7.1 Grounds for Termination..................................................... 20
7.1.1 Mutual Consent....................................................... 20
7.1.2 Optional By the Company.............................................. 20
7.1.3 Optional By the Parent............................................... 20
7.1.4 Breach By the Parent or Merger Sub................................... 21
7.1.5 Breach by the Company or the Shareholder............................. 21
7.2 Effect of Termination....................................................... 21
8.MISCELLANEOUS....................................................................... 21
8.1 Notice...................................................................... 21
8.2 Further Documents........................................................... 22
8.3 Assignability............................................................... 22
8.4 Exhibits and Schedules...................................................... 22
8.5 Sections and Articles....................................................... 22
8.6 Entire Agreement............................................................ 22
8.7 Headings.................................................................... 22
8.8 CONTROLLING LAW............................................................. 22
8.9 Public Announcements........................................................ 23
8.10 No Third Party Beneficiaries................................................ 23
8.11 Amendments and Waivers...................................................... 23
8.12 No Employee Rights.......................................................... 23
8.13 Non-Recourse................................................................ 23
8.14 When Effective.............................................................. 23
8.15 Takeover Statutes........................................................... 23
8.16 Number and Gender of Words.................................................. 24
8.17 Invalid Provisions.......................................................... 24
8.18 Multiple Counterparts....................................................... 24
8.19 No Rule of Construction..................................................... 24
8.20 Expenses.................................................................... 24
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1...............................................Determination of Final Merger Consideration
Exhibit 1.5.1..................................Written Consent of Sole Shareholder of Masters, Inc.
Exhibit 1.5.2......................Written Consent of Sole Shareholder of Masters Acquisition Corp.
Exhibit 1.7...................................................................Letter of Transmittal
Exhibit 2........................................................................Certain Statements
Exhibit 2.2.......................................................Ownership of Company Common Stock
Exhibit 3.1.4............................................................Required Consents - Parent
Exhibit 4.3............................................Equipment to be Purchased by the Shareholder
Exhibit 4.3.......................................................................Certain Covenants
Exhibit 4.7.......................................................Company Plans to Remain in Effect
Exhibit 4.8.................................................................Guaranteed Indebtedness
Exhibit 5.3.2..................................................Stock Transfer Restriction Agreement
Exhibit 5.3.3A.................................................................Employment Agreement
Exhibit 5.3.4.......................................................................Lease Agreement
Exhibit 5.3.5.........................................................Registration Rights Agreement
Exhibit 5.3.6.................................Opinion of Counsel to the Shareholder and the Company
Exhibit 5.3.8................................................................Terminated Obligations
Exhibit 5.4.3......................................................Opinion of Counsel to the Parent
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
<S> <C>
Accountants........................................................................... 5
Agreement............................................................................. 1
Applicable Corporate Law.............................................................. 1
Central Asset Purchase Agreement..................................................... 14
Closing............................................................................... 1
Closing Date.......................................................................... 1
Code.................................................................................. 1
Company............................................................................... 1
Company Common Stock.................................................................. 1
Converted Shares...................................................................... 3
Effective Time........................................................................ 1
HSR Act.............................................................................. 12
Indemnified Party.................................................................... 19
Indemnifying Party................................................................... 19
IPO................................................................................... 2
Losses............................................................................... 18
Merger................................................................................ 1
Merger Sub............................................................................ 1
Minimum Proceeds...................................................................... 2
Notice of Dispute..................................................................... 5
Parent................................................................................ 1
Parent Common Stock................................................................... 1
Parent Financial Statements........................................................... 7
Parent Indemnified Parties........................................................... 18
Parent Material Adverse Effect........................................................ 8
Parent Preferred Stock................................................................ 7
Parent Related Documents.............................................................. 7
Price Notice.......................................................................... 4
Registration Statement................................................................ 7
SEC................................................................................... 7
Settlement Notice.................................................................... 19
Shareholder........................................................................... 1
Shareholder Related Document.......................................................... 6
Statement of Closing Consideration.................................................... 4
Statement of Final Amount............................................................. 5
Stock Certificates.................................................................... 3
Survival Period...................................................................... 17
Surviving Corporation................................................................. 1
Terminated Obligations............................................................... 16
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Total Consideration........................................................... Exhibit 1
Working Capital............................................................... Exhibit 1
Working Capital Addition...................................................... Exhibit 1
Working Capital Deduction..................................................... Exhibit 1
</TABLE>
-vii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
---------
August ___, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), Masters Acquisition Corp., a Maryland corporation
------
("Merger Sub"), Masters, Inc., a Maryland corporation (the "Company"), and the
- ------------ -------
undersigned holder of all of the outstanding capital stock of the Company (the
"Shareholder").
- ------------
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
------
State of Maryland and pursuant to the Merger each issued and outstanding share
of Common Stock, $1.00 par value per share, of the Company ("Company Common
--------------
Stock") will be converted into the right to receive certain shares of common
- -----
stock, $.001 par value per share, of the Parent ("Parent Common Stock"), and
-------------------
certain cash consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholder, as
the holder of all of the outstanding capital stock of the Company;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
----------
accordance with the Maryland General Corporation Law (the "Applicable Corporate
--------------------
Law") upon the Effective Time (as defined in Section 1.2), the Company shall be
- ---
merged with and into Merger Sub. Merger Sub, as the surviving entity following
the Merger, is sometimes referred to in this Agreement as the "Surviving
---------
Corporation."
- -----------
1.2 Effective Time of the Merger. In accordance with the requirements of
----------------------------
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted for filing with the Department of
Assessments and Taxation of Maryland immediately following and on the same day
as the Closing (as defined below). The date of such filing is referred to in
this Agreement as the "Effective Time."
--------------
1.3 Closing. The closing of the Merger ("Closing") will take place at the
------- -------
offices of Bracewell & Patterson, L.L.P. in Houston, Texas on a date that is
contemporaneous with the closing of the Parent's IPO (as defined below), but in
no event later than December 31, 1997 ("Closing Date"); provided that each of
------------
the conditions precedent to the obligations of the parties to effect the Merger
set forth in Article 5 of this Agreement are then satisfied or waived by the
applicable party. The parties may agree in writing on another place for the
Closing. At the Closing, the parties will deliver or cause to be delivered the
documents
<PAGE>
described in Sections 5.3 and 5.4 below. The term "IPO" means any
---
underwritten public offering of Parent Common Stock resulting in net cash
proceeds to the Parent of at least the Minimum Proceeds, as defined below (other
than any offering pursuant to any registration statement (i) relating to any
capital stock of the Parent or options, warrants or other rights to acquire any
such capital stock issued or to be issued primarily to directors, officers or
employees of the Parent or any of its subsidiaries, (ii) relating to any
employee benefit plan or interest therein, (iii) relating principally to any
preferred stock or debt securities of the Parent, or (iv) filed pursuant to Rule
145 under the Securities Act of 1933, as amended ("Securities Act"), or any
--------------
successor or similar provision). The term "Minimum Proceeds" means the
----------------
aggregate amount necessary to pay in full (i) all indebtedness of the Parent or
any of its subsidiaries outstanding at the closing of the IPO and incurred for
purposes of financing any acquisitions by the Parent or any of its subsidiaries,
(ii) the aggregate redemption prices for the redemption of all of the Parent's
preferred stock outstanding at the closing of the IPO issued by the Parent in
connection with then completed acquisitions by the Parent or any of its
subsidiaries, and (iii) the aggregate cash payable by the Parent or any of its
subsidiaries in connection with all then pending acquisitions.
1.4 Effects of the Merger.
---------------------
1.4.1 At the Effective Time. At the Effective Time, (i) the
---------------------
Company shall merge with and into Merger Sub and as a result thereof, the
separate existence of the Company shall cease, (ii) the Articles of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation,
except that the Articles of Incorporation of Merger Sub shall be amended to
provide that the name of the Surviving Corporation shall be changed to "Masters,
Inc.," (iii) the Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, and (iv) the
directors and officers of Merger Sub immediately prior to the Effective Time
shall become the directors and officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected or appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
------------------------------------
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises previously belonging to the Company and
Merger Sub; and all property (real, personal and mixed), and all debts due on
whatever account, including subscriptions to shares, and all other choses in
action, and all and every other interest of or belonging to or due to each of
the Company and Merger Sub shall be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all such property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter the property of the Surviving Corporation as they were of the Company
and Merger Sub; and the title to any real estate, or interest therein, whether
by deed or otherwise, shall not revert or be in any way impaired by reason of
the Merger. The Surviving Corporation shall be responsible and liable for all
the liabilities and obligations of each of the Company and Merger Sub, and any
claim existing, or action or proceeding pending, by or against the Company or
Merger Sub may be prosecuted by or against the Surviving Corporation. Neither
the rights of creditors nor any liens upon the property of the Company or Merger
Sub shall be impaired by the Merger, and all debts, liabilities and duties of
each of the Company and Merger Sub shall attach to the Surviving Corporation,
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it, all in accordance with the
Applicable Corporate Law and the terms of this Agreement.
-2-
<PAGE>
1.5 Written Consents and Other Actions.
----------------------------------
1.5.1 Written Consent of the Shareholder; Other Matters.
-------------------------------------------------
Contemporaneously with the execution hereof, the Shareholder (i) is executing
and delivering to the Company a Written Consent in substantially the form of
Exhibit 1.5.1 attached hereto, and (ii) hereby acknowledges that he is aware of
his dissenter's or appraisal rights with respect to the Merger and his receipt
of a copy of the provisions of Section 3-202 of the Applicable Corporate Law and
has elected not to exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
-----------------------------------------------------
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibit 1.5.2 attached hereto, pursuant to the applicable
provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
---------------------------
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
-------------------
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of
------------------------
Merger Sub issued and outstanding at the Effective Time shall remain outstanding
and shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
------------------------------------------
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. The Shareholder's shares of Company
--------------------
Common Stock (other than shares to be canceled in accordance with Section 1.6.2)
shall be converted into the right to receive (i) that number of shares of Parent
Common Stock equal to the Final Common Stock Amount (as defined in Exhibit 1
attached hereto), and (ii) cash equal to the Final Cash Amount (as defined in
Exhibit 1 attached hereto). The shares of Company Common Stock so converted into
the right to receive cash equal to the Final Cash Amount and shares of Parent
Common Stock equal to the Final Common Stock Amount (the "Converted Shares")
---------------
shall, by virtue of the Merger and without any action on the part of the holder
thereof, at the Effective Time no longer be outstanding and shall at such time
be canceled and retired and shall cease at such time to exist, and the holder of
certificates which prior to the Effective Time validly evidenced the Converted
Shares (the "Stock Certificates") shall thereafter cease to have any rights with
------------------
respect to such Converted Shares, except, upon the surrender of the Stock
Certificates and a duly executed and completed letter of transmittal in
accordance with Section 1.7, the right to receive such cash and Parent Common
Stock at the times and in the manner set forth herein.
-3-
<PAGE>
1.7 Exchange of and Payment for Stock.
---------------------------------
1.7.1 Delivery of Company Common Stock and Merger Consideration.
---------------------------------------------------------
At the Closing, the Parent will deliver to the Shareholder a letter of
transmittal, in substantially the form attached hereto as Exhibit 1.7, to be
used for the purpose of surrendering to the Parent Stock Certificates in
exchange for the right to receive the Final Cash Amount and the Final Common
Stock Amount for the Converted Shares evidenced by such Stock Certificates. All
of the Company Common Stock held by the Shareholder will be surrendered by the
Shareholder to the Parent together with properly completed and executed letters
of transmittal (with each such signature notarized by a notary public or similar
official reasonably satisfactory to the Parent), and the Parent shall cause to
be delivered to the Shareholder at the Closing the Final Cash Amount and the
Final Common Stock Amount applicable to the Converted Shares evidenced by the
Stock Certificates properly surrendered (with properly executed and completed
letters of transmittal) by the Shareholder to the Parent.
1.7.2 Assignments. Except for the granting of options to
-----------
employees of the Company and the exercise or assignment thereof as permitted by
Section 4.10, the assignment, transfer or other disposition of record or
beneficial ownership of any shares of Company Common Stock may not be made on or
after the date hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery
------------------------------------------
of the Final Cash Amount and the Final Common Stock Amount to the Shareholder
with respect to his Converted Shares shall be deemed to be payment in full
satisfaction of all rights pertaining to the outstanding Converted Shares except
for the right to receive additional cash pursuant to Section 1.9.
1.8 Determination of Total Consideration.
------------------------------------
1.8.1 Delivery of IPO Price to Public; Statement. After the
------------------------------------------
Parent and its underwriters agree on the initial price to the public for a share
of Parent Common Stock offered in the IPO, as set forth in an executed
underwriting agreement, at the Closing the Parent shall deliver to the
Shareholder a written notice (the "Price Notice") setting forth such initial
------------
price to the public as set forth in an executed underwriting agreement between
the Parent and its underwriters and a statement setting forth a calculation of
the Final Cash Amount, the Final Common Stock Amount and the Total Consideration
(as defined in Exhibit 1 attached hereto), payable to the Shareholder at Closing
(the "Statement of Closing Consideration"). The initial price to the public of a
-----------------------------------
share of Parent Common Stock, as set forth in the Price Notice, and the Final
Cash Amount, the Final Common Stock Amount and the Total Consideration, as set
forth in the Statement of Closing Consideration, shall be final, conclusive and
binding for purposes of this Agreement.
1.9 Cash Tax Distribution Addition.
------------------------------
1.9.1 Determination and Payment of the Cash Tax Distribution
------------------------------------------------------
Addition. The term "Cash Tax Distribution Addition" means the amount estimated
- --------
by the Shareholder and the Parent of federal and state income taxes, including
any alternative minimum tax owed by the Shareholder, attributable to the
operations of the Company during the period from July 1, 1997 through the
Closing Date and not already withdrawn from the Company by the Shareholder. Such
estimated Cash Tax Distribution Addition shall be distributed to the Shareholder
prior to the Closing from the Company's accumulated adjustment account.
-4-
<PAGE>
In the event there remains a balance in the Company's accumulated adjustment
account after such distribution of the Cash Tax Distribution Addition, such
balance shall be distributed to the Shareholder prior to Closing and the amount
of such distribution of the balance of the accumulated adjustment account shall
reduce the Final Cash Amount. The payment of the Cash Tax Distribution Addition
shall not result in any additional income tax to the Shareholder. In the event
such payment results in additional income tax to the Shareholder, the Parent
shall pay the Shareholder a one-time amount by formula to cover such additional
tax.
1.9.2 Statement. Within 120 days following the Closing, the
---------
Parent shall determine the actual amount of the Cash Tax Distribution Addition
and set forth such amount on the Statement of Final Amount (the "Statement of
------------
Final Amount").
- ------------
1.9.3 Review. After delivery to the Shareholder of the Statement
------
of Final Amount, the Shareholder and his representatives shall be afforded the
opportunity to review and inspect all of the financial records, work papers,
schedules and other supporting papers relating to the preparation of the
Statement of Final Amount, and to consult with the Parent and its
representatives regarding the methods used in the preparation of the Statement
of Final Amount.
1.9.4 Disputes. The Statement of Final Amount shall be final,
--------
conclusive and binding for purposes of this Agreement, unless the Shareholder
shall deliver to the Parent a written notice of disagreement ("Notice of
---------
Dispute") with any item or items in the Statement of Final Amount within 10
business days following receipt of the Statement of Final Amount, specifying in
reasonable detail the nature and extent of such disagreement. If a Notice of
Dispute is not properly given within such time, the Cash Tax Distribution
Addition as set forth in the Statement of Final Amount shall be final,
conclusive and binding for purposes of this Agreement.
1.9.5 Resolution by Parties. If a Notice of Dispute is properly
---------------------
given, the Parent and the Shareholder agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Amount. If the Parent and the Shareholder shall not reach such resolution
within 30 days following receipt by the Parent of a properly given Notice of
Dispute, Ernst & Young (the "Resolution Accountants") shall resolve such dispute
----------------------
within 30 days after its submission to them. The Parent and the Shareholder (if
the dispute is resolved by them or the Statement of Final Amount otherwise
becomes final pursuant hereto without referral to the Resolution Accountants) or
the Resolution Accountants (if a dispute is resolved by them) shall set forth
such resolution in writing and such writing shall (i) set forth the Cash Tax
Distribution Addition and (ii) be final, conclusive and binding for purposes of
this Agreement.
1.9.6 Final Determination. Within 10 business days following
-------------------
the final determination of the Cash Tax Distribution Addition in this Section
1.9, (i) the Parent shall deliver to the Shareholder the cash amount, if any, by
which the actual amount of the Cash Tax Distribution Addition as determined by
this Section 1.9 exceeds the estimated Cash Tax Distribution Addition, or (ii)
the Shareholder shall deliver to Parent the cash amount, if any, by which the
estimated Cash Tax Distribution Addition exceeds the amount of the actual Cash
Tax Distribution Addition determined by this Section 1.9 pursuant hereto. The
Parent and the Shareholder shall each pay their own costs incurred in connection
with this Section 1.9, including the fees and expenses of their respective
attorneys and accountants, if any.
-5-
<PAGE>
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDER
The Company and the Shareholder, jointly and severally, hereby represent
and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2 Stock Ownership. The Shareholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside the Shareholder's name on Exhibit 2.2 and such shares are so held by the
Shareholder free and clear of all liens, encumbrances and adverse claims
whatsoever.
2.3 Authority. The Shareholder has full right, power, legal capacity and
---------
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Shareholder (each a "Shareholder
-----------
Related Document") and (ii) consummate the transactions contemplated herein and
- ----------------
thereby. This Agreement has been duly executed and delivered by the Shareholder
and constitutes, and each Shareholder Related Document, when duly executed and
delivered by the Shareholder will constitute, legal, valid and binding
obligations of the Shareholder enforceable against the Shareholder in accordance
with their respective terms and conditions, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
--------
court, administrative agency, governmental authority or other third party
(except as shall be obtained prior to Closing) is required for the execution,
delivery or performance by the Shareholder of this Agreement or any Shareholder
Related Document. The execution, delivery and performance by the Shareholder of
this Agreement and the Shareholder Related Documents do not violate any
mortgage, indenture, contract, agreement, lease or commitment or other
instrument of any kind to which the Shareholder is a party or by which the
Shareholder or the Shareholder's assets or properties may be bound or affected
or any law, rule or regulation applicable to the Shareholder or any court
injunction, order or decree or any valid and enforceable order of any
governmental agency in effect as of the date hereof having jurisdiction over the
Shareholder.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
------------------------------
warrants to the Shareholder and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
-6-
<PAGE>
3.1.2 Capitalization of the Parent. As of the execution date of
----------------------------
this Agreement, the total authorized capital stock of the Parent is as set forth
in the Confidential Information Statement dated August ___, 1997. The
outstanding shares of Parent Common Stock and Preferred Stock, par value $.001,
of Parent ("Parent Preferred Stock") have been duly and validly issued and are
-----------------------
fully paid and non-assessable.
3.1.3 Authority. The Parent has the requisite power and
---------
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby (the "Parent Related
Documents") and to consummate the transactions contemplated herein and thereby.
- ---------
This Agreement has been duly executed and delivered by the Parent and
constitutes, and all the Parent Related Documents, when executed and delivered
by the Parent will constitute, legal, valid and binding obligations of the
Parent, enforceable in accordance with their respective terms and conditions
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
3.1.4 Consents. Except as provided on Exhibit 3.1.4, no approval,
--------
consent, order or action of or filing with any court, administrative agency,
governmental authority or other third party is required for the execution,
delivery or performance by the Parent of this Agreement or the Parent Related
Documents or the consummation by the Parent of the transactions contemplated
hereby, except for (i) the filing of the Parent's registration statement with
respect to the IPO ("Registration Statement") with the U.S. Securities and
----------------------
Exchange Commission ("SEC") pursuant to the Securities Act and the SEC's
---
declaration of effectiveness of such Registration Statement and the completion
of all necessary filings required under, and the obtaining of all necessary
consents and approvals required pursuant to, state securities or "blue sky" laws
in connection with the IPO, and (ii) the filing of the Articles of Merger with
the Department of Assessments and Taxation of Maryland.
3.1.5 Defaults. The Parent is not in default under or in
--------
violation of,and the execution, delivery and performance of this Agreement and
the Parent Related Documents and the consummation by the Parent of the
transactions contemplated hereby and thereby will not result in a default under
or in violation of (i) any mortgage, indenture, charter or bylaw provision,
contract, agreement, lease, commitment or other instrument of any kind to which
the Parent is a party or by which the Parent or any of its properties or assets
may be bound or affected or (ii) any law, rule or regulation applicable to the
Parent or any court injunction, order or decree, or any valid and enforceable
order of any governmental agency in effect as of the date hereof having
jurisdiction over the Parent, which default or violation prevents the Parent
from consummating the transactions contemplated hereby or is reasonably likely
to have a Parent Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment
------------------
company or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain
--------------------
financial statements to the Shareholder ("Parent Financial Statements") and
---------------------------
such Parent Financial Statements have been prepared in
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<PAGE>
accordance with GAAP and fairly present the consolidated financial position,
results of operations and cash flows of the Parent and its then existing
consolidated subsidiaries as of the dates and for the periods indicated, subject
to normal year-end adjustments and any other adjustments described therein or in
the notes or schedules thereto. The books and records of the Parent have been
kept in reasonable detail and accurately and fairly reflect the transactions of
the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused
-----
to be discharged, as the same have become due, or the Parent Financial
Statements contain adequate accruals and reserves for, all taxes, interest
thereon, fines and penalties of every kind and character, attributable or
relating to the properties and business of the Parent for the period covered by
the Parent Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and
--------------
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law, as
defined in Exhibit 2) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation,
the failure to obtain which is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental Law), ordinances, rules and regulations
of any governmental agency of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, all applicable court or
administrative agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition or
state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
------
Shareholder and his representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholder and his representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in
----------
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholder pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under which
they are or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
------------------------------ ---------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
- --------------
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole, in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification
-----------------------
of the Merger as a reorganization within the meaning of Section 368(a) of the
Code:
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<PAGE>
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code)
at the time of such transfer, or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will
continue the Company's historic business or use a significant portion of
its historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection
with the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub
will have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company
as defined in Section 368(a)(2)(F) of the Code.
(viii) None of the Total Consideration received by the Shareholder
will be separate consideration for, or allocable to, any employment
agreement.
(ix) Neither the Parent nor Merger Sub is under the jurisdiction
of a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.1.14 Tax Elections. The Shareholder agrees that he shall not,
-------------
without the Parent's prior written consent, make any retroactive tax election or
other amendment or supplement to any of the Company's or the Shareholder's tax
returns with any local, state, Federal or foreign governmental authority
following the Merger or take any other action that could reasonably be expected
to have an adverse tax impact on the Parent or the Surviving Corporation
following the Effective Time. The Parent agrees that it shall not, without the
Shareholder's prior written consent, make any retroactive tax election or other
amendment or supplement to any of the Surviving Corporation's tax returns with
any local, state, Federal or
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<PAGE>
foreign governmental authority following the Merger or take any other action
that could reasonably be expected to have an adverse tax impact on the
Shareholder following the Effective Time.
3.2 Representations and Warranties Concerning the Merger Sub. The Parent
--------------------------------------------------------
and Merger Sub, jointly and severally, hereby represent and warrant to the
Shareholder and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
-------------------------
incorporated, validly existing and in good standing under the laws of the State
of Maryland.
3.2.2 Capital Structure. The authorized capital stock of Merger
-----------------
Sub consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and
---------
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by Merger Sub of its obligations hereunder and the consummation
of the transactions contemplated hereby have been duly authorized by its Board
of Directors and the Parent as its sole shareholder, and, except for the
corporate filings required by state law, no other corporate proceedings on the
part of Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholder to be Effective Upon Closing. Effective
----------------------------------------------------------
upon Closing, and without further action on the part of any party or other
person, the Shareholder covenants and agrees as follows:
4.1.1 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholder in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
the Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is two years following any termination of the
Shareholder's employment with the Company, the Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or indirectly, individually, as a member of a partnership or limited
liability company, equity owner, shareholder (other than as a shareholder
of less than one percent of the issued and outstanding stock of a publicly-
held company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant engage
in any business that engages in
-10-
<PAGE>
the installation, construction and maintenance of heating, ventilation, air
conditioning systems, fire sprinklers or plumbing within a 100 mile radius
of Gaithersburg, Maryland.
(ii) The Shareholder agrees that the limitations set forth
therein on the Shareholder's rights to compete with the Parent and its
affiliates as set forth in clause (i) are reasonable and necessary for the
protection of Parent and its affiliates. In this regard, the Shareholder
specifically agrees that the limitations as to period of time and
geographic area, as well as all other restrictions on the Shareholder's
activities specified herein, are reasonable and necessary for the
protection of the Parent and its affiliates. The Shareholder agrees that,
in the event that the provisions of this Section should ever be deemed to
exceed the scope of business, time or geographic limitations permitted by
applicable law, such provisions shall be and are hereby reformed to the
maximum scope of business, time or geographic limitations permitted by
applicable law.
(iii) The Shareholder agrees that the remedy at law for any breach
by the Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, the
-------
Shareholder does hereby (i) release, acquit and forever discharge the Surviving
Corporation from any and all liabilities, obligations, claims, demands, actions
or causes of action arising from or relating to any event, occurrence, act,
omission or condition occurring or existing on or prior to the Effective Time,
including, without limitation, any claim for indemnity or contribution from the
Surviving Corporation in connection with the obligations or liabilities of the
Shareholder hereunder, except for salary and benefits payable to the Shareholder
as an employee in the ordinary course of business; (ii) waive all breaches,
defaults or violations of any agreement applicable to the Company Common Stock
and agree that any and all such agreements are terminated as of the Effective
Time, and (iii) waive any and all preemptive or other rights to acquire any
shares of capital stock of the Company and release any and all claims arising in
connection with any prior default, violation or failure to comply with or
satisfy any such preemptive or other rights.
4.2 Audit. Prior to Closing, the Company's accountants shall complete an
-----
audit of the Company for the fiscal year ended December 31, 1996 and for the
period from such date to June 30, 1997 and such additional audit and/or review
work as may be requested by the Parent through and including the Closing Date,
and provide its report to the Parent and the Shareholder.
4.3 Certain Payables and Receivables. On or prior to Closing, the
--------------------------------
Shareholder shall pay in full in cash all accounts receivable, notes receivable
and advances payable by the Shareholder to the Company and the Company shall pay
in full in cash all accounts payable, notes payable and advances payable by the
Company to the Shareholder.
4.4 Pre-Closing Covenants and Agreements. The Shareholder and the Company
------------------------------------
jointly and severally agree as set forth in Exhibit 4.4 attached hereto.
4.5 Confidentiality. Prior to the Effective Time, none of the Parent,
---------------
Merger Sub, the Company or the Shareholder will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents, representatives, banks or bonding companies except as
otherwise provided herein or unless required by law. The Company may make
appropriate disclosures of the general
-11-
<PAGE>
nature of the Merger to its employees, vendors and customers to protect the
Company's goodwill and to facilitate the Closing. The Parent and Merger Sub may
disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities, and may describe this
Agreement and the transactions contemplated hereby in any registration statement
filed by the Parent under the Securities Act and in reports filed by the Parent
under the Securities Exchange Act of 1934, and may file this Agreement as an
exhibit to any thereof. The Parent may also make appropriate disclosures of the
general nature of the Merger and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the Parent's
efforts to effect additional acquisitions. Each party will have mutual approval
rights with respect to written employee presentations concerning the prospective
merger.
4.6 Tax-Free Reorganization. Unless the other parties shall otherwise
-----------------------
agree in writing, none of the Shareholder, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action
that would jeopardize the qualification of the Merger as a reorganization within
the meaning of Section 368(a) of the Code.
4.7 Company Plans. Except as otherwise contemplated by this Agreement,
-------------
the Company Plans (as defined in Exhibit 2) described on Exhibit 4.7 of the
Company in effect at the date of this Agreement will remain in effect unless
otherwise determined by the Parent after the Effective Time.
4.8 Guaranteed Indebtedness. The Parent agrees to cause, within 30 days
-----------------------
after Closing, the Shareholder to be released from any personal liability he may
have under the guaranties listed on Exhibit 4.8 attached hereto.
4.9 HSR Act. The Parent, the Shareholder and the Company shall take all
-------
reasonable actions necessary to make all filings, if any, required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act") in
-------
connection with the transactions contemplated hereby and to obtain the
termination or expiration of the waiting period thereunder. The Parent shall
prepare and pay for the filing under the HSR Act.
4.10 Coverage for License Holders. The Parent and the Company shall cause
----------------------------
employees of the Company who hold trade licenses for the benefit of the Company
to be named in the Company's commercial general liability policies of insurance
as additional insureds. The Company shall provide the Parent with the names of
such licensees, in writing, prior to the Closing. The Surviving Corporation
shall hold such licensees harmless from any and all liability as a result of
their use of such licenses for the benefit of the Surviving Corporation.
4.11 Dynamic Software. Prior to the Closing, the Shareholder shall cause
----------------
the Company to obtain an exclusive worldwide royalty free license for the
software created by Dynamic Software currently utilized by the Company. The
Shareholder shall provide evidence on Schedule 4.11 of the Disclosure Schedule
satisfactory to the Parent that, other than licenses, without the right to
sublicense, granted to Cape Coral Plumbing, Dynamic Software has granted no
other license for and has granted no right to sublicense such software.
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<PAGE>
4.12 Accounts Receivable. There shall be no adjustment hereunder for
-------------------
Company accounts or notes receivable that are uncollectible.
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
--------------------------------------------------------------------
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of the Shareholder and the Company contained in this Agreement,
in Exhibit 2 and the Disclosure Schedule referred to therein and the other
Exhibits provided by the Shareholder or the Company pursuant to this Agreement
or in any closing certificate or document delivered to the Parent pursuant
hereto shall be true and correct at and as of the Closing Date as though made at
and as of that time other than such representations and warranties as are
specifically made as of another date, and the Shareholder and the Company shall
each have delivered to the Parent and Merger Sub a certificate to that effect.
5.1.2 Performance of Covenants. The Shareholder and the Company shall
------------------------
have performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date, and the Shareholder
and the Company shall each have delivered to the Parent and Merger Sub a
certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or against
the Parent or Merger Sub arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (i) to restrain, prohibit
or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholder and the Company
shall each have delivered to the Parent and Merger Sub a certificate to that
effect.
5.1.4 Approvals. The Company and the Shareholder shall have procured
---------
all of the consents, approvals and waivers of third parties or any regulatory
body or authority, whether required contractually or by applicable law or
otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholder prior to the Closing Date, and the
Shareholder and the Company shall each have delivered to the Parent and the
Merger Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Shareholder pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage shall
---------------------------
have occurred on or prior to the Effective Time to any of the properties or
assets of the Company which would have a Company Material Adverse Effect.
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<PAGE>
5.1.7 Licenses, etc. The Company shall have obtained all such
-------------
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there
--------------------------
shall not have been any event that in the reasonable judgment of the Parent
adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
---
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
-------------------------
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.1.11 Financing. The Parent shall have obtained financing on terms
---------
and in amounts reasonably acceptable to it, to finance the payment of the cash
portion of the aggregate of the Final Per Share Cash Amounts and the ongoing
financing needs of the Surviving Corporation, and such financing shall be
available.
5.1.12 HSR Act. All required filings, if any, under the HSR Act with
-------
respect to the transactions contemplated hereby shall have been made and the
waiting periods thereunder shall have been terminated or shall have expired.
5.1.13 Closing of Asset Purchase and Sale. The Parent shall have been
----------------------------------
satisfied that the closing under that certain Asset Purchase Agreement of even
date herewith among Parent, Merger Sub and Central Equipment Rental Associates
II (the "Central Asset Purchase Agreement") has occurred or will occur
--------------------------------
contemporaneously with or immediately after the Effective Time.
5.2 Conditions Precedent to the Obligations of the Shareholder and the
------------------------------------------------------------------
Company. The obligations of the Shareholder and the Company under this
- -------
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholder and the Company in writing to the extent
permitted by applicable law:
5.2.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of the Parent and Merger Sub contained in this Agreement or in
any closing certificate or document delivered to the Shareholder or the Company
pursuant hereto shall be true and correct on and as of the Closing Date as
though made at and as of that date other than such representations and
warranties as are specifically made as of another date, and the Parent and
Merger Sub shall have delivered to the Shareholder and the Company a certificate
to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall have
------------------------
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Closing Date and the Parent and Merger
Sub shall have delivered to the Shareholder and the Company a certificate to
such effect.
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<PAGE>
5.2.3 Approvals. The Parent shall have procured all of the consents,
---------
approvals and waivers specified in Exhibit 3.1.4 prior to the Closing Date, and
the Parent shall have delivered to the Shareholder and the Company a certificate
to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.2.5 HSR Act. All required filings, if any, under the HSR Act with
-------
respect to the transactions contemplated hereby shall have been made and the
waiting periods thereunder shall have been terminated or shall have expired.
5.2.6 Closing of Asset Purchase and Sale. The Shareholder shall have
----------------------------------
been satisfied that the closing under the Central Asset Purchase Agreement has
occurred or will occur contemporaneously with or immediately after the Effective
Time.
5.3 Deliveries by the Shareholder at the Closing. At the Closing,
--------------------------------------------
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholder and the
Company pursuant to any other transaction document at the Closing, the
Shareholder shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholder and the Company shall
--------------------
deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3, and
5.1.4.
5.3.2 Stock Transfer Restriction Agreement. The Shareholder shall
------------------------------------
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.2.
5.3.3 Employment Agreements. The Shareholder shall execute and
---------------------
deliver an Employment Agreement with the Company on the Closing Date, effective
as of the Effective Time, substantially in the form set forth in Exhibit 5.3.3A.
5.3.4 Lease Agreement. The Shareholder shall cause the owner of the
---------------
property located at 7891 Beechcraft Avenue, Gaithersburg, Maryland to execute
and deliver a lease agreement with the Company in the form attached as Exhibit
5.3.4.
5.3.5 Registration Rights Agreement. The Shareholder shall execute
-----------------------------
and deliver a Registration Rights Agreement at the Closing, effective as of the
Effective Time, substantially in the form set forth in Exhibit 5.3.5 attached
hereto.
5.3.6 Opinion of Counsel for the Shareholder and the Company. The
------------------------------------------------------
Shareholder shall deliver the favorable opinion of Willoner, Calabrese and
Rosen, P.A., counsel to the Shareholder and the Company, dated the Effective
Time, substantially in the form and to the effect set forth in Exhibit 5.3.6
attached hereto.
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<PAGE>
5.3.7 Documents, Stock Certificates. The Shareholder shall execute
-----------------------------
and deliver, and shall cause the Company to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Company or its officers or directors or the Shareholder at the
Closing as contemplated hereby or as may be reasonably requested by the Parent
and shall deliver or cause to be delivered the documents and evidence required
under Section 4. Stock Certificates representing all of the outstanding Company
Common Stock and properly executed and completed letters of transmittal shall be
delivered by the Shareholder to the Parent.
5.3.8 Discharge of Notes and Leases; Releases, Etc. The notes and
--------------------------------------------
leases, except for trade debts, of the Company referred to in Exhibit 5.3.8
attached hereto ("Terminated Obligations") shall be paid in full or refinanced
----------------------
on terms acceptable to the Parent, and the Shareholder shall cause all holders
of any such Terminated Obligations to deliver to the Parent, in form reasonably
satisfactory to the Parent and the lenders to the Parent or Merger Sub, such
customary releases, termination statements, consents, approvals or other
documents or instruments required, in the judgment of the Parent, to release and
terminate all liens, security interests, claims, or rights of such holders
against the Surviving Corporation or the Parent or any of their respective
assets in connection therewith.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholder or the Company hereunder for any breach of warranty,
covenant or agreement by the Company or the Shareholder herein irrespective of
any knowledge of or investigation made by or on behalf of the Parent or Merger
Sub; provided, however, that if the Shareholder or the Company shall disclose in
writing to the Parent prior to the Closing Date a specified breach of a
specifically identified representation, warranty, covenant or agreement of the
Company or the Shareholder herein by the Company or the Shareholder, and
requests a waiver thereof by the Parent, and the Parent shall waive any such
specifically identified breach in writing prior to the Closing Date, the Parent
and the Surviving Corporation, for themselves and for each Parent Indemnified
Party (as defined below) shall be deemed to have waived their respective rights
and remedies hereunder for, and neither the Shareholder nor the Company shall
have any liability with respect to, any such specifically identified breach, to
the extent so identified by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
---------------------------------------
simultaneously with the deliveries by the Shareholder specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholder the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall deliver
--------------------
the certificates required pursuant to Sections 5.2.1, 5.2.2, and 5.2.3.
5.4.2 Registration Rights Agreement. The Parent shall execute and
-----------------------------
deliver to the Shareholder a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The Parent
------------------------------------------------
shall deliver the favorable opinion of its legal counsel dated the Effective
Time, substantially in the form and to the effect set forth in Exhibit 5.4.3.
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<PAGE>
5.4.4 Merger Consideration. The Parent shall deliver the Final Per
--------------------
Share Cash Amount and the Final Per Share Common Stock Amount to the
Shareholder.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholder of any of his rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of the Shareholder or the Company; provided, however, that if the Parent shall
disclose in writing to the Shareholder prior to the Closing a specified breach
of a specifically identified representation, warranty, covenant or agreement of
the Parent or Merger Sub contained herein by the Parent or Merger Sub, and
requests a waiver thereof by the Company and the Shareholder, and the Company
and the Shareholder shall waive any such specifically identified breach in
writing prior to the Closing, the Company and the Shareholder shall be deemed to
have waived their rights and remedies hereunder for, and the Parent and Merger
Sub shall have no liability or obligation to the Shareholder or the Company with
respect to, any such specifically identified breach, to the extent so identified
by the Parent and waived by the Company and the Shareholder.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholder and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholder and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2 shall survive for a period of
36 months after the Closing Date and the representations and warranties of the
Shareholder and the Company contained in Sections 2.2, 2.3, 2.4 and in Sections
2 and 3 of Exhibit 2 shall survive for the maximum period permitted by
applicable law. The representations and warranties of the Parent herein and in
the Parent Related Documents, other than those in Sections 3.1.3 and 3.1.4,
shall survive for a period of 36 months after the Closing Date and the
representations and warranties of the Parent contained in Sections 3.1.3 and
3.1.4 shall survive for the maximum period permitted by applicable law. The
periods of survival of the representations and warranties as stated above in
this Section 6.1 are referred to herein as the "Survival Period." The
---------------
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable Survival Period and no claim
for indemnification may be made with respect to any breach of any representation
or warranty, the applicable Survival Period of which shall have expired, except
to the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration. The covenants and agreements of the parties herein (including but
not limited to Exhibit 4.6) and in other documents and instruments executed and
delivered in connection with the closing of the transactions contemplated hereby
shall survive for the maximum period permitted by law.
6.2 Indemnification.
---------------
6.2.1 Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 6.1 and 6.3 hereof, the Shareholder shall indemnify, save and hold
harmless the Parent, the Surviving Corporation, Merger Sub and any of their
assignees (including lenders) and all of their respective officers, directors,
employees, representatives, agents, advisors and consultants and all of their
respective heirs, legal representatives,
-17-
<PAGE>
successors and assigns (collectively the "Parent Indemnified Parties") from and
--------------------------
against any and all damages, liabilities, losses, loss of value (including the
value of adverse effects on cash flow or earnings), claims, deficiencies,
penalties, interest, expenses, fines, assessments, charges and costs, including
reasonable attorneys' fees and court costs (collectively "Losses") arising from,
------
out of or in any manner connected with or based on:
(i) the breach of any covenant of the Shareholder or the Company or
the failure by the Shareholder or the Company to perform any obligation of
the Shareholder or the Company contained herein or in any Company Related
Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty of
the Shareholder contained herein or in any Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty of
the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed with
reasonable specificity in the Disclosure Schedule or (b) disclosed in the
Company Financial Statements (as defined in Exhibit 2).
The foregoing indemnities shall not limit or otherwise adversely affect the
Shareholder's rights of indemnity for Losses under Section 6.2.2.
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1 and
----------------
6.3, the Parent shall indemnify, save and hold harmless the Shareholder and the
Shareholder's heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty of
the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring or
existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from the Shareholder's
acts or omissions after the
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Effective Time as an officer, director and/or employee of the Parent, the
Surviving Corporation and/or any other affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The aggregate liability of the Shareholder under Section
-----------
6.2.1(ii) or (iii) shall not exceed the cash amount equal to the Total
Consideration with the Parent Common Stock being valued at the IPO Price to the
Public for such purpose. The aggregate liability of the Parent under Section
6.2.2 (ii) shall not exceed the cash amount equal to the Total Consideration
with the Parent Common Stock being valued at the IPO Price to the Public for
such purpose.
6.4 Procedures for Indemnification.
------------------------------
6.4.1 Notice. The party (the "Indemnified Party") that may be
------ -----------------
entitled to indemnity hereunder shall give prompt notice to any party obligated
to give indemnity hereunder (the "Indemnifying Party") of the assertion of any
------------------
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 6.4.1 shall relieve the
Indemnifying Party of its obligations under this Article 6 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice (except that the Indemnifying Party shall not be liable for any
expenses incurred by the Indemnified Party during the period in which the
Indemnified Party failed to give such notice). Thereafter, the Indemnified Party
shall deliver to the Indemnifying Party, promptly (and in any event within 10
days thereof) after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
-------------
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholder shall at all times have the right, at their option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholder
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
----------
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
-----------------
consent to such settlement within 10 days after delivery of the Settlement
Notice to
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the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any such
-----------
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and records, and personnel in the
possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself or
-----------
himself and its or his affiliates (as defined in Exhibit 2) any rights to
subrogation against any Indemnified Party or such Indemnified Party's insurers
for Losses arising from any third-party claims for which the Indemnifying Party
is liable or against which the Indemnifying Party indemnifies any Indemnified
Party and, if necessary, each Indemnifying Party shall obtain waivers of such
subrogation from its, his or her insurers.
6.6 Warranty Work. Notwithstanding anything herein to the contrary,
-------------
neither the Parent nor Merger Sub shall seek indemnification hereunder for any
warranty claims arising out of work performed by the Company prior to the
Effective Time even if such claims exceed the applicable reserves therefor.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and the
--------------
Parent; or
7.1.2 Optional By the Company. By the Company by written notice to
-----------------------
the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor the
Shareholder has breached this Agreement or has failed to perform any of its or
his obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to the
----------------------
Company, if the Closing shall have failed to occur by 5:00 p.m. Houston, Texas
time on December 31, 1997, but only if neither the Parent nor Merger Sub has
breached this Agreement or has failed to perform any of its obligations under
this Agreement;
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<PAGE>
7.1.4 Breach By the Parent or Merger Sub. By the Company, by written
----------------------------------
notice to the Parent, if either the Parent or Merger Sub has breached this
Agreement or failed to perform any of its obligations under this Agreement; or
7.1.5 Breach by the Company or the Shareholder. By the Parent, by
----------------------------------------
written notice to the Company, if either the Company or the Shareholder has
breached this Agreement or has failed to perform any of its or his obligations
under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Company (prior to the Effective Time) or the Shareholder:
Masters, Inc.
7891 Beechcraft Avenue
Gaithersburg, Maryland 20879
Attention: Ronald D. Bryant
Telecopy: (301) 258-7368
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
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8.2 Further Documents. The Shareholder shall, at any time and from time
-----------------
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholder hereunder.
8.3 Assignability. The Shareholder shall not assign this Agreement in
-------------
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of the Shareholder or the Company. After the Effective Time, the
Surviving Corporation may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
the Shareholder.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
----------------
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
---------------
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
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8.9 Public Announcements. After the Effective Time, the Shareholder
--------------------
shall not make any press release, public announcement, or public confirmation or
disclose any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
----------------------
Merger Sub and the Company, by action taken by their Boards of Directors to the
extent permitted by applicable law; provided, however, that no such amendment
shall (i) alter or change any provision of this Agreement, the alteration or
change of which must be adopted by the holders of capital stock of the Company
under the certificate or articles of incorporation of the Company or the
Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless each
such alteration or change is adopted by the holders of shares of capital stock
of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent, Merger Sub, the Company and the
Shareholder. After the Effective Time, all amendments to this Agreement must be
by an instrument in writing signed on behalf of the Parent and the Shareholder.
Any term or provision of this Agreement (other than the requirements for
shareholder approvals) may be waived in writing at any time by the party which
is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever under or by reason of this Agreement, or shall cause the
employment status of any employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholder as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by each of
the Parent, Merger Sub, the Company and the Shareholder.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Parent and the Company
and their respective members of their Boards of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement
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may be consummated as promptly as practicable on the terms contemplated herein
and otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be automatically as a part of this Agreement, a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
---------------------
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company shall pay the costs
of any broker or finder engaged by the Shareholder and the accounting and
auditing fees and expenses of the Company's accountants for the audit for fiscal
1996 (not to exceed $50,000) (to the extent, and only to the extent, that any
such payment will not jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code) and the Parent
shall pay the fees and expenses of the Company's accountants for the audit
through the period ending June 30, 1997; and provided further that all fees,
costs and expenses incurred or payable by the Company in connection with the
negotiation and closing of this Agreement and the transactions contemplated
hereby and the costs of any such broker or finder shall be included in current
liabilities for purposes of determining Working Capital.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:
_________________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
MASTERS ACQUISITION CORP.
By:
_________________________________________
President
SHAREHOLDER:
____________________________________________
Ronald D. Bryant
COMPANY:
MASTERS , INC.
By:
_________________________________________
Ronald D. Bryant
President
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EXHIBIT 10.22
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
AMS ACQUISITION CORP.
MECHANICAL SERVICES, INC.
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
MECHANICAL SERVICES, INC.
August 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE MERGER.......................................................................... 1
1.1 The Merger..................................................................... 1
1.2 Effective Time of the Merger................................................... 1
1.3 Closing........................................................................ 1
1.4 Effects of the Merger.......................................................... 2
1.4.1 At the Effective Time................................................... 2
1.4.2 Effects on the Surviving Corporation.................................... 2
1.5 Written Consents and Other Actions............................................. 3
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters............ 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub................... 3
1.5.3 All Other Necessary Actions............................................. 3
1.6 Conversion of Stock............................................................ 3
1.6.1 Merger Sub Capital Stock................................................ 3
1.6.2 Cancellation of the Company Treasury Stock.............................. 3
1.6.3 Merger Consideration.................................................... 3
1.7 Exchange of and Payment for Stock.............................................. 4
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration....... 4
1.7.2 Assignments............................................................. 4
1.7.3 Payment In Full Satisfaction of All Rights.............................. 4
1.8 Determination of Closing Merger Consideration.................................. 4
1.8.1 Delivery of IPO Price to Public; Statement.............................. 4
1.9 Post-Closing Determination of Total Merger Consideration....................... 5
1.9.1 Statement............................................................... 5
1.9.2 Review.................................................................. 5
1.9.3 Disputes................................................................ 5
1.9.4 Resolution by Parties................................................... 5
1.9.5 Final Determination..................................................... 5
1.9.6 Expenses................................................................ 6
2. REPRESENTATIONS AND WARRANTIESOF THE COMPANY AND THE SHAREHOLDERS................... 6
2.1 Exhibit 2...................................................................... 6
2.2 Stock Ownership................................................................ 6
2.3 Authority...................................................................... 6
2.4 Consents....................................................................... 6
</TABLE>
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<TABLE>
<S> <C>
3. REPRESENTATIONS AND WARRANTIESOF THE PARENTAND MERGER SUB........................... 7
3.1 Representations and Warranties................................................. 7
3.1.1 Organization............................................................ 7
3.1.2 Capitalization of the Parent............................................ 7
3.1.3 Authority............................................................... 7
3.1.4 Consents................................................................ 7
3.1.5 Defaults................................................................ 7
3.1.6 Investment Company...................................................... 8
3.1.7 Financial Statements.................................................... 8
3.1.8 Taxes................................................................... 8
3.1.9 Full Authority.......................................................... 8
3.1.10 Access................................................................ 8
3.1.11 Disclosure............................................................. 9
3.1.12 Parent Material Adverse Effect......................................... 9
3.1.13 Tax-Free Reorganization................................................ 9
3.2 Representations and Warranties Concerning the Merger Sub....................... 10
3.2.1 Organization and Standing............................................... 10
3.2.2 Capital Structure....................................................... 10
3.2.3 Authority............................................................... 10
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS 10
4.1 Agreements of the Shareholders to be Effective Upon Closing.................... 10
4.1.1 Covenant Not to Compete................................................. 0
4.1.2 Release................................................................. 11
4.2 Elimination of Expense......................................................... 12
4.3 Audit.......................................................................... 12
4.4 Certain Payables and Receivables............................................... 12
4.5 Purchase of Certain Receivables............................................... 12
4.6 Pre-Closing Covenants and Agreements........................................... 12
4.7 Confidentiality ............................................................... 12
4.8 Tax-Free Reorganization........................................................ 12
4.9 Company Plans.................................................................. 13
4.10 Income Tax Distribution........................................................ 13
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES............................................ 13
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub........... 13
5.1.1 Accuracy of Representations and Warranties.............................. 13
5.1.2 Performance of Covenants................................................ 13
5.1.3 Legal Actions or Proceedings............................................ 13
5.1.4 Approvals............................................................... 14
5.1.5 Closing Deliveries...................................................... 14
5.1.6 No Casualty, Loss or Damage............................................. 14
</TABLE>
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<TABLE>
<S> <C>
5.1.7 Licenses, etc................................................................ 14
5.1.8 No Material Adverse Change................................................... 14
5.1.9 IPO.......................................................................... 14
5.1.10 Corporate Actions............................................................ 14
5.1.11 Financing.................................................................... 14
5.1.12 Closing of AMS Merger........................................................ 14
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company......... 15
5.2.1 Accuracy of Representations and Warranties................................... 15
5.2.2 Performance of Covenants..................................................... 15
5.2.3 Approvals.................................................................... 15
5.2.4 Closing Deliveries........................................................... 15
5.2.5 Closing of AMS Merger........................................................ 15
5.3 Deliveries by the Shareholders at the Closing....................................... 15
5.3.1 Closing Certificates......................................................... 15
5.3.2 Stock Transfer Restriction Agreement......................................... 15
5.3.3 Employment Agreements........................................................ 15
5.3.4 Lease Agreement.............................................................. 16
5.3.5 Registration Rights Agreement................................................ 16
5.3.6 Opinion of Counsel for the Shareholders and the Company...................... 16
5.3.7 Documents, Stock Certificates................................................ 16
5.3.8 Discharge of Indebtedness, Releases, Etc..................................... 16
5.4 Deliveries by the Parent at the Closing............................................. 16
5.4.1 Closing Certificates......................................................... 17
5.4.2 Registration Rights Agreement................................................ 17
5.4.3 Opinion of Counsel for the Parent and Merger Sub............................. 17
5.4.4 Closing Merger Consideration................................................. 17
6. SURVIVAL, INDEMNIFICATIONS................................................................ 17
6.1 Survival............................................................................ 17
6.2 Indemnification..................................................................... 18
6.2.1 Parent Indemnified Parties................................................... 18
6.2.2 Parent Indemnity............................................................. 18
6.3 Limitations......................................................................... 19
6.4 Procedures for Indemnification...................................................... 19
6.4.1 Notice....................................................................... 19
6.4.2 Legal Defense................................................................ 19
6.4.3 Settlement................................................................... 20
6.4.4 Cooperation.................................................................. 20
6.5 Subrogation......................................................................... 20
7. TERMINATION............................................................................... 20
7.1 Grounds for Termination............................................................. 20
7.1.1 Mutual Consent............................................................... 20
</TABLE>
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<TABLE>
<S> <C>
7.1.2 Optional By the Company.................................................... 20
7.1.3 Optional By the Parent..................................................... 21
7.1.4 Breach By the Parent or Merger Sub......................................... 21
7.1.5 Breach by the Company or any Shareholder................................... 21
7.2 Effect of Termination............................................................. 21
8. MISCELLANEOUS........................................................................... 21
8.1 Notice............................................................................ 21
8.2 Further Documents................................................................. 22
8.3 Assignability..................................................................... 22
8.4 Exhibits and Schedules............................................................ 22
8.5 Sections and Articles............................................................. 22
8.6 Entire Agreement.................................................................. 22
8.7 Headings.......................................................................... 22
8.8 Controlling Law................................................................... 22
8.9 Public Announcements.............................................................. 23
8.10 No Third Party Beneficiaries..................................................... 23
8.11 Amendments and Waivers........................................................... 23
8.12 No Employee Rights............................................................... 23
8.13 Non-Recourse..................................................................... 23
8.14 When Effective................................................................... 23
8.15 Takeover Statutes................................................................ 24
8.16 Number and Gender of Words....................................................... 24
8.17 Invalid Provisions............................................................... 24
8.18 Multiple Counterparts............................................................ 24
8.19 No Rule of Construction.......................................................... 24
8.20 Expenses......................................................................... 24
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 ..................................................................................... Determination of Total Consideration
Exhibit 1.5.1 ................................................. Unanimous Written Consent of Shareholders of Mechanical Services,Inc
Exhibit 1.5.2 ......................................................... Written Consent of Sole Shareholder of AMS Acquisition Corp.
Exhibit 1.7 .................................................................................................. Letter of Transmittal
Exhibit 2. ...................................................................................................... Certain Statements
Exhibit 2.2 ...................................................................................... Ownership of Company Common Stock
Exhibit 3.1.4 ........................................................................................... Required Consents - Parent
Exhibit 4.6 ...................................................................................................... Certain Covenants
Exhibit 4.9 ...................................................................................... Company Plans to Remain in Effect
Exhibit 4.10 ............................................................................................... Form of Promissory Note
Exhibit 5.3.2 ................................................................................. Stock Transfer Restriction Agreement
Exhibit 5.3.3 ....................................................... List of Employees to Execute and Deliver Employment Agreements
Exhibit 5.3.3.A ............................................................................................... Employment Agreement
Exhibit 5.3.4 ...................................................................................................... Lease Agreement
Exhibit 5.3.5 ........................................................................................ Registration Rights Agreement
Exhibit 5.3.6 ............................................................... Opinion of Counsel to the Shareholders and the Company
Exhibit 5.3.8 ............................................................................................... Terminated Obligations
Exhibit 5.4.3 ..................................................................................... Opinion of Counsel to the Parent
</TABLE>
-v-
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Affiliate ..................................................................................................... Exhibit 2
Accountants .......................................................................................................... 5
Agreement ............................................................................................................ 1
AMC .................................................................................................................. 11
AMS Merger Agreement ................................................................................................. 14
Ancillary Agreements ...................................................................................... Exhibit 5.3.6
Applicable Corporate Law .............................................................................................. 1
Base Rental ............................................................................................ Exhibit 5.3.4.-B
best lawful efforts ....................................................................................... Exhibit 5.3.5
Cascade Mortgages ............................................................................................. Exhibit 1
Cash Percentage Notice ........................................................................................ Exhibit 1
Central Asset Purchase Agreement .............................................................................. Exhibit 1
Cash Tax Distribution ................................................................................................ 13
Cause ................................................................................................... Exhibit 5.3.3.A
Closing ............................................................................................................... 1
Closing Date .......................................................................................................... 1
Closing Merger Consideration .................................................................................. Exhibit 1
Closing Outstanding Common Stock Number ....................................................................... Exhibit 1
Closing Per Share Cash Amount ................................................................................. Exhibit 1
Closing Per Share Common Stock Amount ......................................................................... Exhibit 1
Code .................................................................................................................. 1
Commission ................................................................................................ Exhibit 5.3.5
Common Stock .............................................................................................. Exhibit 5.3.5
Control ....................................................................................................... Exhibit 2
Confidential Information ................................................................................ Exhibit 5.3.3.A
Company ............................................................................................................... 1
Company Common Stock .................................................................................................. 1
Company Material Adverse Effect ............................................................................... Exhibit 2
Company Related Documents ..................................................................................... Exhibit 2
Converted Share ...................................................................................................... 3
Corporation ................................................................................................... Exhibit 2
Defined Expense Reductions Deficiency ......................................................................... Exhibit 1
Deferred Tax Liability ........................................................................................ Exhibit 1
Disclosure Schedule ........................................................................................... Exhibit 2
Due Date ............................................................................................................. 30
Employee Invention ...................................................................................... Exhibit 5.3.3.A
ERISA ........................................................................................................ Exhibit 2
Exchange Act .............................................................................................. Exhibit 5.3.5
</TABLE>
-vi-
<PAGE>
<TABLE>
<S> <C>
Express Expense Level Deduction ............................................................................... Exhibit 1
Final Per Share Cash Amount ................................................................................... Exhibit 1
Final Outstanding Common Stock Number ......................................................................... Exhibit 1
GAAP .......................................................................................................... Exhibit 1
GE Capital Leases ............................................................................................. Exhibit 1
GroupMAC ................................................................................................ Exhibit 5.3.3.A
Effective Time ........................................................................................................ 1
Indemnified Party .................................................................................................... 19
Indemnifying Party ................................................................................................... 19
Initial Public Offering ................................................................................... Exhibit 5.3.5
IPO ................................................................................................................... 2
IPO Price to the Public ....................................................................................... Exhibit 1
Investments ................................................................................................... Exhibit 1
Investments ................................................................................................. Exhibit 4.6
Lease .................................................................................................. Exhibit 5.3.4.-A
Long-Term Debt ................................................................................................ Exhibit 1
Losses ............................................................................................................... 18
Merger ................................................................................................................ 1
Merger Sub ............................................................................................................ 1
Minimum Proceeds ...................................................................................................... 2
Net After-Tax Income .......................................................................................... Exhibit 1
Notice of Dispute ..................................................................................................... 5
One Year Holding Period ................................................................................... Exhibit 5.3.2
Operating EBITDA Amount ....................................................................................... Exhibit 1
Other Ownership Interests ..................................................................................... Exhibit 1
Owner's Policies of Title Insurance ......................................................................... Exhibit 4.6
Parent ................................................................................................................ 1
Parent Ancillary Agreement................................................................................. Exhibit 5.4.3
Parent Common Stock ................................................................................................... 1
Parent Financial Statements ........................................................................................... 8
Parent Indemnified Parties............................................................................................ 18
Parent Material Adverse Effect ........................................................................................ 9
Parent Preferred Stock ................................................................................................ 7
Parent Related Documents .............................................................................................. 7
Payee ................................................................................................................ 30
Permitted Exceptions ........................................................................................ Exhibit 4.6
Present Value of Aggregate Option Exercise Price .............................................................. Exhibit 1
Proprietary Rights ............................................................................................ Exhibit 2
Price Notice .......................................................................................................... 4
register, registered, registration ........................................................................ Exhibit 5.3.5
Registration Expenses ..................................................................................... Exhibit 5.3.5
Registrable Securities .................................................................................... Exhibit 5.3.5
Registration Statement ................................................................................................ 7
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SEC ................................................................................................................... 7
Second Year Holding Period ................................................................................ Exhibit 5.3.2
Securities Act ........................................................................................................ 2
Selling Expenses .......................................................................................... Exhibit 5.3.5
Seller Shareholder......................................................................................... Exhibit 5.3.5
Settlement Notice .................................................................................................... 20
Shareholder Related Document........................................................................................... 6
Shareholders .......................................................................................................... 1
Specified Cash Percentage ..................................................................................... Exhibit 1
Specified Stock Percentage .................................................................................... Exhibit 1
Statement of Closing Consideration .................................................................................... 4
Statement of Final Per Share Amounts .................................................................................. 5
Stock Certificate ..................................................................................................... 3
Stockholders .............................................................................................. Exhibit 5.3.2
Stock Transfer Restriction Agreement ...................................................................... Exhibit 5.3.2
Surveys ..................................................................................................... Exhibit 4.6
Survival Period ...................................................................................................... 17
Surviving Corporation ................................................................................................ 1
Tax Notes ............................................................................................................ 13
Tax Returns .................................................................................................. Exhibit 2
Terminated Obligations ............................................................................................... 16
Total Consideration ........................................................................................... Exhibit 1
Working Capital ............................................................................................... Exhibit 1
Working Capital Addition ...................................................................................... Exhibit 1
Working Capital Deduction ..................................................................................... Exhibit 1
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
---------
August __, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), AMS Acquisition Corp., an Arkansas corporation
------
("Merger Sub"), Mechanical Services, Inc., an Arkansas corporation (the
- ------------
"Company"), and the undersigned holders of all of the outstanding capital stock
-------
of the Company (the "Shareholders").
------------
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
------
State of Arkansas, and pursuant to the Merger each issued and outstanding share
of Common Stock, no par value per share, of the Company ("Company Common Stock")
--------------------
will be converted into the right to receive certain shares of common stock,
$.001 par value per share, of the Parent ("Parent Common Stock"), and certain
-------------------
cash consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholders,
as the holders of all of the outstanding capital stock of the Company;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
----------
accordance with the Arkansas Business Corporation Act of 1987 (the "Applicable
----------
Corporate Law") upon the Effective Time (as defined in Section 1.2), the Company
- -------------
shall be merged with and into Merger Sub. Merger Sub, as the surviving entity
following the Merger, is sometimes referred to in this Agreement as the
"Surviving Corporation."
- ----------------------
1.2 Effective Time of the Merger. In accordance with the requirements of
----------------------------
applicable law, appropriate Plan of Merger under the Applicable Corporate Law
shall be prepared, executed and submitted for filing with the Secretary of State
of the State of Arkansas immediately following and on the same day as the
Closing (as defined below). The date of such filing is referred to in this
Agreement as the "Effective Time."
--------------
1.3 Closing. The closing of the Merger ("Closing") will take place at
------- -------
10:00 a.m. at the offices of Bracewell & Patterson, L.L.P. in Houston, Texas on
a date that is contemporaneous with the closing of the Parent's IPO (as defined
below), but in no event later than December 31, 1997 ("Closing Date"); provided
------------
that each of the conditions precedent to the obligations of the parties to
effect the Merger set forth in Article 5 of this Agreement are then satisfied or
waived by the applicable party. The parties may agree in writing on another
place for the Closing. At the Closing, the parties will deliver or cause to be
delivered the
<PAGE>
documents described in Sections 5.3 and 5.4 below. The term "IPO" means any
underwritten public offering of Parent Common Stock resulting in net cash
proceeds to the Parent of at least the Minimum Proceeds as defined below (other
than any offering pursuant to any registration statement (i) relating to any
capital stock of the Parent or options, warrants or other rights to acquire any
such capital stock issued or to be issued primarily to directors, officers or
employees of the Parent or any of its subsidiaries, (ii) relating to any
employee benefit plan or interest therein, (iii) relating principally to any
preferred stock or debt securities of the Parent, or (iv) filed pursuant to Rule
145 under the Securities Act of 1933, as amended (''Securities Act"), or and
successor or similar provision). The term "Minimum Proceeds" means the
aggregate amount necessary to pay in full (i) all indebtedness of the Parent or
any of its subsidiaries outstanding at the closing of the IPO incurred for
purposes of financing any acquisitions by the Parent or any of its subsidiaries,
(ii) the aggregate redemption prices for the redemption of all of the Parent's
preferred stock outstanding at the closing of the IPO issued by the Parent in
connection with then completed acquisitions by the Parent or any of its
subsidiaries, and (iii) the aggregate cash payable by the Parent or any of its
subsidiaries in connection with all then pending acquisitions.
1.4 Effects of the Merger.
---------------------
1.4.1. At the Effective Time. At the Effective Time, (i) the Company
---------------------
shall merge with and into Merger Sub and as a result thereof, the separate
existence of the Company shall cease, (ii) the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, except that the Articles
of Incorporation of Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "Mechanical Services, Inc.," (iii) the
Bylaws of Merger Sub as in effect immediately prior to the Effective Time shall
be the Bylaws of the Surviving Corporation, and (iv) the directors and officers
of Merger Sub immediately prior to the Effective Time shall become the directors
and officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected or
appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
------------------------------------
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with the Applicable Corporate Law and the terms of this Agreement.
-2-
<PAGE>
1.5 Written Consents and Other Actions.
----------------------------------
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters.
-------------------------------------------------------------
Contemporaneously with the execution hereof, the Shareholders (i) are executing
and delivering to the Company a Unanimous Written Consent in substantially the
form of Exhibit 1.5.1 attached hereto, and (ii) hereby acknowledge that they are
aware of their dissenter's or appraisal rights with respect to the Merger and
their receipt of a copy of the provisions of Subchapter 13 of the Applicable
Corporate Law and have elected not to exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
-----------------------------------------------------
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibit 1.5.2 attached hereto, pursuant to the applicable
provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
---------------------------
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
-------------------
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of Merger
------------------------
Sub issued and outstanding at the Effective Time shall remain outstanding and
shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
------------------------------------------
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. Each share of Company Common Stock (other
--------------------
than shares to be canceled in accordance with Section 1.6.2) shall be converted
into the right to receive (i) that number of shares of Parent Common Stock equal
to the Final Per Share Common Stock Amount (as defined in Exhibit 1 attached
hereto), and (ii) cash equal to the Final Per Share Cash Amount (as defined in
Exhibit 1 attached hereto). Each share of Company Common Stock so converted into
the right to receive cash equal to the Final Per Share Cash Amount and shares of
Parent Common Stock equal to the Final Per Share Common Stock Amount
(a "Converted Share") shall, by virtue of the Merger and without any action on
---------------
the part of the holder thereof, at the Effective Time no longer be outstanding
and shall at such time be canceled and retired and shall cease at such time to
exist, and each holder of a certificate which prior to the Effective Time
validly evidenced any such Converted Share (a "Stock Certificate") shall
-----------------
thereafter cease to have any rights with respect to such Converted Share,
except, upon the surrender of the Stock Certificate and a duly executed and
completed letter of transmittal in accordance with Section 1.7, the right to
receive such cash and Parent Common Stock at the times and in the manner set
forth herein.
-3-
<PAGE>
1.7 Exchange of and Payment for Stock.
---------------------------------
1.7.1 Delivery of Company Common Stock and Closing Merger
---------------------------------------------------
Consideration. Prior to the Closing, the Parent will deliver to each
Shareholder a letter of transmittal, in substantially the form attached hereto
as Exhibit 1.7, to be used for the purpose of surrendering to the Parent Stock
Certificates in exchange for the right to receive the Final Per Share Cash
Amount and the Final Per Share Common Stock Amount for each Converted Share
evidenced by such Stock Certificate. All of the Company Common Stock held by
the Shareholders will be surrendered by the Shareholders to the Parent together
with properly completed and executed letters of transmittal (with each such
signature guaranteed by a commercial bank or notarized by a notary public or
similar official reasonably satisfactory to the Parent), and the Parent shall
cause to be delivered to the Shareholders at the Closing the Closing Per Share
Cash Amount (as defined in Exhibit 1 attached hereto) and the Closing Per Share
Common Stock Amount (as defined in Exhibit 1 attached hereto) applicable to each
of the Converted Shares evidenced by the Stock Certificates properly surrendered
(with properly executed and completed letters of transmittal) by each
Shareholder to the Parent.
1.7.2 Assignments. The assignment, transfer or other disposition of
-----------
record or beneficial ownership of any shares of Company Common Stock may not be
made on or after the date hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of the
------------------------------------------
Closing Per Share Cash Amount and the Closing Per Share Common Stock Amount to
the Shareholders with respect to their Converted Shares shall be deemed to be
payment in full satisfaction of all rights pertaining to the outstanding
Converted Shares except for the right to receive additional shares of Parent
Common Stock and cash pursuant to Section 1.9.
1.8 Determination of Closing Merger Consideration.
---------------------------------------------
1.8.1 Delivery of IPO Price to Public; Statement. Within five business
------------------------------------------
days after the Parent and its underwriters agree on the initial price to the
public for a share of Parent Common Stock offered in the IPO, as set forth in an
executed underwriting agreement, the Parent shall deliver to the Shareholders a
written notice (the "Price Notice") setting forth such initial price to the
------------
public and a statement setting forth a calculation of the Closing Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Closing Per
Share Cash Amount, the Closing Per Share Common Stock Amount and the Closing
Merger Consideration (as defined in Exhibit 1 attached hereto), payable to the
Shareholders at Closing (the "Statement of Closing Consideration"). The initial
----------------------------------
price to the public of a share of Parent Common Stock, as set forth in the Price
Notice, and the Closing Outstanding Common Stock Number, the Closing Per Share
Cash Amount, the Closing Per Share Common Stock Amount and the Closing Merger
Consideration, as set forth in the Statement of Closing Consideration, shall be
final, conclusive and binding for purposes of this Agreement.
1.9 Post-Closing Determination of Total Merger Consideration.
--------------------------------------------------------
1.9.1 Statement. No later than 90 days after the Closing, the Parent
---------
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total Merger
Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of Final
------------------
Per Share
- --------
-4-
<PAGE>
Amounts"). For purposes of determining the Statement of Final Per Share Amounts,
- -------
the Final Outstanding Common Stock Number, the Final Per Share Cash Amount, the
Final Per Share Common Stock Amount and the Total Consideration shall be
calculated or determined as of the last day of the month immediately preceding
the Closing Date (unless the Closing Date occurs on the last day of the month in
which case the Closing Date shall be used).
1.9.2 Review. After delivery to the Shareholders of the Statement of
------
Final Per Share Amounts, the Shareholders and their representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number, the Final
--------
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Merger Consideration as shown on the Statement of Final Per Share Amounts shall
be final, conclusive and binding for purposes of this Agreement, unless the
Shareholders shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Per Share
- -------------------
Amounts within 10 business days following receipt of the Statement of Final Per
Share Amounts, specifying in reasonable detail the nature and extent of such
disagreement; provided, however, that no Notice of Dispute may be given with
respect to any items unless such item involves an amount of $25,000 or more. If
a Notice of Dispute is not properly given within such time, the Final
Outstanding Common Stock Number, the Final Per Share Cash Amount, the Final Per
Share Common Stock Amount and the Total Merger Consideration as set forth in the
Statement of Final Per Share Amounts shall be final, conclusive and binding for
purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
---------------------
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholders shall not reach
such resolution within 30 days following receipt by the Parent of a properly
given Notice of Dispute, the dispute shall be referred to KPMG Peat Marwick
("Accountants"), who shall resolve such dispute within 30 days after its
submission to them. The Parent and the Shareholders (if the dispute is resolved
by them or the Statement of Final Per Share Amounts otherwise becomes final
pursuant hereto without referral to the Accountants) or the Accountants (if a
dispute is resolved by them) shall set forth such resolution in writing and such
writing shall (i) set forth the Final Outstanding Common Stock Number, the Final
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Merger Consideration and (ii) be final, conclusive and binding for purposes of
this Agreement.
1.9.5 Final Determination. Within 10 business days following the final
-------------------
determination of the Final Outstanding Common Stock Number, the Final Per Share
Cash Amount, the Final Per Share Common Stock Amount and the Total Merger
Consideration as provided in this Section 1.9, (i) the Parent shall deliver to
each Shareholder (a) the cash amount, if any, by which the aggregate of the
Final Per Share Cash Amounts payable to such Shareholder, as finally determined
pursuant hereto, exceeds the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing; and (b) the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Per Share Common Stock
Amounts deliverable to such Shareholder, as finally determined pursuant hereto,
exceeds the aggregate of the Closing Per Share Common Stock Amounts delivered to
such Shareholder at the Closing; or (ii) each Shareholder shall deliver to the
Parent (a) the cash amount, if any, by which the aggregate of the Closing Per
Share Cash
-5-
<PAGE>
Amounts paid to such Shareholder at the Closing exceeds the aggregate of the
Final Per Share Cash Amounts payable to such Shareholder as finally determined
pursuant hereto; and (b) the number of shares of Parent Common Stock, if any, by
which the aggregate of the Closing Per Share Common Stock Amounts delivered to
such Shareholder at the Closing exceeds the aggregate of the Final Per Share
Common Stock Amounts deliverable to such Shareholder as finally determined
pursuant hereto.
1.9.6 Expenses. The Parent and the Shareholders shall each pay their
--------
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, hereby represent
and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2 Stock Ownership. Each Shareholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibit 2.2 and such shares are so held by the
Shareholder free and clear of all liens, encumbrances and adverse claims
whatsoever.
2.3 Authority. The Shareholder has full right, power, legal capacity and
---------
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Shareholder (each a "Shareholder
-----------
Related Document") and (ii) consummate the transactions contemplated herein and
- ----------------
thereby. This Agreement has been duly executed and delivered by the
Shareholders and constitutes, and each Shareholder Related Document, when duly
executed and delivered by the Shareholders named as parties therein will
constitute, legal, valid and binding obligations of such Shareholders
enforceable against such Shareholders in accordance with their respective terms
and conditions, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
--------
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholders of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by the Shareholders of this Agreement and any Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which any Shareholder is a party
or by which any Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to any Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
any Shareholder.
-6-
<PAGE>
2.5 Access and Due Diligence. The Company and the Shareholders have
------------------------
cooperated fully in permitting the Parent and its representatives to make a full
investigation of the properties, operations and financial conditions of the
Company and have afforded the Parent and its representatives reasonable access
to the offices, buildings, real properties, machinery and equipment, inventory
and supplies, records, files, books of account, tax returns, agreements and
commitments and personnel of the Company.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
------------------------------
warrants to the Shareholders and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. As of the execution date of this
----------------------------
Agreement, the total authorized capital stock of the Parent is as set forth in
the Confidential Information Statement dated August ___, 1997. The outstanding
shares of Parent Common Stock and Preferred Stock, par value $.001 ("Parent
------
Preferred Stock") have been duly and validly issued and are fully paid and non-
- ---------------
assessable.
3.1.3 Authority. The Parent has the requisite power and authority to
---------
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
------------------------
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent will
constitute, legal, valid and binding obligations of the Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4 Consents. Except as provided on Exhibit 3.1.4, no approval,
--------
consent, order or action of or filing with any court, administrative agency,
governmental authority or other third party is required for the execution,
delivery or performance by the Parent of this Agreement or the Parent Related
Documents or the consummation by the Parent of the transactions contemplated
hereby, except for (i) the filing of the Parent's registration statement with
respect to the IPO ("Registration Statement") with the U.S. Securities and
----------------------
Exchange Commission ("SEC") pursuant to the Securities Act and the SEC's
---
declaration of effectiveness of such Registration Statement and the completion
of all necessary filings required under, and the obtaining of all necessary
consents and approvals required pursuant to, state securities or "blue sky" laws
in connection with the IPO, and (ii) the filing of the Plan of Merger with the
Secretary of State of Arkansas.
3.1.5 Defaults. The Parent is not in default under or in violation of,
--------
and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
-7-
<PAGE>
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
is a party or by which the Parent or any of its properties or assets may be
bound or affected or (ii) any law, rule or regulation applicable to the Parent
or any court injunction, order or decree, or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Parent, which default or violation prevents the Parent from consummating the
transactions contemplated hereby or is reasonably likely to have a Parent
Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company" or
------------------
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain financial
--------------------
statements to the Shareholders ("Parent Financial Statements") and such Parent
---------------------------
Financial Statements have been prepared in accordance with GAAP and fairly
present the consolidated financial position, results of operations and cash
flows of the Parent and its then existing consolidated subsidiaries as of the
dates and for the periods indicated, subject to normal year-end adjustments and
any other adjustments described therein or in the notes or schedules thereto.
The books and records of the Parent have been kept in reasonable detail and
accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to be
-----
discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period covered by the Parent
Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and authority
--------------
and has obtained all licenses, permits, qualifications, and other documentation
(including permits required under applicable Environmental Law, as defined in
Exhibit 2) necessary to own and/or operate its businesses, properties and assets
and to carry on its businesses as being conducted on the date of this Agreement,
except such licenses, permits, qualifications or other documentation, the
failure to obtain which is not reasonably likely to result in a Parent Material
Adverse Effect, and such businesses are now being conducted and such assets and
properties are being owned and/or operated in compliance with all applicable
laws (including Environmental Law), ordinances, rules and regulations of any
governmental agency of the United States, any state or political subdivision
thereof, or any foreign jurisdiction, all applicable court or administrative
agency decrees, awards and orders and all such licenses, permits, qualifications
and other documentation, except where the failure to comply will not have a
Parent Material Adverse Effect, and there is no existing condition or state of
facts that would give rise to a violation thereof or a liability or default
thereunder that is reasonably likely to have a Parent Material Adverse Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
------
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
-8-
<PAGE>
3.1.11 Disclosure. No representation or warranty by the Parent in
----------
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholders pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under which
they are or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
------------------------------ ---------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
- --------------
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole, in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification
-----------------------
of the Merger as a reorganization within the meaning of Section 368(a) of the
Code:
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code)
at the time of such transfer, or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer .
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(ii) Following the Merger, the Surviving Corporation will
continue the Company's historic business or use a significant portion of
its historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection
with the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub
will have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vi) Neither the Parent nor Merger Sub is an investment company
as defined in Section 368(a)(2)(F) of the Code.
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<PAGE>
(vii) None of the Parent Common Stock received by the Shareholders
as a part of the Total Merger Consideration will be separate consideration
for, or allocable to, any employment agreement.
(ix) Neither the Parent nor Merger Sub is under the jurisdiction
of a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.2 Representations and Warranties Concerning the Merger Sub.
--------------------------------------------------------
The Parent and Merger Sub, jointly and severally, hereby represent and warrant
to the Shareholders and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
-------------------------
incorporated, validly existing and in good standing under the laws of the State
of Arkansas.
3.2.2 Capital Structure. The authorized capital stock of Merger
-----------------
Sub consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and authority
---------
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by Merger Sub of its obligations hereunder and the consummation
of the transactions contemplated hereby have been duly authorized by its Board
of Directors and the Parent as its sole shareholder, and, except for the
corporate filings required by state law, no other corporate proceedings on the
part of Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity) .
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholders to be Effective Upon Closing. Effective
-----------------------------------------------------------
upon Closing, and without further action on the part of any party or other
person, the Shareholders covenant and agree as follows:
4.1.1 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is two years following any termination of such
Shareholder's employment with the Company, such Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or
-10-
<PAGE>
indirectly, individually, as a member of a partnership or limited liability
company, equity owner, shareholder (other than as a shareholder of less
than one percent of the issued and outstanding stock of a publicly-held
company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant engage
in any business that involves indoor air quality, heating, ventilation, air
conditioning, appliance, mechanical construction, plumbing, electrical
contracting or sewer cleaning products or services within a 100 mile radius
of the cities of Little Rock, Arkansas and Fayetteville, Arkansas;
provided, however that Harry Langley and his affiliates, Arkansas
Mechanical Contractors, Inc., d/b/a Hillcrest Plumbing and Heating ("AMC"),
may continue to engage in the mechanical contracting and plumbing service
businesses so long as (a) neither Mr. Langley nor any of his affiliates
market heating, ventilation or air conditioning maintenance and/or repair
services of the nature marketed by the Parent or any of its affiliates
within a 100 miles radius of the cities of Little Rock, Arkansas, and
Fayetteville, Arkansas, and Mr. Langley and his affiliates refer any such
marketing opportunities to the Parent and its affiliates, and (b) Mr.
Langley and his affiliates do not solicit or bid on any commercial
mechanical construction project if the Parent or any of its affiliates have
intend to bid on such project and so notify Langley or AMC within thirty
(30) days after its receipt of the solicitation for bids, unless Langley or
AMC have an existing or long-term relationship with the owner of such
project.
(ii) Each Shareholder agrees that the limitations set forth
herein on such Shareholder's rights to compete with the Parent and its
affiliates as set forth in clause (i) are reasonable and necessary for the
protection of Parent and its affiliates. In this regard, each Shareholder
specifically agrees that the limitations as to period of time and
geographic area, as well as all other restrictions on such Shareholder's
activities specified herein, are reasonable and necessary for the
protection of the Parent and its affiliates. Each Shareholder agrees that,
in the event that the provisions of this Section should ever be deemed to
exceed the scope of business, time or geographic limitations permitted by
applicable law, such provisions shall be and are hereby reformed to the
maximum scope of business, time or geographic limitations permitted by
applicable law.
(iii) Each Shareholder agrees that the remedy at law for any
breach by such Shareholder of this Section 4.1.1 will be inadequate and
that the Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, each
-------
Shareholder does hereby (i) release, acquit and forever discharge the Surviving
Corporation from any and all liabilities, obligations, claims, demands, actions
or causes of action arising from or relating to any event, occurrence, act,
omission or condition occurring or existing on or prior to the Effective Time,
including, without limitation, any claim for indemnity or contribution from the
Surviving Corporation in connection with the obligations or liabilities of such
Shareholder hereunder, except for salary and benefits payable to such
Shareholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Effective Time, and (iii) waive any and all preemptive or other rights to
acquire any shares of capital stock of the Company and release any and all
claims arising in connection with any prior default, violation or failure to
comply with or satisfy any such preemptive or other rights.
4.2 Elimination of Expense. Prior to the Closing, the Shareholders
----------------------
will produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described in Attachment A,
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<PAGE>
Part 2, of the Letter of Intent between the Parent and the Shareholders dated
May 30, 1997 have been eliminated.
4.3 Audit. Prior to Closing, the Accountants shall complete an
-----
audit of the Company for the fiscal year ended December 31, 1996 and for the
period from such date through June 30, 1997 and such additional audit and/or
review work as may be requested by the Parent through and including the Closing
Date and provide its report to the Parent and the Shareholders.
4.4 Certain Payables and Receivables. On or prior to Closing, the
--------------------------------
Shareholders shall pay in full in cash all accounts receivable, notes receivable
and advances payable by any Shareholder to the Company and the Company shall pay
in full in cash all accounts payable, notes payable and advances payable (except
any Tax Note (as defined) which shall be paid according to their terms) by the
Company to any Shareholder.
4.5 Purchase of Certain Receivables. If any accounts receivable
-------------------------------
included in current assets of the Company for purposes of determining Working
Capital (as defined in Exhibit 1) remain unpaid in full for 60 days or more
after the Closing, the Shareholders shall, upon written request by the Surviving
Corporation made within 90 days after the Closing, purchase the same from the
Surviving Corporation, without recourse, for the uncollected amount thereof.
4.6 Pre-Closing Covenants and Agreements. The Shareholders and the
------------------------------------
Company jointly and severally agree as set forth in Exhibit 4.6 attached
hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the
---------------
Parent, Merger Sub, the Company or any Shareholder will disclose the terms of
this Agreement or the Merger to any person other than their respective
directors, officers, agents or representatives, except as otherwise provided
herein or unless required by law. The Company may make appropriate disclosures
of the general nature of the Merger to its employees, vendors and customers to
protect the Company's goodwill and to facilitate the Closing. The Parent and
Merger Sub may disclose pertinent information regarding the Merger to its
existing and prospective investors, lenders, or investment bankers or financial
advisors for the purpose of obtaining financing, including, without limitation,
financing related to the IPO or other offerings of its securities, and may
describe this Agreement and the transactions contemplated hereby in any
registration statement filed by the Parent under the Securities Act and in
reports filed by the Parent under the Securities Exchange Act of 1934, and may
file this Agreement as an exhibit to any thereof. The Parent may also make
appropriate disclosures of the general nature of the Merger and the identity,
nature and scope of the Company's operations to prospective acquisition
candidates in connection with the Parent's efforts to effect additional
acquisitions. Each party will have mutual approval rights with respect to
written employee presentations concerning the prospective merger.
4.8 Tax-Free Reorganization. Unless the other parties shall
----------------------
otherwise agree in writing, none of the Shareholders, the Parent, Merger Sub,
the Company or the Surviving Corporation shall knowingly take or fail to take
any action, that would jeopardize the qualification of the Merger as a
reorganization withing the meaning of Section 368(a) of the Code.
4.9 Company Plans. Except as otherwise contemplated by this
-------------
Agreement, the Company Plans (as defined in Exhibit 2) described on Exhibit 4.9
in effect at the date of this Agreement will remain in effect unless otherwise
determined by the Parent after the Effective Time.
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<PAGE>
4.10 Income Tax Distribution. Prior to the Closing, the Shareholders
-----------------------
may cause the Company to pay to the Shareholders as a dividend and as a
distribution of accumulated S Corporation earnings of all tax periods through
the Effective Time a cash amount, which may be reasonably estimated, equal to
the net taxable income of the Company as determined for Federal income tax
purposes for the Company as an S Corporation less any prior distributions made
by the Company to the Shareholders with respect to such earnings ("Cash Tax
Distribution"). In the event that there is insufficient cash of the Company to
make the Cash Tax Distribution either in whole or in part, the Company may issue
short term notes payable to the Shareholders in amounts equal to the amount of
the Cash Tax Distribution less the amount of cash actually distributed to the
Shareholders as part of the Cash Tax Distribution ("Tax Notes") in the form of
Exhibit 4.10. The Tax Notes, if issued, shall (i) be issued prior to the
Effective Time, (ii) bear interest at a rate not to exceed six percent (6%) per
annum, (iii) provide that the principal and all accrued interest shall be due
and payable six (6) months after the date of the Tax Notes, and (iv) impose no
prepayment penalty. Notwithstanding the actual due date of such notes, the Tax
Notes shall be treated as Long Term Debt for purposes of the determination of
the Total Consideration in Exhibit 1 hereto. All cash payments of the Cash Tax
Distribution and all amounts of any Tax Notes shall be taken into account in
calculating the Closing Merger Consideration regardless of whether such payments
were made, or any Tax Notes were issued, after the Measurement Month Date used
for purposes of such calculation (through a reduction of Working Capital or
increase in Long Term Debt, as applicable).
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
--------------------------------------------------------------------
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Shareholders and the Company contained in
this Agreement, in Exhibit 2 and the Disclosure Schedule referred to therein and
the other Exhibits provided by the Shareholders or the Company pursuant to this
Agreement or in any closing certificate or document delivered to the Parent
pursuant hereto shall be true and correct at and as of the Closing Date as
though made at and as of that time other than such representations and
warranties as are specifically made as of another date, and the Shareholders and
the Company shall each have delivered to the Parent and Merger Sub a certificate
to that effect.
5.1.2 Performance of Covenants. The Shareholders and the Company
------------------------
shall have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholders and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or against
the Parent or Merger Sub arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (i) to restrain, prohibit
or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholders and the
Company shall each have delivered to the Parent and Merger Sub a certificate to
that effect.
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<PAGE>
5.1.4 Approvals. The Company and the Shareholders shall have
---------
procured all of the consents, approvals and waivers of third parties or any
regulatory body or authority, whether required contractually or by applicable
law or otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholder prior to the Closing Date, and the
Shareholders and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
-------------------
delivered at Closing by the Shareholders pursuant to Section 5.3 of this shall
have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage
---------------------------
shall have occurred on or prior to the Effective Time to any of the properties
or assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such
-------------
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there
--------------------------
shall not have been any event that in the reasonable judgment of the Parent
adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
---
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
-------------------------
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.1.11 Financing. The Parent shall have obtained financing on
---------
terms and in amounts reasonably acceptable to it, to finance the payment of the
cash portion of the aggregate of the Final Per Share Cash Amounts and the
ongoing financing needs of the Surviving Corporation, and such financing shall
be available.
5.1.12 Closing of AMS Merger. The Parent shall have been satisfied
---------------------
that the closing under that certain Agreement and Plan of Merger of even date
herewith among the Parent, AMS Acquisition Corp., Arkansas Mechanical Services,
Inc. and the shareholders of Arkansas Mechanical Services, Inc. (the "AMS Merger
----------
Agreement") has occurred or will occur contemporaneously with or immediately
- ---------
after the Effective Time.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
-------------------------------------------------------------------
Company. The obligations of the Shareholders and the Company under this
- -------
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholders and the Company in writing to the extent
permitted by applicable law:
5.2.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered
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<PAGE>
to the Shareholders or the Company pursuant hereto shall be true and correct on
and as of the Closing Date as though made at and as of that date other than such
representations and warranties as are specifically made as of another date, and
the Parent and Merger Sub shall have delivered to the Shareholders and the
Company a certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall
------------------------
have performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date and the Parent and
Merger Sub shall have delivered to the Shareholders and the Company a
certificate to such effect.
5.2.3 Approvals. The Parent shall have procured all of the
---------
consents, approvals and waivers specified in Exhibit 3.1.4 prior to the Closing
Date, and the Parent shall have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed
------------------
or delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered .
5.2.5 Closing of AMS Merger. The Shareholders shall have been
---------------------
satisfied that the closing under the AMS Merger Agreement has occurred or will
occur contemporaneously with or immediately after the Effective Time.
5.3 Deliveries by the Shareholders at the Closing. At the Closing,
---------------------------------------------
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders and
the Company pursuant to any other transaction document at the Closing, the
Shareholders shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders and the Company
--------------------
shall deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3
and 5.1.4.
5.3.2 Stock Transfer Restriction Agreement. The Shareholders
------------------------------------
shall execute and deliver a Stock Transfer Restriction Agreement on the Closing
Date, effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.2.
5.3.3 Employment Agreements. The persons listed on Exhibit 5.3.3
---------------------
shall execute and deliver an Employment Agreement with the Company on the
Closing Date, effective as of the Effective Time, substantially in the form set
forth in Exhibit 5.3.3A.
5.3.4 Lease Agreement. The Shareholders shall cause the owner of
---------------
the property located at 521 W. Ash, Fayetteville, Arkansas 72354 to execute and
deliver a lease agreement with the Company substantially in the form attached as
Exhibit 5.3.4.
5.3.5 Registration Rights Agreement. The Shareholders shall
-----------------------------
execute and deliver a Registration Rights Agreement at the Closing, effective as
of the Effective Time, substantially in the form set forth in Exhibit 5.3.5
attached hereto.
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<PAGE>
5.3.6 Opinion of Counsel for the Shareholders and the Company. The
-------------------------------------------------------
Shareholders shall deliver the favorable opinion of Thurman, Lawrence & Heurer,
counsel to the Shareholders and the Company, dated the Effective Time,
substantially in the form and to the effect set forth in Exhibit 5.3.6 attached
hereto.
5.3.7 Documents, Stock Certificates. The Shareholders shall
-----------------------------
execute and deliver, and shall cause the Company to execute and deliver, the
documents, certificates, opinions, instruments and agreements required to be
executed and delivered by the Company or its officers or directors or the
Shareholders at the Closing as contemplated hereby or as may be reasonably
requested by the Parent and shall deliver or cause to be delivered the documents
and evidence required under Section 4. Stock Certificates representing all of
the outstanding Company Common Stock and properly executed and completed letters
of transmittal shall be delivered by the Shareholders to the Parent.
5.3.8 Discharge of Indebtedness, Releases, Etc. The indebtedness
----------------------------------------
of the Company referred to in Exhibit 5.3.8 attached hereto ("Terminated
----------
Obligations") shall be paid in full or refinanced on terms acceptable to the
- -----------
Parent, and the Shareholders shall cause all holders of any such Terminated
Obligations to deliver to the Parent, in form reasonably satisfactory to the
Parent and the lenders to the Parent or Merger Sub, such customary releases,
termination statements, consents, approvals or other documents or instruments
required, in the judgment of the Parent, to release and terminate all liens,
security interests, claims, or rights of such holders against the Surviving
Corporation or the Parent or any of their respective assets in connection
therewith.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholders hereunder for any breach of warranty, covenant or
agreement by the Company or the Shareholders herein irrespective of any
knowledge of or investigation made by or on behalf of the Parent or Merger Sub;
provided, however, that if the Company shall disclose in writing to the Parent
prior to the Closing Date a specified breach of a specifically identified
representation, warranty, covenant or agreement of the Company or any
Shareholder herein by the Company or any Shareholder, and requests a waiver
thereof by the Parent, and the Parent shall waive any such specifically
identified breach in writing prior to the Closing Date, the Parent and the
Surviving Corporation, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Shareholders shall have no liability with
respect to, any such specifically identified breach, to the extent so identified
by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
---------------------------------------
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall
--------------------
deliver the certificates required pursuant to Sections 5.2.1, 5.2.2 and 5.2.3.
5.4.2 Registration Rights Agreement. The Parent shall execute and
-----------------------------
deliver to the Shareholders a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
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<PAGE>
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The Parent
------------------------------------------------
shall deliver the favorable opinion of its legal counsel dated the Effective
Time, substantially in the form and to the effect set forth in Exhibit 5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver the
----------------------------
Closing Merger Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of any Shareholder; provided, however, that if the Parent shall disclose in
writing to the Shareholders prior to the Closing a specified breach of a
specifically identified representation, warranty, covenant or agreement of the
Parent or Merger Sub contained herein by the Parent or Merger Sub, and requests
a waiver thereof by the Company and the Shareholders, and the Company and the
Shareholders shall waive any such specifically identified breach in writing
prior to the Closing, the Company and the Shareholders shall be deemed to have
waived their rights and remedies hereunder for, and the Parent and Merger Sub
shall have no liability or obligation to the Shareholders or the Company with
respect to, any such specifically identified breach, to the extent so identified
by the Parent and waived by the Company and the Shareholders.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2 shall survive for a period of
36 months after the Closing Date and the representations and warranties of the
Shareholders and the Company contained in Sections 2.2, 2.3, 2.4 and in Sections
2 and 3 of Exhibit 2 shall survive for the maximum period permitted by
applicable law. The representations and warranties of the Parent herein and in
the Parent Related Documents, other than those in Sections 3.1.3 and 3.1.4,
shall survive for a period of 36 months after the Closing Date and the
representations and warranties of the Parent contained in Sections 3.1.3 and
3.1.4 shall survive for the maximum period permitted by applicable law. The
periods of survival of the representations and warranties as stated above in
this Section 6.1 are referred to herein as the "Survival Period." The
---------------
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable Survival Period and no claim
for indemnification may be made with respect to any breach of any representation
or warranty, the applicable Survival Period of which shall have expired, except
to the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration. The covenants and agreements of the parties herein (including but
not limited to Exhibit 4.6) and in other documents and instruments executed and
delivered in connection with the closing of the transactions contemplated hereby
shall survive for the maximum period permitted by law.
6.2 Indemnification.
---------------
6.2.1 Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 6.1 and 6.3 hereof, the Shareholders shall indemnify, save and hold
harmless the Parent, the Surviving Corporation, Merger Sub
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and any of their assignees (including lenders) and all of their respective
officers, directors, employees, representatives, agents, advisors and
consultants and all of their respective heirs, legal representatives, successors
and assigns (collectively the "Parent Indemnified Parties") from and against any
--------------------------
and all damages, liabilities, losses, loss of value (including the value of
adverse effects on cash flow or earnings), claims, deficiencies, penalties,
interest, expenses, fines, assessments, charges and costs, including reasonable
attorneys' fees and court costs (collectively "Losses") arising from, out of or
------
in any manner connected with or based on:
(i) the breach of any covenant of the Shareholders or the Company
or the failure by the Shareholders or the Company to perform any obligation
of the Shareholders or the Company contained herein or in any Company
Related Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty
of the Shareholders contained herein or in any Shareholder Related
Document;
(ii) any inaccuracy in or breach of any representation or warranty
of the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed with
reasonable specificity in the Disclosure Schedule or (b) disclosed in the
Company Financial Statements (as defined in Exhibit 2) or in working
capital or long term debt (in each case as determined for purposes of
calculating the Total Merger Consideration).
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1
----------------
and 6.3, the Parent shall indemnify, save and hold harmless the Shareholders and
the Shareholders' heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty
of the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from any Shareholder's
acts or omissions after the
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Effective Time as an officer, director and/or employee of the Parent, the
Surviving Corporation and/or any other affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The aggregate liability of the Shareholders under
-----------
Section 6.2.1 (ii) or (iii) shall not exceed the cash amount equal to the Total
Merger Consideration, with the Parent Common Stock being valued at the IPO Price
to the Public for such purpose. The aggregate liability of the Parent under
Section 6.2.2 (ii) shall not exceed the cash amount equal to the Total Merger
Consideration, with the Parent Common Stock being valued at the IPO Price to the
Public for such purpose.
6.4 Procedures for Indemnification.
------------------------------
6.4.1 Notice. The party (the "Indemnified Party") that may be
------ -----------------
entitled to indemnity hereunder shall give prompt notice to any party obligated
to give indemnity hereunder (the "Indemnifying Party") of the assertion of any
------------------
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 6.4.1 shall relieve the
Indemnifying Party of its obligations under this Article 6 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice (except that the Indemnifying Party shall not be liable for any
expenses incurred by the Indemnified Party during the period in which the
Indemnified Party failed to give such notice). Thereafter, the Indemnified Party
shall deliver to the Indemnifying Party, promptly (and in any event within 10
days thereof) after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to
-------------
assume the defense or settlement of any third-party claim, suit, action or
proceeding in respect of which indemnity may be sought hereunder, provided that
(i) the Shareholders shall at all times have the right, at their option, to
participate fully therein, and (ii) if the Parent does not proceed diligently to
defend the third-party claim, suit, action or proceeding within 10 days after
receipt of notice of such third-party claim, suit, action or proceeding, the
Shareholders shall have the right, but not the obligation, to undertake the
defense of any such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
----------
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
-----------------
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the
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<PAGE>
Indemnifying Party shall not be liable for Losses arising from such third-party
suit, action, proceeding or investigation in excess of the amount proposed in
such settlement offer. Notwithstanding the foregoing, no Indemnifying Party will
consent to the entry of any judgment or enter into any settlement without the
consent of the Indemnified Party, if such judgment or settlement imposes any
obligation or liability upon the Indemnified Party other than the execution,
delivery or approval thereof and customary releases of claims with respect to
the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any
-----------
such third-party suit, action, proceeding or investigation, and the defending
party shall have reasonable access to the books and records, and personnel in
the possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself,
-----------
himself or herself and such Indemnifying Party's affiliates (as defined in
Exhibit 2) any rights to subrogation against any Indemnified Party or such
Indemnified Party's insurers for Losses arising from any third-party claims for
which the Indemnifying Party is liable or against which the Indemnifying Party
indemnifies any Indemnified Party and, if necessary, each Indemnifying Party
shall obtain waivers of such subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and
--------------
the Parent; or
7.1.2 Optional By the Company. By the Company by written notice to
-----------------------
the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of their
respective obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to
----------------------
the Company, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Parent nor Merger Sub
has breached this Agreement or has failed to perform any of its obligations
under this Agreement;
7.1.4 Breach By the Parent or Merger Sub. By the Company, by
----------------------------------
written notice to the Parent, if either the Parent or Merger Sub has breached
this Agreement or failed to perform any of its obligations under this Agreement;
or
7.1.5 Breach by the Company or any Shareholder. By the Parent, by
----------------------------------------
written notice to the Company, if the Company or any Shareholder has breached
this Agreement or has failed to perform any of their respective obligations
under this Agreement.
-20-
<PAGE>
7.2 Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement. If this Agreement is terminated under Section 7.1.4 and the Company
and the Shareholders have not breached this Agreement or failed to perform any
of their obligations under this Agreement, and all of the representations and
warranties made by them herein are true and correct in all material respects,
the Parent shall pay the costs of the Accountants referred to in Section 8.20.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Company (prior to the Effective Time) or the Shareholders:
Mechanical Services, Inc.
P. O. Box 548
N. Little Rock, Arkansas 72115
Attention: President
Telecopy: (501) 945-4090
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from
-----------------
time to time after the date hereof, upon request by the Parent and without
further consideration, execute and deliver such instruments or other documents
and take such further action as may be reasonably required in order to perfect
any other undertaking made by the Shareholders hereunder.
8.3 Assignability. The Shareholders shall not assign this Agreement
-------------
in whole or in part without the prior written consent of the Parent, except by
the operation of law. The Parent may assign its rights under
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<PAGE>
this Agreement, the Company Related Documents and the Shareholder Related
Documents without the consent of any Shareholder or the Company. After the
Effective Time, the Surviving Corporation may assign its rights under this
Agreement, the Company Related Documents and the Shareholder Related Documents
without the consent of any Shareholder .
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
-----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full
----------------
understanding of the parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of their agreement
relating to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement, no
conditions, usage of trade, course of dealing or performance, understanding or
agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF
---------------
THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT
THE APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder
--------------------
shall make any press release, public announcement, or public confirmation or
disclose any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6,
----------------------------
no person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the
----------------------
Parent, Merger Sub and the Company, by action taken by their Boards of Directors
to the extent permitted by applicable law; provided, however, that no such
amendment shall (i) alter or change any provision of this Agreement, the
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<PAGE>
alteration or change of which must be adopted by the holders of capital stock of
the Company under the certificate or articles of incorporation of the Company or
the Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless
each such alteration or change is adopted by the holders of shares of capital
stock of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent, Merger Sub, the Company and the
Shareholders. After the Effective Time, all amendments to this Agreement must be
by an instrument in writing signed on behalf of the Parent and the Shareholders.
Any term or provision of this Agreement (other than the requirements for
shareholder approvals) may be waived in writing at any time by the party which
is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall
------------------
confer upon any employee of the Company, any other employee or legal
representatives or beneficiaries of any thereof any rights or remedies,
including any right to employment or continued employment for any specified
period, of any nature or kind whatsoever under or by reason of this Agreement,
or shall cause the employment status of any employee to be other than terminable
at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon
--------------
the execution and delivery of one or more counterparts of this Agreement by each
of the Parent, Merger Sub, the Company and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control
-----------------
share acquisition" or other form of anti-takeover statute or regulation shall
become applicable to the transactions contemplated hereby, the Parent and the
Company and their respective members of their Boards of Directors shall grant
such approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number
--------------------------
is used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to
------------------
be illegal, invalid, or unenforceable under present or future laws, such
provisions shall be fully severable as if such invalid or unenforceable
provisions had never comprised a part of the Agreement; and the remaining
provisions of the Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal,
-23-
<PAGE>
invalid or unenforceable provision, there shall be automatically as a part of
this Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number
---------------------
of identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any business broker, legal counsel, accountants or other advisors engaged by the
Shareholders and shall pay the accounting and auditing fees and expenses of the
Accountants for their work required to consummate the transaction provided
herein (to the extent, and only to the extent, that any such payments will not
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code); provided further, that all fees, costs
and expenses incurred or payable by the Company in connection with the
negotiation and closing of this Agreement and the transactions contemplated
hereby shall be included in current liabilities for purposes of determining
Working Capital; and provided further, that the Parent will pay such fees and
expenses of the Accountants under the circumstances described in Section 7.2.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:___________________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
AMS ACQUISITION CORP.
By:__________________________________________
President
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<PAGE>
SHAREHOLDERS:
_____________________________________________
Name: Harry Langley
_____________________________________________
Name: Arthur Erwin
_____________________________________________
Name: Bill Pryor
_____________________________________________
Name: Jim McClendon
COMPANY:
MECHANICAL SERVICES, INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
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<PAGE>
EXHIBIT 10.23
AGREEMENT AND PLAN OF EXCHANGE
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.,
PAUL E. SMITH CO., INC.,
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
PAUL E. SMITH CO., INC.
AUGUST 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. THE CLOSING....................................................................................... 1
1.1 Closing................................................................................... 1
1.2 Exchange of and Payment for Stock......................................................... 1
1.2.1 Delivery of Company Common Stock and Closing Exchange Consideration................ 1
1.2.2 Assignments........................................................................ 2
1.2.3 Payment In Full Satisfaction of All Rights......................................... 2
1.3 Determination of Closing Exchange Consideration........................................... 2
1.3.1 Delivery of IPO Price to Public; Statement......................................... 2
1.4 Post-Closing Determination of Final Exchange Consideration................................ 3
1.4.1 Determination of the Final Per Share Common Stock Amount and the Final Exchange
Consideration...................................................................... 3
1.4.2 Statement.......................................................................... 4
1.4.3 Review............................................................................. 4
1.4.4 Disputes........................................................................... 4
1.4.5 Resolution by Parties.............................................................. 5
1.4.6 Final Determination................................................................ 5
1.4.7 Expenses........................................................................... 5
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS................................................ 5
2.1 Exhibit.................................................................................. 5
2.2 Stock Ownership.......................................................................... 6
2.3 Authority................................................................................ 6
2.4 Consents................................................................................. 6
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT...................................................... 6
3.1 Representations and Warranties........................................................... 6
3.1.1 Organization...................................................................... 6
3.1.2 Capitalization of the Parent...................................................... 6
3.1.3 Authority......................................................................... 7
3.1.4 Consents.......................................................................... 7
3.1.5 Defaults.......................................................................... 7
3.1.6 Investment Company................................................................ 7
3.1.7 Financial Statements.............................................................. 7
3.1.8 Taxes............................................................................. 8
3.1.9 Full Authority.................................................................... 8
3.1.10 Access............................................................................ 8
3.1.11 Disclosure........................................................................ 8
3.1.12 Parent Material Adverse Effect.................................................... 8
3.1.13 Tax-Free Reorganization........................................................... 8
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS............................................. 10
4.1 Agreements of Shareholders to be Effective Upon Closing...................................... 10
4.1.1 Covenant Not to Compete............................................................... 10
4.1.2 Release............................................................................... 10
4.2 Elimination of Expense....................................................................... 11
4.3 Note Repayments.............................................................................. 11
4.4 Shareholder Indebtedness and Receivables..................................................... 11
4.5 Audit........................................................................................ 11
4.6 Pre-Closing Covenants and Agreements......................................................... 11
4.7 Salary Continuation Agreements............................................................... 11
4.8 Assignment of Accounts Receivable............................................................ 11
4.9 Company Plans................................................................................ 12
4.10 Confidentiality.............................................................................. 12
4.11 Tax-Free Reorganization...................................................................... 12
4.12 Company Stock Options........................................................................ 12
4.12.1 No Change in Terms................................................................... 12
4.12.2 Exercise for Parent Common Stock..................................................... 12
4.12.3 Exercise Price....................................................................... 13
4.13 Property Lease with Four Square Company...................................................... 13
4.14 Income Tax Distribution...................................................................... 13
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES.......................................................... 14
5.1 Conditions Precedent to the Obligations of the Parent........................................ 14
5.1.1 Accuracy of Representations and Warranties............................................ 14
5.1.2 Performance of Covenants.............................................................. 14
5.1.3 Legal Actions or Proceedings.......................................................... 14
5.1.4 Approvals............................................................................. 14
5.1.5 Closing Deliveries.................................................................... 14
5.1.6 No Casualty, Loss or Damage........................................................... 15
5.1.7 Licenses, etc......................................................................... 15
5.1.8 No Material Adverse Change............................................................ 15
5.1.9 IPO................................................................................... 15
5.1.10 Certain Corporate Actions............................................................. 15
5.1.11 Financing............................................................................. 15
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company.................. 15
5.2.1 Accuracy of Representations and Warranties............................................ 15
5.2.2 Performance of Covenants.............................................................. 15
5.2.3 Approvals............................................................................. 15
5.2.4 Closing Deliveries.................................................................... 15
5.3 Deliveries by the Shareholders at the Closing................................................ 16
5.3.1 Closing Certificates.................................................................. 16
5.3.2 Stock Transfer Restriction Agreement.................................................. 16
5.3.3 Employment Agreement.................................................................. 16
5.3.4 Registration Rights Agreement......................................................... 16
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
5.3.5 Opinion of Counsel for the Shareholders and the Company............................... 16
5.3.6 Documents, Stock Certificates......................................................... 16
5.3.7 Discharge of Indebtedness, Releases, Etc.............................................. 16
5.4 Deliveries by the Parent at the Closing...................................................... 17
5.4.1 Closing Certificates.................................................................. 17
5.4.2 Registration Rights Agreement......................................................... 17
5.4.3 Opinion of Counsel for the Parent..................................................... 17
5.4.4 Closing Exchange Consideration........................................................ 17
6. SURVIVAL, INDEMNIFICATIONS........................................................................ 18
6.1 Survival..................................................................................... 18
6.2 Indemnification.............................................................................. 18
6.2.1 Parent Indemnified Parties............................................................ 18
6.2.2 Minimum Losses........................................................................ 19
6.2.3 Parent Indemnity...................................................................... 19
6.3 Limitations.................................................................................. 20
6.4 Procedures for Indemnification............................................................... 20
6.4.1 Notice................................................................................ 20
6.4.2 Legal Defense......................................................................... 20
6.4.3 Settlement............................................................................ 20
6.4.4 Cooperation........................................................................... 21
6.5 Subrogation.................................................................................. 21
7. TERMINATION....................................................................................... 21
7.1 Grounds for Termination...................................................................... 21
7.1.1 Mutual Consent........................................................................ 21
7.1.2 Optional By the Company............................................................... 21
7.1.3 Optional By the Parent................................................................ 21
7.1.4 Breach By the Parent.................................................................. 21
7.1.5 Breach by the Shareholders............................................................ 22
7.2 Effect of Termination........................................................................ 22
8. MISCELLANEOUS..................................................................................... 22
8.1 Notice....................................................................................... 22
8.2 Further Documents............................................................................ 22
8.3 Assignability................................................................................ 23
8.4 Exhibits and Schedules....................................................................... 23
8.5 Sections and Articles........................................................................ 23
8.6 Entire Agreement............................................................................. 23
8.7 Headings..................................................................................... 23
8.8 CONTROLLING LAW.............................................................................. 23
8.9 Public Announcements......................................................................... 23
8.10 No Third Party Beneficiaries................................................................. 24
8.11 Amendments and Waivers....................................................................... 24
8.12 No Employee Rights........................................................................... 24
8.13 Non-Recourse................................................................................. 24
</TABLE>
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<TABLE>
<C> <S> <C>
8.14 When Effective............................................................................... 24
8.15 Takeover Statutes............................................................................ 24
8.16 Number and Gender of Words................................................................... 24
8.17 Invalid Provisions........................................................................... 24
8.18 Multiple Counterparts........................................................................ 25
8.19 No Rule of Construction...................................................................... 25
8.20 Expenses..................................................................................... 25
Exhibit 1.2 Letter of Transmittal to Shareholders
Exhibit 1.2.2A Company Stock Options
Exhibit 1.2.2B Option Agreements
Exhibit 2 Disclosure Statements
Exhibit 2.2 Stock Ownership
Exhibit 3.1.4 Consents
Exhibit 4.2 Elimination of Expenses of the Company
Exhibit 4.6 Pre-Closing Covenants and Agreements
Exhibit 4.1.3A Office & Warehouse Lease with Four Square Company
Exhibit 4.1.3B Replacement Lease Agreement between Four Square and the Company
Exhibit 4.1.4 Promissory Note for Sub. S Distribution
Exhibit 5.3.2 Stock Transfer Restriction Agreement
Exhibit 5.3.3 Employees of the Company
Exhibit 5.3.3A Employment Agreement
Exhibit 5.3.3B Employment Agreement
Exhibit 5.3.4 Registration Rights Agreement
Exhibit 5.3.5 Opinion of Counsel for the Shareholders and the Company
Exhibit 5.3.7 Terminated Obligations
Exhibit 5.4.3 Opinion of Counsel for the Parent
</TABLE>
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AGREEMENT AND PLAN OF EXCHANGE
------------------------------
This AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") made effective as of
August __, 1997, by and among GROUP MAINTENANCE AMERICA CORP., a Texas
corporation (the "Parent"), AND THE UNDERSIGNED HOLDERS (the "Shareholders") OF
ALL OF THE OUTSTANDING CAPITAL STOCK OF PAUL E. SMITH CO., INC., an Indiana
corporation (the "Company").
WHEREAS, Parent and the Shareholders desire to provide for the transfer by
the Shareholders to Parent of the outstanding shares of capital stock of the
Company in exchange for common stock of Parent (the "Exchange");
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1 Closing. The closing ("Closing") will take place at 10:00 a.m. at the
offices of Chamberlain, Hrdlicka, White, Williams & Martin in Houston, Texas on
the closing date of the Parent's IPO (as defined below), but in no event later
than December 31, 1997 ("Closing Date"); provided that each of the conditions
precedent to the obligations of the parties to effect the Exchange are then
satisfied or waived by the applicable party. The parties may agree in writing
on another date, time or place for the Closing. At the Closing, the parties
will deliver or cause to be delivered the documents described in Sections 5.3
and 5.4 below. The term "IPO" means any underwritten public offering of Parent
Common Stock resulting in net cash proceeds to the Parent of at least
$20,000,000 (other than any offering pursuant to any registration statement (i)
relating to any capital stock of Parent or options, warrants or other rights to
acquire any such capital stock issued or to be issued primarily to directors,
officers or employees of the Parent or any of its subsidiaries, (ii) relating to
any employee benefit plan or interest therein, (iii) relating principally to any
preferred stock or debt securities of the Parent, or (iv) filed pursuant to Rule
145 under the Securities Act of 1933, as amended ("Securities Act"), or any
successor or similar provision).
1.2 Exchange of and Payment for Stock.
1.2.1 Delivery of Company Common Stock and Closing Exchange
Consideration. Prior to the Closing, the Parent will deliver to each of the
Shareholders a letter of transmittal, in substantially the form attached hereto
as Exhibit 1.2, to be used for the purpose of surrendering to Parent
certificates (the "Stock Certificates") representing all outstanding shares of
common stock, no par value, of the Company ("Company Common Stock") in exchange
for the right to receive the Exchange Consideration (as defined below). All of
the Company Common Stock held by each Shareholder will be surrendered by such
Shareholder to the Parent together with properly completed
<PAGE>
and executed letters of transmittal (with each such signature guaranteed by a
commercial bank or notarized by a notary public or similar official reasonably
satisfactory to the Parent), and the Parent shall cause to be delivered to such
Shareholder at the Closing the Closing Exchange Consideration (as determined in
accordance with Section 1.3 hereto) applicable to the Company Common Stock
evidenced by the Stock Certificates properly surrendered (with properly executed
and completed letters of transmittal) by such Shareholder to the Parent.
1.2.2 Assignments. Except for the granting of certain options to
employees of the Company described on Exhibit 1.2.2A (the "Company Stock
Options"), pursuant to a stock option agreement in the form attached as Exhibit
1.2.2B (collectively, the "Option Agreements") and the exercise by the holder or
the assumption of certain obligations under the Option Agreement by Parent as
permitted by Section 4.12, the assignment, transfer or other disposition of
record or beneficial ownership of any shares of Company Common Stock may not be
made on or after the date hereof. Other than the Company Stock Options, the
Company shall not grant any other options to any person.
1.2.3 Payment In Full Satisfaction of All Rights. The delivery of the
Closing Exchange Consideration to the Shareholders with respect to their shares
shall be deemed to be payment in full satisfaction of all rights pertaining to
the outstanding shares except for the right to receive additional shares of
Parent Common Stock pursuant to Section 1.4.
1.3 Determination of Closing Exchange Consideration.
1.3.1 Delivery of IPO Price to Public; Statement. Within three
business days after the Parent and its underwriters agree on the initial price
to the public for a share of Parent Common Stock offered in the IPO, as set
forth in an executed underwriting agreement (the "IPO Price"), the Parent shall
deliver to the Shareholders a written notice (the "Price Notice") setting forth
the IPO Price and a statement setting forth a calculation, reviewed by KPMG Peat
Marwick LLP, of the Closing Outstanding Common Stock Number (as defined below),
and the Closing Exchange Consideration (as defined below) payable to the
Shareholders at Closing (the "Statement of Closing Consideration"). The IPO
Price, as set forth in the Price Notice, and the Closing Exchange Consideration
as set forth in the Statement of Closing Consideration shall be final,
conclusive and binding for purposes of this Agreement.
1.3.2 Definitions. The following terms shall have the meaning ascribed
below for purposes of this Agreement (including Exhibits 2 and 4.6 thereto):
(i) "Closing Exchange Consideration" means 90% of the estimated Final
Exchange Consideration to be received by a Shareholder calculated as of the
Closing Date pursuant to the formula set forth in Section 1.4.1 below.
(ii) "Closing Outstanding Common Stock Number" means the estimated
Final Outstanding Common Stock Number as established pursuant to Section
1.3 of the Agreement.
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(iii) "Final Per Share Common Stock Amount" means the number of shares
of Parent Common Stock to be received in exchange for one share of Company
Common Stock, which number is determined pursuant to the formula set forth
in Section 1.4 below assuming that the factor "F" is equal to one.
(iv) "Current Assets" means the current assets of the Company
determined as of the Closing Date in accordance with GAAP.
(v) "Current Liabilities" means the current liabilities of the Company
determined as of the Closing Date in accordance with GAAP and expressed as
a positive number; provided, however, that all expenses of the Company or
the Shareholders incurred in connection with the transactions contemplated
hereby which are payable by the Company (other than fees and expenses of
KPMG Peat Marwick related to its audit of the Company) shall be included in
Current Liabilities.
(vi) "Long-Term Debt" means all long-term liabilities of the Company
as of Closing Date, including capitalized lease obligations, as applicable
to a corporation taxable under Subchapter C of the Code, all as determined
under GAAP.
(vii) "GAAP" means U.S. generally accepted accounting principles
consistently applied.
1.4 Post-Closing Determination of Final Exchange Consideration.
1.4.1 Determination of the Final Per Share Common Stock Amount and the
Final Exchange Consideration. The Final Per Share Common Stock Amount and the
Final Exchange Consideration to be received by each Shareholder shall be
determined according to the following formula:
A = ($3,100,000 + B + C - D - E) x F
--------------------------------
(G + H) x I
Where, for purposes of this formula:
A = the "Final Exchange Consideration," which means the number of shares
of Parent Common Stock to be received by a Shareholder as a result of
the Exchange.
B = the "Working Capital Positive Adjustment," which means the amount, if
any, by which the sum of (i) Current Assets (as of the Closing Date)
plus (ii) $229,386, exceeds 1.25 times Current Liabilities (as of the
Closing Date); provided, however, that the aggregate amount of
vacation and warranty liability accruals shall be excluded from
Current Liabilities except to the extent that the aggregate amount of
such accruals exceeds $38,000.
C = the "Option Present Value Amount," which means the present value of
the aggregate exercise price under the Company Stock Options
outstanding immediately prior to the
3
<PAGE>
Closing Date, assuming that such options are exercised on the
expiration date thereof, determined by discounting such aggregate
exercise price to the Closing Date at a discount rate equal to 10% per
annum.
D = the "Working Capital Negative Adjustment," which means the amount, if
any, by which 1.25 times Current Liabilities (as of the Closing Date)
exceeds the sum of (i) Current Assets (as of the Closing Date) plus
(ii) $229,386; provided, however, that the aggregate amount of
vacation and warranty liability accruals shall be excluded except to
the extent that the aggregate amount of such accruals exceeds $76,000.
E = the "Long Term Debt Adjustment," which means the excess of Long Term
Debt (as of the Closing Date) over $0.
F = the "Shareholder's Final Common Stock Number," which means, with
respect to any Shareholder, the number of shares of Company Common
Stock owned of record by such Shareholder immediately prior to the
Closing Date.
G = the "Final Outstanding Common Stock Number," which means the number of
shares of Company Common Stock issued and outstanding immediately
prior to the Closing Date.
H = the "Final Company Option Number," which means the number of shares of
Company Common Stock required to be issued by the Company upon the
exercise in full of the Company Stock Options outstanding immediately
prior to the Closing Date.
I = the "IPO Price," which means the initial price to the public for a
share of Parent Common Stock offered in the IPO, as defined in Section
1.3 above.
1.4.2 Statement. No later than 90 days after the Closing, the Parent
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as determined in accordance with this Section 1.4 attached
hereto), and the Final Exchange Consideration (the "Statement of Final
Amounts").
1.4.3 Review. After delivery to the Shareholders of the Statement of
Final Amounts, the Shareholders and their representatives shall be afforded the
opportunity to review and inspect all of the financial records, work papers,
schedules and other supporting papers relating to the preparation of the
Statement of Final Amounts, and to consult with the Parent and its
representatives regarding the methods used in the preparation of the Statement
of Final Amounts.
1.4.4 Disputes. The Final Outstanding Common Stock Number and the
Final Exchange Consideration as shown on the Statement of Final Amounts shall be
final, conclusive and binding for purposes of this Agreement, unless the
Shareholders shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Amounts
within 10 business days following receipt of the Statement of Final Amounts,
specifying in reasonable detail the nature and extent of such disagreement;
provided, however, that no Notice of Dispute may be given with respect to any
items unless such item involves an amount of $30,000 or
4
<PAGE>
more. If a Notice of Dispute is not properly given within such time, the Final
Outstanding Common Stock Number and the Final Exchange Consideration as set
forth in the Statement of Final Amounts shall be final, conclusive and binding
for purposes of this Agreement.
1.4.5 Resolution by Parties. If a Notice of Dispute is properly
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Amounts. If the Parent and the Shareholders shall not reach such
resolution within 30 days following receipt by the Parent of a properly given
Notice of Dispute, the dispute shall be referred a national accounting firm
("Accountants") selected by Parent and the Shareholders other than KPMG Peat
Marwick LLP ("KPMG"), who shall resolve such dispute within 30 days after its
submission to them; provided, however, that if Parent and the Shareholders are
unable to agree on the selection of such Accountants within 10 days following
receipt of the Notice of Dispute, KPMG shall promptly select such Accountants.
The Parent and the Shareholders (if the dispute is resolved by them or the
Statement of Final Amounts otherwise becomes final pursuant hereto without
referral to the Accountants) or the Accountants (if a dispute is resolved by
them) shall set forth such resolution in writing and such writing shall (i) set
forth the Final Outstanding Common Stock Number and the Final Exchange
Consideration and (ii) be final, conclusive and binding for purposes of this
Agreement.
1.4.6 Final Determination. Within 10 business days following the final
determination of the Final Outstanding Common Stock Number and the Final
Exchange Consideration as provided in this Section 1.4 (i) the Parent shall
deliver to each Shareholder, as applicable, the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Exchange Consideration
deliverable to such Shareholder, as finally determined pursuant hereto, exceeds
the aggregate of the Closing Exchange Consideration delivered to such
Shareholder at the Closing; or (ii) each Shareholder shall deliver to the Parent
the number of shares of Parent Common Stock, if any, by which the aggregate of
the Closing Exchange Consideration delivered to such Shareholder at the Closing
exceeds the aggregate of the Final Exchange Consideration deliverable to such
Shareholder as finally determined pursuant hereto.
1.4.7 Expenses. The Parent and the Shareholders shall each pay their
own costs incurred in connection with this Section 1.4, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
The Shareholders, jointly and severally, hereby represent and warrant to
the Parent as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
correct.
2.2 Stock Ownership. Each Shareholder owns, beneficially and of record,
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibit 2.2 and such shares are so held by the
Shareholders free and clear of all liens, encumbrances and adverse claims
whatsoever.
5
<PAGE>
2.3 Authority. Each Shareholder has full right, power, legal capacity and
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Shareholders (each a "Shareholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by each
Shareholder and constitutes, and each Shareholder Related Document, when duly
executed and delivered by each Shareholder who is a party thereto will
constitute, legal, valid and binding obligations of such Shareholder enforceable
against such Shareholder in accordance with their respective terms and
conditions, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholders of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by each Shareholder of this Agreement and the Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which such Shareholder is a party
or by which such Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to such Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
such Shareholder.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT
3.1 Representations and Warranties. The Parent hereby represents and
warrants to the Shareholders as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. The total authorized capital stock
of Parent is as set forth and described in Parent's confidential information
statement delivered to Shareholders in connection with the transactions
contemplated by this Agreement. The outstanding shares of Parent Common Stock
and Parent Preferred Stock have been duly and validly issued and are fully paid
and non-assessable.
3.1.3 Authority. The Parent has the requisite, power and authority to
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent
6
<PAGE>
and constitutes, and all the Parent Related Documents, when executed and
delivered by the Parent will constitute, legal, valid and binding obligations of
the Parent, enforceable in accordance with their respective terms and conditions
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
3.1.4 Consents. Except as provided on Exhibit 3.1.4, no approval,
consent, order or action of or filing with any court, administrative agency,
governmental authority or other third party is required for the execution,
delivery or performance by the Parent of this Agreement or the Parent Related
Documents or the consummation by the Parent of the transactions contemplated
hereby, except for the filing of the Parent's registration statement with
respect to the IPO ("Registration Statement") with the U.S. Securities and
Exchange Commission ("SEC") pursuant to the Securities Act and the SEC's
declaration of effectiveness of such Registration Statement and the completion
of all necessary filings required under, and the obtaining of all necessary
consents and approvals required pursuant to, state securities or "blue sky" laws
in connection with the IPO.
3.1.5 Defaults. The Parent is not in default under or in violation of,
and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
is a party or by which the Parent or any of its properties or assets may be
bound or affected or (ii) any law, rule or regulation applicable to the Parent
or any court injunction, order or decree, or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Parent, which default or violation prevents the Parent from consummating the
transactions contemplated hereby or is reasonably likely to have a Parent
Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain financial
statements to the Shareholders ("Parent Financial Statements") and such Parent
Financial Statements have been prepared in accordance with GAAP and fairly
present the consolidated financial position, results of operations and cash
flows of the Parent and its then existing consolidated subsidiaries as of the
dates and for the periods indicated, subject to normal year-end adjustments and
any other adjustments described therein or in the notes or schedules thereto.
The books and records of the Parent have been kept in reasonable detail and
accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to be
discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period ended December 31, 1996.
7
<PAGE>
3.1.9 Full Authority. The Parent has the corporate power and authority
and has obtained all licenses, permits, qualifications, and other documentation
(including permits required under applicable Environmental Law, as defined in
Exhibit 2) necessary to own and/or operate its businesses, properties and assets
and to carry on its businesses as being conducted on the date of this Agreement,
except such licenses, permits, qualifications or other documentation, the
failure to obtain which is not reasonably likely to result in a Parent Material
Adverse Effect, and such businesses are now being conducted and such assets and
properties are being owned and/or operated in compliance with all applicable
laws (including Environmental Law), ordinances, rules and regulations of any
governmental agency of the United States, any state or political subdivision
thereof, or any foreign jurisdiction, all applicable court or administrative
agency decrees, awards and orders and all such licenses, permits, qualifications
and other documentation, except where the failure to comply will not have a
Parent Material Adverse Effect, and there is no existing condition or state of
facts that would give rise to a violation thereof or a liability or default
thereunder that is reasonably likely to have a Parent Material Adverse Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in this
Agreement, and no statement contained in any certificate delivered by the Parent
to the Shareholders pursuant to this Agreement, contains any untrue statement of
a material fact or omits any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they are
or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
the Exchange as a reorganization within the meaning of Section 368(a) of the
Code:
(i) The Parent has no plan or intention to sell, exchange or otherwise
dispose or liquidate the Company, to merge the Company with or into any
other corporation, to sell or otherwise dispose of its Company Common Stock
except for transfers of Company Common Stock to corporations of which the
Parent has control (within the meaning of Section 368(a) of the Code) at
the time of such transfer, or to cause the Company to sell or otherwise
dispose of any of its assets or of any assets acquired in the Exchange,
except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Company has control
(within the meaning of Section 368(a) of the Code) at the time of such
transfer.
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<PAGE>
(ii) The Parent has no plan or intention to cause the Company, after
the Exchange, to issue additional shares of its stock that would result in
the Parent losing control of the Company within the meaning of Section
368(c) of the Code.
(iii) Following the Exchange, the Company will continue the Company's
historic business or use a significant portion of its historic business
assets in a business.
(iv) Except as provided in Section 8.20 below, if the Exchange is
effected, the Parent will each pay its expenses, if any, incurred in
connection with the Exchange.
(v) The Parent Common Stock that will be issued in connection with the
Exchange is voting stock within the meaning of Section 368(c) of the Code.
(vi) At the Closing Date, the Parent will not have any outstanding
warrants, options, convertible securities, or any other right pursuant to
which any person could acquire stock in the Parent which, if exercised or
converted, would affect the Parent's acquisition or retention of control of
the Company.
(vii) The Parent is not an investment company as defined in Section
368(a)(2)(F) of the Code.
(viii) None of the Parent Common Stock received by Shareholders as a
part of the Exchange Consideration will be separate consideration for, or
allocable to, any employment agreement.
(ix) The Parent is not under the jurisdiction of a court in a case
under Title 11 of the United States Code, or a receivership, foreclosure,
or similar proceeding in a federal or state court.
(x) Except for post-closing adjustments of the Exchange Consideration
pursuant to Section 1.4 of this Agreement, the Parent has no plan or
intention to reacquire any of its stock issued in this transaction.
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of Shareholders to be Effective Upon Closing. Effective
upon Closing, and without further action on the part of any party or other
person, the Shareholders covenant and agree as follows:
4.1.1 Covenant Not to Compete.
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is one year following any termination of such
Shareholder's employment
9
<PAGE>
by the Company for "Cause" (as defined in the Employment Agreement attached
hereto as Exhibit 5.3.3A), such Shareholder will not represent, engage in,
carry on, or have a financial interest in, directly or indirectly,
individually, as a member of a partnership or limited liability company,
equity owner, shareholder (other than as a shareholder of less than one
percent of the issued and outstanding stock of a publicly-held company
whose gross revenues exceed $100 million), investor, officer, director,
trustee, manager, employee, agent, associate or consultant, any business
that involves indoor air quality, heating, ventilation and air
conditioning, plumbing or electrical contracting services within a 100 mile
radius of Indianapolis, Indiana.
(ii) Each Shareholder agrees that the limitations set forth herein on
such Shareholder's rights to compete with the Parent and its affiliates as
set forth in clause (i) are reasonable and necessary for the protection of
Parent and its affiliates. In this regard, each Shareholder specifically
agrees that the limitations as to period of time and geographic area, as
well as all other restrictions on the Shareholder's activities specified
herein, are reasonable and necessary for the protection of the Parent and
its affiliates. Each Shareholder agrees that, in the event that the
provisions of this Section should ever be deemed to exceed the scope of
business, time or geographic limitations permitted by applicable law, such
provisions shall be and are hereby reformed to the maximum scope of
business, time or geographic limitations permitted by applicable law.
(iii) Each Shareholder agrees that the remedy at law for any breach by
such Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Closing Date, the Shareholders do
hereby (i) release, acquit and forever discharge the Company from any and all
liabilities, obligations, claims, demands, actions or causes of action arising
from or relating to any event, occurrence, act, omission or condition occurring
or existing on or prior to the Closing Date, including, without limitation, any
claim for indemnity or contribution from the Company in connection with the
obligations or liabilities of the Shareholders hereunder, except for salary and
benefits payable to a Shareholder as an employee in the ordinary course of
business; (ii) waive all breaches, defaults or violations of any agreement
applicable to the Company Common Stock and agree that any and all such
agreements are terminated as of the Closing Date, and (iii) waive any and all
preemptive or other rights to acquire any shares of capital stock of the Company
and release any and all claims arising in connection with any prior default,
violation or failure to comply with or satisfy any such preemptive or other
rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholders will
produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described on Exhibit 4.2 hereto have been eliminated
as expenses of the Company as of and following the Closing Date.
4.3 Note Repayments. Prior to Closing, the Shareholders will produce
evidence to the satisfaction of the Parent and its lenders that the promissory
note payable by the Company to Paul E. Smith in the outstanding principal amount
of $500,000 as of December 31, 1996 has been paid in full on or before the
Closing Date.
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4.4 Shareholder Indebtedness and Receivables. On or prior to Closing, the
Shareholders shall cause to be paid in full in cash all accounts payable, notes
payable and advances payable by any Shareholder to the Company and the Company
shall pay in full in cash all accounts payable, notes payable and advances
payable by the Company to any Shareholder.
4.5 Audit. Prior to Closing, at the expense of Parent, KPMG Peat Marwick
LLP shall complete an audit of the Company through March 31, 1997 and such
additional review work as may be requested by the Parent through and including
the Closing Date (or other periods subsequent to March 31, 1997), and provide
its report to the Parent and the Shareholders.
4.6 Pre-Closing Covenants and Agreements. The Shareholders jointly and
severally agree as set forth in Exhibit 4.6 attached hereto.
4.7 Salary Continuation Agreements. Except for the Company's Salary
Continuation Agreements with (i) George E. Fisher, Sr., (ii) Merrill L.
Sichting, (iii) William F. Ogan, and (iv) Curtis L. Neal, prior to Closing, the
Company shall fully terminate each of its existing salary continuation
agreements by any means agreeable to each respective employee covered by such an
agreement, including payment of a lump sum amount to such an employee in release
of and in full satisfaction of such agreement. With respect to any such
agreement that is not so fully terminated, the Company shall purchase a
commercial annuity contract to cover the future payments and liability therefor
to the employee under each such agreement. At or prior to Closing the Company
shall deliver evidence satisfactory to the Parent of the full termination of the
other salary continuation agreements. The Company shall indemnify and hold
harmless the Parent for any liability or losses incurred or suffered by the
Parent, after Closing, with respect to any salary continuation agreement.
4.8 Assignment of Accounts Receivable. Within 90 days after the Closing
Date, Parent may elect to assign to Shareholders any accounts receivable that
were part of the calculation of Current Assets (as determined in accordance with
Section 1.4) and which remain uncollected for 60 days or more, and Shareholders
shall purchase such accounts receivable from Parent, without recourse, for cash
in the amount of the uncollected face amount thereof.
4.9 Company Plans. Except as provided in Section 4.7 and any other
provision of this Agreement, the Company Plans (within the meaning of Section 8
(xiii) of Exhibit 2, hereto), in effect at the date of this Agreement, shall
remain in effect unless otherwise determined by Parent after the Closing Date.
4.10 Confidentiality. Prior to the Closing Date, none of the Parent, the
Company or the Shareholders will disclose the terms of this Agreement or the
Exchange to any person other than their respective directors, officers, agents
or representatives, except as otherwise provided herein or unless required by
law. The Company may make appropriate disclosures of the general nature of the
Exchange to its employees, vendors and customers to protect the Company's
goodwill and to facilitate the Closing. The Parent may disclose pertinent
information regarding the Exchange to its existing and prospective investors,
lenders, or investment bankers or financial advisors for the purpose of
obtaining financing, including, without limitation, financing related to the IPO
or other offerings of its securities may describe this Agreement and the
transactions contemplated hereby in any registration statement filed by the
Parent under the Securities Act and in reports filed by the
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Parent under the Securities Exchange Act of 1934, and may file this Agreement as
an exhibit to any thereof. The Parent may also make appropriate disclosures of
the general nature of the Exchange and the identity, nature and scope of the
Company's operations to prospective acquisition candidates in connection with
the Parent's efforts to effect additional acquisitions. Each party will have
mutual approval rights with respect to written employee presentations concerning
the prospective Exchange.
4.11 Tax-Free Reorganization. Unless the other parties shall otherwise
agree in writing, none of the Shareholders, the Parent or the Company shall
knowingly take or fail to take any action, which action or failure to act would
jeopardize the qualification of the Exchange as a reorganization within the
meaning of Section 368(a) of the Code.
4.12 Company Stock Options. The Parent and the Company shall take such
actions as shall be necessary or required to permit the Parent to, and the
Parent shall, effective at the Closing Date, (i) assume the obligations of the
Company under each Company Stock Option described in Exhibit 1.2.2A which is
outstanding immediately prior to the Closing Date and which remains unexercised
in whole or in part as of the Closing Date and (ii) substitute shares of Parent
Common Stock and cash (as provided hereinbelow) for the shares of Company Common
Stock purchasable under each such assumed option ("Assumed Option"), which
assumption and substitution shall be effected as follows:
4.12.1 No Change in Terms. The Assumed Option shall not give the
optionee additional benefits which such optionee did not have under the Company
Stock Option before such assumption nor diminish the benefits which such options
did have, and shall be assumed on the same terms and conditions as the Company
Stock Option being assumed (including the applicable provisions for vesting and
forfeiture as provided in the terms of the applicable agreement between the
Company and the option holder in effect prior to the date of this Agreement),
subject to clauses 4122 and 4123 below.
4.12.2 Exercise for Parent Common Stock. Following determination of
the Final Exchange Consideration, Company Stock Options shall be exercisable for
shares of Parent Common Stock as provided in this section and subject to terms
of the applicable Stock Option Agreement. The number of shares of Parent Common
Stock purchasable and cash receivable upon exercise of an Assumed Option in
accordance with its terms shall be equal to the product of (i) the Final Per
Share Common Stock Amount multiplied by (ii) the number of shares of Company
Common Stock for which such option is exercisable, subject to adjustment for any
stock split, stock dividend, merger or recapitalization as provided in the
applicable Stock Option Agreement.
4.12.3 Exercise Price. The exercise price per share of Parent Common
Stock under each Assumed Option after the Closing Date shall be equal to the
quotient of (i) the exercise price per share of Company Common Stock under the
Assumed Option immediately prior to the Closing Date divided by (ii) the Final
Per Share Common Stock Amount, subject to adjustment for any stock split, stock
dividend, merger or recapitalization as provided in the applicable Stock Option
Agreement.
4.13 Property Lease with Four Square Company. The Office and Warehouse
Lease attached as Exhibit 4.13A with Four Square Company, as owner of the
warehouse and office property
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located at 8171 West 10th Street, Indianapolis, Indiana 46214-2431 (the "Four
Square Lease"), is in full force and effect as of the date hereof, and the Four
Square Lease shall be in full force and effect, in accordance with its terms,
without default or unmatured default of any kind with respect to each party
thereto at and as of the Closing Date. As the sole general partners of Four
Square Company, Shareholders covenant and agree to use their best efforts, upon
request by Parent following the Closing, to obtain the written consent of each
mortgagee of the leased premises subject to the Four Square Lease authorizing a
substitution and novation of the Four Square Lease and replacement thereof with
a lease agreement between Four Square Company and the Company in the form
attached as Exhibit 4.13B (the "Lease Agreement"), and upon obtaining such
consent, shareholders shall cause Four Square Company to execute and deliver the
Lease Agreement and terminate the Four Square Lease. During the continuation of
the Four Square Lease, Shareholders shall indemnify and hold harmless the
Company with respect to all costs related to repair of the roof, exterior walls,
structural components, foundations, sidewalks, plate glass, electrical wiring,
plumbing and HVAC systems of all buildings located on the leased premises.
Notwithstanding any other provision of this Agreement, the representations,
warranties, covenants and agreements of the Shareholders in this Section 4.13
shall survive the closing and remain in full force and effect during the term of
the Four Square Lease and the term of the Lease Agreement.
4.14 Income Tax Distribution. Prior to the Closing, the Shareholders may
cause the Company to pay to the Shareholders as a dividend and as a distribution
of S Corporation earnings of the Company for the period beginning at the
expiration of the Company's prior fiscal year through the Effective Time a cash
amount, which may be reasonably estimated equal to the net taxable income of the
Company as determined for Federal income tax purposes for the Company as an S
Corporation less any prior distributions made by the Company to the Shareholders
with respect to such earnings ("Cash Tax Distribution"). In the event that
there is insufficient cash of the Company to make the Cash Tax Distribution in
whole or in part, the Company may issue short term notes payable to the
Shareholders in amounts equal to the amount of the Cash Tax Distribution less
the amount of cash actually distributed to the Shareholders as part of the Cash
Tax Distribution ("Tax Notes") in the form of Exhibit 4.14. The Tax Notes, if
issued, shall (i) be issued prior to the Closing Date, (ii) bear interest at a
rate not to exceed six percent (6%) per annum, (iii) provide that the principal
and all accrued interest shall be due and payable six (6) months after the date
of the Tax Notes, and (iv) impose no prepayment penalty. Notwithstanding the
actual due date of such notes, the Tax Notes shall be treated as Long Term Debt
for purposes of the determination of the Final Exchange Consideration in Section
1.4.1. All cash payments of the Cash Tax Distribution and all amounts of any Tax
Notes shall be taken into account in calculating the Closing Merger
Consideration (through a reduction of Working Capital or increase in Long Term
Debt, as applicable).
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent. The
obligations of the Parent to effect the Exchange under this Agreement are
subject to the satisfaction of each of the following conditions, unless waived
by the Parent in writing to the extent permitted by applicable law:
5.1.1 Accuracy of Representations and Warranties. The representations
and warranties of the Shareholders contained in this Agreement, in Exhibit 2 and
the Disclosure Schedule referred to therein and the other Exhibits provided by
the Shareholders pursuant to this Agreement or in any closing certificate or
document delivered to the Parent pursuant hereto shall be true and
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correct at and as of the Closing Date as though made at and as of that time
other than such representations and warranties as are specifically made as of
another date, and the Shareholders shall have delivered to the Parent a
certificate to that effect.
5.1.2 Performance of Covenants. The Shareholders shall have performed
and complied with all covenants of this Agreement to be performed or complied
with by them at or prior to the Closing Date, and the Shareholders shall each
have delivered to the Parent a certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
shall have been instituted after the date hereof against the Company or against
the Parent arising by reason of the acquisition of the Company pursuant to this
Agreement, which is reasonably likely (i) to restrain, prohibit or invalidate
the consummation of the transactions contemplated by this Agreement, (ii) to
have a Company Material Adverse Effect or (iii) to have a Parent Material
Adverse Effect after giving effect to the consummation of the transactions
contemplated by this Agreement, and the Shareholders shall each have delivered
to the Parent a certificate to that effect.
5.1.4 Approvals. The Shareholders shall have procured all of the
consents, approvals and waivers of third parties or any regulatory body or
authority, whether required contractually or by applicable law or otherwise
necessary for the execution, delivery and performance of this Agreement
(including the Company Related Documents and the Shareholder Related Documents)
by the Shareholders prior to the Closing Date, and Shareholders shall have
delivered to the Parent a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
delivered at Closing by the Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
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5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage shall
have occurred on or prior to the Closing Date to any of the properties or assets
of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such licenses
and permits as are legally required for the continued operation of the business
after the Closing Date, except such licenses and permits, the absence of which
will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there shall
not have been any event that in the reasonable judgment of the Parent adversely
affects the properties, assets, financial condition, results of operations, cash
flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms acceptable
to it, and the net proceeds thereof shall have been received by the Parent.
5.1.10 Certain Corporate Actions. All necessary director and
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.1.11 Financing. The Parent shall have obtained financing on terms
and in amounts reasonably acceptable to it, to finance the ongoing financing
needs of the Company, and such financing shall be available.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
Company. The obligations of the Shareholders under this Agreement are subject
to the satisfaction of each of the following conditions, unless waived by the
Shareholders in writing:
5.2.1 Accuracy of Representations and Warranties. The representations
and warranties of the Parent contained in this Agreement or in any closing
certificate or document delivered to the Shareholders pursuant hereto shall be
true and correct on and as of the Closing Date as though made at and as of that
date other than such representations and warranties as are specifically made as
of another date, and the Parent shall have delivered to the Shareholders a
certificate to that effect.
5.2.2 Performance of Covenants. The Parent shall have performed and
complied with all covenants of this Agreement to be performed or complied with
by them at or prior to the Closing Date and the Parent shall have delivered to
the Shareholders a certificate to such effect.
5.2.3 Approvals. The Parent shall have procured all of the consents,
approvals and waivers specified in Section 3.1.4 prior to the Closing Date, and
the Parent shall deliver to the Shareholders a certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
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5.3 Deliveries by the Shareholders at the Closing. At the Closing,
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders
pursuant to any other transaction document at the Closing, the Shareholders
shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders shall deliver the
certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3 and 5.1.4.
5.3.2 Stock Transfer Restriction Agreement. Each Shareholder shall
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date
substantially in the form set forth in Exhibit 5.3.2.
5.3.3 Employment Agreement. Each Shareholder and certain other
employees of the Company specified on Exhibit 5.3.3 shall execute and deliver an
Employment Agreement with the Company on the Closing Date substantially in the
form set forth in Exhibits 5.3.3A or 5.3.3B as applicable.
5.3.4 Registration Rights Agreement. Each Shareholder shall execute
and deliver a Registration Rights Agreement at the Closing substantially in the
form set forth in Exhibit 5.3.4 attached hereto, as applicable.
5.3.5 Opinion of Counsel for the Shareholders and the Company. The
Shareholders shall deliver the favorable opinion of Riley, Bennett & Egloff,
counsel to the Shareholders and the Company, dated as of the Closing Date,
substantially in the form and to the effect set forth in Exhibit 5.3.5 attached
hereto.
5.3.6 Documents, Stock Certificates. The Shareholders shall execute
and deliver, and shall cause the Company to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Company or its officers or directors or any Shareholder at the
Closing as contemplated hereby or as may be reasonably requested by the Parent
and shall deliver or cause to be delivered the documents and evidence required
under Section 4. Stock Certificates representing all of the outstanding Company
Common Stock and properly executed and completed letters of transmittal shall be
delivered by the Shareholders to the Parent.
5.3.7 Discharge of Indebtedness, Releases, Etc. The indebtedness of
the Company referred to in Exhibit 5.3.7 attached hereto ("Terminated
Obligations") shall be paid in full or refinanced on terms acceptable to the
Parent, and the Shareholders shall cause all holders of any such Terminated
Obligations to deliver to the Parent, in form reasonably satisfactory to the
Parent and the lenders to the Parent such customary releases, termination
statements, consents, approvals or other documents or instruments required, in
the judgment of the Parent, to release and terminate all liens, security
interests, claims, or rights of such holders against the Company or the Parent
or any of their respective assets in connection therewith.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Company of any of their rights or remedies against the
Shareholders hereunder for any breach of warranty, covenant or agreement by the
Shareholders herein irrespective of any knowledge of or
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investigation made by or on behalf of the Parent; provided, however, that if the
Shareholders shall disclose in writing to the Parent prior to the Closing Date a
specified breach of a specifically identified representation, warranty, covenant
or agreement of the Shareholder herein, and requests a waiver thereof by the
Parent, and the Parent shall waive any such specifically identified breach in
writing prior to the Closing Date, the Parent and the Company, for themselves
and for each Parent Indemnified Party (as defined below) shall be deemed to have
waived their respective rights and remedies hereunder for, and the Shareholders
shall have no liability with respect to, any such specifically identified
breach, to the extent so identified by the Shareholders and so waived by the
Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent pursuant
to any other transaction document at the Closing, the Parent shall deliver or
cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent shall deliver the certificates
required pursuant to Sections 5.2.1, 5.2.2, 5.2.3 and 5.2.4.
5.4.2 Registration Rights Agreement. The Parent shall execute and
deliver to each of the Shareholders a Registration Rights Agreement at the
Closing substantially in the form set forth in Exhibit 5.3.4.
5.4.3 Opinion of Counsel for the Parent. The Parent shall deliver the
favorable opinion of Chamberlain, Hrdlicka, White, Williams & Martin, counsel to
the Parent, dated as of the Closing Date, substantially in the form and to the
effect set forth in Exhibit 5.4.3.
5.4.4 Closing Exchange Consideration. The Parent shall deliver the
Closing Exchange Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent irrespective of any
knowledge of or investigation with respect thereto made by or on behalf of any
Shareholder; provided, however, that if the Parent shall disclose in writing to
the Shareholders prior to the Closing a specified breach of a specifically
identified representation, warranty, covenant or agreement of the Parent
contained herein by the Parent, and requests a waiver thereof by the
Shareholders, and the Shareholders shall waive any such specifically identified
breach in writing prior to the Closing, the Shareholders shall be deemed to have
waived their rights and remedies hereunder for, and the Parent shall have no
liability or obligation to the Shareholders with respect to, any such
specifically identified breach, to the extent so identified by the Parent and
waived the Shareholders.
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6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders in Sections 2.2, 2.3, 2.4 and
in Sections 2, 3, 10, 11 and 12 of Exhibit 2 shall survive for a period of 36
months after the date hereof and the representations and warranties of the
Shareholders and the Company contained in Sections 2.2, 2.3, 2.4 and in Sections
2, 3, 10, 11 and 12 of Exhibit 2 shall survive for the maximum period permitted
by applicable law. The representations and warranties of the Parent herein and
in the Parent Related Documents, other than those in Sections 3.1.3 and 3.1.4,
shall survive for a period of 36 months after the date hereof and the
representations and warranties of the Parent contained in Sections 3.1.3 and
3.1.4 shall survive for the maximum period permitted by applicable law. The
periods of survival of the representations and warranties as stated above in
this Section 6.1 are referred to herein as the "Survival Period." The
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable Survival Period and no claim
for indemnification may be made with respect to any breach of any representation
or warranty, the applicable Survival Period of which shall have expired, except
to the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration. The covenants and agreements of the parties herein (including but
not limited to Exhibit 4.6) and in other documents and instruments executed and
delivered in connection with the closing of the transactions contemplated hereby
shall survive for the maximum period permitted by law.
6.2 Indemnification.
6.2.1 Parent Indemnified Parties. Subject to the provisions of
Sections 6.1 and 6.3 hereof, the Shareholders, jointly and severally, shall
indemnify, save and hold harmless the Parent, the Company and any of their
assignees (including lenders) and all of their respective officers, directors,
employees, representatives, agents, advisors and consultants and all of their
respective heirs, legal representatives, successors and assigns (collectively
the "Parent Indemnified Parties") from and against any and all damages,
liabilities, losses, loss of value (including the value of adverse effects on
cash flow or earnings), claims, deficiencies, penalties, interest, expenses,
fines, assessments, charges and costs, including reasonable attorneys' fees and
court costs (collectively "Losses") arising from, out of or in any manner
connected with or based on:
(i) the breach of any covenant of any Shareholder or the Company or
the failure by any Shareholder or the Company to perform any obligation of
any Shareholder or the Company contained herein or in any Company Related
Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty of
any Shareholder contained herein or in any Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty of
the Company contained herein or in any Company Related Document;
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(iv) indemnification payments made by the Company to the Company's
present or former officers, directors, employees, agents, consultants,
advisors or representatives in respect of actions taken or omitted to be
taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing Date and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed in the
Disclosure Schedule or (b) disclosed in the Company Financial Statements
(as defined in Exhibit 2) excluding liability for decisions made in the
exercise of the Company's reasonable business judgement and in the ordinary
course of business.
Notwithstanding the foregoing, the foregoing indemnities shall not apply to the
extent that such Losses are reimbursed to the Parent Indemnified Parties under
provisions of any errors and omissions or professional liability insurance
policy containing waiver of subrogation provisions applicable to claims relating
to such Losses. The foregoing indemnities shall not limit or otherwise
adversely affect the Shareholder Indemnified Parties' rights of indemnity for
Losses under Section 6.2.3.
6.2.2 Minimum Losses. For purposes of this Section 6.2.2, Losses
shall be calculated with respect to any inaccuracy or breach of any
representation or warranty of any Shareholder contained herein or in any
Shareholder Related Document without giving effect to any clause which would
permit such inaccuracy or breach up to an amount which would be deemed a Company
Material Adverse Effect. The Shareholders shall have no obligation under Section
6.2.1 until the aggregate amount of all such Losses equal or exceed $25,000
(whether or not resulting in a Company Material Adverse Effect), at which time
the Shareholders shall be subject to the provisions of Section 6.2.1 with
respect to all Losses of the Parent Indemnified Parties.
6.2.3 Parent Indemnity. Subject to the provisions of Sections 6.1 and
6.3, the Parent shall indemnify, save and hold harmless the Shareholders and the
Shareholders' heirs, legal representatives, successors and assigns (the
"Shareholder Indemnified Parties") from and against all Losses arising from, out
of or in any manner connected with or based on:
(i) any breach of any covenant of the Parent or the failure by the
Parent to perform any of its obligations contained herein or in the Parent
Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty of
the Parent contained herein or in the Parent Related Documents; and
(iii) any act, omission, event, condition or circumstance occurring or
existing at any time after (but not on or before) the Closing Date and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from any Shareholder's
acts or omissions after the Closing Date as an officer, director and/or
employee of the Parent, the Surviving Corporation and/or any other
affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
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6.3 Limitations. The aggregate liability of the Shareholders under
Section 6.2.1 shall not exceed the cash amount equal to the Final Exchange
Consideration with the Parent Common Stock being valued at the IPO Price for
such purpose. The aggregate liability of the Parent under Section 18(v) shall
not exceed the cash amount equal to the Final Exchange Consideration with the
Parent Common Stock being valued at the IPO Price for such purpose.
6.4 Procedures for Indemnification.
6.4.1 Notice. The party (the "Indemnified Party") that may be entitled
to indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim, or
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought hereunder. Any failure on the part of any Indemnified Party to
give the notice described in this Section 6.4.1 shall relieve the Indemnifying
Party of its obligations under this Article 6 only to the extent that such
Indemnifying Party has been prejudiced by the lack of timely and adequate notice
(except that the Indemnifying Party shall not be liable for any expenses
incurred by the Indemnified Party during the period in which the Indemnified
Party failed to give such notice). Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party, promptly (and in any event within 10 days
thereof) after the Indemnified Party's receipt thereof, copies of all notices
and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholders shall at all times have the right, at their option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company and the settlement is
commercially reasonable under the circumstances; and provided further, that if
the Indemnifying Party gives 10 days' prior written notice to the Indemnified
Party of a settlement offer which the Indemnifying Party desires to accept and
to pay all Losses with respect thereto ("Settlement Notice") and the Indemnified
Party fails or refuses to consent to such settlement within 10 days after
delivery of the Settlement Notice to the Indemnified Party, and such settlement
otherwise complies with the provisions of this Section 6.4, the Indemnifying
Party shall not be liable for Losses arising from such third-party suit, action,
proceeding or investigation in excess of the amount proposed in such settlement
offer. Notwithstanding the foregoing, no Indemnifying Party will consent to the
entry of any judgment or enter into any settlement without the consent of the
Indemnified Party, if such judgment or settlement imposes any obligation or
liability upon the Indemnified Party other than the
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execution, delivery or approval thereof and customary releases of claims with
respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any such
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and records, and personnel in the
possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself and its
affiliates (as defined in Exhibit 2) any rights to subrogation against any
Indemnified Party or its insurers for Losses arising from any third-party claims
for which it is liable or against which it indemnifies any Indemnified Party
and, if necessary, each Indemnifying Party shall obtain waivers of such
subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Shareholders
and the Parent; or
7.1.2 Optional By the Company. By the Shareholders, by written notice
to the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of its, his
or her obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to the
Shareholders, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if the Parent has not breached this
Agreement or failed to perform any of its obligations under this Agreement;
7.1.4 Breach By the Parent. By the Shareholders, by written notice to
the Parent, if the Parent has breached this Agreement or failed to perform any
of its obligations under this Agreement; or
7.1.5 Breach by the Shareholders. By the Parent, by written notice to
the Shareholders, if any Shareholder has breached this Agreement or has failed
to perform any of his or her obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
21
<PAGE>
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Shareholders:
Mr. Dennis P. Smith Mr. Michael P. Dunn
423 Greenlee Drive 9118 Tansel Court
Indianapolis, Indiana 46234-2232 Indianapolis, Indiana 46234
Telecopy: (___) ___-____ Telecopy: (___) ___-____
To the Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been given
as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from time
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholders hereunder.
8.3 Assignability. No Shareholder shall assign this Agreement in whole or
in part without the prior written consent of the Parent, except by the operation
of law. The Parent may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
either Shareholder; provided, however, that no such assignment shall affect the
Shareholders right to receive the Final Exchange Consideration. After the
Closing Date, the Company may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of any of the Shareholders.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
22
<PAGE>
8.5 Sections and Articles. Unless the context otherwise requires, all
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent
and the Shareholders; provided that all amendments to this Agreement must be by
an instrument in writing signed on behalf of the Parent and the Shareholders.
Any term or provision of this Agreement (other than the requirements for
shareholder approvals) may be waived in writing at any time by the party which
is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified
23
<PAGE>
period, of any nature or kind whatsoever under or by reason of this Agreement,
or shall cause the employment status of any employee to be other than terminable
at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
execution and delivery of one or more counterparts of this Agreement by each of
the Parent and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, Parent and the Company and
their respective members of their Boards of Directors shall grant such approvals
and take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be automatically as a part of this Agreement, a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
24
<PAGE>
8.20 Expenses. Each of the parties shall bear all of their own expenses in
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company shall pay the costs
of any broker or finder engaged by the Shareholders; and provided further that
all fees, costs and expenses incurred or payable by the Company (other than
accounting and auditing fees and expenses) in connection with the negotiation
and closing of this Agreement and the transactions contemplated hereby and the
costs of any such broker or finder shall be included in current liabilities for
purposes of determining Working Capital.
25
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:
-----------------------------------------
J. Patrick Millinor, Jr., President
SHAREHOLDERS:
--------------------------------------------
DENNIS P. SMITH, AS SHAREHOLDER
--------------------------------------------
MICHAEL P. DUNN, AS SHAREHOLDER
26
<PAGE>
EXHIBIT 10.24
AGREEMENT AND PLAN OF MERGER
by and among
Group Maintenance America Corp.,
Southeast Mechanical Service, Inc.,
and
The Holders
of the
Outstanding Capital Stock
of
Southeast Mechanical Service, Inc.
DATED AUGUST 18, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER............................................................ -1-
1.1 The Merger....................................................... -1-
1.2 Effective Time of the Merger..................................... -1-
1.3 Closing.......................................................... -1-
1.4 Effects of the Merger............................................ -2-
1.4.1 At the Effective Time..................................... -2-
1.4.2 Effects on the Surviving Corporation...................... -2-
1.5 Written Consents and Other Actions............................... -2-
1.5.1 Written Consent of the Shareholders; Other Matters........ -2-
1.5.2 Written Consent of the Sole Shareholder of Merger Sub..... -2-
1.5.3 All Other Necessary Actions............................... -3-
1.6 Conversion of Stock.............................................. -3-
1.6.1 Merger Sub Capital Stock.................................. -3-
1.6.2 Cancellation of the Company Treasury Stock................ -3-
1.6.3 Merger Consideration...................................... -3-
1.7 Exchange of and Payment for Stock................................ -3-
1.7.1 Delivery of Company Common Stock and Closing Merger
Consideration........................................... -3-
1.7.2 Assignments............................................... -3-
1.7.3 Payment In Full Satisfaction of All Rights................ -3-
1.8 Determination of Closing Merger Consideration.................... -4-
1.8.1 Delivery of IPO Price to Public; Statement................ -4-
1.9 Post-Closing Determination of Final Merger Consideration......... -4-
1.9.1 Statement................................................. -4-
1.9.2 Review.................................................... -4-
1.9.3 Disputes.................................................. -4-
1.9.4 Resolution by Parties..................................... -4-
1.9.5 Final Determination....................................... -5-
1.9.6 Expenses.................................................. -5-
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.... -5-
2.1 Exhibit 2........................................................ -5-
2.2 Stock Ownership.................................................. -5-
2.3 Authority........................................................ -5-
2.4 Consents......................................................... -6-
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB........... -6-
3.1 Representations and Warranties................................... -6-
3.1.1 Organization.............................................. -6-
3.1.2 Capitalization of the Parent.............................. -6-
3.1.3 Authority................................................. -6-
3.1.4 Consents.................................................. -6-
3.1.5 Defaults.................................................. -7-
3.1.6 Investment Company........................................ -7-
3.1.7 Financial Statements...................................... -7-
3.1.8 Taxes..................................................... -7-
-i-
<PAGE>
3.1.9 Full Authority............................................ -7-
3.1.10 Access................................................... -8-
3.1.11 Disclosure............................................... -8-
3.1.12 Parent Material Adverse Effect........................... -8-
3.1.13 Tax-Free Reorganization.................................. -8-
3.2 Representations and Warranties Concerning the Merger Sub......... -9-
3.2.1 Organization and Standing................................. -9-
3.2.2 Capital Structure......................................... -9-
3.2.3 Authority................................................. -9-
3.2.4 Consents.................................................. -9-
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS................. -9-
4.1 Agreements of Shareholders to be Effective Upon Closing.......... -9-
4.1.1 Covenant Not to Compete................................... -9-
4.1.2 Release................................................... -11-
4.2 Elimination of Expense........................................... -11-
4.3 Shareholder Indebtedness and Receivables......................... -11-
4.4 Assignment of Accounts Receivable................................ -11-
4.5 Audit............................................................ -11-
4.6 Pre-Closing Covenants and Agreements............................. -11-
4.7 Confidentiality.................................................. -11-
4.8 Tax-Free Reorganization.......................................... -12-
4.9 License of Company Logo.......................................... -12-
4.10 Release of Shareholder Guaranties................................ -12-
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES.............................. -12-
5.1 Conditions Precedent to the Obligations of the Parent
and Merger Sub................................................. -12-
5.1.1 Accuracy of Representations and Warranties................ -12-
5.1.2 Performance of Covenants.................................. -12-
5.1.3 Legal Actions or Proceedings.............................. -12-
5.1.4 Approvals................................................. -13-
5.1.5 Closing Deliveries........................................ -13-
5.1.6 No Casualty, Loss or Damage............................... -13-
5.1.7 Licenses, etc............................................. -13-
5.1.8 No Material Adverse Change................................ -13-
5.1.9 IPO....................................................... -13-
5.1.10 Certain Corporate Actions................................. -13-
5.2 Conditions Precedent to the Obligations of the
Shareholders and the Company................................... -13-
5.2.1 Accuracy of Representations and Warranties................ -13-
5.2.2 Performance of Covenants.................................. -13-
5.2.3 Approvals................................................. -14-
5.2.4 Closing Deliveries........................................ -14-
5.2.5 IPO....................................................... -14-
5.2.6 Payment of Net Amounts to Shareholders.................... -14-
5.3 Deliveries by the Shareholders at the Closing.................... -14-
5.3.1 Closing Certificates...................................... -14-
5.3.2 Stock Transfer Restriction Agreement...................... -14-
5.3.3 Employment Agreement...................................... -14-
5.3.4 Lease Agreement........................................... -14-
5.3.5 Registration Rights Agreement............................. -14-
-ii-
<PAGE>
5.3.6 Opinion of Counsel for the Shareholders and the Company... -14-
5.3.7 Documents, Stock Certificates............................. -14-
5.4 Deliveries by the Parent at the Closing.......................... -15-
5.4.1 Closing Certificates...................................... -15-
5.4.2 Stock Transfer Restriction Agreement...................... -15-
5.4.3 Employment Agreement...................................... -15-
5.4.4 Lease Agreement........................................... -15-
5.4.5 Registration Rights Agreement............................. -15-
5.4.6 Opinion of Counsel for the Parent and Merger Sub.......... -15-
5.4.7 Closing Merger Consideration.............................. -16-
6. SURVIVAL, INDEMNIFICATIONS............................................ -16-
6.1 Survival......................................................... -16-
6.2 Indemnification.................................................. -16-
6.2.1 Parent Indemnified Parties................................ -16-
6.2.2 Parent Indemnity.......................................... -17-
6.3 Limitations...................................................... -18-
6.4 Procedures for Indemnification................................... -18-
6.4.1 Notice.................................................... -18-
6.4.2 Legal Defense............................................. -18-
6.4.3 Settlement................................................ -18-
6.4.4 Cooperation............................................... -18-
6.5 Subrogation...................................................... -19-
7. TERMINATION........................................................... -19-
7.1 Grounds for Termination.......................................... -19-
7.1.1 Mutual Consent............................................ -19-
7.1.2 Optional By the Company................................... -19-
7.1.3 Optional By the Parent.................................... -19-
7.1.4 Termination Because of Material Adverse Change............ -19-
7.1.5 Breach By the Parent or Merger Sub........................ -19-
7.1.6 Breach by the Company or the Shareholders................. -19-
7.2 Effect of Termination............................................ -19-
8. MISCELLANEOUS......................................................... -19-
8.1 Notice........................................................... -19-
8.2 Further Documents................................................ -20-
8.3 Assignability.................................................... -20-
8.4 Exhibits and Schedules........................................... -20-
8.5 Sections and Articles............................................ -21-
8.6 Entire Agreement................................................. -21-
8.7 Headings......................................................... -21-
8.8 CONTROLLING LAW.................................................. -21-
8.9 Public Announcements............................................. -21-
8.10 No Third Party Beneficiaries..................................... -21-
8.11 Amendments and Waivers........................................... -21-
8.12 No Employee Rights............................................... -21-
8.13 Non-Recourse..................................................... -22-
8.14 When Effective................................................... -22-
8.15 Takeover Statutes................................................ -22-
-iii-
<PAGE>
8.16 Number and Gender of Words....................................... -22-
8.17 Invalid Provisions............................................... -22-
8.18 Multiple Counterparts............................................ -22-
8.19 No Rule of Construction.......................................... -22-
8.20 Expenses......................................................... -22-
Exhibit 1 Calculation of Merger Consideration
Exhibit 1.5.1 Written Consents of Shareholders
Exhibit 1.5.2 Written Consents of Merger Sub
Exhibit 1.7 Letter of Transmittal to Shareholders
Exhibit 2 Representations and Warranties of Shareholder and the Company
Exhibit 2.2 Stock Ownership
Exhibit 4.2 Expenses of the Company
Exhibit 4.6 Pre-Closing Covenants and Agreements
Exhibit 4.9 License of Company Logo
Exhibit 4.10 Release of Shareholder Guaranties
Exhibit 5.3.2 Stock Transfer Restriction Agreement
Exhibit 5.3.3 Employment Agreement
Exhibit 5.3.4 Lease Agreement
Exhibit 5.3.5 Registration Rights Agreement
Exhibit 5.3.6 Opinion of Counsel for the Shareholders
Exhibit 5.4.6 Opinion of Counsel for the Parent
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
August ___, 1997, by and among GROUP MAINTENANCE AMERICA CORP., a Texas
corporation (the "Parent"), SEMS ACQUISITION CORP., a Florida corporation
("Merger Sub"), SOUTHEAST MECHANICAL SERVICE, INC., a Florida corporation (the
"Company"), and THE UNDERSIGNED HOLDERS OF ALL OF THE OUTSTANDING CAPITAL STOCK
OF THE COMPANY (the "Shareholders").
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
States of Florida and Texas, and pursuant to the Merger each issued and
outstanding share of Common Stock, [$1.00] par value per share, of the Company
("Company Common Stock") will be converted into the right to receive certain
shares of common stock, $.001 par value per share, of the Parent ("Parent Common
Stock"), and certain cash consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholders,
as the holders of all of the outstanding capital stock of the Company;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
accordance with the Florida statute (the "Applicable Corporate Law") upon the
Effective Time (as defined in Section 1.2), the Company shall be merged with and
Sub. Merger Sub, as the surviving entity following the Merger, is
sometimes referred to in this Agreement as the "Surviving Corporation."
1.2 Effective Time of the Merger. In accordance with the requirements of
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted for filing with the Secretary of
State of the State of Florida as soon as practicable following the Closing (as
defined below). The date of such filing is referred to in this Agreement as the
"Effective Time."
1.3 Closing. The closing of the Merger ("Closing") will take place at
10:00 a.m. at the offices of Chamberlain, Hrdlicka, White, Williams & Martin in
Houston, Texas on the closing date of the Parent's IPO (as defined below), but
in no event later than December 31, 1997 ("Closing Date"); provided that each of
the conditions precedent to the obligations of the parties to effect the Merger
set forth in Article 5 of this Agreement are then satisfied or waived by the
applicable party. The parties may agree in writing on another date, time or
place for the Closing. At the Closing, the parties will deliver or cause to be
delivered the documents described in Sections 5.3 and 5.4 below. The term "IPO"
means any underwritten public offering of Parent Common Stock resulting in net
cash proceeds to the Parent of at least the minimum proceeds (other than any
offering pursuant to any registration statement (i) relating to any capital
stock of Parent or options, warrants or other rights to acquire any such capital
stock issued or to be issued primarily to directors, officers or employees of
the Parent or any of its subsidiaries, (ii) relating to any employee benefit
plan or interest therein, (iii) relating principally to any preferred stock or
debt securities of the Parent, or (iv) filed pursuant to Rule 145 under the
Securities Act
Agreement and Plan of Merger/Page 1
<PAGE>
of 1933, as amended ("Securities Act"), or any successor or similar provision).
The term "Minimum Proceeds" means the aggregate amount necessary to pay in full
(A) all indebtedness of Parent or any of its subsidiaries outstanding at the
closing of the IPO incurred for purposes of financing any acquisitions by the
Parent or any of its subsidiaries, (B) the aggregate redemption prices for the
redemption of all of the Parent's preferred stock outstanding at the closing of
the IPO issued by the Parent in connection with then completed acquisitions by
the Parent or any of its subsidiaries, and (C) the aggregate cash payable by the
Parent or any of its subsidiaries in connection with all then pending
acquisitions.
1.4 Effects of the Merger.
1.4.1 At the Effective Time. At the Effective Time, (i) the
Company shall merge with and into Merger Sub and as a result thereof, the
separate existence of the Company shall cease, (ii) the Articles of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation,
except that the Articles of Incorporation of Merger Sub shall be amended to
provide that the name of the Surviving Corporation shall be changed to
"Southeast Mechanical Service, Inc.," (iii) the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation, and (iv) the directors and officers of Merger Sub
immediately prior to the Effective Time shall become the directors and officers
of the Surviving Corporation, until the earlier of their resignation or removal
or until their respective successors are duly elected or appointed, as the case
may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with 607.1106, et seq., of the Applicable Corporate Law and the terms
of this Agreement.
1.5 Written Consents and Other Actions.
1.5.1 Written Consent of the Shareholders; Other Matters.
Contemporaneously with the execution hereof, the Shareholders (i) are executing
and delivering to the Company a Unanimous Written Consent in substantially the
form of Exhibit 1.5.1 attached hereto, and (ii) hereby acknowledge that they are
aware of their dissenter's or appraisal rights with respect to the Merger and
their receipt of a copy of the provisions of Section 607.0902 of the Applicable
Corporate Law and have elected not to exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibit 1.5.2 attached hereto, pursuant to the applicable
provisions of the Applicable Corporate Law, adopting this Agreement.
Agreement and Plan of Merger/Page 2
<PAGE>
1.5.3 All Other Necessary Actions. In addition to the actions set
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of
Merger Sub issued and outstanding at the Effective Time shall remain outstanding
and shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
Company Common Stock that are owned by the Company or any of its subsidiaries as
treasury stock shall be canceled and retired and shall cease to exist and no
stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. The issued and outstanding shares of
Company Common Stock (other than shares to be canceled in accordance with
Section 1.6.2) shall be converted into the right to receive the Final Merger
Consideration (as determined in accordance with Exhibit 1 attached hereto). The
shares of Company Common Stock so converted into the right to receive the Final
Merger Consideration (a "Converted Share") shall, by virtue of the Merger and
without any action on the part of the holder thereof, at the Effective Time no
longer be outstanding and shall at such time be canceled and retired and shall
cease at such time to exist, and each holder of a certificate which prior to the
Effective Time validly evidenced any such Converted Shares (a "Stock
Certificate") shall thereafter cease to have any rights with respect to such
Converted Shares, except, upon the surrender of the Stock Certificates and a
duly executed and completed letter of transmittal in accordance with Section
1.7, the right to receive the Final Merger Consideration at the times and in the
manner set forth herein.
1.7 Exchange of and Payment for Stock.
1.7.1 Delivery of Company Common Stock and Closing Merger
Consideration. Prior to the Closing, the Parent will deliver to each of the
Shareholders a letter of transmittal, in substantially the form attached hereto
as Exhibit 1.7, to be used for the purpose of surrendering to Parent the Stock
Certificates in exchange for the right to receive the Final Merger Consideration
with respect to all of the Converted Shares evidenced by such Stock
Certificate. All of the Company Common Stock held by each Shareholder will be
surrendered by such Shareholder to the Parent together with a properly completed
and executed letter of transmittal (with each signature guaranteed by a
commercial bank or notarized by a notary public or similar official reasonably
satisfactory to the Parent), and the Parent shall cause to be delivered to such
Shareholder at the Closing the Closing Merger Consideration (determined in
accordance with Exhibit 1) applicable to the Converted Shares evidenced by the
Stock Certificates properly surrendered (with a properly executed and completed
letter of transmittal) by such Shareholder to the Parent.
1.7.2 Assignments. No assignment, transfer or other disposition of
record or beneficial ownership of any shares of Company Common Stock shall be
made on or after the date hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of
the Closing Merger Consideration to the Shareholders with respect to their
Converted Shares shall be deemed to be payment in full
Agreement and Plan of Merger/Page 3
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satisfaction of all rights pertaining to the outstanding Converted Shares except
for the right to receive additional shares of Parent Common Stock pursuant to
Section 1.9.
1.8 Determination of Closing Merger Consideration.
1.8.1 Delivery of IPO Price to Public; Statement. Within five
business days after the Parent and its underwriters agree on the initial price
to the public for a share of Parent Common Stock offered in the IPO, as set
forth in an executed underwriting agreement, the Parent shall deliver to the
Shareholders a written notice (the "Price Notice") setting forth such initial
price to the public and a statement setting forth a calculation, reviewed by
KPMG Peat Marwick LLP ("KPMG"), of the Closing Outstanding Common Stock Number
(as determined in accordance with Exhibit 1 attached hereto), the Closing Per
Share Common Stock Amount and the Closing Merger Consideration payable to the
Shareholders at Closing (the "Statement of Closing Consideration"). The initial
price to the public of a share of Parent Common Stock, as set forth in the Price
Notice, and the Closing Merger Consideration as set forth in the Statement of
Closing Consideration shall be final, conclusive and binding for purposes of
this Agreement.
1.9 Post-Closing Determination of Final Merger Consideration.
1.9.1 Statement. No later than 90 days after the Closing, the
Parent shall deliver to the Shareholders a statement showing the Final
Outstanding Common Stock Number (as determined in accordance with Exhibit 1
attached hereto), and the Final Merger Consideration (the "Statement of Final
Per Share Amounts"). Operating EBITDA shall have the meaning ascribed on
Exhibit 1.
1.9.2 Review. After delivery to the Shareholders of the Statement
of Final Per Share Amounts, the Shareholders and their representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number and
the Final Merger Consideration as shown on the Statement of Final Per Share
Amounts shall be final, conclusive and binding for purposes of this Agreement,
unless the Shareholders shall deliver to the Parent a written notice of
disagreement ("Notice of Dispute") with any item or items in the Statement of
Final Per Share Amounts within 20 business days following receipt of the
Statement of Final Per Share Amounts, specifying in reasonable detail the nature
and extent of such disagreement; provided, however, that no Notice of Dispute
may be given unless the cumulative effect of such items would change the amount
of the Total Consideration (as defined in Exhibit 1) by $10,000 or more. If a
Notice of Dispute is not properly given within such time, the Final Outstanding
Common Stock Number and the Final Merger Consideration as set forth in the
Statement of Final Per Share Amounts shall be final, conclusive and binding for
purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholders shall not reach
such resolution within 30 days following receipt by the Parent of a properly
given Notice of Dispute, the dispute shall be referred to any of the "big six"
independent accounting firms which may be agreed to by Parent and the
Shareholders ("Accountants") (other than any such firm that serves as the
regular accountants for Parent, the Company or any of the Shareholders), who
shall resolve such dispute within 30 days after its submission to them. In the
event that Parent and the Shareholders cannot agree on the firm to serve as the
Accountants, Parent and the Shareholders shall promptly refer the selection to
KPMG, and the "big six" accounting firm selected by KPMG shall be the
Accountants for purposes of this Agreement. The Parent and the Shareholders (if
the dispute is resolved by them
Agreement and Plan of Merger/Page 4
<PAGE>
or the Statement of Final Per Share Amounts otherwise becomes final pursuant
hereto without referral to the Accountants) or the Accountants (if a dispute is
resolved by them) shall set forth such resolution in writing and such writing
shall (i) set forth the Final Outstanding Common Stock Number and the Final
Merger Consideration and (ii) be final, conclusive and binding for purposes of
this Agreement. The cost of the Accountants for making such determination shall
be paid by the parties in the same ratio as the resolution of the disputed
items. This sharing of cost can be illustrated by the following example: Assume
that the parties have been unable to agree on items which if resolved in favor
of the Shareholders would increase the Total Consideration by $100,000. If the
Accountants resolve all items in favor of either party, the other party will pay
the costs of the Accountants. If the Accountants resolve the items such that the
Total Consideration is increased by $75,000, the cost of the Accountants would
be paid 75% by the Parent and 25% by the Shareholders.
1.9.5 Final Determination. Within 10 business days following the
final determination of the Final Outstanding Common Stock Number and the Final
Merger Consideration as provided in this Section 1.9 (i) the Parent shall
deliver to each Shareholder, as applicable, (a) the cash amount, if any, by
which the aggregate of the cash amount included in the Final Merger
Consideration payable to such Shareholder, as finally determined pursuant
hereto, exceeds the aggregate of the cash amount included in the Closing Merger
Consideration paid to such Shareholder at the Closing, and (b) the number of
shares of Parent Common Stock, if any, by which the aggregate of the number of
shares of Parent Common Stock included in the Final Merger Consideration
deliverable to such Shareholder, as finally determined pursuant hereto, exceeds
the aggregate of the number of shares of Parent Common Stock included in the
Closing Merger Consideration delivered to such Shareholder at the Closing, or
(ii) the Shareholder shall deliver to the Parent, as applicable, (a) the cash
amount, if any, by which the aggregate of the cash amount included in the
Closing Merger Consideration paid to such Shareholder at the Closing exceeds the
aggregate of the cash amount included in the Final Merger Consideration payable
to such Shareholder, as finally determined pursuant hereto, and (b) the number
of shares of Parent Common Stock, if any, by which the aggregate of the number
of shares of Parent Common Stock included in the Closing Merger Consideration
delivered to such Shareholder at the Closing exceeds the aggregate of the number
of shares of Parent Common Stock included in the Final Merger Consideration
deliverable to such Shareholders, as finally determined pursuant hereto.
1.9.6 Expenses. The Parent and the Shareholders shall each pay their
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders hereby represent and warrant to
the Parent and Merger Sub as follows:
2.1 Exhibit 2. The Company and each Shareholder represent that the
statements in Exhibit 2 attached hereto are true and correct.
2.2 Stock Ownership. The Company and each Shareholder represent that
such Shareholder owns, beneficially and of record, with full power to vote, the
number of shares of Company Common Stock set forth beside such Shareholder's
name on Exhibit 2.2 and such shares are so held by him free and clear of all
liens, encumbrances and adverse claims whatsoever.
2.3 Authority. Each Shareholder has full right, power, legal capacity
and authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by him (each a "Shareholder Related Document")
and (ii)
Agreement and Plan of Merger/Page 5
<PAGE>
consummate the transactions contemplated herein and thereby. This Agreement has
been duly executed and delivered by him and constitutes, and each Shareholder
Related Document to which he is a party, when duly executed and delivered by him
will constitute, legal, valid and binding obligations enforceable against him in
accordance with their respective terms and conditions, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a proceeding at law or
in equity).
2.4 Consents. No approval, consent, order or action of or filing with
any court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by him of this Agreement or
any Shareholder Related Document to which he is a party, except for the filing
of the Articles of Merger under Applicable Corporate Law. The execution,
delivery and performance by him of this Agreement and the Shareholder Related
Documents to which he is a party do not violate any mortgage, indenture,
contract, agreement, lease or commitment or other instrument of any kind to
which he is a party or by which he or his assets or properties may be bound or
affected or any law, rule or regulation applicable to him or any court
injunction, order or decree or any valid and enforceable order of any
governmental agency in effect as of the date hereof having jurisdiction over
him.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
warrants to the Shareholders and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. The total authorized capital
stock of Parent is as set forth and described in Parent's confidential
information statement delivered to Shareholders in connection with the
transactions contemplated by this Agreement. The outstanding shares of Parent
Common Stock and Parent Preferred Stock have been duly and validly issued and
are fully paid and non-assessable.
3.1.3 Authority. The Parent has the requisite, power and
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby (the "Parent Related
Documents") and to consummate the transactions contemplated herein and thereby.
This Agreement has been duly executed and delivered by the Parent and
constitutes, and all the Parent Related Documents, when executed and delivered
by the Parent will constitute, legal, valid and binding obligations of the
Parent, enforceable in accordance with their respective terms and conditions
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
3.1.4 Consents. No approval, consent, order or action of or filing
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by the Parent of
this Agreement or the Parent Related Documents or the consummation by the Parent
of the transactions contemplated hereby, except for (i) the filing of the
Parent's registration statement with respect to the IPO ("Registration
Statement") with the U.S. Securities and Exchange Commission ("SEC") pursuant to
the Securities Act and the SEC's declaration of effectiveness of such
Registration Statement and the completion of all necessary filings required
under, and the obtaining of all necessary consents and approvals required
Agreement and Plan of Merger/Page 6
<PAGE>
pursuant to, state securities or "blue sky" laws in connection with the IPO, and
(ii) the filing of the Articles of Merger with the Secretary of State of
Florida.
3.1.5 Defaults. The Parent is not in default under or in
violation of, and the execution, delivery and performance of this Agreement and
the Parent Related Documents and the consummation by the Parent of the
transactions contemplated hereby and thereby will not result in a default under
or in violation of (i) any mortgage, indenture, charter or bylaw provision,
contract, agreement, lease, commitment or other instrument of any kind to which
the Parent is a party or by which the Parent or any of its properties or assets
may be bound or affected or (ii) any law, rule or regulation applicable to the
Parent or any court injunction, order or decree, or any valid and enforceable
order of any governmental agency in effect as of the date hereof having
jurisdiction over the Parent, which default or violation prevents the Parent
from consummating the transactions contemplated hereby or is reasonably likely
to have a Parent Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain
financial statements to the Shareholders ("Parent Financial Statements") and
such Parent Financial Statements have been prepared in accordance with GAAP and
fairly present the consolidated financial position, results of operations and
cash flows of the Parent and its then existing consolidated subsidiaries as of
the dates and for the periods indicated, subject to normal year-end adjustments
and any other adjustments described therein or in the notes or schedules
thereto. The books and records of the Parent have been kept in reasonable
detail and accurately and fairly reflect the transactions of the Parent. Such
Balance Sheets present accurately and fairly in all material respects the
financial condition of the Parent as of the dates indicated thereon, and such
Statements of Earnings and Retained Earnings present accurately and fairly in
all material respects the results of the Parent's operations for the periods
indicated thereon. The Parent does not have any material liabilities or
obligations of a type which should be included in or reflected on such financial
statements if prepared in accordance with GAAP, whether related to tax or non-
tax matters, accrued or contingent, due or not yet due, liquidated or
unliquidated, or otherwise, except as and to the extent disclosed or reflected
in such financial statements.
3.1.8 Taxes. The Parent and each of its Subsidiaries have either
accrued, discharged or caused to be discharged, as the same have become due, or
the Parent Financial Statements contain adequate accruals and reserves for, all
taxes, interest thereon, fines and penalties of every kind and character,
attributable or relating to the properties and business of the Parent for the
period ended December 31, 1996.
3.1.9 Full Authority. The Parent has the corporate power and
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law, as
defined in Exhibit 2) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation,
the failure to obtain which is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental Law), ordinances, rules and regulations
of any governmental agency of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, all applicable court or
administrative agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition or
state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
Agreement and Plan of Merger/Page 7
<PAGE>
3.1.10 Access. The Parent has cooperated fully in permitting the
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholders pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under which
they are or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification
of the Merger as a reorganization within the meaning of Section 368(a) of the
Code:
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code) at
the time of such transfer, or to cause the Surviving Corporation to sell or
otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of its historic
business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective expenses,
if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection
with the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any other
right pursuant to which any person could acquire stock in the Parent or
Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
Agreement and Plan of Merger/Page 8
<PAGE>
(viii) None of the Parent Common Stock received by Shareholders as a
part of the Merger Consideration will be separate consideration for, or
allocable to, any employment agreement.
(ix) Neither the Parent nor Merger Sub is under the jurisdiction
of a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.2 Representations and Warranties Concerning the Merger Sub. The Parent
and Merger Sub, jointly and severally, hereby represent and warrant to the
Shareholders and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Florida.
3.2.2 Capital Structure. The authorized capital stock of Merger
Sub consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and authority
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by Merger Sub of its obligations hereunder and the consummation
of the transactions contemplated hereby have been duly authorized by its Board
of Directors and the Parent as its sole shareholder, and, except for the
corporate filings required by state law, no other corporate proceedings on the
part of Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
3.2.4 Consents. No approval, consent, order or action of or filing
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by Merger Sub of
this Agreement or the consummation by Merger Sub of the transactions
contemplated hereby, except for (i) the filing of the Registration Statement
with the SEC pursuant to the Securities Act and the SEC's declaration of
effectiveness of such Registration Statement and the completion of all necessary
filings required under, and the obtaining of all necessary consents and
approvals required pursuant to, state securities or "blue sky" laws in
connection with the IPO, and (ii) the filing of the Articles of Merger with the
Secretary of State of Florida.
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of Shareholders to be Effective Upon Closing. Effective
upon Closing, and without further action on the part of any party or other
person, each Shareholder covenants and agrees as follows:
4.1.1 Covenant Not to Compete. For the considerations specified
in this Agreement and in recognition that the covenants by the Shareholders in
this Section are a material inducement to the Parent to enter into and perform
this Agreement:
(i) David J. Oliver, IV agrees that for the period from the
Closing Date to the later to occur of (1) three years after the Closing Date
or (2) two years following any termination of the employment relationship by
the Company, he will not represent, engage in, carry on, or have a financial
interest in,
Agreement and Plan of Merger/Page 9
<PAGE>
directly or indirectly, individually, as a member of a partnership or
limited liability company, equity owner, shareholder (other than as a
shareholder of less than one percent of the issued and outstanding stock of
a publicly-held company whose gross assets exceed $100 million), investor,
officer, director, trustee, manager, employee, agent, associate or
consultant, any business that involves indoor air quality, heating,
ventilation and air conditioning, mechanical construction, plumbing, sewer
cleaning, or electrical contracting (the "Business") within a 100 mile
radius of the Company's current headquarters in Hollywood, Florida;
provided, however, if (i) the Company terminates the Employment of David J.
Oliver, IV without Cause (as defined in the Employment Agreement) or (ii)
David J. Oliver, IV terminates his employment with the Company for Employee
Cause (as defined in the Employment Agreement), then the applicable non-
compete period following such termination shall be the same as the period
over which the Company is required to provide benefits under terms of the
Employment Agreement in the event of termination without cause; and provided
further, that if Employee's employment terminates at the expiration of the
initial term or any renewal term of Employee's employment agreement with the
Company, there shall be no applicable non-compete period after such
termination of employment.
(ii) Each of James H. Cottom and William Catron (individually, a
"Non-Employee Shareholder," and collectively, the "Non-Employee
Shareholders") agrees that for the period of three years following the
Closing Date, he will not represent, engage in, carry on, or have a
financial interest in, directly or indirectly, individually, as a member of
a partnership or limited liability company, equity owner, shareholder (other
than as a shareholder of less than one percent of the issued and outstanding
stock of a publicly-held company whose gross assets exceed $100 million),
investor, officer, director, trustee, manager, employee, agent, associate or
consultant, any Business within a 100 mile radius of the Company's current
headquarters in Hollywood, Florida; provided, however, that the Non-Employee
Shareholders and their current and future affiliates shall be permitted to
engage in the business of commercial and institutional mechanical
construction as currently conducted by such affiliated companies, and such
business activity shall not result in violation of their covenants not to
compete contained hereinabove; and provided, further, that the foregoing
covenants not to compete shall cease to be binding on affiliates of the Non-
Employee Shareholders at such time as the Non-Employee Shareholders cease to
be owners of such affiliates.
(iii) During the three year term set forth in this Subsection
4.1.1(ii) above and following the expiration thereof, none of the Non-
Employee Shareholders, Southeast Mechanical Contractors, Inc. ("SMC"), nor
any of their affiliates will market commercial HVAC maintenance services of
the nature conducted by the Company under any name using "Southeast
Mechanical" in (1) Dade, (2) Braword and (3) Palm Beach Counties, Florida
except to prior commercial or institutional mechanical construction
customers of SMC. In that regard, the Non-Employee Shareholders will cause
SMC to observe and comply with the covenant provided in the immediately
preceding sentence in all events, including following any future sale of SMC
by the Non-Employee Shareholders.
(iv) Each Non-Employee Shareholder agrees that he shall, and that
he shall cause each affiliate in which he, alone or together with the other
Non-Employee Shareholder, owns a majority interest to, use their and his
reasonable efforts to refer to the Company all HVAC mechanical service and
maintenance business for a period of three years following the Closing Date.
(v) Each Shareholder agrees that the limitations set forth herein
on such Shareholder's rights to compete with the Parent and its affiliates
as set forth in this Section 4.1.1 are reasonable and necessary for the
protection of Parent and its affiliates. In this regard, each Shareholder
specifically agrees that the limitations as to period of time and geographic
area, as well as all other restrictions on the Shareholder's activities
specified herein, are reasonable and necessary for the protection of the
Parent and its affiliates.
Agreement and Plan of Merger/Page 10
<PAGE>
Each Shareholder agrees that, in the event that the provisions of this
Section should ever be deemed to exceed the scope of business, time or
geographic limitations permitted by applicable law, such provisions shall be
and are hereby reformed to the maximum scope of business, time or geographic
limitations permitted by applicable law.
(vi) Each Shareholder agrees that the remedy at law for any breach
by such Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, the
Shareholders do hereby (i) release, acquit and forever discharge the Surviving
Corporation from any and all liabilities, obligations, claims, demands, actions
or causes of action arising from or relating to any event, occurrence, act,
omission or condition occurring or existing on or prior to the Effective Time
("Existing Claims"), including, without limitation, any claim for indemnity or
contribution from the Surviving Corporation in connection with the obligations
or liabilities of the Shareholders hereunder, except for salary and benefits
payable to a Shareholder as an employee in the ordinary course of business and
except for Existing Claims of the Shareholders as employees which are not known,
and which in the exercise of due diligence could not reasonably be expected to
be known as of the date of this Agreement, to the extent, but only to the
extent, that such Existing Claims are covered by insurance of the Company or the
Surviving Corporation; (ii) waive all breaches, defaults or violations of any
agreement applicable to the Company Common Stock and agree that any and all such
agreements are terminated as of the Effective Time, and (iii) waive any and all
preemptive or other rights to acquire any shares of capital stock of the Company
and release any and all claims arising in connection with any prior default,
violation or failure to comply with or satisfy any such preemptive or other
rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholders will
produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described on Exhibit 4.2 hereto have been eliminated
as expenses of the Company as of and following the Closing Date.
4.3 Shareholder Indebtedness and Receivables. Immediately prior to
Closing, the Shareholders shall cause to be paid in full in cash all accounts
payable, notes payable and advances payable by any Shareholder to the Company
and the Company shall pay in full in cash all accounts payable, notes payable
and advances payable by the Company to any Shareholder.
4.4 Assignment of Accounts Receivable. Within 90 days after the Closing
Date, Parent may elect to assign to Shareholders any accounts receivable that
were part of the calculation of Current Assets (as determined in accordance with
Exhibit 1 attached hereto) and which remain uncollected for 60 days or more, and
Shareholders shall purchase such accounts receivable from Parent for cash in the
amount of the uncollected face amount. Thereafter, the Surviving Corporation
shall use reasonable efforts to assist the Shareholders in collecting such
receivables, provided that the Surviving Corporation shall not be required to
make any expenditures in connection with such assistance.
4.5 Audit. Prior to Closing, KPMG shall complete an audit of the
Company through June 30, 1997 and such additional review work as may be
requested by the Parent through and including the Closing Date (or other periods
subsequent to June 30, 1997), and provide its report to the Parent and the
Shareholders.
4.6 Pre-Closing Covenants and Agreements. The Shareholders and the
Company jointly and severally agree as set forth in Exhibit 4.6 attached hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the Parent,
Merger Sub, the Company or the Shareholders will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The
Agreement and Plan of Merger/Page 11
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Company may make appropriate disclosures of the general nature of the Merger
to its employees, vendors and customers to protect the Company's goodwill and to
facilitate the Closing. The Parent and Merger Sub may disclose pertinent
information regarding the Merger to its existing and prospective investors,
lenders, or investment bankers or financial advisors for the purpose of
obtaining financing, including, without limitation, financing related to the IPO
or other offerings of its securities may describe this Agreement and the
transactions contemplated hereby in any registration statement filed by the
Parent under the Securities Act and in reports filed by the Parent under the
Securities Exchange Act of 1934, and may file this Agreement as an exhibit to
any thereof. The Parent may also make appropriate disclosures of the general
nature of the Merger and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the Parent's
efforts to effect additional acquisitions. Each party will have mutual approval
rights with respect to written employee presentations concerning the prospective
merger.
4.8 Tax-Free Reorganization. Unless the other parties shall otherwise
agree in writing, none of the Shareholders, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action,
which action or failure to act would jeopardize the qualification of the Merger
as a reorganization withing the meaning of Section 368(a) of the Code.
4.9 License of Company Logo. On the Closing Date, the Shareholders
will cause Southeast Mechanical Contractors, Inc. to execute a non-exclusive
license agreement authorizing Parent and the Surviving Corporation to use the
trademark and logo set forth on Exhibit 4.9 hereto to the extent of its rights
therein without charge. The license agreement shall not contain representations
or warranties regarding the rights of licensor in the licensed property.
4.10 Release of Shareholder Guaranties. Within 30 days after the
Closing Date, Parent will cause the Shareholders to be released from any
liability under personal guaranties of the indebtedness of the Company; provided
that the indebtedness so guaranteed does not exceed funded debt on the books of
the Company.
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. Except as set
forth in the certificate to be delivered at Closing, the representations and
warranties of the Shareholders and the Company contained in this Agreement, in
Exhibit 2 and the Disclosure Schedule referred to therein and the other Exhibits
provided by the Shareholders or the Company pursuant to this Agreement or in any
closing certificate or document delivered to the Parent pursuant hereto shall be
true and correct at and as of the Closing Date as though made at and as of that
time other than such representations and warranties as are specifically made as
of another date, and the Shareholders and the Company shall each have delivered
to the Parent and Merger Sub a certificate to that effect and listing any
exception thereto.
5.1.2 Performance of Covenants. Except as set forth in the
certificate to be delivered at Closing, the Shareholders and the Company shall
have performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date, and the Shareholders
and the Company shall each have delivered to the Parent and Merger Sub a
certificate to that effect and listing any exception thereto.
5.1.3 Legal Actions or Proceedings. Except as set forth in the
certificate to be delivered at Closing, no legal action or proceeding shall have
been instituted after the date hereof against the Company or
Agreement and Plan of Merger/Page 12
<PAGE>
against the Parent or Merger Sub arising by reason of the acquisition of the
Company pursuant to this Agreement, which is reasonably likely (i) to restrain,
prohibit or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholders and the
Company shall each have delivered to the Parent and Merger Sub a certificate to
that effect and listing any exception thereto.
5.1.4 Approvals. Except as set forth in the certificate to be
delivered at Closing, the Company and the Shareholders shall have procured all
of the consents, approvals and waivers of third parties or any regulatory body
or authority, whether required contractually or by applicable law or otherwise
necessary for the execution, delivery and performance of this Agreement
(including the Company Related Documents and the Shareholder Related Documents)
by the Company and the Shareholders prior to the Closing Date, and Shareholders
and the Company shall each have delivered to the Parent and the Merger Sub a
certificate to that effect and listing any exception thereto.
5.1.5 Closing Deliveries. All documents required to be executed
or delivered at Closing by the Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No material casualty, loss or
damage shall have occurred on or prior to the Effective Time to any of the
properties or assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there
shall not have been any event that in the reasonable judgment of the Parent
materially adversely affects the properties, assets, financial condition,
results of operations, cash flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
Company. The obligations of the Shareholders and the Company under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholders and the Company in writing:
5.2.1 Accuracy of Representations and Warranties. The
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered to the
Shareholders or the Company pursuant hereto shall be true and correct on and as
of the Closing Date as though made at and as of that date other than such
representations and warranties as are specifically made as of another date, and
the Parent and Merger Sub shall have delivered to the Shareholders and the
Company a certificate to that effect.
5.2.2 Performance of Covenants. Parent and Merger Sub shall have
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Closing Date
Agreement and Plan of Merger/Page 13
<PAGE>
and the Parent and Merger Sub shall have delivered to the Shareholders and the
Company a certificate to such effect.
5.2.3 Approvals. The Parent shall have procured all of the
consents, approvals and waivers specified in Section 3.1.4 prior to the Closing
Date, and the Parent shall deliver to the Shareholders and the Company a
certificate to that effect.
5.2.4 Closing Deliveries. All documents and the Closing Merger
Consideration required to be executed or delivered at Closing by the Parent
pursuant to Section 5.4 of this Agreement shall have been so executed and
delivered.
5.2.5 IPO. The Parent shall have completed the IPO on terms
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.2.6 Payment of Net Amounts to Shareholders. The Parent, or Merger
Sub as the surviving corporation, shall pay to the Shareholders in cash the net
amount owing by the Company to each Shareholder as indicated on the books of the
Company; provided, however the aggregate amount of such payments to all
Shareholders, collectively, shall not exceed $372,000, reduced by the amount of
shareholder payables to the Company, if any, at the Closing Date.
5.3 Deliveries by the Shareholders at the Closing. At the Closing,
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders and
the Company pursuant to any other transaction document at the Closing, the
Shareholders shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders and the Company
shall deliver the certificates required pursuant to Sections 5.1.1, 5.1.2,
5.1.3, 5.1.4 and 5.1.5.
5.3.2 Stock Transfer Restriction Agreement. Each Shareholder
shall execute and deliver a Stock Transfer Restriction Agreement on the Closing
Date, effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.2.
5.3.3 Employment Agreement. David J. Oliver, IV shall execute and
deliver an Employment Agreement with the Company on the Closing Date, effective
as of the Effective Time, substantially in the form set forth in Exhibits 5.3.3.
5.3.4 Lease Agreement. The Shareholders shall cause the owner of
the property located at 2100 S. W. 57th Terrace, Hollywood, Florida 33023, to
execute and deliver a lease agreement with the Company in the form attached as
Exhibit 5.3.4.
5.3.5 Registration Rights Agreement. Each Shareholder shall
execute and deliver a Registration Rights Agreement at the Closing, effective as
of the Effective Time, substantially in the form set forth in Exhibit 5.3.5
attached hereto, as applicable.
5.3.6 Opinion of Counsel for the Shareholders and the Company.
The Shareholders shall deliver the favorable opinion of White & Case, counsel to
the Shareholders and the Company, dated the Effective Time, substantially in the
form and to the effect set forth in Exhibit 5.3.6 attached hereto.
5.3.7 Documents, Stock Certificates. The Shareholders shall execute
and deliver, and shall cause the Company to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Company or its officers or directors or any Shareholder at the
Agreement and Plan of Merger/Page 14
<PAGE>
Closing as contemplated hereby or as may be reasonably requested by the Parent
and shall deliver or cause to be delivered the documents and evidence required
under Section 4. Stock Certificates representing all of the outstanding Company
Common Stock and a properly executed and completed letter of transmittal shall
be delivered by the Shareholders to the Parent.
The Parent and the Merger Sub may terminate this Agreement if in their
reasonable judgment the items disclosed on the certificates required to be
delivered by the Shareholders and the Company pursuant to Section 5.3.1,
individually or collectively, materially adversely affects the properties,
assets, financial condition, results of operations, cash flows, business or
prospects of the Company. In such event all parties to this Agreement shall be
relieved of all obligations hereunder except for the provisions of Section 8.20
which shall survive such termination.
The consummation of the Closing shall not be deemed to be a waiver by the
Parent or the Surviving Corporation of any of their rights or remedies hereunder
for any breach of warranty, covenant or agreement by the Company or the
Shareholders herein irrespective of any knowledge of or investigation made by or
on behalf of the Parent or Merger Sub, except to the extent that a specified
breach of the Company or the Shareholders of a specifically identified
representation, warranty, covenant or agreement herein shall be identified on a
certificate delivered to Parent and the Merger Sub at Closing by the Company or
the Shareholders. If the Parent and the Merger Sub elect to consummate the
Closing, the Parent and the Merger Sub shall be deemed to have waived their
rights and remedies hereunder for, and the Company and the Shareholders shall
have no liability or obligation to the Parent or the Merger Sub with respect to
any such specifically identified breach to the extent so identified by the
Company or the Shareholders.
5.4 Deliveries by the Parent at the Closing. At the Closing,
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall
deliver the certificates required pursuant to Sections 5.2.1, 5.2.2, 5.2.3 and
5.2.4.
5.4.2 Stock Transfer Restriction Agreement. The Company shall
execute and deliver a Stock Transfer Restriction Agreement with each Shareholder
on the Closing Date, effective as of the Effective Time, substantially in the
form set forth in Exhibit 5.3.2.
5.4.3 Employment Agreement. The Company shall execute and deliver
an Employment Agreement with the David J. Oliver, IV on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibits 5.3.3.
5.4.4 Lease Agreement. The Company, as lessee, shall execute and
deliver a lease agreement in the form attached as Exhibit 5.3.4 with respect to
the property located at 2100 S. W. 57th Terrace, Hollywood, Florida 33023, with
the owner of thereof.
5.4.5 Registration Rights Agreement. The Parent shall execute and
deliver to each of the Shareholders a Registration Rights Agreement at the
Closing, effective as of the Effective Time, substantially in the form set forth
in Exhibit 5.3.5.
5.4.6 Opinion of Counsel for the Parent and Merger Sub. The
Parent shall deliver the favorable opinion of Chamberlain, Hrdlicka, White,
Williams & Martin, dated the Effective Time, substantially in the form and to
the effect set forth in Exhibit 5.4.6.
Agreement and Plan of Merger/Page 15
<PAGE>
5.4.7 Closing Merger Consideration. The Parent shall deliver the
Closing Merger Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for any breach of
warranty, covenant or agreement by the Parent or Merger Sub herein irrespective
of any knowledge of or investigation made by or on behalf of the Shareholders,
except to the extent that a specified breach of the Parent or Merger Sub of a
specifically identified representation, warranty, covenant or agreement herein
shall be identified on a certificate delivered to Shareholders at Closing by the
Parent or Merger Sub. If the Shareholders and the Company elect to consummate
the Closing, the Company and the Shareholders shall be deemed to have waived
their rights and remedies hereunder for, and the Parent and Merger Sub shall
have no liability or obligation to the Shareholders or the Company with respect
to, any such specifically identified breach, to the extent so identified by the
Parent or Merger Sub.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2, 3 and 6, 11, 12 and 18 of Exhibit 2 shall
survive for a period of 12 months after the date hereof. The representations
and warranties of the Shareholders and the Company contained in Section 11 shall
survive for a period of 18 months after the date hereof. The representations
and warranties of the Shareholders and the Company contained in Sections 2.2,
2.3, 2.4 and in Sections 2, 3 and 6, 12 and 18 of Exhibit 2 shall survive for
five years. The representations and warranties of the Parent herein and in the
Parent Related Documents, other than those in Sections 3.1.3 and 3.1.4, shall
survive for a period of 12 months after the date hereof and the representations
and warranties of the Parent contained in Sections 3.1.3 and 3.1.4 shall survive
for five years. The periods of survival of the representations and warranties
as stated above in this Section 6.1 are referred to herein as the "Survival
Period." The liabilities of the parties under their respective representations
and warranties shall expire as of the expiration of the applicable Survival
Period and no claim for indemnification may be made with respect to any breach
of any representation or warranty, the applicable Survival Period of which shall
have expired, except to the extent that written notice of such breach shall have
been given to the party against which such claim is asserted on or before the
date of such expiration. The covenants and agreements of the parties herein
(including but not limited to Exhibit 4.6) and in other documents and
instruments executed and delivered in connection with the closing of the
transactions contemplated hereby shall survive for the maximum period permitted
by law.
6.2 Indemnification.
6.2.1 Parent Indemnified Parties. Subject to the provisions of
Sections 6.1 and 6.3 hereof, the Shareholders, jointly and severally with
respect to representations regarding the Company, and severally with respect to
their individual representation, shall indemnify, save and hold harmless the
Parent, the Surviving Corporation, Merger Sub and any of their assignees
(including lenders) and all of their respective officers, directors, employees,
representatives, agents, advisors and consultants and all of their respective
heirs, legal representatives, successors and assigns (collectively the "Parent
Indemnified Parties") from and against any and all damages, liabilities, losses,
loss of value (including the value of adverse effects on cash flow or earnings),
claims, deficiencies, penalties, interest, expenses, fines, assessments, charges
and costs, including reasonable attorneys' fees and court costs (collectively
"Losses") arising from, out of or in any manner connected with or based on:
Agreement and Plan of Merger/Page 16
<PAGE>
(i) the breach of any covenant of a Shareholder or the Company or
the failure by a Shareholder or the Company to perform any obligation of a
Shareholder or the Company contained herein or in any Company Related
Document or Shareholder Related Document executed by such Shareholder;
(ii) any inaccuracy in or breach of any representation or warranty
of any Shareholder contained herein or in any Shareholder Related Document
executed by such Shareholder;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time on or before the Effective
Time and involving or related to the assets, properties, business or
operations now or previously owned or operated by the Company and not (a)
disclosed in the Disclosure Schedule or (b) disclosed in the Company
Financial Statements (as defined in Exhibit 2).
Notwithstanding anything herein to the contrary (i) the Parent Indemnified
Parties shall not be entitled to indemnification unless and until the Losses
exceed $50,000 in the aggregate, in which event the Parent Indemnified Parties
shall be entitled to indemnification for all Losses in excess of $10,000 in the
aggregate, and (ii) the maximum liability of the Shareholders pursuant to this
Section 6.2.1 shall in no event exceed the amount of the Total Consideration as
defined in Exhibit 1. The foregoing indemnities shall not limit or otherwise
affect the rights of Shareholders with respect to indemnity for Losses under
Section 6.2.2.
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1
and 6.3, the Parent shall indemnify, save and hold harmless the Shareholders and
the Shareholders' heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty
of the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations of
the Company; provided, however, that this clause (iii) shall not apply to
any Losses to the extent that such Losses result from any Shareholder's acts
or omissions after the Effective Time as an officer, director and/or
employee of the Parent, the Surviving Corporation and/or any other affiliate
of the Parent.
Notwithstanding anything to the contrary herein, (i) the Shareholders shall not
be entitled to indemnification unless the Losses exceed $50,000 in the
aggregate, in which event the Shareholders shall be entitled to indemnification
for all Losses in excess of $10,000 in the aggregate, and (ii) the maximum
liability of the Parent and Merger Sub pursuant to this Section 6.2.2 shall in
no event exceed the amount of the Total Consideration as defined in Exhibit 1.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
Agreement and Plan of Merger/Page 17
<PAGE>
6.3 Limitations. The aggregate liability of the Shareholders under
Section 6.2.1 shall not exceed the cash amount equal to the Final Merger
Consideration with the Parent Common Stock being valued at the IPO Price for
such purpose. The aggregate liability of the Parent under Section 6.2.2 shall
not exceed the cash amount equal to the Final Merger Consideration with the
Parent Common Stock being valued at the IPO Price for such purpose.
6.4 Procedures for Indemnification.
6.4.1 Notice. The party (the "Indemnified Party") that may be
entitled to indemnity hereunder shall give prompt notice to the party obligated
to give indemnity hereunder (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 6.4.1 shall relieve the
Indemnifying Party of its obligations under this Article 6 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice (except that the Indemnifying Party shall not be liable for any
expenses incurred by the Indemnified Party during the period in which the
Indemnified Party failed to give such notice). Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, promptly (and in any event within
10 days thereof) after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholders shall at all times have the right, at their option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any
such third-party suit, action, proceeding or investigation, and the defending
party shall have reasonable access to the books and records, and personnel in
the possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to
Agreement and Plan of Merger/Page 18
<PAGE>
which any right of indemnity created by this Agreement would or might apply,
for the purpose of enforcing any right of the indemnity granted to such
Indemnified Party pursuant to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself and
its affiliates (as defined in Exhibit 2) any rights to subrogation against any
Indemnified Party or its insurers for Losses arising from any third-party claims
for which it is liable or against which it indemnifies any Indemnified Party
and, if necessary, each Indemnifying Party shall obtain waivers of such
subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and
the Parent; or
7.1.2 Optional By the Company. By the Company by written notice to
the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of its, his
or her obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to
the Company, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Parent nor Merger Sub
has breached this Agreement or has failed to perform any of its obligations
under this Agreement;
7.1.4 Termination Because of Material Adverse Change. By Parent and
Merger Sub, pursuant to provisions of Section 5.3.7, or by Shareholders and the
Company, pursuant to provisions of Section 5.4.4.
7.1.5 Breach By the Parent or Merger Sub. By the Company, by
written notice to the Parent, if either the Parent or Merger Sub has breached
this Agreement or failed to perform any of its obligations under this Agreement;
or
7.1.6 Breach by the Company or the Shareholders. By the Parent, by
written notice to the Company, if either the Company or any Shareholder has
breached this Agreement or has failed to perform any of its, his or her
obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement except as otherwise provided by this Agreement.
Agreement and Plan of Merger/Page 19
<PAGE>
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below:
To the Shareholders: With a copy to:
Mr. David J. Oliver, IV K. Lawrence Gragg
c/o Southeast Mechanical Service, Inc. White & Case
2100 S. W. 57th Terrace 200 South Biscayne Blvd.,
Hollywood, Florida 33023 Suite 4900
Telecopy: (954) 981-2427 Miami, Florida 33131
Telecopy: (305) 358-5744
Mr. James H. Cottom
Mr. William Catron
2120 S. W. 57th Terrace
Hollywood, Florida 33023
To the Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
or other such address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been given
as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from
time to time after the date hereof, upon request by the Parent and without
further consideration, execute and deliver such instruments or other documents
and take such further action as may be reasonably required in order to perfect
any other undertaking made by the Shareholders hereunder.
8.3 Assignability. No Shareholder shall assign this Agreement in whole
or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of either Shareholder or the Company. After the Effective Time, the
Surviving Corporation may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
any of the Shareholders.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
Agreement and Plan of Merger/Page 20
<PAGE>
8.5 Sections and Articles. Unless the context otherwise requires, all
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full
understanding of the parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of their agreement
relating to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement,
no conditions, usage of trade, course of dealing or performance, understanding
or agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF
THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT
THE APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
Merger Sub and the Company, by action taken by their Boards of Directors to the
extent permitted by applicable law; provided, however, that no such amendment
shall (i) alter or change any provision of this Agreement, the alteration or
change of which must be adopted by the holders of capital stock of the Company
under the certificate or articles of incorporation of the Company or the
Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless each
such alteration or change is adopted by the holders of shares of capital stock
of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent, Merger Sub, the Company and the
Shareholders. After the Effective Time, all amendments to this Agreement must
be by an instrument in writing signed on behalf of the Parent and the
Shareholders. Any term or provision of this Agreement (other than the
requirements for shareholder approvals) may be waived in writing at any time by
the party which is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Except as provided herein, nothing herein
expressed or implied shall confer upon any employee of the Company, any other
employee or legal representatives or beneficiaries of any thereof any rights or
remedies, including any right to employment or continued employment for any
specified
Agreement and Plan of Merger/Page 21
<PAGE>
period, of any nature or kind whatsoever under or by reason of this Agreement,
or shall cause the employment status of any employee to be other than terminable
at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon
the execution and delivery of one or more counterparts of this Agreement by each
of the Parent, Merger Sub, the Company and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control
share acquisition" or other form of anti-takeover statute or regulation shall
become applicable to the transactions contemplated hereby, Parent and the
Company and their respective members of their Boards of Directors shall grant
such approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws, such
provisions shall be fully severable as if such invalid or unenforceable
provisions had never comprised a part of the Agreement; and the remaining
provisions of the Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number
of identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of their own expenses
in connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any broker, legal counsel, accountants, or other advisors engaged by the
Shareholders and shall pay fees and expenses associated with the accounting and
auditing fees and expenses of KPMG up to a maximum of $20,000; and provided
further that all fees, costs and expenses accrued by the Company but not yet
paid (including such accounting and auditing fees and expenses of KPMG) in
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby and the costs of any such broker, legal
Agreement and Plan of Merger/Page 22
<PAGE>
counsel, accountants, or other advisors shall be included in current liabilities
for purposes of determining Working Capital. Notwithstanding the foregoing, if
the representations and warranties of the Company and the Shareholders are true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date (without giving effect to exceptions which may be described on
the certificates to be delivered at Closing) and the Company and the
Shareholders have performed or offered to perform all of their agreements and
covenants herein, and the Parent refuses to conclude the transactions
contemplated by this Agreement, the accounting and auditing fees and expenses of
KPMG will be paid by the Parent.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:
-----------------------------------------------
Chester J. Jachimiec, Executive Vice President
MERGER SUB:
SEMS ACQUISITION CORP.
By:
-----------------------------------------------
Chester J. Jachimiec, Vice President
SHAREHOLDERS:
/s/DAVID J. OLIVER, IV
--------------------------------------------------
David J. Oliver, IV, as Shareholder
/s/JAMES H. COTTOM
--------------------------------------------------
James H. Cottom, as Shareholder
/s/WILLIAM L. CATRON
--------------------------------------------------
William L. Catron, as Shareholder
COMPANY:
SOUTHEAST MECHANICAL SERVICE, INC.
By: /s/DAVID J. OLIVER, IV
-----------------------------------------------
David J. Oliver, IV, President
Agreement and Plan of Merger/Page 23
<PAGE>
EXHIBIT 10.25
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
VAN'S ACQUISITION CORP.
VAN'S COMFORTEMP AIR CONDITIONING, INC.
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
VAN'S COMFORTEMP AIR CONDITIONING, INC.
August 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
1. THE MERGER...................................................................... 1
1.1 The Merger............................................................... 1
1.2 Effective Time of the Merger............................................. 1
1.3 Closing.................................................................. 1
1.4 Effects of the Merger.................................................... 2
1.4.1 At the Effective Time............................................. 2
1.4.2 Effects on the Surviving Corporation.............................. 2
1.5 Written Consents and Other Actions....................................... 3
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters...... 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub............. 3
1.5.3 All Other Necessary Actions....................................... 3
1.6 Conversion of Stock...................................................... 3
1.6.1 Merger Sub Capital Stock.......................................... 3
1.6.2 Cancellation of the Company Treasury Stock........................ 3
1.6.3 Merger Consideration.............................................. 3
1.7 Exchange of and Payment for Stock........................................ 4
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration. 4
1.7.2 Assignments....................................................... 4
1.7.3 Payment In Full Satisfaction of All Rights........................ 4
1.8 Determination of Closing Merger Consideration............................ 4
1.8.1 Delivery of IPO Price to Public; Statement........................ 4
1.9 Post-Closing Determination of Total Consideration........................ 4
1.9.1 Statement......................................................... 4
1.9.2 Review............................................................ 5
1.9.3 Disputes.......................................................... 5
1.9.4 Resolution by Parties............................................. 5
1.9.5 Final Determination............................................... 5
1.9.6 Expenses.......................................................... 6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER............... 6
2.1 Exhibit 2................................................................ 6
2.2 Stock Ownership.......................................................... 6
2.3 Authority................................................................ 6
2.4 Consents................................................................. 6
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB..................... 7
</TABLE>
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<TABLE>
<S> <C>
3.1 Representations and Warranties........................................... 7
3.1.1 Organization...................................................... 7
3.1.2 Capitalization of the Parent...................................... 7
3.1.3 Authority......................................................... 7
3.1.4 Consents.......................................................... 7
3.1.5 Defaults.......................................................... 7
3.1.6 Investment Company................................................ 8
3.1.7 Financial Statements.............................................. 8
3.1.8 Taxes............................................................. 8
3.1.9 Full Authority.................................................... 8
3.1.10 Access............................................................ 8
3.1.11 Disclosure........................................................ 8
3.1.12 Parent Material Adverse Effect.................................... 9
3.1.13 Tax-Free Reorganization........................................... 9
3.2 Representations and Warranties Concerning the Merger Sub................. 10
3.2.1 Organization and Standing......................................... 10
3.2.2 Capital Structure................................................. 10
3.2.3 Authority.......................................................... 10
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS.......................... 10
4.1 Agreements of the Shareholders to be Effective Upon Closing.............. 10
4.1.1 Covenant Not to Compete........................................... 10
4.1.2 Release........................................................... 11
4.2 Elimination of Expense................................................... 11
4.3 Deferred Compensation Plans.............................................. 11
4.4 Audit.................................................................... 11
4.5 Certain Payables and Receivables......................................... 12
4.6 Pre-Closing Covenants and Agreements..................................... 12
4.7 Confidentiality.......................................................... 12
4.8 Tax-Free Reorganization.................................................. 12
4.9 Company Plans............................................................ 12
4.10 Employee Options......................................................... 12
4.11 Purchase of Certain Receivables.......................................... 13
4.12 The Parent Plans......................................................... 13
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES....................................... 13
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub..... 13
5.1.1 Accuracy of Representations and Warranties........................ 13
5.1.2 Performance of Covenants.......................................... 13
5.1.3 Legal Actions or Proceedings...................................... 13
5.1.4 Approvals......................................................... 14
5.1.5 Closing Deliveries................................................ 14
5.1.6 No Casualty, Loss or Damage....................................... 14
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5.1.7 Licenses, etc..................................................... 14
5.1.8 No Material Adverse Change........................................ 14
5.1.9 IPO............................................................... 14
5.1.10 Certain Corporate Actions......................................... 14
5.2 Conditions Precedent to the Obligations of the Shareholders and the
Company................................................................. 14
5.2.1 Accuracy of Representations and Warranties........................ 14
5.2.2 Performance of Covenants.......................................... 14
5.2.3 Approvals......................................................... 15
5.2.4 Closing Deliveries................................................ 15
5.3 Deliveries by the Shareholders at the Closing............................ 15
5.3.1 Closing Certificates.............................................. 15
5.3.2 Stock Transfer Restriction Agreement.............................. 15
5.3.3 Employment Agreements............................................. 15
5.3.4 Lease Agreement................................................... 15
5.3.5 Registration Rights Agreement..................................... 15
5.3.6 Opinion of Counsel for the Shareholders and the Company........... 15
5.3.7 Documents, Stock Certificates..................................... 15
5.3.8 Discharge of Indebtedness, Releases, Etc.......................... 16
5.4 Deliveries by the Parent at the Closing.................................. 16
5.4.1 Closing Certificates.............................................. 16
5.4.2 Registration Rights Agreement..................................... 16
5.4.3 Opinion of Counsel for the Parent and Merger Sub.................. 16
5.4.4 Closing Merger Consideration...................................... 16
6. SURVIVAL, INDEMNIFICATIONS...................................................... 17
6.1 Survival................................................................. 17
6.2 Indemnification.......................................................... 17
6.2.1 Parent Indemnified Parties........................................ 17
6.2.2 Parent Indemnity.................................................. 18
6.3 Limitations.............................................................. 18
6.4 Procedures for Indemnification........................................... 18
6.4.1 Notice............................................................ 19
6.4.2 Legal Defense..................................................... 19
6.4.3 Settlement........................................................ 19
6.4.4 Cooperation....................................................... 19
6.5 Subrogation.............................................................. 20
7. TERMINATION.................................................................... 20
7.1 Grounds for Termination.................................................. 20
7.1.1 Mutual Consent.................................................... 20
7.1.2 Optional By the Company........................................... 20
7.1.3 Optional By the Parent............................................ 20
7.1.4 Breach By the Parent or Merger Sub................................ 20
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7.1.5 Breach by the Company or any Shareholder.......................... 20
7.2 Effect of Termination.................................................... 20
8. MISCELLANEOUS................................................................... 20
8.1 Notice................................................................... 20
8.2 Further Documents........................................................ 21
8.3 Assignability............................................................ 21
8.4 Exhibits and Schedules................................................... 21
8.5 Sections and Articles.................................................... 21
8.6 Entire Agreement......................................................... 21
8.7 Headings................................................................. 22
8.8 CONTROLLING LAW.......................................................... 22
8.9 Public Announcements..................................................... 22
8.10 No Third Party Beneficiaries............................................. 22
8.11 Amendments and Waivers................................................... 22
8.12 No Employee Rights....................................................... 22
8.13 Non-Recourse............................................................. 23
8.14 When Effective........................................................... 23
8.15 Takeover Statutes........................................................ 23
8.16 Number and Gender of Words............................................... 23
8.17 Invalid Provisions....................................................... 23
8.18 Multiple Counterparts.................................................... 23
8.19 No Rule of Construction.................................................. 23
8.20 Expenses................................................................. 24
</TABLE>
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<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.......................................... Determination of Final Merger Consideration
Exhibit 1.5.1........................................ Unanimous Written Consent of Shareholders
Exhibit 1.5.2.................... Written Consent of Sole Shareholder of Van's Acquisition Corp.
Exhibit 1.7.............................................................. Letter of Transmittal
Exhibit 2................................................................... Certain Statements
Exhibit 2.2.................................................. Ownership of Company Common Stock
Exhibit 3.1.4....................................................... Required Consents - Parent
Exhibit 4.3............... Procedure for Satisfaction of Deferred Compensation Plan Liabilities
Exhibit 4.6.................................................................. Certain Covenants
Exhibit 4.9.................................................. Company Plans to Remain in Effect
Exhibit 4.10A........................ Van's Comfortemp Air Conditioning, Inc. Stock Option Plan
Exhibit 4.10B..................................... Employees Who May be Granted Company Options
Exhibit 4.10C.............................................. Nonqualified Stock Option Agreement
Exhibit 5.3.2............................................. Stock Transfer Restriction Agreement
Exhibit 5.3.3................... List of Employees to Execute and Deliver Employment Agreements
Exhibit 5.3.3A............................................................ Employment Agreement
Exhibit 5.3.3B............................................................ Employment Agreement
Exhibit 5.3.4.................................................................. Lease Agreement
Exhibit 5.3.5.................................................... Registration Rights Agreement
Exhibit 5.3.6........................... Opinion of Counsel to the Shareholders and the Company
Exhibit 5.3.8........................................................... Terminated Obligations
Exhibit 5.4.3................................................. Opinion of Counsel to the Parent
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Agreement.................................................................. 1
Applicable Corporate Law................................................... 1
Closing.................................................................... 1
Closing Date............................................................... 1
Code....................................................................... 1
Company.................................................................... 1
Company Common Stock....................................................... 1
Company Option Plan........................................................ 12
Company Options............................................................ 12
Converted Share............................................................ 3
Effective Time............................................................. 1
Indemnified Party.......................................................... 19
Indemnifying Party......................................................... 19
IPO........................................................................ 1
Losses..................................................................... 17
Merger..................................................................... 1
Merger Sub................................................................. 1
Minimum Proceeds........................................................... 2
Notice of Dispute.......................................................... 5
Parent..................................................................... 1
Parent Common Stock........................................................ 1
Parent Financial Statements................................................ 8
Parent Indemnified Parties................................................. 17
Parent Material Adverse Effect............................................. 9
Parent Preferred Stock..................................................... 7
Parent Related Documents................................................... 7
Price Notice............................................................... 4
Registration Statement..................................................... 7
Resolution Accountants..................................................... 5
SEC........................................................................ 7
Securities Act............................................................. 2
Settlement Notice.......................................................... 19
Shareholder................................................................ 1
Shareholder Related Document............................................... 6
Statement of Closing Consideration......................................... 4
Statement of Final Per Share Amounts....................................... 5
Stock Certificate.......................................................... 3
Survival Period............................................................ 17
Surviving Corporation...................................................... 1
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Terminated Obligations....................................................... 16
Accountants.................................................................. 2
Agreement.................................................................... 1
Applicable Corporate Law..................................................... 1
Closing...................................................................... 1
Closing Date................................................................. 1
Closing Merger Consideration.......................................... Exhibit 1
Closing Outstanding Common Stock Number............................... Exhibit 1
Closing Per Share Cash Amount......................................... Exhibit 1
Closing Per Share Common Stock Amount................................. Exhibit 1
Code......................................................................... 1
Company...................................................................... 1
Company Common Stock......................................................... 1
Company Option Plan.......................................................... 12
Company Options.............................................................. 12
Converted Share.............................................................. 3
Effective Time............................................................... 1
Excess Expense Level Deduction........................................ Exhibit 1
Final Outstanding Common Stock Number................................. Exhibit 1
Final Per Share Cash Amount........................................... Exhibit 1
Final Per Share Common Stock Amount................................... Exhibit 1
GAAP.................................................................. Exhibit 1
Indemnified Party............................................................ 19
Indemnifying Party........................................................... 19
Investments........................................................... Exhibit 1
IPO.......................................................................... 1
IPO Price to the Public............................................... Exhibit 1
Long-Term Debt........................................................ Exhibit 1
Losses....................................................................... 18
Measurement Month Date................................................ Exhibit 1
Merger....................................................................... 1
Merger Sub................................................................... 1
Minimum Proceeds............................................................. 2
Monthly Balance Sheet............................................... Exhibit 4.6
Net After-Tax Income.................................................. Exhibit 1
Notice of Dispute............................................................ 5
Operating EBITDA Amount............................................... Exhibit 1
Other Ownership Interests............................................. Exhibit 1
Owner's Policies of Title Insurance................................. Exhibit 4.6
Parent..................................................................... 1
Parent Common Stock........................................................ 1
Parent Financial Statements................................................ 8
Parent Indemnified Parties................................................. 17
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Parent Material Adverse Effect............................................. 9
Parent Preferred Stock..................................................... 7
Parent Related Documents................................................... 7
Permitted Exceptions................................................ Exhibit 4.6
Price Notice............................................................... 4
Registration Statement..................................................... 7
SEC........................................................................ 7
Settlement Notice.......................................................... 19
Shareholder................................................................ 1
Shareholder Related Document............................................... 6
Statement of Closing Consideration......................................... 4
Statement of Final Per Share Amounts....................................... 5
Stock Certificate.......................................................... 3
Surveys............................................................. Exhibit 4.6
Survival Period............................................................ 17
Surviving Corporation...................................................... 1
Terminated Obligations..................................................... 16
Title Commitments................................................... Exhibit 4.6
Title Insurance Property............................................ Exhibit 4.6
Total Consideration................................................... Exhibit 1
Working Capital....................................................... Exhibit 1
Working Capital Addition.............................................. Exhibit 1
Working Capital Deduction............................................. Exhibit 1
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
---------
August ___, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), Van's Acquisition Corp., a Florida corporation
------
("Merger Sub"), Van's Comfortemp Air Conditioning, Inc., a Florida corporation
- ------------
(the "Company"), and the undersigned holders of all of the outstanding capital
-------
stock of the Company (the "Shareholders").
------------
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
------
State of Florida, and pursuant to the Merger each issued and outstanding share
of Common Stock, $1.00 par value per share, of the Company ("Company Common
--------------
Stock") will be converted into the right to receive certain shares of common
- -----
stock, $.001 par value per share, of the Parent ("Parent Common Stock"), and
-------------------
certain cash consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholders,
as the holders of all of the outstanding capital stock of the Company;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
----------
accordance with the Florida Business Corporation Act (the "Applicable Corporate
--------------------
Law") upon the Effective Time (as defined in Section 1.2), the Company shall be
- ---
merged with and into Merger Sub. Merger Sub, as the surviving entity following
the Merger, is sometimes referred to in this Agreement as the "Surviving
---------
Corporation."
- -----------
1.2 Effective Time of the Merger. In accordance with the requirements of
----------------------------
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted for filing with the Secretary of
State of the State of Florida immediately following and on the same day as the
Closing (as defined below). The date of such filing is referred to in this
Agreement as the "Effective Time."
--------------
1.3 Closing. The closing of the Merger ("Closing") will take place at the
------- -------
offices of Bracewell & Patterson, L.L.P. in Houston, Texas on a date that is
contemporaneous with the closing of the Parent's IPO (as defined below), but in
no event later than December 31, 1997 ("Closing Date"); provided that each of
------------
the conditions precedent to the obligations of the parties to effect the Merger
set forth in Article 5 of this Agreement are then satisfied or waived by the
applicable party. The parties may agree in writing on another place for the
Closing. At the Closing, the parties will deliver or cause to be delivered the
documents and consideration described in Sections 5.3 and 5.4 below. The term
"IPO" means the first underwritten public
- ----
<PAGE>
offering of Parent Common Stock resulting in net cash proceeds to the Parent of
at least the Minimum Proceeds, as defined below (other than any offering
pursuant to any registration statement relating to any capital stock of the
Parent or options, warrants or other rights to acquire any such capital stock
issued or to be issued primarily to directors, officers or employees of the
Parent or any of its subsidiaries, (i) relating to any employee benefit plan or
interest therein, (ii) relating principally to any preferred stock or debt
securities of the Parent, or (iii) filed pursuant to Rule 145 under the
Securities Act of 1933, as amended ("Securities Act"), or any successor or
--------------
similar provision). The term "Minimum Proceeds" means the aggregate amount
----------------
necessary to pay in full (i) all indebtedness of the Parent or any of its
subsidiaries outstanding at the closing of the IPO and incurred for purposes of
financing any acquisitions by the Parent or any of its subsidiaries, (ii) the
aggregate redemption prices for the redemption of all of the Parent's preferred
stock outstanding at the closing of the IPO issued by the Parent in connection
with then completed acquisitions by the Parent or any of its subsidiaries, and
(iii) the aggregate cash payable by the Parent or any of its subsidiaries in
connection with all then pending acquisitions.
1.4 Effects of the Merger.
---------------------
1.4.1 At the Effective Time. At the Effective Time, (i) the Company
---------------------
shall merge with and into Merger Sub and as a result thereof, the separate
existence of the Company shall cease, (ii) the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, except that the Articles
of Incorporation of Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "Van's Comfortemp Air Conditioning,
Inc.," (iii) the Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, and (iv) the
directors and officers of Merger Sub immediately prior to the Effective Time
shall become the directors and officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected or appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
------------------------------------
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with the Applicable Corporate Law and the terms of this Agreement.
-2-
<PAGE>
1.5 Written Consents and Other Actions.
----------------------------------
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters.
------------------------------------------------------------
Contemporaneously with the execution hereof, the Shareholders (i) are executing
and delivering to the Company a Unanimous Written Consent in substantially the
form of Exhibits Exhibit 1.5.1 attached hereto, and (ii) hereby acknowledge that
they are aware of their dissenter's or appraisal rights with respect to the
Merger and their receipt of a copy of the provisions of Section 607.1302 of the
Applicable Corporate Law and have elected not to exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
-----------------------------------------------------
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibits Exhibit 1.5.2 attached hereto, pursuant to the
applicable provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
---------------------------
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
-------------------
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of
------------------------
Merger Sub issued and outstanding at the Effective Time shall remain outstanding
and shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
------------------------------------------
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. Each share of Company Common Stock
--------------------
(other than shares to be canceled in accordance with Section 1.6.2) shall be
converted into the right to receive (i) that number of shares of Parent Common
Stock equal to the Final Per Share Common Stock Amount (as defined in Exhibits
Exhibit 1 attached hereto), and (ii) cash equal to the Final Per Share Cash
Amount (as defined in Exhibit 1 attached hereto). Each share of Company Common
Stock so converted into the right to receive cash equal to the Final Per Share
Cash Amount and shares of Parent Common Stock equal to the Final Per Share
Common Stock Amount (a "Converted Share") shall, by virtue of the Merger and
---------------
without any action on the part of the holder thereof, at the Effective Time no
longer be outstanding and shall at such time be canceled and retired and shall
cease at such time to exist, and each holder of a certificate which prior to the
Effective Time validly evidenced any such Converted Share (a "Stock
-----
Certificate") shall thereafter cease to have any rights with respect to such
- -----------
Converted Share, except, upon the surrender of the Stock Certificate and a duly
executed and completed letter of transmittal in accordance with Section 1.7, the
right to receive such cash and Parent Common Stock at the times and in the
manner set forth herein.
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1.7 Exchange of and Payment for Stock.
---------------------------------
1.7.1 Delivery of Company Common Stock and Closing Merger
---------------------------------------------------
Consideration. Prior to the Closing, the Parent will deliver to each
- -------------
Shareholder a letter of transmittal, in substantially the form attached hereto
as Exhibits Exhibit 1.7, to be used for the purpose of surrendering to the
Parent Stock Certificates in exchange for the right to receive the Final Per
Share Cash Amount and the Final Per Share Common Stock Amount for each Converted
Share evidenced by such Stock Certificate. All of the Company Common Stock held
by the Shareholders will be surrendered by the Shareholders to the Parent
together with properly completed and executed letters of transmittal (with each
such signature guaranteed by a commercial bank or notarized by a notary public
or similar official reasonably satisfactory to the Parent), and the Parent shall
cause to be delivered to the Shareholders at the Closing the Closing Per Share
Cash Amount (as defined in Exhibit 1 attached hereto) and the Closing Per Share
Common Stock Amount (as defined in Exhibit 1 attached hereto) applicable to each
of the Converted Shares evidenced by the Stock Certificates properly surrendered
(with properly executed and completed letters of transmittal) by each
Shareholder to the Parent.
1.7.2 Assignments. Except for the granting of options to employees
-----------
of the Company and the exercise or assignment thereof as permitted by Section
4.10, the assignment, transfer or other disposition of record or beneficial
ownership of any shares of Company Common Stock may not be made on or after the
date hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of
------------------------------------------
the Closing Per Share Cash Amount and the Closing Per Share Common Stock Amount
to the Shareholders with respect to their Converted Shares shall be deemed to be
payment in full satisfaction of all rights pertaining to the outstanding
Converted Shares except for the right to receive additional shares of Parent
Common Stock and cash pursuant to Section 1.9.
1.8 Determination of Closing Merger Consideration.
---------------------------------------------
1.8.1 Delivery of IPO Price to Public; Statement. After the Parent
------------------------------------------
and its underwriters agree on the initial price to the public for a share of
Parent Common Stock offered in the IPO, as set forth in an executed underwriting
agreement, at the Closing the Parent shall deliver to the Shareholders a written
notice (the "Price Notice") setting forth such initial price to the public and a
------------
statement setting forth a calculation of the Closing Outstanding Common Stock
Number (as defined in Exhibit 1 attached hereto), the Closing Per Share Cash
Amount, the Closing Per Share Common Stock Amount and the Closing Merger
Consideration (as defined in Exhibit 1 attached hereto), payable to the
Shareholders at Closing (the "Statement of Closing Consideration"). The initial
----------------------------------
price to the public of a share of Parent Common Stock, as set forth in the Price
Notice, and the Closing Outstanding Common Stock Number, the Closing Per Share
Cash Amount, the Closing Per Share Common Stock Amount and the Closing Merger
Consideration, as set forth in the Statement of Closing Consideration, shall be
final, conclusive and binding for purposes of this Agreement.
1.9 Post-Closing Determination of Total Consideration.
-------------------------------------------------
1.9.1 Statement. No later than 90 days after the Closing, the Parent
---------
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the
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<PAGE>
Total Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of
------------
Final Per Share Amounts"). For purposes of determining the Statement of Final
- -----------------------
Per Share Amounts, the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration shall be calculated or determined as of the last day of the month
immediately preceding the month in which the Closing occurs (unless the Closing
occurs on the last day of the month, in which case the Closing Date shall be
used).
1.9.2 Review. After delivery to the Shareholders of the Statement of
------
Final Per Share Amounts, the Shareholders and their representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number, the Final
--------
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration as shown on the Statement of Final Per Share Amounts shall be
final, conclusive and binding for purposes of this Agreement, unless the
Shareholders shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Per Share
-----------------
Amounts within 10 business days following receipt of the Statement of Final Per
Share Amounts, specifying in reasonable detail the nature and extent of such
disagreement; provided, however, that no Notice of Dispute may be given with
respect to any items unless such item involves an amount of $25,000 or more. If
a Notice of Dispute is not properly given within such time, the Final
Outstanding Common Stock Number, the Final Per Share Cash Amount, the Final Per
Share Common Stock Amount and the Total Consideration as set forth in the
Statement of Final Per Share Amounts shall be final, conclusive and binding for
purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
---------------------
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholders shall not reach
such resolution within 30 days following receipt by the Parent of a properly
given Notice of Dispute, the dispute shall be referred to Ernst & Young LLP (the
"Resolution Accountants"), who shall resolve such dispute within 30 days after
----------------------
its submission to them. The Parent and the Shareholders (if the dispute is
resolved by them or the Statement of Final Per Share Amounts otherwise becomes
final pursuant hereto without referral to the Resolution Accountants) or the
Resolution Accountants (if a dispute is resolved by them) shall set forth such
resolution in writing and such writing shall (i) set forth the Final Outstanding
Common Stock Number, the Final Per Share Cash Amount, the Final Per Share Common
Stock Amount and the Total Consideration and (ii) be final, conclusive and
binding for purposes of this Agreement.
1.9.5 Final Determination. Within 10 business days following the
-------------------
final determination of the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration as provided in this Section 1.9 (i) the Parent shall deliver to
each Shareholder (a) the cash amount, if any, by which the aggregate of the
Final Per Share Cash Amounts payable to such Shareholder, as finally determined
pursuant hereto, exceeds the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing; and (b) the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Per Share Common Stock
Amounts deliverable to such Shareholder, as finally determined pursuant hereto,
exceeds the aggregate of the Closing Per Share Common Stock Amounts delivered to
such Shareholder at the Closing; or (ii) each Shareholder
-5-
<PAGE>
shall deliver to the Parent (a) the cash amount, if any, by which the aggregate
of the Closing Per Share Cash Amounts paid to such Shareholder at the Closing
exceeds the aggregate of the Final Per Share Cash Amounts payable to such
Shareholder as finally determined pursuant hereto; and (b) the number of shares
of Parent Common Stock, if any, by which the aggregate of the Closing Per Share
Common Stock Amounts delivered to such Shareholder at the Closing exceeds the
aggregate of the Final Per Share Common Stock Amounts deliverable to such
Shareholder as finally determined pursuant hereto.
1.9.6 Expenses. The Parent and the Shareholders shall each pay their
--------
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, hereby represent
and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2 Stock Ownership. Each Shareholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibits Exhibit 2.2 and such shares are so
held by such Shareholder free and clear of all liens, encumbrances and adverse
claims whatsoever.
2.3 Authority. Each Shareholder has full right, power, legal capacity and
---------
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by such Shareholder (each a "Shareholder
-----------
Related Document") and (ii) consummate the transactions contemplated herein and
- ----------------
thereby. This Agreement has been duly executed and delivered by the
Shareholders and constitutes, and any Shareholder Related Document, when duly
executed and delivered by the Shareholders named as parties therein will
constitute, legal, valid and binding obligations of such Shareholders
enforceable against such Shareholders in accordance with their respective terms
and conditions, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
--------
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholders of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by the Shareholders of this Agreement and any Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which any Shareholder is a party
or by which any Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to any Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
any Shareholder.
-6-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
------------------------------
warrants to the Shareholders and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. As of the execution date of this
----------------------------
Agreement, the total authorized capital stock of the Parent is as set forth in
the Confidential Information Statement dated August ___, 1997. The outstanding
shares of Parent Common Stock and Preferred Stock, $.001 par value ("Parent
------
Preferred Stock"), have been duly and validly issued and are fully paid and non-
- ---------------
assessable.
3.1.3 Authority. The Parent has the requisite power and authority to
---------
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
------------------------
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent will
constitute, legal, valid and binding obligations of the Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4 Consents. Except as provided on Exhibits Exhibit 3.1.4, no
--------
approval, consent, order or action of or filing with any court, administrative
agency, governmental authority or other third party is required for the
execution, delivery or performance by the Parent of this Agreement or the Parent
Related Documents or the consummation by the Parent of the transactions
contemplated hereby, except for (i) the filing of the Parent's registration
statement with respect to the IPO ("Registration Statement") with the U.S.
----------------------
Securities and Exchange Commission ("SEC") pursuant to the Securities Act and
---
the SEC's declaration of effectiveness of such Registration Statement and the
completion of all necessary filings required under, and the obtaining of all
necessary consents and approvals required pursuant to, state securities or "blue
sky" laws in connection with the IPO, and (ii) the filing of the Articles of
Merger with the Secretary of State of Florida.
3.1.5 Defaults. The Parent is not in default under or in violation
--------
of, and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
is a party or by which the Parent or any of its properties or assets may be
bound or affected or (ii) any law, rule or regulation applicable to the Parent
or any court injunction, order or decree, or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Parent, which default or violation prevents the Parent from
-7-
<PAGE>
consummating the transactions contemplated hereby or is reasonably likely to
have a Parent Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company"
------------------
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain
--------------------
financial statements to the Shareholders ("Parent Financial Statements") and
---------------------------
such Parent Financial Statements have been prepared in accordance with GAAP and
fairly present the consolidated financial position, results of operations and
cash flows of the Parent and its then existing consolidated subsidiaries as of
the dates and for the periods indicated, subject to normal year-end adjustments
and any other adjustments described therein or in the notes or schedules
thereto. The books and records of the Parent have been kept in reasonable detail
and accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to
-----
be discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period ended covered by the Parent
Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and
--------------
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law, as
defined in Exhibit 2) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation,
the failure to obtain which is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental Law), ordinances, rules and regulations
of any governmental agency of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, all applicable court or
administrative agency decrees, awards and orders and all such licenses, permits,
qualifications and other documentation, except where the failure to comply will
not have a Parent Material Adverse Effect, and there is no existing condition or
state of facts that would give rise to a violation thereof or a liability or
default thereunder that is reasonably likely to have a Parent Material Adverse
Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
------
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in
----------
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholders pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the
-8-
<PAGE>
statements herein or therein, in light of the circumstances under which they are
or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
------------------------------ ---------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
- --------------
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
-----------------------
the Merger as a reorganization within the meaning of Section 368(a) of the Code:
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code)
at the time of such transfer, or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of its
historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection with
the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
(viii) None of the Parent Common Stock received by the Shareholders as
a part of the Final Merger Consideration will be separate consideration
for, or allocable to, any employment agreement.
-9-
<PAGE>
(ix) Neither the Parent nor Merger Sub is under the jurisdiction of a
court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.2 Representations and Warranties Concerning the Merger Sub. The Parent
--------------------------------------------------------
and Merger Sub, jointly and severally, hereby represent and warrant to the
Shareholders and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
-------------------------
incorporated, validly existing and in good standing under the laws of the State
of Florida.
3.2.2 Capital Structure. The authorized capital stock of Merger Sub
-----------------
consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and authority to
---------
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by Merger Sub of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly authorized by its Board of
Directors and the Parent as its sole shareholder, and, except for the corporate
filings required by state law, no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholders to be Effective Upon Closing.
-----------------------------------------------------------
Effective upon Closing, and without further action on the part of any party or
other person, the Shareholders covenant and agree as follows:
4.1.1 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is two years following any termination of such
Shareholder's employment with the Company, such Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or indirectly, individually, as a member of a partnership or limited
liability company, equity owner, shareholder (other than as a shareholder
of less than one percent of the issued and outstanding stock of a publicly-
held company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant engage
in any business that involves
-10-
<PAGE>
indoor air quality, heating, ventilation, air conditioning, appliance,
mechanical construction or sewer cleaning products or services within an
80-mile radius of the city of Delray Beach, Florida; provided, however,
that if a Shareholder's employment with the Company is terminated without
Cause (as such term is defined in Exhibit 5.3.3A, the time period in
Section 4.1.1(i)(b) shall be reduced to one year.
(ii) Each Shareholder agrees that the limitations set forth herein
on such Shareholder's rights to compete with the Parent and its affiliates
as set forth in clause (i) are reasonable and necessary for the protection
of Parent and its affiliates. In this regard, each Shareholder specifically
agrees that the limitations as to period of time and geographic area, as
well as all other restrictions on such Shareholder's activities specified
herein, are reasonable and necessary for the protection of the Parent and
its affiliates. Each Shareholder agrees that, in the event that the
provisions of this Section should ever be deemed to exceed the scope of
business, time or geographic limitations permitted by applicable law, such
provisions shall be and are hereby reformed to the maximum scope of
business, time or geographic limitations permitted by applicable law.
(iii) Each Shareholder agrees that the remedy at law for any breach
by such Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, each Shareholder
-------
does hereby (i) release, acquit and forever discharge the Surviving Corporation
from any and all liabilities, obligations, claims, demands, actions or causes of
action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Effective Time, including,
without limitation, any claim for indemnity or contribution from the Surviving
Corporation in connection with the obligations or liabilities of such
Shareholder hereunder, except for salary and benefits payable to such
Shareholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Effective Time, and (iii) waive any and all preemptive or other rights to
acquire any shares of capital stock of the Company and release any and all
claims arising in connection with any prior default, violation or failure to
comply with or satisfy any such preemptive or other rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholders will
----------------------
produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described in the Letter of Intent among the Parent,
the Company and the Shareholders dated May 29, 1997, have been eliminated as
expenses of the Surviving Corporation as of and following the Closing Date.
4.3 Deferred Compensation Plans. Prior to Closing, the Shareholders will
---------------------------
cause all current or future obligations of the Company under the split dollar
life and other deferred compensation plans covering any Shareholder or any
employee of the Company to be satisfied in full (including current or deferred
tax liabilities arising therefrom) and the cash value of such plans and the
plans themselves shall be distributed to the appropriate Shareholders and/or
employees all in accordance with the provisions of Exhibits Exhibit 4.3
attached hereto.
4.4 Audit. Prior to Closing, KPMG Peat Marwick LLP shall complete an
-----
audit of the Company for the fiscal year ended September 30, 1996 and for the
period from such date through June 30, 1997, and
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<PAGE>
such additional audit and/or review work as may be requested by the Parent
through and including the Closing Date and provide its report to the Parent and
the Shareholders.
4.5 Certain Payables and Receivables. On or prior to Closing, the
--------------------------------
Shareholders shall pay in full in cash all accounts receivable, notes receivable
and advances payable by any Shareholder to the Company and the Company shall pay
in full in cash all accounts payable, notes payable and advances payable by the
Company to any Shareholder.
4.6 Pre-Closing Covenants and Agreements. The Shareholders and the
------------------------------------
Company jointly and severally agree as set forth in Exhibits Exhibit 4.6
attached hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the Parent,
---------------
Merger Sub, the Company or the Shareholders will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Merger to its employees, vendors and customers to protect
the Company's goodwill and to facilitate the Closing. The Parent and Merger Sub
may disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities, and may describe this
Agreement and the transactions contemplated hereby in any registration statement
filed by the Parent under the Securities Act and in reports filed by the Parent
under the Securities Exchange Act of 1934, and may file this Agreement as an
exhibit to any thereof. The Parent may also make appropriate disclosures of the
general nature of the Merger and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the Parent's
efforts to effect additional acquisitions. Each party will have mutual approval
rights with respect to written employee presentations concerning the prospective
merger.
4.8 Tax-Free Reorganization. Unless the other parties shall otherwise
-----------------------
agree in writing, none of the Shareholders, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action,
which action or failure to act would jeopardize the qualification of the Merger
as a reorganization withing the meaning of Section 368(a) of the Code.
4.9 Company Plans. Except as otherwise contemplated by this Agreement,
-------------
the Company Plans (as defined in Exhibit 2) described on Exhibits Exhibit 4.9 of
the Company in effect at the date of this Agreement will remain in effect unless
otherwise determined by the Parent after the Effective Time.
4.10 Employee Options. Prior to the Effective Time, the Company and its
----------------
Board of Directors may adopt, (and, if adopted, the Shareholders shall approve)
a Stock Option Plan substantially in the form of Exhibits Exhibit 4.10A attached
hereto ("Company Option Plan") under which the Company may, during the period
from the date hereof through August 31, 1997 grant options ("Company Options")
to certain of its employees listed in Exhibits Exhibit 4.10B attached hereto, to
purchase up to the number of shares of Company Common Stock set forth on Exhibit
4.10B beside such employee's name, for the exercise price per share and for the
period set forth on Exhibit 4.10B attached hereto, all pursuant to Option
Agreements in substantially the form of Exhibits Exhibit 4.10C attached hereto.
The Company shall not grant any other stock options under the Company Option
Plan or otherwise. On or before September 5, 1997, the Company shall give
written notice to the Parent setting forth whether it has adopted the Company
Option Plan and, if so, the number of
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<PAGE>
Company Options granted thereunder, the employees to whom the Company Options
were granted and copies of each Option Agreement in effect with respect thereto.
At the Effective Time, the Company's obligations with respect to each
outstanding Company Option under such Option Agreements shall be assumed by the
Parent, as provided in the Option Agreements. The Company Options so assumed by
the Parent shall continue to have, and be subject to, the terms and conditions
set forth in the Company Option Plan and the Option Agreements, provided that
the number of shares of Parent Common Stock into which such Company Options are
exercisable and the exercise price therefor and certain other matters shall be
governed by Section 8(ii)of the Option Agreements.
4.11 Purchase of Certain Receivables. If any accounts receivable included
--------------------------------
in current assets of the Company for purposes of determining Working Capital (as
defined in Exhibit 1) remain unpaid in full for 60 days after the Closing, the
Shareholders shall, upon written request by the Surviving Corporation made
within 90 days after the Closing, purchase the same from the Surviving
Corporation, without recourse, for the uncollected amount thereof.
4.12 The Parent Plans. The Parent shall provide the senior management of
----------------
the Company a bonus/option plan. The benefits of such plan shall be based on
the Company's performance. The parameters of such plan shall be approved by the
compensation committee of the Board of Directors of the Parent.
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
--------------------------------------------------------------------
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Shareholders and the Company contained in
this Agreement, in Exhibits Exhibit 2 and the Disclosure Schedule referred to
therein and the other Exhibits provided by the Shareholders or the Company
pursuant to this Agreement or in any closing certificate or document delivered
to the Parent pursuant hereto shall be true and correct at and as of the Closing
Date as though made at and as of that time other than such representations and
warranties as are specifically made as of another date, and the Shareholders and
the Company shall each have delivered to the Parent and Merger Sub a certificate
to that effect.
5.1.2 Performance of Covenants. The Shareholders and the Company
------------------------
shall have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholders and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or against
the Parent or Merger Sub arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (i) to restrain, prohibit
or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholders and the
Company shall each have delivered to the Parent and Merger Sub a certificate to
that effect.
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<PAGE>
5.1.4 Approvals. The Company and the Shareholders shall have
---------
procured all of the consents, approvals and waivers of third parties or any
regulatory body or authority, whether required contractually or by applicable
law or otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholders prior to the Closing Date, and
the Shareholders and the Company shall each have delivered to the Parent and
Merger Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage shall
---------------------------
have occurred on or prior to the Effective Time to any of the properties or
assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such
-------------
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there
--------------------------
shall not have been any event that in the reasonable judgment of the Parent
adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
---
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
-------------------------
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
-------------------------------------------------------------------
Company. The obligations of the Shareholders and the Company under this
- -------
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholders and the Company in writing to the extent
permitted by applicable law:
5.2.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered to the
Shareholders or the Company pursuant hereto shall be true and correct on and as
of the Closing Date as though made at and as of that date other than such
representations and warranties as are specifically made as of another date, and
the Parent and Merger Sub shall have delivered to the Shareholders and the
Company a certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall have
------------------------
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Closing Date and the Parent and Merger
Sub shall have delivered to the Shareholders and the Company a certificate to
such effect.
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<PAGE>
5.2.3 Approvals. The Parent shall have procured all of the consents,
---------
approvals and waivers specified in Section 3.1.4 prior to the Closing Date, and
the Parent shall have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.3 Deliveries by the Shareholders at the Closing. At the Closing,
---------------------------------------------
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders and
the Company pursuant to any other transaction document at the Closing, the
Shareholders shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders and the Company shall
--------------------
deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3,
5.1.4 and 5.1.5.
5.3.2 Stock Transfer Restriction Agreement. The Shareholders shall
------------------------------------
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibits Exhibit 5.3.2.
5.3.3 Employment Agreements. Each Shareholder and certain other
---------------------
employees of the Company specified on Exhibits Exhibit 5.3.3 shall execute and
deliver an Employment Agreement (with the insertion of the appropriate Section
7(b) based on whether such Shareholder or any such employee is designated an
"Executive or Key Employee" or "Manager" on Exhibit 5.3.3 and with the blanks
appropriately completed as set forth in a confidential letter between the
Company and the Parent) with the Company on the Closing Date, effective as of
the Effective Time, substantially in the form set forth in Exhibits Exhibit
5.3.3A and Exhibit 5.3.3B Exhibit 5.3.3B, respectively.
5.3.4 Lease Agreement. The Shareholders shall cause the owner of the
---------------
property located at 135 S. Congress Avenue, Delray Beach, Florida to execute and
deliver a lease agreement with the Company substantially in the form attached as
Exhibits Exhibit 5.3.4.
5.3.5 Registration Rights Agreement. The Shareholders shall execute
-----------------------------
and deliver a Registration Rights Agreement at the Closing, effective as of the
Effective Time, substantially in the form set forth in Exhibits Exhibit 5.3.5
attached hereto.
5.3.6 Opinion of Counsel for the Shareholders and the Company. The
-------------------------------------------------------
Shareholders shall deliver the favorable opinion of Perry & Schone, P.A.,
counsel to the Shareholders and the Company, dated the Effective Time,
substantially in the form and to the effect set forth in Exhibits Exhibit 5.3.6
attached hereto.
5.3.7 Documents, Stock Certificates. The Shareholders shall execute
-----------------------------
and deliver, and shall cause the Company to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Company or its officers or directors or the Shareholders at the
Closing as contemplated hereby or as may be reasonably requested by the Parent
and shall deliver or cause to be delivered the documents and evidence required
under Section 4. Stock Certificates representing all of the outstanding Company
Common Stock and properly executed and completed letters of transmittal shall be
delivered by the Shareholders to the Parent.
-15-
<PAGE>
[5.3.8 Discharge of Indebtedness, Releases, Etc. The indebtedness of
----------------------------------------
the Company referred to in Exhibits Exhibit 5.3.8 attached hereto ("Terminated
----------
Obligations") shall be paid in full or refinanced on terms acceptable to the
- -----------
Parent, and the Shareholders shall cause all holders of any such Terminated
Obligations to deliver to the Parent, in form reasonably satisfactory to the
Parent and the lenders to the Parent or Merger Sub, such customary releases,
termination statements, consents, approvals or other documents or instruments
required, in the judgment of the Parent, to release and terminate all liens,
security interests, claims, or rights of such holders against the Surviving
Corporation or the Parent or any of their respective assets in connection
therewith.]
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholders hereunder for any breach of warranty, covenant or
agreement by the Company or the Shareholders herein irrespective of any
knowledge of or investigation made by or on behalf of the Parent or Merger Sub;
provided, however, that if the Company shall disclose in writing to the Parent
prior to the Closing Date a specified breach of a specifically identified
representation, warranty, covenant or agreement of the Company or any
Shareholder herein by the Company or any Shareholder, and requests a waiver
thereof by the Parent, and the Parent shall waive any such specifically
identified breach in writing prior to the Closing Date, the Parent and the
Surviving Corporation, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Shareholders shall have no liability with
respect to, any such specifically identified breach, to the extent so identified
by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
---------------------------------------
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall deliver
--------------------
the certificates required pursuant to Sections 5.2.1, 5.2.2, 5.2.3 and 5.2.4.
5.4.2 Registration Rights Agreement. The Parent shall execute and
-----------------------------
deliver to the Shareholders a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The Parent
------------------------------------------------
and Merger Sub shall deliver the favorable opinion of its legal counsel dated
the Effective Time, substantially in the form and to the effect set forth in
Exhibits Exhibit 5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver the
----------------------------
Closing Merger Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of any Shareholder; provided, however, that if the Parent shall disclose in
writing to the Shareholders prior to the Closing a specified breach of a
specifically identified representation, warranty, covenant or
-16-
<PAGE>
agreement of the Parent or Merger Sub contained herein by the Parent or Merger
Sub, and requests a waiver thereof by the Company and the Shareholders, and the
Company and the Shareholders shall waive any such specifically identified breach
in writing prior to the Closing, the Company and the Shareholders shall be
deemed to have waived their rights and remedies hereunder for, and the Parent
and Merger Sub shall have no liability or obligation to the Shareholders or the
Company with respect to, any such specifically identified breach, to the extent
so identified by the Parent and waived by the Company and the Shareholders.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2, 3, 6, 12 and 18(ii), (iii), (iv), (v), (vi),
(vii) and (viii) of Exhibit 2 shall survive for a period of 36 months after the
Closing Date and the representations and warranties of the Shareholders and the
Company contained in Sections 2.2, 2.3, 2.4 and in Sections 2, 3, 6, 12 and
18(ii), (iii), (iv), (v), (vi), (vii) and (viii) of Exhibit 2 shall survive for
the maximum period permitted by applicable law. The representations and
warranties of the Parent herein and in the Parent Related Documents, other than
those in Sections 3.1.3, 3.1.4, 3.1.8 and 3.1.13, shall survive for a period of
36 months after the Closing Date and the representations and warranties of the
Parent contained in Sections 3.1.3, 3.1.4, 3.1.8 and 3.1.13 shall survive for
the maximum period permitted by applicable law. The periods of survival of the
representations and warranties as stated above in this Section 6.1 are referred
to herein as the "Survival Period." The liabilities of the parties under their
---------------
respective representations and warranties shall expire as of the expiration of
the applicable Survival Period and no claim for indemnification may be made with
respect to any breach of any representation or warranty, the applicable Survival
Period of which shall have expired, except to the extent that written notice of
such breach shall have been given to the party against which such claim is
asserted on or before the date of such expiration. The covenants and agreements
of the parties herein (including but not limited to Exhibit 4.6) and in other
documents and instruments executed and delivered in connection with the closing
of the transactions contemplated hereby shall survive for the maximum period
permitted by law.
6.2 Indemnification.
---------------
6.2.1 Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 6.1 and 6.3 hereof, the Shareholders shall indemnify, save and hold
harmless the Parent, the Surviving Corporation, Merger Sub and any of their
assignees (including lenders) and all of their respective officers, directors,
employees, representatives, agents, advisors and consultants and all of their
respective heirs, legal representatives, successors and assigns (collectively
the "Parent Indemnified Parties") from and against any and all damages,
--------------------------
liabilities, losses, loss of value (including the value of adverse effects on
cash flow or earnings), claims, deficiencies, penalties, interest, expenses,
fines, assessments, charges and costs, including reasonable attorneys' fees and
court costs (collectively "Losses") arising from, out of or in any manner
------
connected with or based on:
(i) the breach of any covenant of the Shareholders or the Company
or the failure by the Shareholders or the Company to perform any obligation
of the Shareholders or the Company contained herein or in any Company
Related Document or Shareholder Related Document;
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<PAGE>
(ii) any inaccuracy in or breach of any representation or warranty
of the Shareholders contained herein or in any Shareholder Related
Document;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed with
reasonable specificity in the Disclosure Schedule or (b) disclosed in the
Company Financial Statements (as defined in Exhibit 2).
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1
----------------
and 6.3, the Parent shall indemnify, save and hold harmless the Shareholders and
the Shareholders' heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty
of the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from any Shareholder's
acts or omissions after the Effective Time as an officer, director and/or
employee of the Parent, the Surviving Corporation and/or any other
affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The aggregate liability of the Shareholders under
-----------
Section 6.2.1(ii) or (iii) shall not exceed the cash amount equal to the Total
Consideration with the Parent Common Stock being valued at the IPO Price to the
Public for such purpose. The aggregate liability of the Parent under Section
6.2.2(ii) shall not exceed the cash amount equal to the Total Consideration with
the Parent Common Stock being valued at the IPO Price to the Public for such
purpose.
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<PAGE>
6.4 Procedures for Indemnification.
------------------------------
6.4.1 Notice. The party (the "Indemnified Party") that may be
------ -----------------
entitled to indemnity hereunder shall give prompt notice to any party obligated
to give indemnity hereunder (the "Indemnifying Party") of the assertion of any
------------------
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 6.4.1 shall relieve the
Indemnifying Party of its obligations under this Article 6 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice (except that the Indemnifying Party shall not be liable for any
expenses incurred by the Indemnified Party during the period in which the
Indemnified Party failed to give such notice). Thereafter, the Indemnified Party
shall deliver to the Indemnifying Party, promptly (and in any event within 10
days thereof) after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
-------------
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholders shall at all times have the right, at their option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
----------
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
-----------------
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any such
-----------
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and records, and personnel in the
possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the
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<PAGE>
purpose of enforcing any right of the indemnity granted to such Indemnified
Party pursuant to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself,
-----------
himself or herself and its, his or her affiliates (as defined in Exhibit 2) any
rights to subrogation against any Indemnified Party or such Indemnified Party's
insurers for Losses arising from any third-party claims for which the
Indemnifying Party is liable or against which the Indemnifying Party
indemnifies any Indemnifying Party and, if necessary, each Indemnifying Party
shall obtain waivers of such subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and
--------------
the Parent; or
7.1.2 Optional By the Company. By the Company by written notice to
-----------------------
the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of their
respective obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to
----------------------
the Company, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Parent nor Merger Sub
has breached this Agreement or has failed to perform any of its obligations
under this Agreement;
7.1.4 Breach By the Parent or Merger Sub. By the Company, by written
----------------------------------
notice to the Parent, if either the Parent or Merger Sub has materially breached
this Agreement or materially failed to perform any of its obligations under this
Agreement; or
7.1.5 Breach by the Company or any Shareholder. By the Parent, by
----------------------------------------
written notice to the Company, if the Company or any Shareholder has materially
breached this Agreement or has materially failed to perform any of their
respective obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
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<PAGE>
To the Company (prior to the Effective Time) or the Shareholders:
Van's Comfortemp Air Conditioning, Inc.
135 S. Congress Avenue
Delray Beach, Florida 34455
Attention: Mr. David Henninger
Telecopy: (561) 278-5499
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholders hereunder.
8.3 Assignability. The Shareholders shall not assign this Agreement in
-------------
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of any Shareholder or the Company. After the Effective Time, the
Surviving Corporation may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
any Shareholder.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
----------------
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and
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<PAGE>
conditions of their agreement relating to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, that may exist
between the parties with respect thereto. Except as otherwise specifically
provided in this Agreement, no conditions, usage of trade, course of dealing or
performance, understanding or agreement purporting to modify, vary, explain or
supplement the terms or conditions of this Agreement shall be binding unless
hereafter made in writing and signed by the party to be bound, and no
modification shall be effected by the acknowledgment or acceptance of documents
containing terms or conditions at variance with or in addition to those set
forth in this Agreement. No waiver by any party with respect to any breach or
default or of any right or remedy and no course of dealing shall be deemed to
constitute a continuing waiver of any other breach or default or of any other
right or remedy, unless such waiver be expressed in writing signed by the party
to be bound. Failure of a party to exercise any right shall not be deemed a
waiver of such right or rights in the future.
8.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
---------------
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
--------------------
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
----------------------
Merger Sub and the Company, by action taken by their Boards of Directors to the
extent permitted by applicable law; provided, however, that no such amendment
shall (i) alter or change any provision of this Agreement, the alteration or
change of which must be adopted by the holders of capital stock of the Company
under the certificate or articles of incorporation of the Company or the
Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless each
such alteration or change is adopted by the holders of shares of capital stock
of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent, Merger Sub, the Company and the
Shareholders. After the Effective Time, all amendments to this Agreement must be
by an instrument in writing signed on behalf of the Parent and the Shareholders.
Any term or provision of this Agreement (other than the requirements for
shareholder approvals) may be waived in writing at any time by the party which
is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any
-22-
<PAGE>
nature or kind whatsoever under or by reason of this Agreement, or shall cause
the employment status of any employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by each of
the Parent, Merger Sub, the Company and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Parent and the Company
and their respective members of their Boards of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be automatically as a part of this Agreement, a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
---------------------
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
-23-
<PAGE>
8.20 Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any broker, legal counsel, accountants or other advisors engaged by the
Shareholders (to the extent, and only to the extent, that any such payment will
not jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code); and provided further that all fees,
costs and expenses incurred or payable by the Company in connection with the
negotiation and closing of this Agreement and the transactions contemplated
hereby shall be included in current liabilities for purposes of determining
Working Capital.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
__________________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
VAN'S ACQUISITION CORP.
By:_______________________________________
President
SHAREHOLDERS:
__________________________________________
David L. Henninger
__________________________________________
Sandra L. Henninger
COMPANY:
VAN'S COMFORTEMP AIR CONDITIONING, INC.
By:_______________________________________
Name: David L. Henninger
Title: President
-24-
<PAGE>
EXHIBIT 10.26
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
WILLIS ACQUISITION CORP.
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, INC.
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, INC.
August 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE MERGER............................................................................. 1
1.1 The Merger....................................................................... 1
1.2 Effective Time of the Merger..................................................... 1
1.3 Closing.......................................................................... 1
1.4 Effects of the Merger............................................................ 2
1.4.1 At the Effective Time..................................................... 2
1.4.2 Effects on the Surviving Corporation...................................... 2
1.5 Written Consents and Other Actions............................................... 3
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters.............. 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub..................... 3
1.5.3 All Other Necessary Actions............................................... 3
1.6 Conversion of Stock.............................................................. 3
1.6.1 Merger Sub Capital Stock.................................................. 3
1.6.2 Cancellation of the Company Treasury Stock................................ 3
1.6.3 Merger Consideration...................................................... 3
1.6.4 Election.................................................................. 4
1.7 Exchange of and Payment for Stock................................................ 4
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration......... 4
1.7.2 Assignments............................................................... 4
1.7.3 Payment In Full Satisfaction of All Rights................................ 4
1.8 Determination of Closing Merger Consideration.................................... 4
1.8.1 Delivery of IPO Price to Public; Statement................................ 4
1.9 Post-Closing Determination of Final Merger Consideration......................... 5
1.9.1 Statement................................................................. 5
1.9.2 Review.................................................................... 5
1.9.3 Disputes.................................................................. 5
1.9.4 Resolution by Parties..................................................... 5
1.9.5 Final Determination....................................................... 6
1.9.6 Expenses.................................................................. 6
2. REPRESENTATIONS AND WARRANTIESOF THE COMPANY AND THE SHAREHOLDERS...................... 6
2.1 Exhibit 2........................................................................ 6
2.2 Stock Ownership.................................................................. 6
2.3 Authority........................................................................ 6
2.4 Consents......................................................................... 7
</TABLE>
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<TABLE>
<S> <C>
3. REPRESENTATIONS AND WARRANTIESOF THE PARENTAND MERGER SUB.............................. 7
3.1 Representations and Warranties................................................... 7
3.1.1 Organization............................................................. 7
3.1.2 Capitalization of the Parent............................................. 7
3.1.3 Authority................................................................ 7
3.1.4 Consents................................................................. 7
3.1.5 Defaults................................................................. 8
3.1.6 Investment Company....................................................... 8
3.1.7 Financial Statements..................................................... 8
3.1.8 Taxes.................................................................... 8
3.1.9 Full Authority........................................................... 8
3.1.10 Access................................................................... 9
3.1.11 Disclosure............................................................... 9
3.1.12 Parent Material Adverse Effect........................................... 9
3.1.13 Tax-Free Reorganization.................................................. 9
3.2 Representations and Warranties Concerning the Merger Sub......................... 10
3.2.1 Organization and Standing................................................ 10
3.2.2 Capital Structure........................................................ 10
3.2.3 Authority................................................................ 10
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS.................................. 11
4.1 Agreements of the Shareholders to be Effective Upon Closing...................... 11
4.1.1 Covenant Not to Compete.................................................. 11
4.1.2 Release.................................................................. 12
4.2 Certain Acquisitions; Consultation............................................... 12
4.3 Property Sale.................................................................... 13
4.4 Audit............................................................................ 13
4.5 Certain Payables and Receivables................................................. 13
4.6 Pre-Closing Covenants and Agreements............................................. 13
4.7 Confidentiality.................................................................. 13
4.8 Tax-Free Reorganization.......................................................... 13
4.9 Company Plans.................................................................... 13
4.10 Purchase of Certain Receivables................................................. 14
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES 14
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub............. 14
5.1.1 Accuracy of Representations and Warranties............................... 14
5.1.2 Performance of Covenants................................................. 14
5.1.3 Legal Actions or Proceedings............................................. 15
5.1.4 Approvals................................................................ 15
5.1.5 Closing Deliveries....................................................... 15
</TABLE>
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<TABLE>
<S> <C>
5.1.6 No Casualty, Loss or Damage.............................................. 15
5.1.7 Licenses, etc............................................................ 15
5.1.8 No Material Adverse Change............................................... 15
5.1.9 IPO...................................................................... 15
5.1.10 Certain Corporate Actions................................................ 15
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company...... 15
5.2.1 Accuracy of Representations and Warranties............................... 15
5.2.2 Performance of Covenants................................................. 16
5.2.3 Approvals................................................................ 16
5.2.4 Closing Deliveries....................................................... 16
5.2.5 Legal Actions or Proceeding.............................................. 16
5.2.6 Certain Corporate Actions................................................ 16
5.2.7 IPO...................................................................... 16
5.3 Deliveries by the Shareholders at the Closing.................................... 16
5.3.1 Closing Certificates..................................................... 16
5.3.2 Stock Transfer Restriction Agreement..................................... 16
5.3.3 Employment Agreements.................................................... 17
5.3.4 Lease Agreement.......................................................... 17
5.3.5 Registration Rights Agreement............................................ 17
5.3.6 Opinion of Counsel for the Shareholders and the Company.................. 17
5.3.7 Documents, Stock Certificates............................................ 17
5.4 Deliveries by the Parent at the Closing.......................................... 17
5.4.1 Closing Certificates..................................................... 17
5.4.2 Registration Rights Agreement............................................ 18
5.4.3 Opinion of Counsel for the Parent and Merger Sub......................... 18
5.4.4 Closing Merger Consideration............................................. 18
6. SURVIVAL, INDEMNIFICATIONS............................................................. 18
6.1 Survival......................................................................... 18
6.2 Indemnification.................................................................. 19
6.2.1 Parent Indemnified Parties............................................... 19
6.2.2 Parent Indemnity......................................................... 19
6.3 Limitations...................................................................... 20
6.4 Procedures for Indemnification................................................... 20
6.4.1 Notice................................................................... 20
6.4.2 Legal Defense............................................................ 20
6.4.3 Settlement............................................................... 21
6.4.4 Cooperation.............................................................. 21
6.5 Subrogation...................................................................... 21
</TABLE>
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<TABLE>
<S> <C>
7. TERMINATION............................................................................ 21
7.1 Grounds for Termination......................................................... 21
7.1.1 Mutual Consent........................................................... 21
7.1.2 Optional by the Company or Shareholders.................................. 22
7.1.3 Optional by the Parent................................................... 22
7.1.4 Breach by the Parent or Merger Sub....................................... 22
7.1.5 Breach by the Company or any Shareholder................................. 22
7.2 Effect of Termination........................................................... 22
8. MISCELLANEOUS.......................................................................... 22
8.1 Notice.......................................................................... 22
8.2 Further Documents............................................................... 23
8.3 Assignability................................................................... 23
8.4 Exhibits and Schedules.......................................................... 23
8.5 Sections and Articles........................................................... 23
8.6 Entire Agreement................................................................ 23
8.7 Headings........................................................................ 24
8.8 CONTROLLING LAW................................................................. 24
8.9 Public Announcements............................................................ 24
8.10 No Third Party Beneficiaries.................................................... 24
8.11 Amendments and Waivers.......................................................... 24
8.12 No Employee Rights.............................................................. 24
8.13 Non-Recourse.................................................................... 24
8.14 When Effective.................................................................. 25
8.15 Takeover Statutes............................................................... 25
8.16 Number and Gender of Words...................................................... 25
8.17 Invalid Provisions.............................................................. 25
8.18 Multiple Counterparts........................................................... 25
8.19 No Rule of Construction......................................................... 25
8.20 Expenses........................................................................ 25
</TABLE>
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<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.......................................................Determination of Final Merger Consideration
Exhibit 1.5.1.........................Unanimous Written Consent of the Shareholders of Willis Refrigeration,
Heating and Air Conditioning, Inc.
Exhibit 1.5.2................................Written Consent of Sole Shareholder of Willis Acquisition Corp.
Exhibit 1.7............................................................................Letter of Transmittal
Exhibit 2.................................................................................Certain Statements
Exhibit 2.2................................................................Ownership of Company Common Stock
Exhibit 3.1.4.....................................................................Required Consents - Parent
Exhibit 4.3............................................Land and Building to be Purchased by Floyd M. Maynard
Exhibit 4.6................................................................................Certain Covenants
Exhibit 4.9................................................................Company Plans to Remain in Effect
Exhibit 5.3.2...........................................................Stock Transfer Restriction Agreement
Exhibit 5.3.3...........................................................................Employment Agreement
Exhibit 5.3.4................................................................................Lease Agreement
Exhibit 5.3.5..................................................................Registration Rights Agreement
Exhibit 5.3.6.........................................Opinion of Counsel to the Shareholders and the Company
Exhibit 5.4.3...............................................................Opinion of Counsel to the Parent
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accountants......................................................... 13
Agreement........................................................... 1
Applicable Corporate Law............................................ 1
Balance Sheet Date.................................................. Exhibit 2
Bankruptcy Event.................................................... 11
Closing............................................................. 1
Closing Date........................................................ 1
Closing Merger Consideration........................................ Exhibit 1
Closing Outstanding Common Stock Number............................. Exhibit 1
Closing Per Share Cash Amount....................................... Exhibit 1
Closing Per Share Common Stock Amount............................... Exhibit 1
Code................................................................ 1
Company............................................................. 1
Company Common Stock................................................ 1
Company Material Adverse Effect..................................... Exhibit 2
Company Plans....................................................... Exhibit 2
Company Related Documents........................................... Exhibit 2
Converted Share..................................................... 3
Disclosure Schedule................................................. Exhibit 2
Effective Time...................................................... 1
Excess Expense Level Deduction...................................... Exhibit 1
Extraordinary Transactions Addition................................. Exhibit 1
Extraordinary Transactions Deduction................................ Exhibit 1
ERISA............................................................... Exhibit 2
Final Outstanding Common Stock Number............................... Exhibit 1
Final Per Share Cash Amount......................................... Exhibit 1
Final Per Share Common Stock Amount................................. Exhibit 1
GAAP................................................................ Exhibit 1
Indemnified Party................................................... 20
Indemnifying Party.................................................. 20
Investments......................................................... Exhibit 2
IPO................................................................. 2
IPO Price to the Public............................................. Exhibit 1
Life Insurance Policy............................................... Exhibit 4.6
Long-Term Debt...................................................... Exhibit 1
Losses.............................................................. 19
Maynard DCA......................................................... Exhibit 4.6
Measurement Month Date.............................................. Exhibit 1
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Merger.............................................................. 1
Merger Sub.......................................................... 1
Minimum Proceeds.................................................... 2
Monthly Balance Sheet............................................... Exhibit 4.6
Net After-Tax Income................................................ Exhibit 1
Neutral Accountants................................................. 5
Non-Compete Period.................................................. 11
Notice of Dispute................................................... 5
Operating EBITDA Amount............................................. Exhibit 1
Other Ownership Interests........................................... Exhibit 1
Parent.............................................................. 1
Parent Common Stock................................................. 1
Parent Financial Statements......................................... 8
Parent Indemnified Parties.......................................... 19
Parent Material Adverse Effect...................................... 9
Parent Related Documents............................................ 7
Permitted Exceptions................................................ Exhibit 4.6
Policy Distribution................................................. Exhibit 4.6
Policy Sale......................................................... Exhibit 4.6
Price Notice........................................................ 4
Property Sale....................................................... 13
Proprietary Rights.................................................. Exhibit 2
Real Property Bonus................................................. Exhibit 4.6
Registration Statement.............................................. 8
SEC................................................................. 8
Securities Act...................................................... 2
Settlement Notice................................................... 21
Shareholders........................................................ 1
Shareholder Related Document........................................ 6
Statement of Closing Consideration.................................. 4
Statement of Final Per Share Amounts................................ 5
Stock Bonus......................................................... Exhibit 4.6
Stock Certificate................................................... 3
Stock Distribution.................................................. Exhibit 4.6
Stock Sale.......................................................... Exhibit 4.6
Surveys............................................................. Exhibit 4.6
Survival Period..................................................... 18
Surviving Corporation............................................... 1
Tax Returns......................................................... Exhibit 2
Title Commitments................................................... Exhibit 4.6
Title Insurance Property............................................ Exhibit 4.6
Total Consideration................................................. Exhibit 1
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Working Capital...................................................... Exhibit 1
Working Capital Addition............................................. Exhibit 1
Working Capital Deduction............................................ Exhibit 1
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
---------
August __, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), Willis Acquisition Corp., an Ohio corporation
------
("Merger Sub"), Willis Refrigeration, Air Conditioning & Heating, Inc., an Ohio
- ------------
corporation (the "Company"), and the undersigned holders of all of the
-------
outstanding capital stock of the Company (the "Shareholders").
------------
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
------
State of Ohio, and pursuant to the Merger each issued and outstanding share of
Common Stock, no par value per share, of the Company ("Company Common Stock")
--------------------
will be converted into the right to receive certain shares of common stock,
$.001 par value per share, of the Parent ("Parent Common Stock"), and certain
-------------------
cash consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholders,
as the holders of all of the outstanding capital stock of the Company;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
----------
accordance with the Ohio Revised Code (the "Applicable Corporate Law") upon the
------------------------
Effective Time (as defined in Section 1.2), the Company shall be merged with and
into Merger Sub. Merger Sub, as the surviving entity following the Merger, is
sometimes referred to in this Agreement as the "Surviving Corporation."
---------------------
1.2 Effective Time of the Merger. In accordance with the requirements of
----------------------------
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted for filing with the Secretary of
State of the State of Ohio as soon as practicable following the Closing (as
defined below). The date of such filing is referred to in this Agreement as the
"Effective Time."
--------------
1.3 Closing. The closing of the Merger ("Closing") will take place at the
------- -------
offices of Bracewell & Patterson, L.L.P. in Houston, Texas on a date that is
contemporaneous with the closing of the Parent's IPO (as defined below), but in
no event later than December 31, 1997 ("Closing Date"); provided that each of
------------
the conditions precedent to the obligations of the parties to effect the Merger
set forth in Article 5 of this Agreement are then satisfied or waived by the
applicable party. The parties may agree in writing on another time of day or
place for the Closing. At the Closing, the parties will deliver or cause to be
delivered the
<PAGE>
documents described in Sections 5.3 and 5.4 below. The term "IPO" means any
---
underwritten public offering of Parent Common Stock resulting in net cash
proceeds to the Parent of at least the Minimum Proceeds as defined below (other
than any offering pursuant to any registration statement (i) relating to any
capital stock of the Parent or options, warrants or other rights to acquire any
such capital stock issued or to be issued primarily to directors, officers or
employees of the Parent or any of its subsidiaries, (ii) relating to any
employee benefit plan or interest therein, (iii) relating principally to any
preferred stock or debt securities of the Parent, or (iv) filed pursuant to Rule
145 under the Securities Act of 1933, as amended ("Securities Act"), or any
--------------
successor or similar provision). The term "Minimum Proceeds" means the aggregate
----------------
amount necessary to pay in full (i) all indebtedness of the Parent or any of its
subsidiaries outstanding at the closing of the IPO and incurred for purpose of
financing any acquisitions by the Parent or any of its subsidiaries, (ii) the
aggregate redemption prices for the redemption all of the Parent's preferred
stock outstanding at the closing of the IPO issued by the Parent in connection
with then completed acquisitions by the Parent or any of its subsidiaries, and
(iii) the aggregate cash payable by the Parent or any of its subsidiaries in
conection with all then pending acquisitions.
1.4 Effects of the Merger.
---------------------
1.4.1 At the Effective Time. At the Effective Time, (i) the Company
---------------------
shall merge with and into Merger Sub and as a result thereof, the separate
existence of the Company shall cease, (ii) the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, except that the Articles
of Incorporation of Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "Willis Refrigeration, Air
Conditioning & Heating, Inc.," (iii) the Bylaws of Merger Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation, and (iv) the directors and officers of Merger Sub immediately prior
to the Effective Time shall become the directors and officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected or appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
------------------------------------
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with the Applicable Corporate Law and the terms of this Agreement.
-2-
<PAGE>
1.5 Written Consents and Other Actions.
----------------------------------
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters.
------------------------------------------------------------
Contemporaneously with the execution hereof, the Shareholders (i) are executing
and delivering to the Company a Unanimous Written Consent in substantially the
form of Exhibit 1.5.1 attached hereto, and (ii) hereby acknowledge that they are
aware of their dissenter's or appraisal rights with respect to the Merger and
their receipt of a copy of the provisions of Ohio Revised Code (S) 1701.84 and
have elected not to exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
-----------------------------------------------------
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibit 1.5.2 attached hereto, pursuant to the applicable
provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
---------------------------
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
-------------------
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of
------------------------
Merger Sub issued and outstanding at the Effective Time shall remain outstanding
and shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
------------------------------------------
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. Subject to Section 1.6.4 below, each
--------------------
share of Company Common Stock (other than shares to be canceled in accordance
with Section 1.6.2) (i) which, under the terms of Section 1.6.4 is to be
converted into Parent Common Stock, shall be converted into the right to receive
that number of shares of Parent Common Stock equal to the Final Per Share Common
Stock Amount (as defined in Exhibit 1 attached hereto), and (ii) which, under
the terms of Section 1.6.4 is to be converted into cash, shall be converted into
the right to receive cash equal to the Final Per Share Cash Amount (as defined
in Exhibit 1 attached hereto). Each share of Company Common Stock so converted
into the right to receive cash equal to the Final Per Share Cash Amount or
shares of Parent Common Stock equal to the Final Per Share Common Stock Amount
(a "Converted Share") shall, by virtue of the Merger and without any action on
---------------
the part of the holder thereof, at the Effective Time no longer be outstanding
and shall at such time be canceled and retired and shall cease at such time to
exist, and each holder of a certificate which prior to the Effective Time
validly evidenced any such Converted Share (a "Stock Certificate") shall
-----------------
thereafter cease to
-3-
<PAGE>
have any rights with respect to such Converted Share, except, upon the surrender
of the Stock Certificate and a duly executed and completed letter of transmittal
in accordance with Section 1.7, the right to receive such cash or Parent Common
Stock at the times and in the manner set forth herein.
1.6.4 Election. Each Shareholder, by such Shareholder's execution of
--------
this Agreement on the signature page(s) hereto, has made an election with
respect to each share of Company Common Stock owned by such Shareholder, that
such Shareholder's stock shall be converted into his right to receive either (i)
the Final Per Share Cash Amount, or (ii) the Final Per Share Common Stock
Amount; provided, however, that the number of shares of Parent Common Stock to
be issued in the Merger shall be at least that number of shares which satisfies
the continuity of interest requirements under applicable federal income tax
principles relating to reorganizations under Section 368(a) of the Code.
1.7 Exchange of and Payment for Stock.
---------------------------------
1.7.1 Delivery of Company Common Stock and Closing Merger
---------------------------------------------------
Consideration. Prior to the Closing, the Parent will deliver to each
- -------------
Shareholder a letter of transmittal, in substantially the form attached hereto
as Exhibit 1.7, to be used for the purpose of surrendering Stock Certificates to
the Parent in exchange for the right to receive the Final Per Share Cash Amount
or the Final Per Share Common Stock Amount for each Converted Share evidenced by
such Stock Certificate. All of the Company Common Stock held by the
Shareholders will be surrendered by the Shareholders to the Parent together with
properly completed and executed letters of transmittal (with each such signature
guaranteed by a commercial bank or notarized by a notary public or similar
official reasonably satisfactory to the Parent), and the Parent shall cause to
be delivered to the Shareholders at the Closing, the Closing Per Share Cash
Amount (as defined in Exhibit 1 attached hereto) and the Closing Per Share
Common Stock Amount (as defined in Exhibit 1 attached hereto) applicable to the
Converted Shares evidenced by the Stock Certificates properly surrendered (with
properly executed and completed letters of transmittal) by each Shareholder to
the Parent.
1.7.2 Assignments. The assignment, transfer or other disposition of
-----------
record or beneficial ownership of any shares of Company Common Stock may not be
made on or after the date hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of
------------------------------------------
the Closing Per Share Cash Amount and the Closing Per Share Common Stock Amount
to the Shareholders with respect to their Converted Shares shall be deemed to be
payment in full satisfaction of all rights pertaining to the outstanding
Converted Shares except for the right to receive additional shares of Parent
Common Stock and cash pursuant to Section 1.9.
1.8 Determination of Closing Merger Consideration.
---------------------------------------------
1.8.1 Delivery of IPO Price to Public; Statement. Prior to the
------------------------------------------
Closing, the Parent shall deliver to the Shareholders a written notice (the
"Price Notice") setting forth the initial price to the public for a share of
- -------------
Parent Common Stock offered in the IPO, as set forth in an executed underwriting
agreement, and a statement setting forth a calculation of the Closing
Outstanding Common Stock Number (as defined in Exhibit 1 attached hereto), the
Closing Per Share Cash Amount, the Closing Per Share Common Stock Amount and the
Closing Merger Consideration (as defined in Exhibit 1 attached hereto), payable
to the Shareholders at Closing (the "Statement of Closing Consideration"). The
----------------------------------
initial price to the public of a share
-4-
<PAGE>
of Parent Common Stock, as set forth in the Price Notice, and the Closing
Outstanding Common Stock Number, the Closing Per Share Cash Amount, the Closing
Per Share Common Stock Amount and the Closing Merger Consideration, as set forth
in the Statement of Closing Consideration, shall be final, conclusive and
binding for purposes of this Agreement.
1.9 Post-Closing Determination of Final Merger Consideration.
--------------------------------------------------------
1.9.1 Statement. No later than 60 days after the Closing, the Parent
---------
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total Merger
Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of Final
------------------
Per Share Amounts"). For purposes of determining the Statement of Final Per
- -----------------
Share Amounts, the Final Outstanding Common Stock Number, the Final Per Share
Cash Amount, the Final Per Share Common Stock Amount and the Total Consideration
shall be calculated or determined as of the last day of the month immediately
preceding the Closing Date, or as of the Closing Date if the Closing Date is the
last day of the month, and not as of the Measurement Month Date (as defined in
Exhibit 1).
1.9.2 Review. After delivery to the Shareholders of the Statement of
------
Final Per Share Amounts, the Shareholders and their representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number, the Final
--------
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Final
Merger Consideration as shown on the Statement of Final Per Share Amounts shall
be final, conclusive and binding for purposes of this Agreement, unless the
Shareholders shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Per Share
- -------------------
Amounts within 10 business days following receipt of the Statement of Final Per
Share Amounts, specifying in reasonable detail the nature and extent of such
disagreement; provided, however, that no Notice of Dispute may be given with
respect to any items unless such item involves an amount of $25,000 or more. If
a Notice of Dispute is not properly given within such time, the Final
Outstanding Common Stock Number, the Final Per Share Cash Amount, the Final Per
Share Common Stock Amount and the Final Merger Consideration as set forth in the
Statement of Final Per Share Amounts shall be final, conclusive and binding for
purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
---------------------
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholders shall not reach
such resolution within 30 days following receipt by the Parent of a properly
given Notice of Dispute, the dispute shall be referred to Deloitte & Touche (the
"Neutral Accountants"), who shall resolve such dispute within 30 days after its
-------------------
submission to them. The Parent and the Shareholders (if the dispute is resolved
by them or the Statement of Final Per Share Amounts otherwise becomes final
pursuant hereto without referral to the Neutral Accountants) or the Neutral
Accountants (if a dispute is resolved by them) shall set forth such resolution
in writing and such writing shall (i) set forth the Final Outstanding Common
Stock Number, the
-5-
<PAGE>
Final Per Share Cash Amount, the Final Per Share Common Stock Amount and the
Final Merger Consideration and (ii) be final, conclusive and binding for
purposes of this Agreement.
1.9.5 Final Determination. Within 10 business days following the
-------------------
final determination of the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Final Merger
Consideration as provided in this Section 1.9 (i) and based on each
Shareholder's election on the signature page(s) hereto, the Parent shall deliver
to each Shareholder (a) the cash amount, if any, by which the aggregate of the
Final Per Share Cash Amounts payable to such Shareholder, as finally determined
pursuant hereto, exceeds the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing; and (b) the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Per Share Common Stock
Amounts deliverable to such Shareholder, as finally determined pursuant hereto,
exceeds the aggregate of the Closing Per Share Common Stock Amounts delivered to
such Shareholder at the Closing; or (ii) such Shareholder shall deliver to the
Parent (a) the cash amount, if any, by which the aggregate of the Closing Per
Share Cash Amounts paid to such Shareholder at the Closing exceeds the aggregate
of the Final Per Share Cash Amounts payable to such Shareholder as finally
determined pursuant hereto; and (b) the number of shares of Parent Common Stock,
if any, by which the aggregate of the Closing Per Share Common Stock Amounts
delivered to such Shareholder at the Closing exceeds the aggregate of the Final
Per Share Common Stock Amounts deliverable to such Shareholder as finally
determined pursuant hereto.
1.9.6 Expenses. The Parent and the Shareholders shall each pay their
--------
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and (except as otherwise provided in
Section 8.20) accountants, if any. The costs of the Neutral Accountants shall
be paid 50% by the Parent and 50% by the Shareholders.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, hereby represent
and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2 Stock Ownership. Each Shareholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibit 2.2 and such shares are so held by
such Shareholder free and clear of all liens, encumbrances and adverse claims
whatsoever.
2.3 Authority. Each Shareholder has full right, power, legal capacity and
---------
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by such Shareholder (each a "Shareholder
-----------
Related Document") and (ii) consummate the transactions contemplated herein and
- ----------------
thereby. This Agreement has been duly executed and delivered by the
Shareholders and constitutes, and the Shareholder Related Documents, when duly
executed and delivered by the Shareholders named as parties thereto will
constitute, legal, valid and binding obligations of such Shareholders
enforceable against such Shareholders in
-6-
<PAGE>
accordance with their respective terms and conditions, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a proceeding at law or
in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
--------
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholders of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by the Shareholders of this Agreement and any Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which any Shareholder is a party
or by which any Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to any Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
any Shareholder.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
------------------------------
warrants to the Shareholders and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. As of the execution date of this
----------------------------
Agreement, the total authorized capital stock of the Parent is as set forth in
the Confidential Information Statement of the Parent delivered to each of the
Shareholders by the Parent prior to the date hereof. The outstanding shares of
Parent Common Stock and Preferred Stock, $.001 par value, have been duly and
validly issued and are fully paid and non-assessable.
3.1.3 Authority. The Parent has the requisite power and authority to
---------
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
------------------------
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent will
constitute, legal, valid and binding obligations of the Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4 Consents. Except as provided on Exhibit 3.1.4, no approval,
--------
consent, order or action of or filing with any court, administrative agency,
governmental authority or other third party is required for
-7-
<PAGE>
the execution, delivery or performance by the Parent of this Agreement or the
Parent Related Documents or the consummation by the Parent of the transactions
contemplated hereby, except for (i) the filing of the Parent's registration
statement with respect to the IPO ("Registration Statement") with the U.S.
----------------------
Securities and Exchange Commission ("SEC") pursuant to the Securities Act and
---
the SEC's declaration of effectiveness of such Registration Statement and the
completion of all necessary filings required under, and the obtaining of all
necessary consents and approvals required pursuant to, state securities or "blue
sky" laws in connection with the IPO, and (ii) the filing of the Articles of
Merger with the Secretary of State of Ohio.
3.1.5 Defaults. The Parent is not in default under or in violation
--------
of, and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
is a party or by which the Parent or any of its properties or assets may be
bound or affected or (ii) any law, rule or regulation applicable to the Parent
or any court injunction, order or decree, or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Parent, which default or violation prevents the Parent from consummating the
transactions contemplated hereby or is reasonably likely to have a Parent
Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company"
------------------
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain
--------------------
financial statements to the Shareholders ("Parent Financial Statements") and
---------------------------
such Parent Financial Statements have been prepared in accordance with GAAP and
fairly present the consolidated financial position, results of operations and
cash flows of the Parent and its then existing consolidated subsidiaries as of
the dates and for the periods indicated, subject to normal year-end adjustments
and any other adjustments described therein or in the notes or schedules
thereto. The books and records of the Parent have been kept in reasonable detail
and accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to
-----
be discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period covered by the Parent
Financial Statements
3.1.9 Full Authority. The Parent has the corporate power and
--------------
authority and has obtained all licenses, permits, qualifications, and other
documentation (including permits required under applicable Environmental Law, as
defined in Exhibit 2) necessary to own and/or operate its businesses, properties
and assets and to carry on its businesses as being conducted on the date of this
Agreement, except such licenses, permits, qualifications or other documentation,
the failure to obtain which is not reasonably likely to result in a Parent
Material Adverse Effect, and such businesses are now being conducted and such
assets and properties are being owned and/or operated in compliance with all
applicable laws (including Environmental
-8-
<PAGE>
Law), ordinances, rules and regulations of any governmental agency of the United
States, any state or political subdivision thereof, or any foreign jurisdiction,
all applicable court or administrative agency decrees, awards and orders and all
such licenses, permits, qualifications and other documentation, except where the
failure to comply will not have a Parent Material Adverse Effect, and there is
no existing condition or state of facts that would give rise to a violation
thereof or a liability or default thereunder that is reasonably likely to have a
Parent Material Adverse Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
------
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of the Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in
----------
this Agreement, and no statement contained in any certificate delivered by the
Parent to the Shareholders pursuant to this Agreement, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under which
they are or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
------------------------------ ---------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
- --------------
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
-----------------------
the Merger as a reorganization within the meaning of Section 368(a) of the Code:
(i) The Parent has no plan or intention to sell, exchange or
otherwise dispose or liquidate the Surviving Corporation, to merge the
Surviving Corporation with or into any other corporation, to sell or
otherwise dispose of its Surviving Corporation Common Stock except for
transfers of Surviving Corporation Common Stock to corporations of which
the Parent has control (within the meaning of Section 368(a) of the Code)
at the time of such transfer, or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets or of any assets acquired in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of its
historic business assets in a business.
<PAGE>
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection with
the Merger is voting stock within the meaning of Section 368(c) of the
Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
(viii) None of the Parent Common Stock received by the Shareholders
as a part of the Final Merger Consideration will be separate consideration
for, or allocable to, any employment agreement.
(ix) Neither the Parent nor Merger Sub is under the jurisdiction of
a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.2 Representations and Warranties Concerning the Merger Sub. The Parent
--------------------------------------------------------
and Merger Sub, jointly and severally, hereby represent and warrant to the
Shareholders and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation duly
-------------------------
incorporated, validly existing and in good standing under the laws of the State
of Ohio.
3.2.2 Capital Structure. The authorized capital stock of Merger Sub
-----------------
consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and authority to
---------
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by Merger Sub of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly authorized by its Board of
Directors and the Parent as its sole Shareholders, and, except for the corporate
filings required by state law, no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
-10-
<PAGE>
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholders to be Effective Upon Closing.
-----------------------------------------------------------
Effective upon Closing, and without further action on the part of any party or
other person, the Shareholders covenant and agree as follows:
4.1.1 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that during the Non-Compete Period (as defined
below) such Shareholder will not represent, engage in, carry on, or have a
financial interest in, directly or indirectly, individually, as a member of
a partnership or limited liability company, equity owner, Shareholders
(other than as a shareholder of less than one percent of the issued and
outstanding stock of a publicly-held company whose gross assets exceed $100
million), investor, officer, director, trustee, manager, employee, agent,
associate or consultant, in any business that involves indoor air quality,
heating, ventilation, air conditioning, plumbing, appliance, sewer
cleaning, mechanical construction or electrical contracting products or
services within a 100 mile radius of Cincinnati, Ohio. For purposes
hereof, the term "Non-Compete Period" means, with respect to each
------------------
Shareholder who is an employee of the Surviving Corporation or any of its
affiliates pursuant to the Employment Agreement between the Shareholder and
the Surviving Corporation referred to in Section 5.3.3:
(a) if a Shareholder initiates termination of such
Shareholder's employment with the Surviving Corporation or any of its
affiliates (as defined in Exhibit 2) by voluntary resignation or
otherwise, or such employment is terminated by the Surviving
Corporation or any of its affiliates for "Cause" (as defined in the
Employment Agreement between the Surviving Corporation and such
Shareholder referred to in Section 5.3.3), the period from the Closing
Date to the latest to occur of (i) the date which is four years after
the Closing Date; (ii) the date which is one year after such
termination of employment, or (iii) the date the Parent admits in
writing its inability to pay its debts generally as they become due,
files a petition in bankruptcy or a petition to take advantage of any
insolvency act or other act for the relief or aid of debtors, consents
to or acquiesces in the appointment of a receiver, liquidator, fiscal
agent or trustee of itself or of the whole or any substantial part of
its property and assets or files a petition or answer seeking for
itself, consenting to or acquiescing in any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under the federal Bankruptcy laws or any other
applicable law, or fails to deny the material allegations of or to
contest any such petition filed against it and to cause such
involuntary petition to be dismissed within 60 days of the filing
thereof (any of the foregoing being referred to as a "Bankruptcy
----------
Event"); or
-----
(b) if such Shareholder's employment with the Surviving
Corporation or any of its affiliates is terminated by the Surviving
Corporation or any of the affiliates other than for "Cause", the
period from the Closing Date to the earliest to occur of (i) the date
which is two years after the Closing Date, (ii) the date which is one
year after such termination of
-11-
<PAGE>
employment, or (iii) the date of the occurrence of a Bankruptcy Event;
provided, however, that notwithstanding the application of the
foregoing items (b)(i) or (b)(ii) above, the Non-Compete Period shall
in no event be less than six (6) months from the date such termination
of employment occurs.
With respect to each Shareholder who is not an employee of the
Surviving Corporation or any of its affiliates pursuant to the Employment
Agreement referred to in Section 5.3.3, the term "Non-Compete Period" means
------------------
the earlier to occur of (a) the date which is four years after the Closing
Date, or (b) the date of the occurrence of a Bankruptcy Event.
(ii) Each Shareholder agrees that the limitations set forth herein
on such Shareholder's rights to compete with the Parent and its affiliates
as set forth in clause (i) are reasonable and necessary for the protection
of Parent and its affiliates. In this regard, each Shareholder specifically
agrees that the limitations as to period of time and geographic area, as
well as all other restrictions on such Shareholder's activities specified
herein, are reasonable and necessary for the protection of the Parent and
its affiliates. Each Shareholder agrees that, in the event that the
provisions of this Section should ever be deemed to exceed the scope of
business, time or geographic limitations permitted by applicable law, such
provisions shall be and are hereby reformed to the maximum scope of
business, time or geographic limitations permitted by applicable law.
(iii) Each Shareholder agrees that the remedy at law for any breach
by such Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, each Shareholder
-------
does hereby (i) release, acquit and forever discharge the Surviving Corporation
from any and all liabilities, obligations, claims, demands, actions or causes of
action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Effective Time, including,
without limitation, any claim for indemnity or contribution from the Surviving
Corporation in connection with the obligations or liabilities of such
Shareholder hereunder, except for salary and benefits payable to such
Shareholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Effective Time, and (iii) waive any and all preemptive or other rights to
acquire any shares of capital stock of the Company and release any and all
claims arising in connection with any prior default, violation or failure to
comply with or satisfy any such preemptive or other rights.
4.2 Certain Acquisitions; Consultation. The Parent agrees that prior to
----------------------------------
the closing of the IPO it will not engage in substantial discussions or
negotiations with any third party respecting any potential acquisition by the
Parent or any of its subsidiaries of any corporation or other entity engaged in
the heating, air conditioning or ventilation business within a five mile radius
of the city limits of Cincinnati, Ohio. After the Effective Time, the Parent
will consult with senior management of the Surviving Corporation (including
Floyd M. Maynard so long as he is employed by the Surviving Corporation) and the
senior management of Airtron, Inc. (so long as it is a subsidiary of the Parent)
in connection with any proposed acquisition of any such corporation or other
entity.
-12-
<PAGE>
4.3 Property Sale. On, prior to or within 30 days after the Closing Date,
-------------
Floyd M. Maynard will purchase from the Company (or the Surviving Corporation,
as the case may be) and the Company (or the Surviving Corporation, as the case
may be) shall sell to Floyd M. Maynard the land and buildings listed on Exhibit
4.3 attached hereto for the cash amount equal to the fair market value of such
land and buildings as set forth on Exhibit 4.3, pursuant to conveyance
instruments in form reasonably satisfactory to the Parent (the "Property Sale").
-------------
4.4 Audit. Prior to Closing, KPMG Peat Marwick LLP (the "Accountants")
----- -----------
shall complete an audit of the Company for the year ended December 31, 1996 and
for the six months ended June 30, 1997, and will perform and such additional
audit and/or review work as may be requested by the Parent through and including
the Closing Date and provide its report to the Parent and the Shareholders.
4.5 Certain Payables and Receivables. On or prior to Closing, the
--------------------------------
Shareholders shall pay in full in cash all accounts receivable, notes receivable
and advances payable by any Shareholder to the Company and the Company shall pay
in full in cash all accounts payable, notes payable and advances payable by the
Company to any Shareholder.
4.6 Pre-Closing Covenants and Agreements. The Shareholders and the
------------------------------------
Company jointly and severally agree as set forth in Exhibit 4.6 attached
hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the Parent,
---------------
Merger Sub, the Company or the Shareholders will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Merger to its employees, vendors and customers to protect
the Company's goodwill and to facilitate the Closing. The Parent and Merger Sub
may disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities, and may describe this
Agreement and the transactions contemplated hereby in any registration statement
filed by the Parent under the Securities Act and in reports filed by the Parent
under the Securities Exchange Act of 1934, and may file this Agreement as an
exhibit to any thereof. The Parent may also make appropriate disclosures of the
general nature of the Merger and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the Parent's
efforts to effect additional acquisitions. Each party will have mutual approval
rights with respect to written employee presentations concerning the prospective
Merger.
4.8 Tax-Free Reorganization. Unless the other parties shall otherwise
-----------------------
agree in writing, none of the Shareholders, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action,
which action or failure to act would jeopardize the qualification of the Merger
as a reorganization withing the meaning of Section 368(a) of the Code.
4.9 Company Plans. Except as otherwise contemplated by this Agreement,
-------------
the Company Plans (as defined in Exhibit 2) described on Exhibit 4.9 of the
Company in effect at the date of this Agreement will remain in effect unless
otherwise determined by the Parent after the Effective Time.
-13-
<PAGE>
4.10 Purchase of Certain Receivables. If any account receivable included
--------------------------------
in current assets of the Company for purposes of determining Working Capital (as
defined in Exhibit 1) remains unpaid in full for 120 days or more after the
Closing, the Shareholders shall, upon written request by the Surviving
Corporation made within 150 days after the Closing, purchase the same from the
Surviving Corporation without recourse, for the uncollected amount thereof.
Each Shareholder may, at such Shareholder's election make payment for such
accounts receivable (i) wholly in cash or (ii) in cash and Parent Common Stock
in the same ratio as cash and Parent Common Stock was received by such
Shareholder pursuant to Section 5.4.4 above, with the Parent Common Stock being
valued for such purpose at the IPO Price to the Public (as defined in Exhibit
1).
4.11 Certain Other Accounts Receivable. If any accounts receivable of the
---------------------------------
Company have been outstanding for more than 120 days as of the end of the
calendar month next preceding the date in which the Closing occurs and are not
included in current assets for purposes of determining Working Capital, the
Surviving Corporation shall distribute to the Shareholders (proportionately in
accordance with their ownership of Company Common Stock as set forth in Exhibit
2.2) any payments received by the Surviving Corporation on any such accounts
(net of any expenses incurred by the Surviving Corporation in connection
therewith); provided, however, that the Surviving Corporation shall not be
required to take any action to collect any of such accounts receivable. At the
Surviving Corporation's sole option, it may assign without recourse to the
Shareholders (proportionately, as set forth above) any such account receivable.
Any such payments or assignments to the Shareholders shall be treated as
additions to the Final Merger Consideration. Notwithstanding the foregoing, the
Surviving Corporation shall not distribute any such payments or accounts
receivable to the Shareholders if such distribution will jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
4.12 Certain Acquisitions, Consultation.
----------------------------------
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
--------------------------------------------------------------------
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Shareholders and the Company contained in
this Agreement, in Exhibit 2 and the Disclosure Schedule referred to therein and
the other Exhibits provided by the Shareholders or the Company pursuant to this
Agreement or in any closing certificate or document delivered to the Parent
pursuant hereto shall be true and correct at and as of the Closing Date as
though made at and as of that time other than such representations and
warranties as are specifically made as of another date, and the Shareholders and
the Company shall each have delivered to the Parent and Merger Sub a certificate
to that effect.
5.1.2 Performance of Covenants. The Shareholders and the Company
------------------------
shall have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholders and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
-14-
<PAGE>
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or any of
the Shareholders, or against the Parent or Merger Sub arising by reason of the
acquisition of the Company pursuant to this Agreement, which is reasonably
likely (i) to restrain, prohibit or invalidate the consummation of the
transactions contemplated by this Agreement, (ii) to have a Company Material
Adverse Effect or (iii) to have a Parent Material Adverse Effect after giving
effect to the consummation of the transactions contemplated by this Agreement,
and the Shareholders and the Company shall each have delivered to the Parent and
Merger Sub a certificate to that effect as such legal actions or proceedings
relate to the Company and the Shareholders.
5.1.4 Approvals. The Company and the Shareholders shall have
---------
procured all of the consents, approvals and waivers of third parties or any
regulatory body or authority, whether required contractually or by applicable
law or otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholders prior to the Closing Date, and
the Shareholders and the Company shall each have delivered to the Parent and
Merger Sub a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage
---------------------------
shall have occurred on or prior to the Effective Time to any of the properties
or assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such
-------------
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there
--------------------------
shall not have been any event that in the reasonable judgment of the Parent
adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
---
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
-------------------------
Shareholders resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
-------------------------------------------------------------------
Company. The obligations of the Shareholders and the Company under this
- -------
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholders and the Company in writing to the extent
permitted by applicable law:
5.2.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered to the
Shareholders or the Company pursuant hereto shall be true and correct on and as
of the Closing Date
-15-
<PAGE>
as though made at and as of that date other than such representations and
warranties as are specifically made as of another date, and the Parent and
Merger Sub shall have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall have
------------------------
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Closing Date and the Parent and Merger
Sub shall have delivered to the Shareholders and the Company a certificate to
such effect.
5.2.3 Approvals. The Parent shall have procured all of the consents,
---------
approvals and waivers specified in Section 3.1.4 prior to the Closing Date, and
the Parent shall have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.2.5 Legal Actions or Proceeding. No legal action or proceeding
---------------------------
shall have been instituted after the date hereof against the Company or any of
the Shareholders, or against the Parent or Merger Sub arising by reason of the
acquisition of the Company pursuant to this Agreement, which is reasonably
likely to restrain, prohibit or invalidate the consummation of the transactions
contemplated by this Agreement, and the Parent and the Merger Sub shall have
delivered to the Company and the Shareholders a certificate to that effect as
such legal action or proceeding relates to the Parent and the Merger Sub.
5.2.6 Certain Corporate Actions. All necessary director and
-------------------------
shareholder resolutions, waivers and consents of Parent and Merger Sub required
to consummate the transactions contemplated hereunder shall have been delivered.
5.2.7 IPO. The Parent shall have completed the IPO prior to 5:00
---
p.m., Houston, Texas time, December 31, 1997, and the net proceeds thereof shall
have been received by the Parent by such date and time.
5.3 Deliveries by the Shareholders at the Closing. At the Closing,
---------------------------------------------
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders and
the Company pursuant to any other transaction document at the Closing, the
Shareholders shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders and the Company shall
--------------------
deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3,
5.1.4 and 5.1.5.
5.3.2 Stock Transfer Restriction Agreement. The Shareholders shall
------------------------------------
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.2.
-16-
<PAGE>
5.3.3 Employment Agreements. Floyd M. Maynard shall execute and
---------------------
deliver an Employment Agreement with the Company on the Closing Date, effective
as of the Effective Time, substantially in the form set forth in Exhibit 5.3.3.
5.3.4 Lease Agreement. The Shareholders shall cause the owner of the
---------------
property located at 885 Ohio Pike, Cincinnati, Ohio to execute and deliver a
lease agreement with the Company substantially in the form attached as Exhibit
5.3.4.
5.3.5 Registration Rights Agreement. The Shareholders shall execute
-----------------------------
and deliver a Registration Rights Agreement at the Closing, effective as of the
Effective Time, substantially in the form set forth in Exhibit 5.3.5 attached
hereto.
5.3.6 Opinion of Counsel for the Shareholders and the Company. The
-------------------------------------------------------
Shareholders shall deliver the favorable opinion of Robbins, Kelly, Patterson &
Tucker, a Legal Professional Association, counsel to the Shareholders and the
Company, dated the Effective Time, substantially in the form and to the effect
set forth in Exhibit 5.3.6 attached hereto.
5.3.7 Documents, Stock Certificates. The Shareholders shall execute
-----------------------------
and deliver, and shall cause the Company to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Company or its officers or directors or the Shareholders at the
Closing as contemplated hereby or as may be reasonably requested by the Parent
and shall deliver or cause to be delivered the documents and evidence required
under Section 4. Stock Certificates representing all of the outstanding Company
Common Stock and properly executed and completed letters of transmittal shall be
delivered by the Shareholders to the Parent.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholders hereunder for any breach of warranty, covenant or
agreement by the Company or the Shareholders herein irrespective of any
knowledge of or investigation made by or on behalf of the Parent or Merger Sub;
provided, however, that if the Company shall disclose in writing to the Parent
prior to the Closing Date a specified breach of a specifically identified
representation, warranty, covenant or agreement of the Company or any
Shareholder herein by the Company or any Shareholder, and requests a waiver
thereof by the Parent, and the Parent shall waive any such specifically
identified breach in writing prior to the Closing Date, the Parent and the
Surviving Corporation, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Shareholders shall have no liability with
respect to, any such specifically identified breach, to the extent so identified
by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
---------------------------------------
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall deliver
--------------------
the certificates required pursuant to Sections 5.2.1, 5.2.2, 5.2.3 and 5.2.4.
-17-
<PAGE>
5.4.2 Registration Rights Agreement. The Parent shall execute and
-----------------------------
deliver to the Shareholders a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The Parent
------------------------------------------------
shall deliver the favorable opinion of its legal counsel dated the Effective
Time, substantially in the form and to the effect set forth in Exhibit 5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver the
----------------------------
Closing Merger Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of any Shareholder; provided, however, that if the Parent shall disclose in
writing to the Shareholders prior to the Closing a specified breach of a
specifically identified representation, warranty, covenant or agreement of the
Parent or Merger Sub contained herein by the Parent or Merger Sub, and requests
a waiver thereof by the Company and the Shareholders, and the Company and the
Shareholders shall waive any such specifically identified breach in writing
prior to the Closing, the Company and the Shareholders shall be deemed to have
waived their rights and remedies hereunder for, and the Parent and Merger Sub
shall have no liability or obligation to the Shareholders or the Company with
respect to, any such specifically identified breach, to the extent so identified
by the Parent and waived by the Company and the Shareholders.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2 shall survive for a period of
24 months after the Closing Date (with respect to claims for intentional breach
thereof), or 12 months after the Closing Date (with respect to any other claim
for breach thereof) and the representations and warranties of the Shareholders
and the Company contained in Sections 2.2, 2.3, 2.4 and in Sections 2 and 3 of
Exhibit 2 shall survive for the maximum period permitted by applicable law. The
representations and warranties of the Parent herein and in the Parent Related
Documents, other than those in Sections 3.1.3 and 3.1.4, shall survive for a
period of 24 months after the Closing Date (for claims for intentional breach
thereof) or 12 months after the Closing Date (for other claims for breach
thereof) and the representations and warranties of the Parent contained in
Sections 3.1.3 and 3.1.4 shall survive for the maximum period permitted by
applicable law. The periods of survival of the representations and warranties
as stated above in this Section 6.1 are referred to herein as the "Survival
--------
Period." The liabilities of the parties under their respective representations
- ------
and warranties shall expire as of the expiration of the applicable Survival
Period and no claim for indemnification may be made with respect to any breach
of any representation or warranty, the applicable Survival Period of which shall
have expired, except to the extent that written notice of such breach shall have
been given to the party against whom such claim is asserted within thirty (30)
days after the date of such expiration. The covenants and agreements of the
parties herein
-18-
<PAGE>
(including but not limited to Exhibit 4.6) and in other documents and
instruments executed and delivered in connection with the closing of the
transactions contemplated hereby shall survive for the maximum period permitted
by law.
6.2 Indemnification.
---------------
6.2.1 Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 6.1 and 6.3 hereof, the Shareholders shall indemnify, save and hold
harmless the Parent, the Surviving Corporation, Merger Sub and any of their
assignees (including lenders) and all of their respective officers, directors,
employees, representatives, agents, advisors and consultants and all of their
respective heirs, legal representatives, successors and assigns (collectively
the "Parent Indemnified Parties") from and against any and all damages,
--------------------------
liabilities, losses, loss of value (including the value of adverse effects on
cash flow or earnings), claims, deficiencies, penalties, interest, expenses,
fines, assessments, charges and costs, including reasonable attorneys' fees and
court costs, net of insurance recoveries actually received in connection with
any of the foregoing (collectively "Losses") arising from, out of or in any
------
manner connected with or based on:
(i) the breach of any covenant of the Shareholders or the Company
or the failure by the Shareholders or the Company to perform any obligation
of the Shareholders or the Company contained herein or in any Company
Related Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty
of the Shareholders contained herein or in any Shareholder Related
Document;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed with
reasonable specificity in the Disclosure Schedule or (b) disclosed in the
Company Financial Statements (as defined in Exhibit 2).
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1
----------------
and 6.3, the Parent shall indemnify, save and hold harmless the Shareholders and
the Shareholders' heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
-19-
<PAGE>
(ii) any inaccuracy in or breach of any representation or warranty
of the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from any Shareholder's
acts or omissions after the Effective Time as an officer, director and/or
employee of the Parent, the Surviving Corporation and/or any other
affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The aggregate liability of the Shareholders under
-----------
Section 6.2.1 (ii), (iii), (iv) and (v) shall not exceed the amount of the Final
Merger Consideration, with the Parent Common Stock being valued at the IPO Price
to the Public for such purpose. The aggregate liability of the Parent under
Section 6.2.2 (ii) and (iii) shall not exceed the amount of the Final Merger
Consideration, with the Parent Common Stock being valued at the IPO Price to the
Public for such purpose. The liability of each Shareholder for indemnification
for Losses under Section 6.2.1 shall be several and not joint and shall be
limited to an amount equal to the product obtained by multiplying the amount of
such Losses by a fraction, the numerator of which is the number of shares of
Company Common Stock held by such Shareholder as set forth on Exhibit 2.2, and
the denominator of which is the number of shares of Company Common Stock held by
all Shareholders as set forth on Exhibit 2.2. Each Shareholder may, at such
Shareholder's election, make such indemnification payments (i) wholly in cash,
or (ii) in cash and in Parent Common Stock in the same ratio as cash and Parent
Common Stock was received by such Shareholder pursuant to Section 5.4.4 above,
with the Parent Common Stock being valued at the IPO Price to the Public (as
defined in Exhibit 1).
6.4 Procedures for Indemnification.
------------------------------
6.4.1 Notice. The party (the "Indemnified Party") that may be
------ -----------------
entitled to indemnity hereunder shall give prompt notice to any party obligated
to give indemnity hereunder (the "Indemnifying Party") of the assertion of any
------------------
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 6.4.1 shall relieve the
Indemnifying Party of its obligations under this Article 6 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice (except that the Indemnifying Party shall not be liable for any
expenses incurred by the Indemnified Party during the period in which the
Indemnified Party failed to give such notice); provided, however, that in no
event may a notice be properly given more than thirty (30) days after the
expiration of the Survival Period to which a claim for indemnification is
applicable. Thereafter, the Indemnified Party shall deliver to the Indemnifying
Party, promptly (and in any event within 10 days thereof) after the Indemnified
Party's receipt thereof, copies of all notices and documents (including court
papers) received by the Indemnified Party relating to such claim, action, suit
or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
-------------
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought
-20-
<PAGE>
hereunder, provided that (i) the Shareholders shall at all times have the right,
at their option, to participate fully therein, and (ii) if the Parent does not
proceed diligently to defend the third-party claim, suit, action or proceeding
within 10 days after receipt of notice of such third-party claim, suit, action
or proceeding, the Shareholders shall have the right, but not the obligation, to
undertake the defense of any such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
----------
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
-----------------
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any such
-----------
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and records, and personnel in the
possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for himself,
-----------
herself, or itself and such Indemnifying Party's affiliates (as defined in
Exhibit 2) any rights to subrogation against any Indemnified Party or such
Indemnified Party's insurers for Losses arising from any third-party claims for
which the Indemnifying Party is liable or against which the Indemnifying Party
indemnifies any Indemnified Party and, if necessary, each Indemnifying Party
shall obtain waivers of such subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and the
--------------
Parent; or
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<PAGE>
7.1.2 Optional by the Company or Shareholders. By the Company or all
---------------------------------------
of the Shareholders by written notice to the Parent, (i) if the Closing shall
have failed to occur by 5:00 p.m. Houston, Texas time on December 31, 1997,
provided that neither the Company nor any of the Shareholders has breached this
Agreement or failed to perform any of their respective obligations under this
Agreement, or (ii) if the IPO shall not have been completed and the net proceeds
thereof received by the Parent prior to 5:00 p.m. Houston, Texas time, December
31, 1997;
7.1.3 Optional by the Parent. By the Parent, by written notice to
----------------------
the Company, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Parent nor Merger Sub
has breached this Agreement or has failed to perform any of its obligations
under this Agreement;
7.1.4 Breach by the Parent or Merger Sub. By the Company, by written
----------------------------------
notice to the Parent, if either the Parent or Merger Sub has materially breached
this Agreement or failed to perform any of its obligations under this Agreement;
or
7.1.5 Breach by the Company or any Shareholder. By the Parent, by
----------------------------------------
written notice to the Company, if the Company or any Shareholder has materially
breached this Agreement or has failed to perform any of their respective
material obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Company (prior to the Effective Time) or the Shareholders:
Willis Refrigeration, Air Conditioning & Heating, Inc.
885 Ohio Pike
Cincinnati, Ohio 45245
Attention: Mr. Floyd M. Maynard, President
Telecopy: (513) 752-0788
-22-
<PAGE>
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attention: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholders hereunder.
8.3 Assignability. The Shareholders shall not assign this Agreement in
-------------
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of any Shareholder or the Company. After the Effective Time, the
Surviving Corporation may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
any Shareholder.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
----------------
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver
-23-
<PAGE>
by any party with respect to any breach or default or of any right or remedy and
no course of dealing shall be deemed to constitute a continuing waiver of any
other breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
---------------
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
--------------------
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
----------------------
Merger Sub, the Shareholders and the Company, by action taken by their Boards of
Directors to the extent permitted by applicable law; provided, however, that no
such amendment shall (i) alter or change any provision of this Agreement, the
alteration or change of which must be adopted by the holders of capital stock of
the Company under the certificate or articles of incorporation of the Company or
the Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless
each such alteration or change is adopted by the holders of shares of capital
stock of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent, Merger Sub, the Company and the
Shareholders. After the Effective Time, all amendments to this Agreement must
be by an instrument in writing signed on behalf of the Parent and the
Shareholders. Any term or provision of this Agreement (other than the
requirements for Shareholders approvals) may be waived in writing at any time by
the party which is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever under or by reason of this Agreement, or shall cause the
employment status of any employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had
-24-
<PAGE>
against any incorporator, organizer, promoter, Shareholders, officer, director,
employee or representative as such (other than the Shareholders as set forth
herein), past, present or future, of the Parent or of any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by enforcement
of any assessment or penalty or otherwise; it being expressly understood that
all such liability is hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by each of
the Parent, Merger Sub, the Company and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Parent and the Company
and their respective members of their Boards of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be automatically as a part of this Agreement, a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
---------------------
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any brokers, legal counsel, accountants or other advisors engaged by the
Shareholders and shall pay the reasonable accounting and auditing fees and
expenses of the Accountants (to the extent, and only to the extent, that any
such payment will not jeopardize the qualification of the Merger
-25-
<PAGE>
as a reorganization within the meaning of Section 368(a) of the Code); and
provided further that all fees, costs and expenses incurred or payable by the
Company in connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby shall be included in current liabilities for
purposes of determining Working Capital. Notwithstanding the foregoing, the
Parent shall pay all such accounting and auditing fees and expenses of the
Accountants if on or before December 31, 1997 the IPO has not closed and the
Parent or Merger Sub has not acquired the Company in the Merger or otherwise.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:_________________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
WILLIS ACQUISITION CORP.
By:_________________________________________
J. Patrick Millinor, Jr., President
-26-
<PAGE>
NUMBER OF SHARES OF SHAREHOLDERS:
- -------------------
COMPANY COMPANY STOCK
- ---------------------
TO BE CONVERTED INTO FLOYD E. MAYNARD, JR. AND ADDIE L.
- --------------------
RIGHT TO RECEIVE: MAYNARD IRREVOCABLE TRUST UNDER
- ----------------
AGREEMENT DATED SEPTEMBER 2, 1991
(a) Final Per Share Cash Amount ___ By:
(b) Final Per Share Common Stock Amount ___ Name: Floyd M. Maynard, Trustee
(a) Final Per Share Cash Amount ___ __________________________________
(b) Final Per Share Common Stock Amount ___ Floyd M. Maynard
(a) Final Per Share Cash Amount ___ __________________________________
(b) Final Per Share Common Stock Amount ___ Anita D. Maynard
COMPANY:
WILLIS REFRIGERATION, HEATING,
AIR CONDITIONING, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
-27-
<PAGE>
EXHIBIT 10.27
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
YALE ACQUISITION CORP.
YALE INCORPORATED
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
YALE INCORPORATED
August 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE MERGER.............................................................................. 1
1.1 The Merger.................................................................. 1
1.2 Effective Time of the Merger................................................ 1
1.3 Closing..................................................................... 1
1.4 Effects of the Merger....................................................... 2
1.4.1 At the Effective Time................................................ 2
1.4.2 Effects on the Surviving Corporation................................. 2
1.5 Written Consents and Other Actions.......................................... 3
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters......... 3
1.5.2 Written Consent of the Sole Shareholder of Merger Sub................ 3
1.5.3 All Other Necessary Actions.......................................... 3
1.6 Conversion of Stock......................................................... 3
1.6.1 Merger Sub Capital Stock............................................. 3
1.6.2 Cancellation of the Company Treasury Stock........................... 3
1.6.3 Merger Consideration................................................. 3
1.7 Exchange of and Payment for Stock........................................... 4
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration.... 4
1.7.2 Assignments.......................................................... 4
1.7.3 Payment In Full Satisfaction of All Rights........................... 4
1.8 Determination of Closing Merger Consideration............................... 4
1.8.1 Delivery of IPO Price to Public; Statement........................... 4
1.9 Post-Closing Determination of Total Consideration........................... 4
1.9.1 Statement............................................................ 4
1.9.2 Review............................................................... 5
1.9.3 Disputes............................................................. 5
1.9.4 Resolution by Parties................................................ 5
1.9.5 Final Determination.................................................. 5
1.9.6 Expenses............................................................. 6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER....................... 6
2.1 Exhibit 2................................................................... 6
2.2 Stock Ownership............................................................. 6
2.3 Authority................................................................... 6
2.4 Consents.................................................................... 6
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB.............................. 7
3.1 Representations and Warranties.............................................. 7
3.1.1 Organization....................................................... 7
3.1.2 Capitalization of the Parent....................................... 7
3.1.3 Authority.......................................................... 7
3.1.4 Consents........................................................... 7
3.1.5 Defaults........................................................... 7
3.1.6 Investment Company................................................. 8
3.1.7 Financial Statements............................................... 8
3.1.8 Taxes.............................................................. 8
3.1.9 Full Authority..................................................... 8
3.1.10 Access............................................................. 8
3.1.11 Disclosure......................................................... 8
3.1.12 Parent Material Adverse Effect..................................... 9
3.1.13 Tax-Free Reorganization............................................ 9
3.1.14 Value of Parent Common Stock....................................... 10
3.2 Representations and Warranties Concerning the Merger Sub.................... 10
3.2.1 Organization and Standing.......................................... 10
3.2.2 Capital Structure.................................................. 10
3.2.3 Authority.......................................................... 10
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS................................... 10
4.1 Agreements of the Shareholders to be Effective Upon Closing................. 10
4.1.1 Covenant Not to Compete.............................................. 10
4.1.2 Release.............................................................. 11
4.2 Elimination of Expense...................................................... 11
4.3 Deferred Compensation Plans................................................. 11
4.4 Audit....................................................................... 12
4.5 Certain Payables and Receivables............................................ 12
4.6 Pre-Closing Covenants and Agreements........................................ 12
4.7 Confidentiality............................................................. 12
4.8 Tax-Free Reorganization..................................................... 12
4.9 Company Plans............................................................... 12
4.10 Purchase of Certain Receivables............................................. 12
4.11 Income Tax Distribution..................................................... 13
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES................................................ 13
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub........... 13
5.1.1 Accuracy of Representations and Warranties.............................. 13
5.1.2 Performance of Covenants................................................ 13
5.1.3 Legal Actions or Proceedings............................................ 13
5.1.4 Approvals............................................................... 13
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
5.1.5 Closing Deliveries.................................................. 14
5.1.6 No Casualty, Loss or Damage......................................... 14
5.1.7 Licenses, etc....................................................... 14
5.1.8 No Material Adverse Change.......................................... 14
5.1.9 IPO................................................................. 14
5.1.10 Certain Corporate Actions........................................... 14
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company. 14
5.2.1 Accuracy of Representations and Warranties.......................... 14
5.2.2 Performance of Covenants............................................ 14
5.2.3 Approvals........................................................... 14
5.2.4 Closing Deliveries.................................................. 15
5.3 Deliveries by the Shareholders at the Closing............................... 15
5.3.1 Closing Certificates................................................ 15
5.3.2 Stock Transfer Restriction Agreement................................ 15
5.3.3 Employment Agreements............................................... 15
5.3.4 Lease Agreement..................................................... 15
5.3.5 Registration Rights Agreement....................................... 15
5.3.6 Opinion of Counsel for the Shareholders and the Company............. 15
5.3.7 Documents, Stock Certificates....................................... 15
5.3.8 Discharge of Indebtedness, Releases, Etc............................ 15
5.4 Deliveries by the Parent at the Closing..................................... 16
5.4.1 Closing Certificates................................................ 16
5.4.2 Registration Rights Agreement....................................... 16
5.4.3 Opinion of Counsel for the Parent and Merger Sub.................... 16
5.4.4 Closing Merger Consideration........................................ 16
6. SURVIVAL, INDEMNIFICATIONS............................................................... 17
6.1 Survival.................................................................... 17
6.2 Indemnification............................................................. 17
6.2.1 Parent Indemnified Parties.......................................... 17
6.2.2 Parent Indemnity.................................................... 18
6.3 Limitations................................................................. 18
6.4 Procedures for Indemnification.............................................. 18
6.4.1 Notice.............................................................. 18
6.4.2 Legal Defense....................................................... 19
6.4.3 Settlement.......................................................... 19
6.4.4 Cooperation......................................................... 19
6.5 Subrogation................................................................. 20
7. TERMINATION............................................................................. 20
7.1 Grounds for Termination........................................................ 20
7.1.1 Mutual Consent...................................................... 20
7.1.2 Optional By the Company............................................. 20
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7.1.3 Optional By the Parent.............................................. 20
7.1.4 Breach By the Parent or Merger Sub.................................. 20
7.1.5 Breach by the Company or any Shareholder............................ 20
7.2 Effect of Termination....................................................... 20
8. MISCELLANEOUS............................................................................ 20
8.1 Notice...................................................................... 20
8.2 Further Documents........................................................... 21
8.3 Assignability............................................................... 21
8.4 Exhibits and Schedules...................................................... 21
8.5 Sections and Articles....................................................... 21
8.6 Entire Agreement............................................................ 21
8.7 Headings.................................................................... 22
8.8 CONTROLLING LAW............................................................. 22
8.9 Public Announcements........................................................ 22
8.10 No Third Party Beneficiaries................................................ 22
8.11 Amendments and Waivers...................................................... 22
8.12 No Employee Rights.......................................................... 22
8.13 Non-Recourse................................................................ 23
8.14 When Effective.............................................................. 23
8.15 Takeover Statutes........................................................... 23
8.16 Number and Gender of Words.................................................. 23
8.17 Invalid Provisions.......................................................... 23
8.18 Multiple Counterparts....................................................... 23
8.19 No Rule of Construction..................................................... 23
8.20 Expenses.................................................................... 24
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.....................................................Determination of Final Merger Consideration
Exhibit 1.5.1...................................................Unanimous Written Consent of.Shareholders
Exhibit 1.5.2...............................Written Consent of Sole Shareholder of Yale Acquisition Corp.
Exhibit 1.7.........................................................................Letter of Transmittal
Exhibit 2..............................................................................Certain Statements
Exhibit 2.2.............................................................Ownership of Company Common Stock
Exhibit 3.1.4..................................................................Required Consents - Parent
Exhibit 4.3......................... Procedure for Satisfaction of Deferred Compensation Plan Liabilities
Exhibit 4.6.............................................................................Certain Covenants
Exhibit 4.9.............................................................Company Plans to Remain in Effect
Exhibit 4.11.................................................................................Form of Note
Exhibit 5.3.2........................................................Stock Transfer Restriction Agreement
Exhibit 5.3.3..............................List of Employees to Execute and Deliver Employment Agreements
Exhibit 5.3.3A.......................................................................Employment Agreement
Exhibit 5.3.4.............................................................................Lease Agreement
Exhibit 5.3.5...............................................................Registration Rights Agreement
Exhibit 5.3.6......................................Opinion of.Counsel to the Shareholders and the Company
Exhibit 5.3.8......................................................................Terminated Obligations
Exhibit 5.4.3............................................................Opinion of Counsel to the Parent
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Accountants................................................................... 4
Additional Consideration...................................................... 6
Agreement..................................................................... 1
Applicable Corporate Law...................................................... 1
Business Time.................................................. Exhibit 5.3.3.A
Closing....................................................................... 1
Closing Date.................................................................. 1
Closing Merger Consideration.......................................... Exhibit 1
Closing Outstanding Common Stock Number............................... Exhibit 1
Closing Per Share Cash Amount......................................... Exhibit 1
Closing Per Share Common Stock Amount................................. Exhibit 1
Code.......................................................................... 1
Company....................................................................... 1
Company Accountants.......................................................... 13
Company Common Stock.......................................................... 1
Company Option Plan.......................................................... 14
Company Options.............................................................. 14
Converted Share............................................................... 4
Earn-Out Period............................................................... 6
EBITDA........................................................................ 6
Effective Time................................................................ 1
Excess Expense Level Deduction........................................ Exhibit 1
Final Outstanding Common Stock Number................................. Exhibit 1
Final Per Share Cash Amount........................................... Exhibit 1
Final Per Share Common Stock Amount................................... Exhibit 1
GAAP.................................................................. Exhibit 1
HSR Act...................................................................... 14
Indemnified Party............................................................ 21
Indemnifying Party........................................................... 21
Investments........................................................... Exhibit 1
IPO........................................................................... 2
IPO Price to the Public............................................... Exhibit 1
Long-Term Debt........................................................ Exhibit 1
Losses....................................................................... 20
Measurement Month Date................................................ Exhibit 1
Merger........................................................................ 1
Merger Sub.................................................................... 1
Minimum Proceeds.............................................................. 2
MMR.......................................................................... 12
Monthly Balance Sheet............................................... Exhibit.4.6
Notice of Dispute............................................................. 5
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Other Ownership Interests............................................ Exhibit 1
Owner's Policies of Title Insurance.................................. Exhibit 4.6
Parent......................................................................... 1
Parent Common Stock............................................................ 1
Parent Financial Statements................................................... 9
Parent Financial Statements................................................... 8
Parent Indemnified Parties.................................................... 17
Parent Indemnified Parties.................................................... 20
Parent Material Adverse Effect................................................ 10
Parent Material Adverse Effect................................................. 9
Parent Preferred Stock......................................................... 7
Parent Preferred Stock......................................................... 8
Parent Related Documents....................................................... 7
Parent Related Documents....................................................... 8
Permitted Exceptions................................................. Exhibit 4.6
Price Notice................................................................... 4
Principal Shareholders......................................................... 1
Registration Statement......................................................... 7
Registration Statement......................................................... 8
SEC............................................................................ 8
SEC............................................................................ 7
Securities Act................................................................. 2
Settlement Notice..............................................................22
Settlement Notice..............................................................19
Shareholder.................................................................... 1
Shareholder Related Document................................................... 6
Shareholder Related Document................................................... 7
Shareholders................................................................... 1
Statement of Closing Consideration............................................. 4
Statement of Final Per Share Amounts........................................... 5
Statement of Closing Consideration............................................. 4
Statement of Final Per Share Amounts........................................... 5
Stock Certificate.............................................................. 4
Stock Certificate.............................................................. 3
Stock Value.................................................................... 6
Surveys.............................................................. Exhibit 4.6
Survival Period................................................................19
Survival Period................................................................17
Surviving Corporation.......................................................... 1
Terminated Obligations.........................................................18
Terminated Obligations.........................................................16
Third Accountants.............................................................. 5
Title Commitments.................................................... Exhibit 4.6
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Title Insurance Property.........................................Exhibit 4.6
Total Consideration............................................... Exhibit 1
Transaction Costs................................................. Exhibit 1
Working Capital................................................... Exhibit 1
Working Capital Addition.......................................... Exhibit 1
Working Capital Deduction......................................... Exhibit 1
</TABLE>
-viii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
---------
August ___, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), Yale Acquisition Corp., a Minnesota corporation
------
("Merger Sub"), Yale Incorporated, a Minnesota corporation (the "Company"), and
----------
the undersigned holders of all of the outstanding capital stock of the Company
(the "Shareholders").
------------
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and
the Company have each approved the merger of the Company with and into Merger
Sub (the "Merger") pursuant to this Agreement and the applicable statutes of the
------
State of Minnesota and pursuant to the Merger each issued and outstanding share
of Common Stock, no par value, of the Company ("Company Common Stock") will be
--------------------
converted into the right to receive certain shares of common stock, $.001 par
value per share, of the Parent ("Parent Common Stock"), and certain cash
-------------------
consideration, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholders.
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
----------
accordance with the Minnesota Business Corporation Act (the "Applicable
----------
Corporate Law") upon the Effective Time (as defined in Section 1.2), the Company
- -------------
shall be merged with and into Merger Sub. Merger Sub, as the surviving entity
following the Merger, is sometimes referred to in this Agreement as the
"Surviving Corporation."
---------------------
1.2 Effective Time of the Merger. In accordance with the requirements of
----------------------------
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted for filing with the Secretary of
State of the State of Minnesota immediately following and on the same day as the
Closing (as defined below). The date of such filing is referred to in this
Agreement as the "Effective Time."
--------------
1.3 Closing. The closing of the Merger ("Closing") will take place at the
------- -------
offices of Bracewell & Patterson, L.L.P. in Houston, Texas on a date that is
contemporaneous with the closing of the Parent's IPO (as defined below), but in
no event later than December 31, 1997 ("Closing Date"); provided that each of
------------
the conditions precedent to the obligations of the parties to effect the Merger
set forth in Article 5 of this Agreement are then satisfied or waived by the
applicable party. The parties may agree in writing on another place for the
Closing. At the Closing, the parties will deliver or cause to be delivered the
documents described in Sections 5.3 and 5.4 below. The term "IPO" means the
---
first underwritten public offering of
<PAGE>
Parent Common Stock resulting in net cash proceeds to the Parent of at least the
Minimum Proceeds, as defined below (other than any offering pursuant to any
registration statement relating to any capital stock of the Parent or options,
warrants or other rights to acquire any such capital stock issued or to be
issued primarily to directors, officers or employees of the Parent or any of its
subsidiaries, (i) relating to any employee benefit plan or interest therein,
(ii) relating principally to any preferred stock or debt securities of the
Parent, or (iii) filed pursuant to Rule 145 under the Securities Act of 1933, as
amended ("Securities Act"), or any successor or similar provision). The term
--------------
"Minimum Proceeds" means the aggregate amount necessary to pay in full (i) all
----------------
indebtedness of the Parent or any of its subsidiaries outstanding at the closing
of the IPO and incurred for purposes of financing any acquisitions by the Parent
or any of its subsidiaries (including the refinancing of acquired company
indebtedness), (ii) the aggregate redemption prices for the redemption of all of
the Parent's preferred stock outstanding at the closing of the IPO issued by the
Parent in connection with then completed acquisitions by the Parent or any of
its subsidiaries, and (iii) the aggregate cash payable by the Parent or any of
its subsidiaries in connection with all then pending acquisitions.
1.4 Effects of the Merger.
---------------------
1.4.1 At the Effective Time. At the Effective Time, (i) the Company
---------------------
shall merge with and into Merger Sub and as a result thereof, the separate
existence of the Company shall cease, (ii) the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, except that the Articles
of Incorporation of Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "Yale Incorporated," (iii) the Bylaws
of Merger Sub as in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation, and (iv) the directors and officers of
Merger Sub immediately prior to the Effective Time shall become the directors
and officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected or
appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
------------------------------------
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with the Applicable Corporate Law and the terms of this Agreement.
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<PAGE>
1.5 Written Consents and Other Actions.
----------------------------------
1.5.1 Unanimous Written Consent of the Shareholders; Other Matters.
------------------------------------------------------------
Contemporaneously with the execution hereof, the Shareholders (i) are executing
and delivering to the Company a Unanimous Written Consent in substantially the
form of Exhibits Exhibit 1.5.1 attached hereto and (ii) hereby acknowledge that
they are aware of their dissenter's or appraisal rights and with respect to the
Merger and their receipt of a copy of the provisions of Section 49.41 of the
Applicable Corporate Law and have elected not to exercise such rights.
1.5.2 Written Consent of the Sole Shareholder of Merger Sub.
-----------------------------------------------------
Contemporaneously with the execution hereof, the Parent is executing and
delivering to Merger Sub a written consent of the sole shareholder of Merger
Sub, in the form of Exhibits Exhibit 1.5.2 attached hereto, pursuant to the
applicable provisions of the Applicable Corporate Law, adopting this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
---------------------------
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
-------------------
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of Merger
------------------------
Sub issued and outstanding at the Effective Time shall remain outstanding and
shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
------------------------------------------
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. Each share of Company Common Stock (other
--------------------
than shares to be canceled in accordance with Section 1.6.2) shall be converted
into the right to receive (i) that number of shares of Parent Common Stock equal
to the Final Per Share Common Stock Amount (as defined in Exhibits Exhibit 1
attached hereto), and (ii) cash equal to the Final Per Share Cash Amount (as
defined in Exhibit 1 attached hereto). Each share of Company Common Stock so
converted into the right to receive cash equal to the Final Per Share Cash
Amount and shares of Parent Common Stock equal to the Final Per Share Common
Stock Amount (a " Converted Share") shall, by virtue of the Merger and without
---------------
any action on the part of the holder thereof, at the Effective Time no longer be
outstanding and shall at such time be canceled and retired and shall cease at
such time to exist, and each holder of a certificate which prior to the
Effective Time validly evidenced any such Converted Share (a "Stock
-----
Certificate") shall thereafter cease to have any rights with respect to such
- -----------
Converted Share, except, upon the surrender of the Stock Certificate and a duly
executed and completed letter of transmittal in accordance with Section 1.7, the
right to receive such cash and Parent Common Stock at the times and in the
manner set forth herein.
-3-
<PAGE>
1.7 Exchange of and Payment for Stock.
---------------------------------
1.7.1 Delivery of Company Common Stock and Closing Merger
---------------------------------------------------
Consideration. Prior to the Closing, the Parent will deliver to each
- -------------
Shareholder a letter of transmittal, in substantially the form attached hereto
as Exhibits Exhibit 1.7, to be used for the purpose of surrendering to the
Parent Stock Certificates in exchange for the right to receive the Final Per
Share Cash Amount and the Final Per Share Common Stock Amount for each Converted
Share evidenced by such Stock Certificate. All of the Company Common Stock held
by the Shareholders will be surrendered by the Shareholders to the Parent
together with properly completed and executed letters of transmittal (with each
such signature guaranteed by a commercial bank or notarized by a notary public
or similar official reasonably satisfactory to the Parent), and the Parent shall
cause to be delivered to the Shareholders at the Closing the Closing Per Share
Cash Amount (as defined in Exhibit 1 attached hereto) and the Closing Per Share
Common Stock Amount (as defined in Exhibit 1 attached hereto) applicable to each
of the Converted Shares evidenced by the Stock Certificates properly surrendered
(with properly executed and completed letters of transmittal) by each
Shareholder to the Parent.
1.7.2 Assignments. Except for the granting of options to employees of
-----------
the Company and the exercise or assignment thereof as permitted by Section 4.10,
the assignment, transfer or other disposition of record or beneficial ownership
of any shares of Company Common Stock may not be made on or after the date
hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of the
------------------------------------------
Closing Per Share Cash Amount and the Closing Per Share Common Stock Amount to
the Shareholders with respect to their Converted Shares shall be deemed to be
payment in full satisfaction of all rights pertaining to the outstanding
Converted Shares except for the right to receive additional shares of Parent
Common Stock and cash pursuant to Section 1.9.
1.8 Determination of Closing Merger Consideration.
---------------------------------------------
1.8.1 Delivery of IPO Price to Public; Statement. Within five
------------------------------------------
business days after the Parent and its underwriters agree on the initial price
to the public for a share of Parent Common Stock offered in the IPO, as set
forth in an executed underwriting agreement, the Parent shall deliver to the
Shareholders a written notice (the "Price Notice") setting forth such initial
------------
price to the public and a statement setting forth a calculation of the Closing
Outstanding Common Stock Number (as defined in Exhibit 1 attached hereto), the
Closing Per Share Cash Amount, the Closing Per Share Common Stock Amount and the
Closing Merger Consideration (as defined in Exhibit 1 attached hereto), payable
to the Shareholders at Closing (the "Statement of Closing Consideration"). The
----------------------------------
initial price to the public of a share of Parent Common Stock, as set forth in
the Price Notice, and the Closing Outstanding Common Stock Number, the Closing
Per Share Cash Amount, the Closing Per Share Common Stock Amount and the Closing
Merger Consideration, as set forth in the Statement of Closing Consideration,
shall be final, conclusive and binding for purposes of this Agreement.
1.9 Post-Closing Determination of Total Consideration.
-------------------------------------------------
1.9.1 Statement. No later than 90 days after the Closing, the Parent
---------
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the
-4-
<PAGE>
Total Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of
------------
Final Per Share Amounts"). For purposes of determining the Statement of Final
- -----------------------
Per Share Amounts, the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration shall be calculated or determined as of the last day of the month
immediately preceding the month in which the Closing occurs (unless the Closing
occurs on the last day of the month, in which case the Closing Date will be
used).
1.9.2 Review. After delivery to the Shareholders of the Statement of
------
Final Per Share Amounts, the Shareholders and their representatives shall be
afforded the opportunity to review and inspect all of the financial records,
work papers, schedules and other supporting papers relating to the preparation
of the Statement of Final Per Share Amounts, and to consult with the Parent and
its representatives regarding the methods used in the preparation of the
Statement of Final Per Share Amounts.
1.9.3 Disputes. The Final Outstanding Common Stock Number, the Final
--------
Per Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration as shown on the Statement of Final Per Share Amounts shall be
final, conclusive and binding for purposes of this Agreement, unless the
Shareholders shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Per Share
-----------------
Amounts within 10 business days following receipt of the Statement of Final Per
Share Amounts, specifying in reasonable detail the nature and extent of such
disagreement; provided, however, that no Notice of Dispute may be given with
respect to any items unless such item involves an amount of $1,000 or more and
provided further that in the event such disagreement involves an amount less
than $1,000, the Statement of Final Per Share Amounts shall be final, conclusive
and binding. If a Notice of Dispute is not properly given within such time, the
Final Outstanding Common Stock Number, the Final Per Share Cash Amount, the
Final Per Share Common Stock Amount and the Total Consideration as set forth in
the Statement of Final Per Share Amounts shall be final, conclusive and binding
for purposes of this Agreement.
1.9.4 Resolution by Parties. If a Notice of Dispute is properly
---------------------
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Per Share Amounts. If the Parent and the Shareholders shall not reach
such resolution within 30 days following receipt by the Parent of a properly
given Notice of Dispute, KPMG Peat Marwick LLP (the "Accountants") shall resolve
-----------
such dispute within 30 days after its submission to them. The Parent and the
Shareholders (if the dispute is resolved by them or the Statement of Final Per
Share Amounts otherwise becomes final pursuant hereto without referral to the
Accountants) or the Accountants (if a dispute is resolved by them) shall set
forth such resolution in writing and such writing shall (i) set forth the Final
Outstanding Common Stock Number, the Final Per Share Cash Amount, the Final Per
Share Common Stock Amount and the Total Consideration and (ii) be final,
conclusive and binding for purposes of this Agreement.
1.9.5 Final Determination. Within 10 business days following the
-------------------
final determination of the Final Outstanding Common Stock Number, the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Total
Consideration as provided in this Section 1.9, (i) the Parent shall deliver to
each Shareholder (a) the cash amount, if any, by which the aggregate of the
Final Per Share Cash Amounts payable to such Shareholder, as finally determined
pursuant hereto, exceeds the aggregate of the Closing Per Share Cash Amounts
paid to such Shareholder at the Closing; and (b) the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Per Share Common Stock
Amounts
-5-
<PAGE>
deliverable to such Shareholder, as finally determined pursuant hereto, exceeds
the aggregate of the Closing Per Share Common Stock Amounts delivered to such
Shareholder at the Closing; or (ii) each Shareholder shall deliver to the Parent
(a) the cash amount, if any, by which the aggregate of the Closing Per Share
Cash Amounts paid to such Shareholder at the Closing exceeds the aggregate of
the Final Per Share Cash Amounts payable to such Shareholder as finally
determined pursuant hereto; and (b) the number of shares of Parent Common Stock,
if any, by which the aggregate of the Closing Per Share Common Stock Amounts
delivered to such Shareholder at the Closing exceeds the aggregate of the Final
Per Share Common Stock Amounts deliverable to such Shareholder as finally
determined pursuant hereto.
1.9.6 Expenses. The Parent and the Shareholders shall each pay their
--------
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and each Shareholder, severally and not jointly, hereby
represent and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2 Stock Ownership. Such Shareholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibits Exhibit 2.2 and such shares are so
held by such Shareholder free and clear of all liens, encumbrances and adverse
claims whatsoever.
2.3 Authority. Such Shareholder has full right, power, legal capacity and
---------
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by such Shareholder (each a "Shareholder
-----------
Related Document") and (ii) consummate the transactions contemplated herein and
- ----------------
thereby. This Agreement has been duly executed and delivered by such
Shareholder and constitutes, and any Shareholder Related Document, when duly
executed and delivered by such Shareholder named as a party therein will
constitute, legal, valid and binding obligations of such Shareholder enforceable
against such Shareholder in accordance with their respective terms and
conditions, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
--------
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by such Shareholder of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by such Shareholder of this Agreement and any Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which such Shareholder is a party
or by which such Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to such Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
such Shareholder.
-6-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
3.1 Representations and Warranties. The Parent hereby represents and
------------------------------
warrants to the Shareholders and the Company as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. The total authorized, issued and
----------------------------
outstanding capital stock of the Parent is as set forth in the Confidential
Information Statement dated August __, 1997. The outstanding shares of the
capital stock of Parent have been duly and validly issued and are fully paid and
non-assessable.
3.1.3 Authority. The Parent has the requisite power and authority to
---------
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
------------------------
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent will
constitute, legal, valid and binding obligations of the Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4 Consents. Except as provided on Exhibits Exhibit 3.1.4, no
--------
approval, consent, order or action of or filing with any court, administrative
agency, governmental authority or other third party is required for the
execution, delivery or performance by the Parent of this Agreement or the Parent
Related Documents or the consummation by the Parent of the transactions
contemplated hereby, except for (i) the filing of the Parent's registration
statement with respect to the IPO ("Registration Statement") with the U.S.
----------------------
Securities and Exchange Commission ("SEC") pursuant to the Securities Act and
---
the SEC's declaration of effectiveness of such Registration Statement and the
completion of all necessary filings required under, and the obtaining of all
necessary consents and approvals required pursuant to, state securities or "blue
sky" laws in connection with the IPO, and (ii) the filing of the Articles of
Merger with the Secretary of State of Minnesota.
3.1.5 Defaults. The Parent is not in default under or in violation
--------
of, and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
is a party or by which the Parent or any of its properties or assets may be
bound or affected or (ii) any law, rule or regulation applicable to the Parent
or any court injunction, order or decree, or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Parent, which default or violation prevents the Parent from
-7-
<PAGE>
consummating the transactions contemplated hereby or is reasonably likely to
have a Parent Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company" or
------------------
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain financial
--------------------
statements to the Shareholders ("Parent Financial Statements") and such Parent
---------------------------
Financial Statements have been prepared in accordance with GAAP and fairly
present the consolidated financial position, results of operations and cash
flows of the Parent and its then existing consolidated subsidiaries as of the
dates and for the periods indicated, subject to normal year-end adjustments and
any other adjustments described therein or in the notes or schedules thereto.
The books and records of the Parent have been kept in reasonable detail and
accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to be
-----
discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period ended covered by the Parent
Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and authority
--------------
and has obtained all licenses, permits, qualifications, and other documentation
(including permits required under applicable Environmental Law, as defined in
Exhibit 2) necessary to own and/or operate its businesses, properties and assets
and to carry on its businesses as being conducted on the date of this Agreement,
except such licenses, permits, qualifications or other documentation, the
failure to obtain which is not reasonably likely to result in a Parent Material
Adverse Effect, and such businesses are now being conducted and such assets and
properties are being owned and/or operated in compliance with all applicable
laws (including Environmental Law), ordinances, rules and regulations of any
governmental agency of the United States, any state or political subdivision
thereof, or any foreign jurisdiction, all applicable court or administrative
agency decrees, awards and orders and all such licenses, permits, qualifications
and other documentation, except where the failure to comply will not have a
Parent Material Adverse Effect, and there is no existing condition or state of
facts that would give rise to a violation thereof or a liability or default
thereunder that is reasonably likely to have a Parent Material Adverse Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
------
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in this
----------
Agreement, and no statement contained in any certificate delivered by the Parent
to the Shareholders pursuant to this Agreement, contains any untrue statement of
a material fact or omits any material fact necessary in order to make the
-8-
<PAGE>
statements herein or therein, in light of the circumstances under which they are
or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
------------------------------ ---------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
- --------------
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole, in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
-----------------------
the Merger as a reorganization within the meaning of Section 368(a) of the Code:
(i) The Parent has no plan or intention to sell, exchange or otherwise
dispose or liquidate the Surviving Corporation, to merge the Surviving
Corporation with or into any other corporation, to sell or otherwise
dispose of its Surviving Corporation Common Stock except for transfers of
Surviving Corporation Common Stock to corporations of which the Parent has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer, or to cause the Surviving Corporation to sell or otherwise
dispose of any of its assets or of any assets acquired in the Merger,
except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will continue the
Company's historic business or use a significant portion of its historic
business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection with the
Merger is voting stock within the meaning of Section 368(c) of the Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
(viii) None of the Parent Common Stock received by the Shareholders as a
part of the Final Merger Consideration will be separate consideration for,
or allocable to, any employment agreement.
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<PAGE>
(ix) Neither the Parent nor Merger Sub is under the
jurisdiction of a court in a case under Title 11 of the United States Code,
or a receivership, foreclosure, or similar proceeding in a federal or state
court.
3.1.14 Value of Parent Common Stock. The price used to
----------------------------
determine the value of the Parent Common Stock as part of the Total
Consideration shall be the same for each shareholder of each company that will
be acquired by the Parent at the IPO.
3.2 Representations and Warranties Concerning the Merger Sub. The
--------------------------------------------------------
Parent and Merger Sub, jointly and severally, hereby represent and warrant to
the Shareholders and the Company as follows:
3.2.1 Organization and Standing. Merger Sub is a corporation
-------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Minnesota.
3.2.2 Capital Structure. The authorized capital stock of
-----------------
Merger Sub consists of 5,000 shares of common stock, par value $.01 per share,
1,000 of which are validly issued and outstanding, fully paid and nonassessable
and are owned by the Parent free and clear of all liens, encumbrances and
adverse claims.
3.2.3 Authority. Merger Sub has the corporate power and
---------
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by Merger Sub of its obligations hereunder and the consummation
of the transactions contemplated hereby have been duly authorized by its Board
of Directors and the Parent as its sole shareholder, and, except for the
corporate filings required by state law, no other corporate proceedings on the
part of Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholders to be Effective Upon Closing.
-----------------------------------------------------------
Effective upon Closing, and without further action on the part of any party or
other person, the Shareholders covenant and agree as follows:
4.1 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is two years following any termination of such
Shareholder's employment with the Company, such Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or
-10-
<PAGE>
indirectly, individually, as a member of a partnership or limited
liability company, equity owner, shareholder (other than as a shareholder
of less than one percent of the issued and outstanding stock of a publicly-
held company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant engage
in any business that involves indoor air quality, heating, ventilation, air
conditioning, appliance, mechanical construction or sewer cleaning products
or services within a 100-mile radius of the city of Minneapolis, Minnesota;
provided, however, that if John Deblon's employment is terminated without
Cause (as such term is defined in that certain Employment Agreement between
the Company and John Deblon dated as of the Closing), John Deblon's non-
compete period in Section 4.1.1(i)(b) shall be reduced to one year.
(ii) Each Shareholder agrees that the limitations set forth
herein on such Shareholder's rights to compete with the Parent and its
affiliates as set forth in clause (i) are reasonable and necessary for the
protection of Parent and its affiliates. In this regard, each Shareholder
specifically agrees that the limitations as to period of time and
geographic area, as well as all other restrictions on such Shareholder's
activities specified herein, are reasonable and necessary for the
protection of the Parent and its affiliates. Each Shareholder agrees that,
in the event that the provisions of this Section should ever be deemed to
exceed the scope of business, time or geographic limitations permitted by
applicable law, such provisions shall be and are hereby reformed to the
maximum scope of business, time or geographic limitations permitted by
applicable law.
(iii) Each Shareholder agrees that the remedy at law for any
breach by such Shareholder of this Section 4.1.1 will be inadequate and
that the Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, each
-------
Shareholder does hereby (i) release, acquit and forever discharge the Surviving
Corporation from any and all liabilities, obligations, claims, demands, actions
or causes of action arising from or relating to any event, occurrence, act,
omission or condition occurring or existing on or prior to the Effective Time,
including, without limitation, any claim for indemnity or contribution from the
Surviving Corporation in connection with the obligations or liabilities of such
Shareholder hereunder, except for salary and benefits payable to such
Shareholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Effective Time, and (iii) waive any and all preemptive or other rights to
acquire any shares of capital stock of the Company and release any and all
claims arising in connection with any prior default, violation or failure to
comply with or satisfy any such preemptive or other rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholders will
----------------------
produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as generally described in that certain letter from the
Shareholders to the Parent dated August ___, 1997, have been eliminated as
expenses of the Surviving Corporation as of and following the Closing Date.
4.3 Deferred Compensation Plans. Prior to Closing, the Shareholders will
---------------------------
cause all current or future obligations of the Company under the split dollar
life and other deferred compensation plans covering any Shareholder or any
employee of the Company to be satisfied in full (including current or deferred
tax liabilities arising therefrom) all in accordance with the provisions of
Exhibits Exhibit 4.3 attached hereto.
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<PAGE>
4.4 Audit. Prior to Closing, the Accountants shall complete an audit of
-----
the Company for the fiscal year ended March 31, 1997 and for the period from
such date through June 30, 1997, and such additional audit and/or review work as
may be requested by the Parent through and including the Closing Date and
provide its report to the Parent and the Shareholders.
4.5 Certain Payables and Receivables. On or prior to Closing, the
--------------------------------
Shareholders shall cause to be paid in full in cash all accounts receivable,
notes receivable and advances payable by any Shareholder to the Company and the
Company shall pay in full in cash all accounts payable, notes payable (except
any Tax Notes (as defined) which shall be paid according to their terms) and
advances payable by the Company to any Shareholder.
4.6 Pre-Closing Covenants and Agreements. The Shareholders, each
------------------------------------
severally and not jointly, and the Company agree as set forth in Exhibits
Exhibit 4.6 attached hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the Parent,
---------------
Merger Sub, the Company or the Shareholders will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Merger to its employees, vendors and customers to protect
the Company's goodwill and to facilitate the Closing. The Parent and Merger Sub
may disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities, and may describe this
Agreement and the transactions contemplated hereby in any registration statement
filed by the Parent under the Securities Act and in reports filed by the Parent
under the Securities Exchange Act of 1934, and may file this Agreement as an
exhibit to any thereof. The Parent may also make appropriate disclosures of the
general nature of the Merger and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the Parent's
efforts to effect additional acquisitions. Each party will have mutual approval
rights with respect to written employee presentations concerning the prospective
merger.
4.8 Tax-Free Reorganization. Unless the other parties shall otherwise
-----------------------
agree in writing, none of the Shareholders, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take or fail to take any action,
that would jeopardize the qualification of the Merger as a reorganization
withing the meaning of Section 368(a) of the Code.
4.9 Company Plans. Except as otherwise contemplated by this Agreement,
-------------
the Company Plans (as defined in Exhibit 2) described on Exhibits Exhibit 4.9 in
effect at the date of this Agreement will remain in effect unless otherwise
determined by the Parent after the Effective Time.
4.10 Purchase of Certain Receivables. If any accounts receivable included
-------------------------------
in current assets of the Company for purposes of determining Working Capital (as
defined in Exhibit 1) remain unpaid in full on the date that is 60 days
following the Closing, the Shareholders shall, upon written request by the
Surviving Corporation made on or before the date that is 90 days following the
Closing, purchase the same from the Surviving Corporation, without recourse, for
the uncollected amount thereof (net of any reserve for bad debts on the books of
the Company on the Closing).
-12-
<PAGE>
4.11 Income Tax Distribution. At or prior to the Closing, the Shareholders
-----------------------
shall cause the Company to pay to the Shareholders as a dividend and as a
distribution of accumulated S Corporation earnings of all tax periods through
the Effective Time a cash amount, which may be reasonably estimated, equal to
the net taxable income of the Company as determined for Federal income tax
purposes for the Company as an S Corporation less any prior distributions made
by the Company to the Shareholders with respect to such earnings ("Cash Tax
--------
Distribution"). In the event that there is insufficient cash of the Company to
- ------------
make the Cash Tax Distribution either in whole or in part, the Company may issue
short term notes payable to the Shareholders in amounts equal to the amount of
the Cash Tax Distribution less the amount of cash actually distributed to the
Shareholders as part of the Cash Tax Distribution ("Tax Notes") in the form of
---------
Exhibit 4.11. The Tax Notes, if issued, shall (i) be issued prior to the
Effective Time, (ii) bear interest at a rate not to exceed six percent (6%) per
annum, (iii) provide that the principal and all accrued interest shall be due
and payable six (6) months after the date of the Tax Notes, and (iv) impose no
prepayment penalty. All cash payments of the Cash Tax Distribution and all
amounts of any Tax Notes shall be deducted from the cash portion of the Total
Consideration.
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
--------------------------------------------------------------------
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of the Shareholders and the Company contained in this Agreement,
in Exhibit 2 and the Disclosure Schedule referred to therein and the other
Exhibits provided by the Shareholders or the Company pursuant to this Agreement
or in any closing certificate or document delivered to the Parent pursuant
hereto shall be true and correct at and as of the Closing Date as though made at
and as of that time other than such representations and warranties as are
specifically made as of another date, and the Shareholders and the Company shall
each have delivered to the Parent and Merger Sub a certificate to that effect.
5.1.2 Performance of Covenants. The Shareholders and the Company
------------------------
shall have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date, and the
Shareholders and the Company shall each have delivered to the Parent and Merger
Sub a certificate to that effect.
5.13 Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted after the date hereof against the Company or against
the Parent or Merger Sub arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (i) to restrain, prohibit
or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholders and the
Company shall each have delivered to the Parent and Merger Sub a certificate to
that effect.
5.1.4 Approvals. The Company and the Shareholders shall have procured
---------
all of the consents, approvals and waivers of third parties or any regulatory
body or authority, whether required contractually or by applicable law or
otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the
-13-
<PAGE>
Company and the Shareholders prior to the Closing Date, and the Shareholders and
the Company shall each have delivered to the Parent and Merger Sub a certificate
to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage shall
---------------------------
have occurred on or prior to the Effective Time to any of the properties or
assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such
-------------
licenses and permits as are legally required for the continued operation of the
business after the Effective Time, except such licenses and permits, the absence
of which will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since March 31, 1997, there shall
--------------------------
not have been any event that in the reasonable judgment of the Parent adversely
affects the properties, assets, financial condition, results of operations, cash
flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms
---
acceptable to it, and the net proceeds thereof shall have been received by the
Parent.
5.1.10 Certain Corporate Actions. All necessary director and
-------------------------
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
-------------------------------------------------------------------
Company. The obligations of the Shareholders and the Company under this
- -------
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholders and the Company in writing to the extent
permitted by applicable law:
5.2.1 Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Parent and Merger Sub contained in this
Agreement or in any closing certificate or document delivered to the
Shareholders or the Company pursuant hereto shall be true and correct on and as
of the Closing Date as though made at and as of that date other than such
representations and warranties as are specifically made as of another date, and
the Parent and Merger Sub shall have delivered to the Shareholders and the
Company a certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall have
------------------------
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Closing Date and the Parent and Merger
Sub shall have delivered to the Shareholders and the Company a certificate to
such effect.
5.2.3 Approvals. The Parent shall have procured all of the consents,
---------
approvals and waivers specified in Exhibit 3.1.4 prior to the Closing Date, and
the Parent shall have delivered to the Shareholders and the Company a
certificate to that effect.
-14-
<PAGE>
5.2.4 Closing Deliveries. All documents required to be executed or
------------------
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.3 Deliveries by the Shareholders at the Closing. At the Closing,
---------------------------------------------
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders and
the Company pursuant to any other transaction document at the Closing, the
Shareholders shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders and the Company shall
--------------------
deliver the certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3 and
5.1.4.
5.3.2 Stock Transfer Restriction Agreement. The Shareholders shall
------------------------------------
execute and deliver and shall cause the Shareholders to execute and deliver a
Stock Transfer Restriction Agreement on the Closing Date, effective as of the
Effective Time, substantially in the form set forth in Exhibits Exhibit 5.3.2.
5.3.3 Employment Agreements. Each Shareholder and certain other
---------------------
employees of the Company specified on Exhibits Exhibit 5.3.3 shall execute and
deliver an Employment Agreement (with the insertion of the appropriate Section
7(b) based on whether such Shareholder or any such employee is designated an
"Executive or Key Employee" or "Manager" on Exhibit 5.3.3 and with the blanks
appropriately completed as set forth in a confidential letter between the
Company and the Parent) with the Company on the Closing Date, effective as of
the Effective Time, substantially in the form set forth in Exhibits Exhibit
5.3.3A.
5.3.4 Lease Agreement. The Shareholders shall cause the owner of the
---------------
property located at 9649 Girard Avenue South, Minneapolis, Minnesota 55431, to
execute and deliver a lease agreement with the Company substantially in the form
attached as Exhibits Exhibit 5.3.4.
5.3.5 Registration Rights Agreement. The Shareholders shall execute
-----------------------------
and deliver and shall cause the Shareholders to execute and deliver a
Registration Rights Agreement at the Closing, effective as of the Effective
Time, substantially in the form set forth in Exhibits Exhibit 5.3.5 attached
hereto.
5.3.6 Opinion of Counsel for the Shareholders and the Company. The
-------------------------------------------------------
Shareholders shall deliver the favorable opinion of Faegre & Benson, counsel to
the Shareholders and the Company, dated the Effective Time, substantially in the
form and to the effect set forth in Exhibit 5.3.6 attached hereto.
5.3.7 Documents, Stock Certificates. The Shareholders shall execute
-----------------------------
and deliver, and shall cause the Company and the Shareholder to execute and
deliver, the documents, certificates, opinions, instruments and agreements
required to be executed and delivered by the Company or its officers or
directors or the Shareholders at the Closing as contemplated hereby or as may be
reasonably requested by the Parent and shall deliver or cause to be delivered
the documents and evidence required under Section 4. Stock Certificates
representing all of the outstanding Company Common Stock and properly executed
and completed letters of transmittal shall be delivered by the Shareholders to
the Parent.
5.3.8 Discharge of Indebtedness, Releases, Etc. The indebtedness of
----------------------------------------
the Company referred to in Exhibits Exhibit 5.3.8 attached hereto ("Terminated
----------
Obligations") shall be paid in full or refinanced on terms acceptable to the
- -----------
Parent, and the Shareholders shall cause all holders of any such Terminated
Obligations to deliver to the Parent, in form reasonably satisfactory to the
Parent and the lenders to the Parent
-15-
<PAGE>
or Merger Sub, such customary releases, termination statements, consents,
approvals or other documents or instruments required, in the judgment of the
Parent, to release and terminate all liens, security interests, claims, or
rights of such holders against the Surviving Corporation or the Parent or any of
their respective assets in connection therewith.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Surviving Corporation of any of their rights or remedies
against the Shareholders hereunder for any breach of warranty, covenant or
agreement by the Company or the Shareholders herein irrespective of any
knowledge of or investigation made by or on behalf of the Parent or Merger Sub;
provided, however, that if the Company shall disclose in writing to the Parent
prior to the Closing Date a specified breach of a specifically identified
representation, warranty, covenant or agreement of the Company or any
Shareholder herein by the Company or any Shareholder, and requests a waiver
thereof by the Parent, and the Parent shall waive any such specifically
identified breach in writing prior to the Closing Date, the Parent and the
Surviving Corporation, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Shareholders shall have no liability with
respect to, any such specifically identified breach, to the extent so identified
by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
---------------------------------------
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall deliver
--------------------
the certificates required pursuant to Sections 5.2.1, 5.2.2 and 5.2.3.
5.4.2 Registration Rights Agreement. The Parent shall execute and
-----------------------------
deliver to the Shareholders a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The Parent
------------------------------------------------
shall deliver the favorable opinion of its legal counsel dated the Effective
Time, substantially in the form and to the effect set forth in Exhibits Exhibit
5.4.3.
5.4.4 Closing Merger Consideration. The Parent shall deliver the
----------------------------
Closing Merger Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of any Shareholder; provided, however, that if the Parent shall disclose in
writing to the Shareholders prior to the Closing a specified breach of a
specifically identified representation, warranty, covenant or agreement of the
Parent or Merger Sub contained herein by the Parent or Merger Sub, and requests
a waiver thereof by the Company and the Shareholders, and the Company and the
Shareholders shall waive any such specifically identified breach in writing
prior to the Closing, the Company and the Shareholders shall be deemed to have
waived their rights and remedies hereunder for, and the Parent and Merger Sub
shall have
-16-
<PAGE>
no liability or obligation to the Shareholders or the Company with respect to,
any such specifically identified breach, to the extent so identified by the
Parent and waived by the Company and the Shareholders.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2, 3, 6, 12 and 18(ii), (iii), (iv), (v), (vi) and
(vii) of Exhibit 2 shall survive for a period of 36 months after the Closing
Date and the representations and warranties of the Shareholders and the Company
contained in Sections 2.2, 2.3, 2.4 and in Sections 2, 3, 6, 12 and 18(ii),
(iii), (iv), (v), (vi) and (vii) of Exhibit 2 shall survive for the maximum
period permitted by applicable law. The representations and warranties of the
Parent herein and in the Parent Related Documents, other than those in Sections
3.1.3 and 3.1.4, shall survive for a period of 36 months after the Closing Date
and the representations and warranties of the Parent contained in Sections 3.1.3
and 3.1.4 shall survive for the maximum period permitted by applicable law. The
periods of survival of the representations and warranties as stated above in
this Section 6.1 are referred to herein as the "Survival Period." The
---------------
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable Survival Period and no claim
for indemnification may be made with respect to any breach of any representation
or warranty, the applicable Survival Period of which shall have expired, except
to the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration. The covenants and agreements of the parties herein (including but
not limited to Exhibit 4.6) and in other documents and instruments executed and
delivered in connection with the closing of the transactions contemplated hereby
shall survive for the maximum period permitted by law.
6.2 Indemnification.
---------------
6.2.1 Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 6.1 and 6.3 hereof, the Shareholders, severally and not jointly, shall
indemnify, save and hold harmless the Parent, the Surviving Corporation, Merger
Sub and any of their assignees (including lenders) and all of their respective
officers, directors, employees, representatives, agents, advisors and
consultants and all of their respective heirs, legal representatives, successors
and assigns (collectively the "Parent Indemnified Parties") from and against any
--------------------------
and all damages, liabilities, losses, loss of value (including the value of
adverse effects on cash flow or earnings), claims, deficiencies, penalties,
interest, expenses, fines, assessments, charges and costs, including reasonable
attorneys' fees and court costs (collectively "Losses") arising from, out of or
------
in any manner connected with or based on:
(i) the breach of any covenant of the Shareholders or the Company
or the failure by the Shareholders or the Company to perform any obligation
of the Shareholders or the Company contained herein or in any Company
Related Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty
of the Shareholders contained herein or in any Shareholder Related
Document;
-17-
<PAGE>
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time on or before the Effective
Time and involving or related to the assets, properties, business or
operations now or previously owned or operated by the Company and not (a)
disclosed with reasonable specificity in the Disclosure Schedule or (b)
disclosed in the Company Financial Statements (as defined in Exhibit 2) or
in working capital or long term debt (in each case as determined for
purposes of calculating the Final Merger Consideration).
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1
----------------
and 6.3, the Parent shall indemnify, save and hold harmless the Shareholders and
the Shareholders' heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty
of the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from any Shareholder's
acts or omissions after the Effective Time as an officer, director and/or
employee of the Parent, the Surviving Corporation and/or any other
affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The aggregate liability of the Shareholders under
-----------
Sections 6.2.1(ii) and (iii) shall not exceed the cash amount equal to the
Total Consideration with the Parent Common Stock being valued at the IPO Price
to the Public for such purpose. The aggregate liability of the Parent under
Section 6.2.2(ii) shall not exceed the cash amount equal to the Total
Consideration with the Parent Common Stock being valued at the IPO Price to the
Public for such purpose.
6.4 Procedures for Indemnification.
------------------------------
6.4.1 Notice. The party (the "Indemnified Party") that may be
------ -----------------
entitled to indemnity hereunder shall give prompt notice to any party obligated
to give indemnity hereunder (the "Indemnifying
------------
-18-
<PAGE>
Party") of the assertion of any claim, or the commencement of any suit, action
- -----
or proceeding in respect of which indemnity may be sought hereunder. Any failure
on the part of any Indemnified Party to give the notice described in this
Section 6.4.1 shall relieve the Indemnifying Party of its obligations under this
Article 6 only to the extent that such Indemnifying Party has been prejudiced by
the lack of timely and adequate notice (except that the Indemnifying Party shall
not be liable for any expenses incurred by the Indemnified Party during the
period in which the Indemnified Party failed to give such notice). Thereafter,
the Indemnified Party shall deliver to the Indemnifying Party, promptly (and in
any event within 10 days thereof) after the Indemnified Party's receipt thereof,
copies of all notices and documents (including court papers) received by the
Indemnified Party relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
-------------
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholders shall at all times have the right, at their option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
----------
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company or the Surviving
Corporation and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
-----------------
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 6.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any such
-----------
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and records, and personnel in the
possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
-19-
<PAGE>
6.5 Subrogation. Each Indemnifying Party hereby waives for itself,
-----------
himself or herself and its, his or her affiliates (as defined in Exhibit 2) any
rights to subrogation against any Indemnified Party or such Indemnified Party's
insurers for Losses arising from any third-party claims for which the
Indemnifying Party is liable or against which the Indemnifying Party
indemnifies any Indemnifying Party and, if necessary, each Indemnifying Party
shall obtain waivers of such subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Company and
--------------
the Parent; or
7.1.2 Optional By the Company. By the Company by written notice to
-----------------------
the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of their
respective obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to
----------------------
the Company, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Parent nor Merger Sub
has breached this Agreement or has failed to perform any of its obligations
under this Agreement;
7.1.4 Breach By the Parent or Merger Sub. By the Company, by written
----------------------------------
notice to the Parent, if either the Parent or Merger Sub has materially breached
this Agreement or materially failed to perform any of its obligations under this
Agreement; or
7.1.5 Breach by the Company or any Shareholder. By the Parent, by
----------------------------------------
written notice to the Company, if the Company or any Shareholder has materially
breached this Agreement or has materially failed to perform any of their
respective obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
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<PAGE>
To the Company (prior to the Effective Time) or the Shareholders:
Yale Incorporated
9649 Girard Avenue South
Minneapolis, Minnesota 55431
Attention: Mr. William Rikkers
Telecopy: (612) 884-0295
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholders hereunder.
8.3 Assignability. The Shareholders shall not assign this Agreement in
-------------
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of any Shareholder or the Company. After the Effective Time, the
Surviving Corporation may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
any Shareholder.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
8.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
----------------
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and
-21-
<PAGE>
conditions of their agreement relating to the subject matter hereof and
supersedes any and all prior agreements, whether written or oral, that may exist
between the parties with respect thereto. Except as otherwise specifically
provided in this Agreement, no conditions, usage of trade, course of dealing or
performance, understanding or agreement purporting to modify, vary, explain or
supplement the terms or conditions of this Agreement shall be binding unless
hereafter made in writing and signed by the party to be bound, and no
modification shall be effected by the acknowledgment or acceptance of documents
containing terms or conditions at variance with or in addition to those set
forth in this Agreement. No waiver by any party with respect to any breach or
default or of any right or remedy and no course of dealing shall be deemed to
constitute a continuing waiver of any other breach or default or of any other
right or remedy, unless such waiver be expressed in writing signed by the party
to be bound. Failure of a party to exercise any right shall not be deemed a
waiver of such right or rights in the future.
8.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
---------------
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
--------------------
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
----------------------
Merger Sub and the Company, by action taken by their Boards of Directors to the
extent permitted by applicable law; provided, however, that no such amendment
shall (i) alter or change any provision of this Agreement, the alteration or
change of which must be adopted by the holders of capital stock of the Company
under the certificate or articles of incorporation of the Company or the
Applicable Corporate Law, or (ii) alter or change this Section 8.11, unless each
such alteration or change is adopted by the holders of shares of capital stock
of the Company as may be required by the certificate or articles of
incorporation of the Company or the Applicable Corporate Law. Prior to the
Effective Time, all amendments to this Agreement must be by an instrument in
writing signed on behalf of the Parent, Merger Sub, the Company and the
Shareholders. After the Effective Time, all amendments to this Agreement must be
by an instrument in writing signed on behalf of the Parent and the Shareholders.
Any term or provision of this Agreement (other than the requirements for
shareholder approvals) may be waived in writing at any time by the party which
is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any
-22-
<PAGE>
nature or kind whatsoever under or by reason of this Agreement, or shall cause
the employment status of any employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by each of
the Parent, Merger Sub, the Company and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Parent and the Company
and their respective members of their Boards of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be automatically as a part of this Agreement, a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
---------------------
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
-23-
<PAGE>
8.20 Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company shall pay the costs
of any broker, legal counsel, accountants (for the audit of the Company through
the prior fiscal year but not for any stub-period audits) or other advisors
engaged by the Shareholders (to the extent, and only to the extent, that any
such payment will not jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code); and provided
further that all fees, costs and expenses incurred or payable by the Company in
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby (including the accounting and audit fees of the
Accountants), and not yet paid, shall be included in current liabilities for
purposes of determining Working Capital. In the event this Agreement is
terminated due to the failure of the Parent to complete the IPO, the Parent
shall reimburse the Company for the fees paid by the Company to Accountants for
the audit of the Company.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
__________________________________________________
J. Patrick Millinor, Jr., President
MERGER SUB:
YALE ACQUISITION CORP.
By:_______________________________________________
President
SHAREHOLDERS:
__________________________________________________
William Rikkers
__________________________________________________
Ed Olson
__________________________________________________
John Deblon
-24-
<PAGE>
COMPANY:
YALE INCORPORATED
By:_______________________________________________
Name: William Rikkers
Title:Chairman
-25-
<PAGE>
EXHIBIT 21
GROUP MAINTENANCE AMERICA CORP.
SUBSIDIARIES AND AFFILIATES
AS OF JULY 31, 1997
Group Maintenance America Corp.(Texas)
A-ABC Appliance, Inc. (Texas)....................................... 100%
A-1 Appliance & Air Conditioning, Inc. (Texas)...................... 100
AA JARL, Inc. (Texas)............................................... 100
Airtron, Inc. (Delaware)............................................ 100
Airtron of Central Florida, Inc. (Florida)....................... 100
CRP Acquisition Corp. (Colorado).................................... 100
Charles Crawford, Inc. (Texas)...................................... 100
Costner Brothers, Inc. (South Carolina)............................. 100
GroupMAC Holding Corp. (Delaware)................................... 100
GroupMAC Management Co. (Delaware).................................. 100
Hallmark Air Conditioning, Inc. (Texas)............................. 100
Jerry Albert Air Conditioning, Inc. (Texas)...................... 100
K & N Plumbing, Heating and Air Conditioning, Inc. (Texas).......... 100
Sibley Services, Inc. (Tennessee)................................... 100
United Acquisition Corp. (Iowa)..................................... 100
1
<PAGE>
The Board of Directors
Group Maintenance America Corp.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Houston, Texas
August 20, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Group Maintenance
America Corp. on Form S-1 of our report dated July 24, 1997 (relating to the
financial statements of Masters, Inc.) appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Washington, D.C.
August 19, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement of Group Maintenance America Corp., on Form S-1 of our
report dated August 7, 1997 relating to the financial statements of
MacDonald-Miller Industries, Inc., which appear in such Prospectus. We also
consent to the reference to our Firm under the heading "Experts" in the
Prospectus.
Moss Adams LLP
Seattle, Washington
August 18, 1997
<PAGE>
EXHIBIT 23.5
CONSENT
August 18, 1997
Board of Directors
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Gentlemen:
It is my understanding that in the Prospectus forming a part of the
Registration Statement on Form S-1, which Group Maintenance America Corp.
("GroupMAC") is filing with the Securities and Exchange Commission in connection
with the proposed initial public offering of shares of GroupMAC Common Stock,
you will state that I am a nominee for election to the Board of Directors of
GroupMAC. I hereby consent to such statement, to such use of my name and to the
filing of this letter as an exhibit to such Registration Statement.
Very truly yours,
/s/ Ronald D. Bryant
--------------------------------------
<PAGE>
EXHIBIT 23.6
CONSENT
August 18, 1997
Board of Directors
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Gentlemen:
It is my understanding that in the Prospectus forming a part of the
Registration Statement on Form S-1, which Group Maintenance America Corp.
("GroupMAC") is filing with the Securities and Exchange Commission in connection
with the proposed initial public offering of shares of GroupMAC Common Stock,
you will state that I am a nominee for election to the Board of Directors of
GroupMAC. I hereby consent to such statement, to such use of my name and to the
filing of this letter as an exhibit to such Registration Statement.
Very truly yours,
/s/ David L. Henninger
--------------------------------------
<PAGE>
EXHIBIT 23.7
CONSENT
August 18, 1997
Board of Directors
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Gentlemen:
It is my understanding that in the Prospectus forming a part of the
Registration Statement on Form S-1, which Group Maintenance America Corp.
("GroupMAC") is filing with the Securities and Exchange Commission in connection
with the proposed initial public offering of shares of GroupMAC Common Stock,
you will state that I am a nominee for election to the Board of Directors of
GroupMAC. I hereby consent to such statement, to such use of my name and to the
filing of this letter as an exhibit to such Registration Statement.
Very truly yours,
/s/ Andrew Jeffrey Kelly
--------------------------------------
<PAGE>
EXHIBIT 23.8
CONSENT
August 18, 1997
Board of Directors
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Gentlemen:
It is my understanding that in the Prospectus forming a part of the
Registration Statement on Form S-1, which Group Maintenance America Corp.
("GroupMAC") is filing with the Securities and Exchange Commission in connection
with the proposed initial public offering of shares of GroupMAC Common Stock,
you will state that I am a nominee for election to the Board of Directors of
GroupMAC. I hereby consent to such statement, to such use of my name and to the
filing of this letter as an exhibit to such Registration Statement.
Very truly yours,
/s/ Thomas B. McDade
---------------------------------------
<PAGE>
EXHIBIT 23.9
CONSENT
August 18, 1997
Board of Directors
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Gentlemen:
It is my understanding that in the Prospectus forming a part of the
Registration Statement on Form S-1, which Group Maintenance America Corp.
("GroupMAC") is filing with the Securities and Exchange Commission in connection
with the proposed initial public offering of shares of GroupMAC Common Stock,
you will state that I am a nominee for election to the Board of Directors of
GroupMAC. I hereby consent to such statement, to such use of my name and to the
filing of this letter as an exhibit to such Registration Statement.
Very truly yours,
/s / Lucian L. Morrison
--------------------------------------
<PAGE>
EXHIBIT 23.10
CONSENT
August 18, 1997
Board of Directors
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Gentlemen:
It is my understanding that in the Prospectus forming a part of the
Registration Statement on Form S-1, which Group Maintenance America Corp.
("GroupMAC") is filing with the Securities and Exchange Commission in connection
with the proposed initial public offering of shares of GroupMAC Common Stock,
you will state that I am a nominee for election to the Board of Directors of
GroupMAC. I hereby consent to such statement, to such use of my name and to the
filing of this letter as an exhibit to such Registration Statement.
Very truly yours,
/s/ Fredric J. Sigmund
--------------------------------------
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
registration by Group Maintenance America Corp., a Texas corporation (the
"Company"), of up to 8,590,500 shares of common stock, $0.001 par value
per share (the "Shares"), including such additional Shares as may be offered
pursuant to Rule 462 under the Securities Act of 1933, as amended, the
undersigned officer or director of the Company hereby constitutes and appoints
Randolph W. Bryant and Darren B. Miller, and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, for the undersigned and on the undersigned's behalf and in the
undersigned's name, place and stead, in any and all capacities, to sign, execute
and file a registration statement relating to such securities to be filed with
the Securities and Exchange Commission on such Form as, in the opinion of
counsel for the Company, is appropriate, together with all amendments thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all of
the said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 16th day of August, 1997.
/s/ Chester J. Jachimiec
----------------------------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
registration by Group Maintenance America Corp., a Texas corporation (the
"Company"), of up to 8,590,500 shares of common stock, $0.001 par value
per share (the "Shares"), including such additional Shares as may be offered
pursuant to Rule 462 under the Securities Act of 1933, as amended, the
undersigned officer or director of the Company hereby constitutes and appoints
Randolph W. Bryant and Darren B. Miller, and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, for the undersigned and on the undersigned's behalf and in the
undersigned's name, place and stead, in any and all capacities, to sign, execute
and file a registration statement relating to such securities to be filed with
the Securities and Exchange Commission on such Form as, in the opinion of
counsel for the Company, is appropriate, together with all amendments thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all of
the said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 14th day of August, 1997.
/s/ James D. Jennings
--------------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
registration by Group Maintenance America Corp., a Texas corporation (the
"Company"), of up to 8,590,500 shares of common stock, $0.001 par value
per share (the "Shares"), including such additional Shares as may be offered
pursuant to Rule 462 under the Securities Act of 1933, as amended, the
undersigned officer or director of the Company hereby constitutes and appoints
Randolph W. Bryant and Darren B. Miller, and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, for the undersigned and on the undersigned's behalf and in the
undersigned's name, place and stead, in any and all capacities, to sign, execute
and file a registration statement relating to such securities to be filed with
the Securities and Exchange Commission on such Form as, in the opinion of
counsel for the Company, is appropriate, together with all amendments thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all of
the said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 13th day of August, 1997.
/s/ Timothy Johnston
----------------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
registration by Group Maintenance America Corp., a Texas corporation (the
"Company"), of up to 8,590,500 shares of common stock, $0.001 par value
per share (the "Shares"), including such additional Shares as may be offered
pursuant to Rule 462 under the Securities Act of 1933, as amended, the
undersigned officer or director of the Company hereby constitutes and appoints
Randolph W. Bryant and Darren B. Miller, and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, for the undersigned and on the undersigned's behalf and in the
undersigned's name, place and stead, in any and all capacities, to sign, execute
and file a registration statement relating to such securities to be filed with
the Securities and Exchange Commission on such Form as, in the opinion of
counsel for the Company, is appropriate, together with all amendments thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all of
the said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 16th day of August, 1997.
/s/ Donald L. Luke
--------------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
registration by Group Maintenance America Corp., a Texas corporation (the
"Company"), of up to 8,590,500 shares of common stock, $0.001 par value
per share (the "Shares"), including such additional Shares as may be offered
pursuant to Rule 462 under the Securities Act of 1933, as amended, the
undersigned officer or director of the Company hereby constitutes and appoints
Randolph W. Bryant and Darren B. Miller, and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, for the undersigned and on the undersigned's behalf and in the
undersigned's name, place and stead, in any and all capacities, to sign, execute
and file a registration statement relating to such securities to be filed with
the Securities and Exchange Commission on such Form as, in the opinion of
counsel for the Company, is appropriate, together with all amendments thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all of
the said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 13th day of August, 1997.
/s/ James P. Norris
-------------------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
registration by Group Maintenance America Corp., a Texas corporation (the
"Company"), of up to 8,590,500 shares of common stock, $0.001 par value
per share (the "Shares"), including such additional Shares as may be offered
pursuant to Rule 462 under the Securities Act of 1933, as amended, the
undersigned officer or director of the Company hereby constitutes and appoints
Randolph W. Bryant and Darren B. Miller, and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, for the undersigned and on the undersigned's behalf and in the
undersigned's name, place and stead, in any and all capacities, to sign, execute
and file a registration statement relating to such securities to be filed with
the Securities and Exchange Commission on such Form as, in the opinion of
counsel for the Company, is appropriate, together with all amendments thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all of
the said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 16th day of August, 1997.
/s/ Richard S. Rouse
-------------------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
registration by Group Maintenance America Corp., a Texas corporation (the
"Company"), of up to 8,590,500 shares of common stock, $0.001 par value
per share (the "Shares"), including such additional Shares as may be offered
pursuant to Rule 462 under the Securities Act of 1933, as amended, the
undersigned officer or director of the Company hereby constitutes and appoints
Randolph W. Bryant and Darren B. Miller, and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, for the undersigned and on the undersigned's behalf and in the
undersigned's name, place and stead, in any and all capacities, to sign, execute
and file a registration statement relating to such securities to be filed with
the Securities and Exchange Commission on such Form as, in the opinion of
counsel for the Company, is appropriate, together with all amendments thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all of
the said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 13th day of August, 1997.
/s/ John M. Sullivan
-------------------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed
registration by Group Maintenance America Corp., a Texas corporation (the
"Company"), of up to 8,590,500 shares of common stock, $0.001 par value
per share (the "Shares"), including such additional Shares as may be offered
pursuant to Rule 462 under the Securities Act of 1933, as amended, the
undersigned officer or director of the Company hereby constitutes and appoints
Randolph W. Bryant and Darren B. Miller, and each of them (with full power to
each of them to act alone), the undersigned's true and lawful attorney-in-fact
and agent, for the undersigned and on the undersigned's behalf and in the
undersigned's name, place and stead, in any and all capacities, to sign, execute
and file a registration statement relating to such securities to be filed with
the Securities and Exchange Commission on such Form as, in the opinion of
counsel for the Company, is appropriate, together with all amendments thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all of
the said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 13th day of August, 1997.
/s/ James D. Weaver
--------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GROUP
MAINTENANCE AMERICA CORP. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 4-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1997
<PERIOD-START> MAR-01-1996 MAR-01-1997
<PERIOD-END> FEB-28-1997 JUN-30-1997
<CASH> 4,339,406 5,875,027
<SECURITIES> 0 0
<RECEIVABLES> 8,291,013 15,468,285
<ALLOWANCES> 479,905 528,769
<INVENTORY> 3,354,054 4,934,852
<CURRENT-ASSETS> 19,877,224 29,113,022
<PP&E> 2,952,614 6,548,515
<DEPRECIATION> 1,663,372 1,827,054
<TOTAL-ASSETS> 27,153,057 64,644,050
<CURRENT-LIABILITIES> 13,540,420 21,688,163
<BONDS> 0 0
0 17,121,133
0 0
<COMMON> 4,652 8,708
<OTHER-SE> 246,093 14,010,586
<TOTAL-LIABILITY-AND-EQUITY> 27,153,057 27,153,057
<SALES> 81,879,819 31,085,514
<TOTAL-REVENUES> 81,879,819 31,085,514
<CGS> (58,505,888) (22,686,136)
<TOTAL-COSTS> (78,317,024) (28,875,263)
<OTHER-EXPENSES> 427,167 96,033
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (82,211) (352,666)
<INCOME-PRETAX> 3,907,751 1,953,618
<INCOME-TAX> (1,571,680) (800,000)
<INCOME-CONTINUING> 2,336,071 1,153,618
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,336,071 1,153,618
<EPS-PRIMARY> 0.45 0.13
<EPS-DILUTED> 0.45 0.13
</TABLE>
