<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-34067
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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]
----------------
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 OCTOBER 10, 1997
[Logo of Group Maintenance America appears here]
GROUP MAINTENANCE AMERICA CORP.
COMMON STOCK
-----------
All of the 7,500,000 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 $13.00 and $15.00. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price of the Common Stock. The Common Stock has been approved for listing on
the New York Stock Exchange ("NYSE") under the symbol "MAK."
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 $4,500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,125,000 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, LLC, Atlanta, Georgia, on or about , 1997.
THE ROBINSON-HUMPHREY COMPANY
WILLIAM BLAIR & COMPANY
ABN AMRO CHICAGO CORPORATION
, 1997
<PAGE>
[The inside front cover of the Prospectus is a gatefold containing a map of
the lower 48 United States with state boundaries depicted. The map is
captioned "Locations of GroupMAC Companies at closing" (with color dots
indicating locations). Opening the gatefold reveals a collage of 15
photographs and two maps of the lower 48 United States with state boundaries
depicted. The photographs are in color and depict the following: a worker
working on the electric component of a water heater, a worker preparing metal
for installation, a worker working at and inspecting a circuit breaker, an
employee working at a circuit board and utilizing a color monitor, an Airtron
six-wheel service truck, a worker installing ductwork, a worker being admitted
to a residence, a worker standing next to the open driver's door of a Hallmark
panel truck, an employee and a homeowner at the front door of the residence
looking at a hand-held computer, MacDonald-Miller workers working on an air
conditioning unit on a roof top, a worker on a step ladder installing ceiling
air conditioning duct work at a commercial site, an employee outside an A-ABC
service truck in the process of making a house call, a worker checking the
level of coolant in a residential air conditioner compressor, employees in a
dispatching room with job ticket postings on the wall, offices employees
working at work stations. Beneath the collage of photographs are the two maps.
The two maps carry the following captions and depict from left to right (i)
Clients of Callahan Roach, primarily involved in residential HVAC (with color
dots indicating locations), and (ii) Commercial HVAC affiliates of United
States Alliance (with color dots indicating locations).]
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<TABLE>
<CAPTION>
PRE-OFFERING COMPANIES YEAR FOUNDED HEADQUARTERS LOCATION
<S> <C> <C>
Airtron, Inc. 1970 Dayton, OH
K&N Plumbing, Heating, and Air Condition-
ing, Inc. 1978 Arlington, TX
A-ABC Appliance, Inc./A-1 Appliance & Air
Conditioning, Inc. 1976 Dallas, TX
Sibley Services, Incorporated 1974 Memphis, TN
Hallmark Air Conditioning, Inc. 1951 Houston, TX
Charlie Crawford, Inc. (dba "Charlie's
Plumbing") 1979 Houston, TX
Costner Brothers, Inc. 1985 Rock Hill, SC
AA JARL, Inc. (dba "Jarrell Plumbing") 1957 Houston, TX
Way Residential 1977 Houston, TX
Callahan Roach 1989 Colorado Springs, CO
United Service Alliance, L.C. 1988 Lakewood, CO
<CAPTION>
OFFERING ACQUISITION COMPANIES
<S> <C> <C>
MacDonald-Miller Industries, Inc. 1965 Seattle, WA
Masters, Inc. 1986 Gaithersburg, MD
Linford Service Company 1960 Oakland, CA
Yale Incorporated 1939 Minneapolis, MN
Central Carolina Air Conditioning Company 1967 Greensboro, NC
Willis Refrigeration, Air Conditioning &
Heating, Inc. 1954 Cincinnati, OH
Paul E. Smith Co., Inc. 1967 Indianapolis, IN
Southeast Mechanical Service, Inc. 1979 Hollywood, FL
Van's Comfortemp Air Conditioning, Inc. 1965 Delray Beach, FL
Arkansas Mechanical Services, Inc. 1988 Little Rock, AR
Mechanical Services, Inc. 1993 Little Rock, AR
All Service Electric, Inc. 1990 Jacksonville, FL
Evans Services, Inc. 1901 Birmingham, AL
</TABLE>
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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 $14.00 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 approximately $65
billion in annual revenue, with over 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.................................. 7,500,000 Shares
Common Stock to be Outstanding after the Offering (1). 19,961,706 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."
NYSE Symbol........................................... MAK
</TABLE>
- --------
(1) Includes 2,975,309 shares to be issued in connection with the acquisition
of the Offering Acquisition Companies and Callahan Roach concurrently with
the Offering and as acquisition consideration adjustments, but excludes
609,461 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 1,976,734 shares available for
issuance under the Company's stock plans at September 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 Appliance & Air Conditioning, 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 residential service assets of Way Service, Inc.
("Way Residential"), 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(5) 24,068 26,978(6)
Goodwill
Amortization(7)........ -- -- -- 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.... $ .60 $ .24 $ .26
======== ======== ========
Weighted Average Shares
Outstanding(8)......... 20,159 20,159 20,159
======== ======== ========
OTHER DATA:
EBITDA(9)............... $ 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 $ 9,457
Working Capital.............................. 7,425 (13,359) 29,303
Total Assets................................. 64,644 170,270 169,316
Total Debt................................... 31,045 46,022 2,107
Preferred Stock.............................. 17,121 19,271 --
Shareholders' Equity......................... (11,296) 21,454 114,604
</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. Also excludes non-recurring, non-cash compensation expense
of $7.0 million related to the reverse acquisition of GroupMAC Parent
during the second quarter of 1997.
(4) Includes $2.4 million for compensation expense resulting from revaluation
of warrants.
(5) Includes $0.5 million of expenses for the formation and build-up of
corporate management and infrastructure.
(6) Includes $1.6 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"). Based on its experience in the industry, the Company believes
that EBITDA is an important tool for measuring the performance of companies
in the industry (including potential acquisition targets) in several areas
such as liquidity, operating performance and leverage. In addition, lenders
use EBITDA as a criterion in evaluating companies in the industry and the
Company's financing arrangement contains covenants in which EBITDA is used
as a measure of financial performance. The EBITDA measure for the Company
may not be consistent with similarly titled measures for other companies.
EBITDA should not be considered as an alternative to operating or net
income (as determined in accordance with GAAP) as an indicator of the
Company's performance or to cash flow from operations (as determined in
accordance with GAAP) as a measure of liquidity. See the comparative
historical statements of cash flows included herein and "Management's
Discussion of Financial Condition and Results of Operations" and "--
Liquidity and Capital Resources" for discussion of other measures of
performance determined in accordance with GAAP and the Company's sources
and applications of cash flow.
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) -- (9,384)
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 (loss) from
Operations................. 7,076 8,844 11,434 5,160 (2,691)
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 GroupMAC
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. Includes non-recurring compensation expense of $7.0
million related to the reverse acquisition of GroupMAC Parent.
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
this Prospectus contains certain forward-looking statements, actual results
could differ materially from those projected in the forward-looking statements
as a result of any number of factors, including the risk factors set forth
below and elsewhere in this Prospectus.
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
Services--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. As a result of the Company's
decentralized operating strategy, there can be no assurance that the Company's
operating systems and policies will be successfully implemented at the
subsidiary level or that the Company will be successful in monitoring the
performance of the subsidiaries. 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. At the assumed initial public offering price, the
aggregate consideration related to the Pre-Offering and Offering Acquisition
Companies would be approximately $204.4 million, which would consist of $123.6
million in Common Stock, $19.3 million in Preferred Stock (valued at its
redemption value of $1.00 per share) and $61.5 million in cash. 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
11
<PAGE>
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 $31.2
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 issued in connection with the acquisition of the Pre-Offering
Companies and approximately $13.4 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 31.0% 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, 19,961,706 shares of Common Stock will be
outstanding. The 7,500,000 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 of 1933, as amended (the "Securities
Act"), and proposes to issue, 643,064 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 3,575,586
shares of Common Stock have the right (subject to minimum participation
requirements) to require the Company to register such shares pursuant to the
Securities Act for the purpose of allowing them to effect a public offering of
all or a portion of such shares (a "Demand Registration"), and such holders
and substantially all of the other holders of Common Stock outstanding on the
date hereof also have the right to require the Company to register their
shares of Common Stock under the Securities Act in connection with a public
offering of Common Stock contemplated by the Company (a "Piggyback
Registration"). The number of Demand Registrations that may be requested is
limited, and the Company will not be obligated to effect a Demand Registration
within 60 days prior to the proposed filing date of a registration statement
relating to an offering by the Company of its securities (with certain
exceptions) or within 120 days after the effective date of such a registration
statement. Further, the Company may delay a Demand Registration for up to 120
days if the Company determines that such registration would be detrimental to
the Company. In connection with a Piggyback Registration involving an
underwritten offering, the number of shares to be registered by selling
shareholders may be limited or eliminated entirely if the managing underwriter
determines marketing factors require a limitation on the number of shares to
be underwritten. See "Shares Eligible for Future Sale." The holders of Demand
Registration rights have agreed with the Company and the Underwriters not to
exercise their respective demand rights for the two year period following the
Offering except for Gordon A. Cain who has agreed not to exercise his demand
rights for one year. In addition, such holders and the holders of Common Stock
issued in connection with the acquisition of the GroupMAC Companies 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 2,964,995 shares of Common
Stock, of which only warrants and options to purchase 709,994 shares will be
exercisable immediately after the closing of the Offering. The Company intends
to register all the shares subject to these options and warrants under the
Securities Act for public resale.
13
<PAGE>
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, LLC, 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.
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 $75 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 has been 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."
14
<PAGE>
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 $11.85
per share and (ii) may experience further dilution in that value from
issuances of Common Stock in connection with future acquisitions. See
"Dilution."
ASSET ENCUMBRANCE
The obligations of the Company under the Bank Credit Agreement are secured
by a first priority security interest on the accounts receivable and inventory
of the Company and its material subsidiaries and all the capital stock of its
domestic subsidiaries. In addition, borrowings under the Bank Credit Agreement
will be guaranteed by the material GroupMAC Companies, and any future material
subsidiaries. If the Company becomes insolvent or is liquidated, or if there
were a breach of the restrictions in the Bank Credit Agreement so as to result
in a default thereunder, or if the Company were unable to repay its borrowings
thereunder, lenders under the Bank Credit Agreement could declare all amounts
outstanding thereunder to be due and payable and the obligations of the
lenders to make further extensions of credit could be terminated. The lenders
under the Bank Credit Agreement also would be entitled to proceed against the
collateral securing such indebtedness. Accordingly, such lenders would have a
prior claim on certain assets of the Company and its subsidiaries. See
"Description of Bank Credit Agreement."
15
<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 Residential.. 659 1977 Houston, TX Residential HVAC
--------
Total........... $138,808
--------
OFFERING ACQUISITION COMPANIES:
- ---------------------------------
MacDonald-Mill-
er(2)........... $ 66,059 1965 Seattle, WA Commercial HVAC, Plumbing & Electrical
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 North Little Rock, AR Commercial HVAC
Mechanical(2).... 2,900 1993 North 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 Residential.. 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").
16
<PAGE>
The Pre-Offering Companies (other than Costner and Way Residential) were
acquired using a combination of cash, warrants and preferred stock and
5,994,122 shares of Common Stock. All of the shares of preferred stock will be
redeemed for cash at the closing of the Offering. Costner and Way Residential
(effective as of June 30, 1997) and Callahan and Roach (effective July 1,
1997) were acquired, and the Offering Acquisition Companies are being
acquired, for a combination of cash and 2,975,309 shares of Common Stock,
before anticipated Subchapter S distributions and purchase price adjustments.
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 ($32.6 million for the Pre-Offering Companies and $29.0 million for the
Offering Acquisition Companies), (ii) 8,834,889 shares of Common Stock, (iii)
17,557,973 shares of preferred stock and warrants to purchase 1,713,622 shares
of preferred stock (which are currently exercisable) 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 609,461
shares of Common Stock (which are currently exercisable). In addition, the
Company has assumed or will assume $14.9 million of indebtedness of the
GroupMAC Companies (which will be repaid promptly in its entirety with
proceeds from the Offering). 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 in cash and Common Stock. 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 $93.2 million ($107.8
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, $31.2 million to repay bank debt incurred to finance
the acquisition of the Pre-Offering Companies and $13.4 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."
17
<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; 12,461,706 shares issued and
outstanding, pro forma; and 19,961,706 shares
issued and outstanding, pro forma as
adjusted(1).................................... 9 12 20
Additional Paid-in Capital...................... 23,389 56,136 149,278
Retained Earnings (Deficit)..................... (34,694) (34,694) (34,694)
------- ------- --------
Total Shareholders' Equity...................... (11,296) 21,454 114,604
------- ------- --------
Total Capitalization............................ $32,293 $72,139 $114,604
======= ======= ========
</TABLE>
- --------
(1) Excludes (i) 609,461 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 1,976,734 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."
18
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company at June 30,
1997 was approximately $50.2 million, or $4.03 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 12,461,726
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 7,500,000 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 $42.9 million or $2.15 per share. This
represents an immediate increase in pro forma net tangible book value of $6.18
per share to existing shareholders and an immediate dilution in pro forma net
tangible book value of $11.85 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................. $14.00
Deficit in pro forma net tangible book value before the
Offering..................................................... $(4.03)
Increase in pro forma net tangible book value attributable to
the Offering................................................. 6.18
Pro forma net tangible book value after the Offering............ 2.15
------
Dilution per share to new investors............................. $11.85
======
</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.................... 12,462 62.4% $(50,202) $(4.03)
New investors............................ 7,500 37.6% 105,000 14.00
------ ----- --------
Total.................................. 19,962 100.0% $ 54,798
====== ===== ========
</TABLE>
The foregoing tables assume no exercise of outstanding options and warrants.
As of the date of this Prospectus, there are 474,261 shares of Common Stock
issuable upon the exercise of stock options at an average exercise price of
$4.31 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."
19
<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
Residential, 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.
20
<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(6) 5,461 13,136 24,068 26,978(7)
Goodwill Amorti-
zation(8)...... -- -- -- -- -- 1,791 -- 31 896 896
------- ------- ------- ------- ------- -------- ------- ------- -------- --------
Income (Loss)
from Opera-
tions.......... 2,917 3,217 1,484 3,476 3,563 20,852 1,570 (4,768) 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 (Loss)
Before Income
Tax Provision.. 3,183 3,377 1,700 3,790 3,908 21,303 1,576 (5,024) 8,794 9,397
Income Tax Pro-
vision......... 1,332 1,300 911 1,651 1,572 9,237 634 800 3,876 4,117
------- ------- ------- ------- ------- -------- ------- ------- -------- --------
Net Income
(Loss)......... $ 1,851 $ 2,077 $ 789 $ 2,139 $ 2,336 $12,066 $ 942 $(5,824) $ 4,918 $ 5,280
======= ======= ======= ======= ======= ======== ======= ======= ======== ========
Net Income
(Loss) Per
Share.......... $ .60 $ .24 $ .26
======== ======== ========
Weighted Average
Shares
Outstanding(9). 20,159 20,159 20,159
======== ======== ========
OTHER DATA:
EBITDA(10) $ 3,074 $ 3,417 $ 1,853 $ 3,960 $ 4,027 $26,061 $ 1,665 $(4,570) $ 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 $ 9,457
Working Capital......... 3,633 3,473 4,561 3,285 6,337 7,425 (13,359) 29,303
Total Assets............ 12,438 15,221 23,528 28,282 27,153 64,644 170,270 169,316
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) 21,454 114,604
</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) Includes non-recurring, non-cash compensation expense of $7.0 million
related to the reverse acquisition of GroupMAC Parent during the four
months ended June 30, 1997, which is excluded in the Pro Forma As Adjusted
six months ended June 30, 1997. 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 $0.5 million of expenses for the formation and build-up of
corporate management and infrastructure.
(7) Includes $1.6 million of expenses for the formation and build-up of
corporate management and infrastructure.
(8) 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.
(9) Computed on a basis described in Note 4 of Notes to Unaudited Pro Forma
Combined Financial Statements.
(10) Represents earnings before interest, taxes, depreciation and amortization
("EBITDA"). Based on its experience in the industry, the Company believes
that EBITDA is an important tool for measuring the performance of
companies in the industry (including potential acquisition targets) in
several areas such as liquidity, operating performance and leverage. In
addition, lenders use EBITDA as a criterion in evaluating companies in
the industry and the Company's financing arrangement contains covenants
in which EBITDA is used as a measure of financial performance. The EBITDA
measure for the Company may not be consistent with similarly titled
measures for other companies. EBITDA should not be considered as an
alternative to operating or net income (as determined in accordance with
GAAP) as an indicator of the Company's performance or to cash flow from
operations (as determined in accordance with GAAP) as a measure of
liquidity. See the comparative historical statements of cash flows
included herein and "Management's Discussion of Financial Condition and
Results of Operations" and "--Liquidity and Capital Resources" for
discussion of other measures of performance determined in accordance with
GAAP and the Company's sources and applications of cash flow.
21
<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's diversified business mix is reflected to varying degrees in
its gross margins. The Company's businesses performing primarily maintenance,
repair and replacement services in the residential markets tend to have higher
gross margins, averaging 37.4% for fiscal 1996. The combined gross margin for
GroupMAC Companies providing primarily maintenance, repair and replacement
services in the commercial markets during fiscal 1996 was 27.2%. On the
average, GroupMAC Companies primarily engaged in residential new installation
services have lower gross margins. Such companies' combined gross margin for
fiscal 1996 was 21.2%. The company primarily providing HVAC services in the
residential new installation market had a gross margin of 28.5%, which was
somewhat offset by the companies providing primarily plumbing service to this
market at gross margins ranging from 10.0% to 14.7%. Future consolidated gross
margins may vary depending on, among other things, shifts in the business mix
within the GroupMAC Companies as well as the impact of future acquisitions on
the business mix.
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.
22
<PAGE>
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 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 39,273 24.9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income (Loss) from Oper-
ations................. 7,076 3.0 8,844 3.4 11,434 3.7 5,160 3.4 (2,691) (1.7)
</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 primarily volume driven and 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 $39.3 million for the six months
ended June 30, 1997. The increase was primarily attributable to (i) a non-
recurring, non-cash compensation expense of $7.0 million related to the
reverse acquisition of GroupMAC parent, (ii) $844,000 of
23
<PAGE>
additional compensation paid to owners of the individual companies and (iii)
$2.4 million related 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 24.9% 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 volume driven and was attributable to an increase in all sectors of
MacDonald-Miller's business, particularly contracted "design and build"
projects, retrofits, remodeling and 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, most
of which were due to increases in volume.
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%.
24
<PAGE>
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 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 (as
modified to date, 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 (i)
a minimum level of net worth (deficit) of $10,111,467) plus 100% of any
increase in net worth resulting from the issuance of any capital stock plus
75% of the consolidated after tax income (adjusted semi-annually), (ii) a
ratio of indebtedness to earnings before interest, taxes, depreciation and
amortization not greater than 3.0 to 1.0, (iii) a ratio of indebtedness to net
worth of 3.25 to 1.0 (decreasing to 2.60 in 1998 and 1.50 in 1999) and (iv) a
fixed charge coverage ratio of at least 1.25 to 1.0. As of the date hereof,
the Company is in compliance with these requirements. As of September 30,
1997, available borrowing capacity under the Original Credit Agreement was
$3.0 million.
The Company has received a commitment from Texas Commerce Bank National
Association to provide a new credit facility with an initial borrowing
capacity of up to $75 million upon completion of the Offering and is currently
negotiating the definitive documentation for such facility. There is no
assurance, however, that such facility will be in place prior to the closing
of the Offering. Under the Bank Credit Agreement, the Company must maintain
(i) a minimum level of net worth equal to the net worth at the closing date of
the Bank Credit Agreement less $750,000 plus 100% of the net proceeds of any
equity issued plus 75% of cumulative net income after the closing date, (ii) a
ratio of indebtedness to earnings before interest, taxes, depreciation and
amortization of less than 2.5 to 1.0, (iii) a ratio of indebtedness to
capitalization of not greater than 55%, (iv) a fixed charge coverage ratio of
at least 1.20 to 1.0 and (v) a positive tangible net worth. If such financial
covenants were in place on the date hereof and assuming the Offering and the
Acquisitions had been completed, the Company would be in compliance with those
covenants. For additional information about the proposed terms of this credit
facility, see "Description of Bank Credit Agreement." 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's best estimate
of this amount is approximately $5 million, payable in a combination of cash
and shares of Common Stock.
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.
25
<PAGE>
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 the 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."
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 and K&N and the assets of Way Residential 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 18,056 42.1
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 1,484 2.1 3,476 4.7 3,563 4.4 739 2.0 1,039 2.7 (6,132) (14.3)
</TABLE>
26
<PAGE>
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, resulting in a larger volume of new home starts. 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.
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 $8.6 million,
or 90.5%, from $9.5 million for the six months ended June 30, 1996 to $18.1
million for the six months ended June 30, 1997. This increase resulted from
(i) a non-recurring, non-cash compensation expense of $7.0 million related to
the reverse acquisition of GroupMAC Parent and (ii) 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 42.1% 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, higher selling, general and
administrative expenses as a percentage of revenues for the companies acquired
during the period and the non-recurring, non-cash compensation expense
discussed above.
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, resulting in a larger volume of new home starts.
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.
27
<PAGE>
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
from new residential construction 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.
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.
28
<PAGE>
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 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
primarily volume driven and directly related to the company's effort to
increase its market presence in the Seattle, Washington and Portland, Oregon
metropolitan areas, 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
29
<PAGE>
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 primarily
volume driven and 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 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.
30
<PAGE>
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 primarily attributable to an
additional volume of housing starts generated 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 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 an additional volume of housing
starts generated 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 an additional volume of housing
starts generated from existing customers, increased market penetration and a
greater volume of HVAC new installations resulting from management efforts to
further expand this service line.
31
<PAGE>
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.
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 volume of new
home construction in the Austin and Las Vegas markets.
32
<PAGE>
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 primarily volume driven and 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 primarily volume driven and 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.
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
33
<PAGE>
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 1985 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 1951 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.
Way Residential was founded in 1977 and provides HVAC services to
residential customers in Houston, Texas. Way Residential's revenues for fiscal
1996 were $659,000 and income from operations was $123,000. Way Residential'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. In addition, Central Carolina
has deferred $967,000 of service contract revenues due to five-year extended
service contracts. Other GroupMAC Companies typically do not have extended
service contracts in excess of one year. Central Carolina is headquartered in
Greensboro, North Carolina.
Evans Services, Inc. ("Evans") was founded in 1901 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.
34
<PAGE>
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, Air Conditioning & Heating, Inc. ("Willis") was
founded in 1954 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.
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 primarily volume driven and
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
35
<PAGE>
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 volume driven and 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 volume driven and 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,
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 1979 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,
36
<PAGE>
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 1988 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.
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.
37
<PAGE>
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 primarily volume driven and
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 volume driven and 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
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.
38
<PAGE>
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 volume driven and 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.
39
<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 $65 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
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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
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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 1,976,734 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
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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.
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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>
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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.
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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
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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 0.9% of the Company's combined revenue.
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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. The provisions of the leases are on terms the
Company believes to be at least as favorable to the Company as could have been
negotiated by the Company with unaffiliated third parties. 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.
48
<PAGE>
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 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. Employees at K&N's operations in Las Vegas, Nevada, are currently
being solicited to join a union, and from time to time other operating
locations of the Company may experience union organizing effort. 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 Florida, warranties
provided for in the Company's service agreements subject the Company and such
agreements to some aspects of that state's insurance laws and regulations.
Specifically, the Company is required to maintain funds on deposit with the
Florida Office of Insurance Commissioner and Treasurer, the amount of which is
not material to the Company's business. The Company is in compliance with
these deposit requirements.
The Company 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
49
<PAGE>
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.
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.
50
<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..... 52 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............ 51 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........... 55 President and Chief Executive Officer of
Airtron; Director
Timothy Johnston............ 41 Senior Vice President of Airtron; Director
John M. Sullivan............ 61 Director
James D. Weaver............. 48 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(R) 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
51
<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
52
<PAGE>
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. He
currently serves as a director of Atlantic Coast Airlines, Inc.
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 has been Chairman of the Board of
TransTexas Gas Corp. since 1993. He served as a director and trustee of eleven
registered investment companies from 1985 to 1995 for which John Hancock Funds
serves as investment advisor in Boston, Massachusetts. He currently serves as
a director of Bankers Trust Co. of the Southwest, TransAmerican Energy Corp.
and TransAmerican Refining Corp.
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.
53
<PAGE>
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 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
approve 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.
54
<PAGE>
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 EXERCISE 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 -- $305,760
J. Patrick Millinor, Jr......... -- 50,000 -- 546,000
Donald L. Luke.................. -- 14,000 -- 152,880
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.
55
<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 the Airtron incentive bonus plan (which provides him an award
equal to 3.25% of Airtron's EBITDA before corporate bonus not to exceed
$366,000 annually). 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 the Airtron incentive bonus plan (which provides him an award
equal to 1.40% of Airtron's EBITDA before corporate bonus, not to exceed
$154,000 annually). 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
56
<PAGE>
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. 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 1,976,734 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, key 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.
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<PAGE>
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 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
58
<PAGE>
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 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.
INCENTIVE BONUS PROGRAM
The Company has implemented a cash bonus program for the key employees of
its subsidiaries under which awards will be determined based upon the
performance of each subsidiary. The size of the bonus pool will be equal to a
defined percentage of the amount by which the subsidiary's after-tax net
operating profit (as defined) less a charge for capital allocated to the
subsidiary exceeds a similar calculation of the previous year's results. A
certain percentage of earned bonuses are carried over to the following year
for retention purposes and to promote long-term goal achievement. Messrs.
Jennings and Johnston participate in such program in 1997. Messrs. Bryant,
Henninger, Kelly and Sigmund will participate in 1998.
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 could have been negotiated by the
Company with unaffiliated third parties.
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,
59
<PAGE>
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 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 could have been
negotiated by the Company with unaffiliated third parties.
In the Company's pending acquisition of MacDonald-Miller, Fredric J.
Sigmund, who will become a director of the Company, will receive approximately
$1,752,564 and 187,775 shares of Common Stock. Mr. Sigmund may receive a
portion of the contingent consideration payable to the former shareholders 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 could have been negotiated by the Company with
unaffiliated third parties.
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
464,921 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 could have been negotiated by the Company with unaffiliated third
parties.
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 113,033 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 could have been negotiated by the
Company with unaffiliated third parties.
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<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 -----------------
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OF BEFORE AFTER
OWNER COMMON STOCK(1) OFFERING OFFERING
- ------------------------------ --------------- -------- --------
<S> <C> <C> <C>
James P. Norris................... -- -- --
J. Patrick Millinor, Jr........... 236,812(2) 2.5% 1.2%
Donald L. Luke.................... -- -- --
Chester J. Jachimiec.............. 147,333(3) 1.6% *
Richard S. Rouse.................. 125,933(4) 1.2% *
William Michael Callahan.......... 18,400(5) 1.0% *
Alfred R. Roach, Jr............... 18,400(5) * *
John M. Sullivan.................. 112,050(6) 1.2% *
James D. Weaver................... 96,500(7) 1.0% *
James D. Jennings................. 653,872(8) 6.9% 3.3%
Timothy Johnston.................. 330,764(8) 3.5% 1.7%
Ronald D. Bryant.................. 464,921(9) -- 2.3%
David L. Henninger................ 113,033(9) -- *
Andrew Jeffrey Kelly.............. 403,111 4.2% 2.0%
Thomas B. McDade.................. -- -- --
Lucian Morrison................... 2,000 * *
Fredric Sigmund................... 187,775(9)(10) -- *
National City Bank Dayton, as
Trustee of the Airtron, Inc.
Savings and Profit Sharing Plan.. 639,074 6.7% 3.2%
c/o Mr. David Smeltzer
6 North Main Street
Dayton, Ohio 45412
Richard M. Siefring............... 985,431(8) 10.4% 4.9%
7813 N. Dixie Drive
Dayton, Ohio 45414
</TABLE>
61
<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(8) 5.6% 2.6%
7813 N. Dixie Drive
Dayton, Ohio 45414
Gordon A. Cain............................... 2,417,950 25.5% 12.1%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
All executive officers and named directors of
the Company as a group
(19 persons)................................ 2,992,904 31.2% 14.9%
</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 options exercisable on December 31,
1997.
(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 options exercisable on December 31, 1997.
(4) Includes 13,333 shares subject to options exercisable on December 31,
1997.
(5) Does not include warrants to purchase 257,000 shares of Common Stock at
$17.50 per share and 25,629 shares that may be issued upon the occurrence
of certain events. See "Related Party Transactions."
(6) Includes 82,050 shares for which Mr. Sullivan has a limited power of
attorney to vote and exercise investment powers until revoked by the
actual owners.
(7) Includes 10,000 shares subject to currently exercisable warrants.
(8) Includes shares held in employee benefit plans.
(9) All such shares will be issued upon completion of the Offering.
(10) Includes shares held by the MacDonald-Miller Industries, Inc. Employee
Stock Ownership Plan and Trust.
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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 65,536 100,000 193,755
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 Residential (asset
purchase)(2)(3)............ 16,500 6,428 -- --
----------- --------- ---------- -----------
32,641,375 6,066,086 19,271,595 4,963,011
----------- --------- ---------- -----------
OFFERING ACQUISITION
COMPANIES:(3)
All Service................. 2,311,570 201,804 -- 8,830
Arkansas Mechanical......... 2,121,000 151,500 -- 692,997
Central Carolina............ 3,637,952 281,508 -- 979
Evans....................... 1,167,391 101,915 -- --
Linford(2).................. 651,000 126,037 -- 114,000
MacDonald-Miller(2)......... 6,001,931 643,064 -- 5,624,398
Masters..................... 6,605,457 491,076 -- 1,834,709
Mechanical.................. 109,000 7,786 -- --
Paul E. Smith............... -- 217,062 -- 325,000
Southeast Mechanical........ 2,149,000 153,571 -- 355,980
Van's....................... 1,559,125 113,034 -- 340,000
Willis...................... 2,257,000 241,786 -- 220,731
Yale........................ 2,215,000 158,214 -- 420,045
----------- --------- ---------- -----------
30,785,426 2,888,357 -- 9,937,669
----------- --------- ---------- -----------
S Corporation Distribu-
tions(4)................... (1,856,250) (119,554) -- --
----------- --------- ---------- -----------
Total................... $61,570,551 8,834,889 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.
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<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 9,486,397 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 material features 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
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<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. The Common Stock has been approved for listing on the New York Stock
Exchange.
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
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.
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DESCRIPTION OF BANK CREDIT AGREEMENT
GENERAL
In connection with this Offering, the Company expects to enter into a credit
agreement (the "Bank Credit Agreement") with lenders (the "Lenders") and Texas
Commerce Bank National Association, as Agent (the "Agent"). The Agent has
committed to provide, or arrange for a syndicate of Lenders to provide, the
Company, subject to certain terms and conditions, the entire $75 million
principal amount of the revolving credit facility described below. The
following description summarizes the material provisions the Company currently
expects will be included in the Bank Credit Agreement. The following
description does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the provisions of the Bank Credit
Agreement, which have yet to be fully negotiated.
AMORTIZATION; PREPAYMENTS
Loans under the Bank Credit Agreement may be prepaid at any time without
premium or penalty in reasonable minimum amounts. Prepayments of Eurodollar
borrowings on any day other than the last day of an interest period will be
required to be accompanied by a payment to the Lenders of various costs,
expenses or losses, if any, incurred as a result of such prepayment. The
amount available under the Bank Credit Agreement will be payable in full on
its maturity date.
SECURITY; GUARANTEES
Borrowings under the Bank Credit Agreement will be guaranteed by the
Company's Material subsidiaries (as defined in the Bank Credit Agreement),
including future Material subsidiaries. The obligations of the Company under
the Bank Credit Agreement and the obligations under the guarantees will be
secured by a first priority lien on the accounts receivable and inventory of
the Company and its Material subsidiaries, including any future subsidiaries,
and by a pledge of stock of its domestic subsidiaries.
INTEREST RATES
Loans under the Bank Credit Agreement will bear interest at a rate per annum
at the Company's option, of either (i) the Alternate Base Rate (which is equal
to the greater of the Federal Funds Effective Rate (as defined in the Bank
Credit Agreement) plus .5% or the Prime Rate (as defined in the Bank Credit
Agreement plus a margin depending on the ratio of indebtedness for borrowed
money to Adjusted EBITDA (as defined in the Bank Credit Agreement)), or (ii)
the Eurodollar Rate (as defined in the Bank Credit Agreement) plus a margin,
depending on the ratio of indebtedness for borrowed money to Adjusted EBITDA.
FEES, EXPENSES AND COSTS; CREDIT FACILITIES
The terms of the Bank Credit Agreement will require the Company to pay the
following fees in connection with the maintenance of loans under the Bank
Credit Agreement: (i) commitment fees to be paid to the Lenders in amounts
between .25% and .375% per annum with respect to the unused commitments under
the Bank Credit Agreement depending on the ratio of indebtedness for borrowed
money to Adjusted EBITDA, payable quarterly in arrears until such time as such
facility is terminated; and (ii) administration fees payable annually to the
Agent. In addition, the Company will pay various underwriting and arrangement
fees and closing costs in connection with the origination and syndication of
the Bank Credit Agreement.
The Company will also be required to reimburse the Agent for all reasonable
out-of-pocket costs and expenses incurred in the preparation, documentation
and administration of the Bank Credit Agreement and to reimburse the Lenders
for all reasonable costs and expenses incurred in connection with the
enforcement of their rights in connection with a default or the enforcement of
the Bank Credit Agreement. The Company will
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indemnify the Agent and the Lenders and their respective officers, directors,
shareholders, employees, agents and attorneys against certain costs, expenses
(including fees and reimbursements of counsel) and liabilities arising out of
or relating to the Bank Credit Agreement and the transactions contemplated
thereby. The Lenders also will be entitled to be reimbursed for certain
reserve requirements and increases therein, changes in law and circumstances,
taxes (other than an overall net income), capital adequacy, and consequential
costs. Further, the inability to determine Eurodollar Rates or the possible
future illegality of the Eurodollar Rate option will result in such rate
option being unavailable.
COVENANTS
The Bank Credit Agreement will contain substantial restrictive covenants
limiting the ability of the Company and its subsidiaries to: (i) incur
Indebtedness (as defined in the Bank Credit Agreement), including contractual
contingent obligations; (ii) pay certain debt after default; (iii) create or
allow to exist liens or other encumbrances; (iv) transfer assets except for
sales and other transfers of inventory or surplus, immaterial or obsolete
assets in the ordinary course of business; (v) enter into mergers,
consolidations and asset dispositions of all or substantially all of its
properties; (vi) make investments; (vii) extend credit to any entity; (viii)
sell, transfer or otherwise dispose of any class of stock or the voting rights
of any subsidiary of the Company; (ix) enter into transactions with related
parties other than on an arm's-length basis on terms no less favorable to the
Company than those available from third parties; (x) amend certain agreements;
(xi) make any material change in the nature of the business conducted by the
Company; (xii) pay dividends or redeem shares of capital stock; and (xiii)
make capital expenditures.
In addition, the Bank Credit Agreement will contain covenants that, among
other things and with certain exceptions, will require the Company and its
subsidiaries to: (i) maintain the existence, qualification and good standing
of the Company and its subsidiaries; (ii) comply in all material respects with
all material applicable laws; (iii) maintain material properties, rights and
franchises; (iv) deliver certain financial and other information; (v) maintain
specified insurance; (vi) pay taxes; and (vii) notify the Lenders of any
default under the Loan Documents (as defined in the Bank Credit Agreement) and
of certain other material events.
Under the Bank Credit Agreement, the Company will be required to satisfy
certain financial covenants and tests, including (i) a fixed charge coverage
ratio of not less than 1.20 to 1.0; (ii) a minimum tangible net worth that is
positive; (iii) a ratio of total indebtedness for borrowed money to
Capitalization of not greater than 55%; and (iv) a minimum Consolidated Net
Worth (as defined in the Bank Credit Agreement) equal to the net worth at the
closing date of the Facility less $750,000 plus 100% of the net proceeds of
any equity issued plus 75% of cumulative net income after the closing date.
Changes in generally accepted accounting principles that materially affect
financial covenants may result in modifications to the financial covenants
with the view to placing the covenants on the same economic basis as before
the change in generally accepted accounting principles.
EVENTS OF DEFAULT
Events of Default under the Bank Credit Agreement will include, subject to
certain applicable notice and grace periods, the following: (i) a default in
the payment when due of any principal, interest, fees or other amount under
the Bank Credit Agreement; (ii) a default by the Company under any debt
instrument in excess of $500,000, or the occurrence of any event or condition
that enables the holder of such debt to accelerate the maturity thereof; (iii)
any material breach of any representation, warranty or statement in, or
failure to perform any duty or covenant under the Bank Credit Agreement or any
of the Loan Documents; (iv) commencement of voluntary or involuntary
bankruptcy, insolvency or similar proceedings by or against the Company or any
Material subsidiary; (v) any judgment or order in excess of $500,000 net of
confirmed insurance remaining undischarged or unstayed for longer than certain
periods; and (vi) a Change of Control (as defined in the Bank Credit
Agreement).
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
19,961,706 shares of Common Stock (21,086,706 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 7,500,000
shares (8,625,000 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 9,486,397 shares of Common Stock held by existing shareholders of
the Company immediately prior to the Offering and the 2,975,309 shares of
Common Stock to be issued to shareholders of the Offering Acquisition
Companies, Costner, Way Residential and Callahan Roach, will be "restricted
securities" within the meaning of Rule 144, except for the 643,064 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 7,743,317 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 7,743,317 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 1,976,734 shares of Common Stock
will be granted under the Stock Awards 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.
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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 (9,486,397 shares) and will enter into similar
agreements with the shareholders of the Offering Acquisition Companies,
Costner, Way Residential and Callahan Roach (who will receive 2,975,309 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 of such
shares, the number of shares of each shareholder to be
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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.
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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, LLC, 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, LLC..............................
William Blair & Company, L.L.C..................................
ABN AMRO Chicago Corporation....................................
---------
Total......................................................... 7,500,000
=========
</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 1,125,000 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.
An affiliate of ABN AMRO Chicago Corporation will make loans to the Company
under the Bank Credit Agreement, and such affiliate will receive a portion of
the proceeds from this Offering pursuant to the repayment of loans under the
Original Credit Agreement. See "Use of Proceeds."
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.
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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 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 legality 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 & 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, Incorporated, Southeast Mechanical Service, Inc.,
Willis Refrigeration, Air Conditioning & Heating, 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.
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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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<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-19
Balance Sheets........................................................... F-20
Statements of Operations................................................. F-21
Statements of Shareholders' Equity....................................... F-22
Statements of Cash Flows................................................. F-23
Notes to Financial Statements............................................ F-24
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
Report of Independent Public Accountants................................. F-29
Consolidated Balance Sheets.............................................. F-30
Consolidated Statements of Operations.................................... F-31
Consolidated Statements of Shareholders' Equity.......................... F-32
Consolidated Statements of Cash Flows.................................... F-33
Notes to Consolidated Financial Statements............................... F-34
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................. F-46
Consolidated Balance Sheets.............................................. F-47
Consolidated Statements of Operations.................................... F-48
Consolidated Statements of Shareholders' Equity.......................... F-49
Consolidated Statements of Cash Flows.................................... F-50
Notes to Consolidated Financial Statements............................... F-51
MASTERS, INC.
Report of Independent Public Accountants................................. F-61
Balance Sheets........................................................... F-62
Statements of Operations................................................. F-63
Statements of Shareholder's Equity....................................... F-64
Statements of Cash Flows................................................. F-65
Notes to Financial Statements............................................ F-66
K&N PLUMBING, HEATING AND AIR CONDITIONING, INC.
Report of Independent Public Accountants................................. F-73
Balance Sheet............................................................ F-74
Statement of Operations.................................................. F-75
Statement of Shareholders' Equity........................................ F-76
Statement of Cash Flows.................................................. F-77
Notes to Financial Statements............................................ F-78
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & AIR
CONDITIONING, INC.
Report of Independent Public Accountants................................. F-83
Combined Balance Sheets.................................................. F-84
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Combined Statements of Operations....................................... F-85
Combined Statements of Shareholders' Equity............................. F-86
Combined Statements of Cash Flows....................................... F-87
Notes to Combined Financial Statements.................................. F-88
ARKANSAS MECHANICAL SERVICES, INC. AND MECHANICAL
SERVICES, INC.
Report of Independent Public Accountants................................ F-93
Combined Balance Sheets................................................. F-94
Combined Statements of Operations....................................... F-95
Combined Statements of Shareholders' Equity............................. F-96
Combined Statements of Cash Flows....................................... F-97
Notes to Combined Financial Statements.................................. F-98
CALLAHAN ROACH PRODUCTS AND PUBLICATIONS, INC.
Report of Independent Public Accountants................................ F-104
Balance Sheets.......................................................... F-105
Statements of Operations................................................ F-106
Statements of Shareholders' Equity...................................... F-107
Statements of Cash Flows................................................ F-108
Notes to Financial Statements........................................... F-109
CENTRAL CAROLINA AIR CONDITIONING COMPANY
Report of Independent Public Accountants................................ F-112
Balance Sheets.......................................................... F-113
Statements of Operations................................................ F-114
Statements of Shareholders' Equity...................................... F-115
Statements of Cash Flows................................................ F-116
Notes to Financial Statements........................................... F-117
HALLMARK AIR CONDITIONING, INC. AND SUBSIDIARY
Report of Independent Public Accountants................................ F-122
Consolidated Balance Sheets............................................. F-123
Consolidated Statements of Operations................................... F-124
Consolidated Statements of Shareholders' Equity......................... F-125
Consolidated Statements of Cash Flows................................... F-126
Notes to Consolidated Financial Statements.............................. F-127
SIBLEY SERVICES, INCORPORATED
Report of Independent Public Accountants................................ F-133
Balance Sheets.......................................................... F-134
Statements of Operations................................................ F-135
Statements of Shareholders' Equity...................................... F-136
Statements of Cash Flows................................................ F-137
Notes to Financial Statements........................................... F-138
SOUTHEAST MECHANICAL SERVICE, INC.
Report of Independent Public Accountants................................ F-144
Balance Sheets.......................................................... F-145
Statements of Operations................................................ F-146
Statements of Shareholders' Equity...................................... F-147
Statements of Cash Flows................................................ F-148
Notes to Financial Statements........................................... F-149
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, INC.
Report of Independent Public Accountants................................ F-153
Balance Sheets.......................................................... F-154
Statements of Operations................................................ F-155
Statements of Shareholders' Equity...................................... F-156
Statements of Cash Flows................................................ F-157
Notes to Financial Statements........................................... F-158
YALE, INCORPORATED
Report of Independent Public Accountants................................ F-163
Balance Sheets.......................................................... F-164
Statements of Operations................................................ F-165
Statements of Shareholders' Equity...................................... F-166
Statements of Cash Flows................................................ F-167
Notes to Financial Statements........................................... F-168
</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. and A-1 Appliance & 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 Residential.................................................... 6/30/97
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, Incorporated...................................... 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, Air Conditioning & Heating, 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 combine 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....... 23,389 -- -- 41 107 23,537 32,599 56,136
Retained earnings
(deficit)........ (34,694) 4,007 4,495 4,451 4,417 (17,324) (17,370) (34,694)
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...... $ (757) $ 9,457
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.......... (757) 72,851
PROPERTY AND
EQUIPMENT, net.... -- 11,094
GOODWILL, net..... -- 71,656
DEFERRED TAX AS-
SETS.............. -- 10,316
OTHER NONCURRENT
ASSETS............ (197) 3,399
----------- -----------
Total assets.... $ (954) $169,316
=========== ===========
<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..... 8 20
Additional paid-
in capital....... 93,142 149,278
Retained earnings
(deficit)........ -- (34,694)
Treasury stock... -- --
----------- -----------
Total sharehold-
ers' equity
(deficit)....... 93,150 114,604
----------- -----------
Total liabili-
ties and share-
holders' equity
(deficit)....... $ (954) $169,316
=========== ===========
</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............. $ .60
========
SHARES USED IN COMPUT-
ING PRO FORMA NET IN-
COME PER SHARE........ (f) 20,159
========
</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................... $ .24
========
SHARES USED IN COMPUTING
PRO FORMA NET INCOME PER
SHARE................... (f) 20,159
========
</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................ 18,025 3,788 1,197 1,376 7,820 5,171 1,783 (12,182)(a) 26,978
GOODWILL AMORTIZATION. 31 -- -- -- 55 27 -- 783 (b) 896
------- ------- ------- ------- ------- ------- ------- -------- --------
Income (loss) from
operations........... (6,132) 1,597 664 15 1,453 1,495 (1,783) 11,399 8,708
OTHER INCOME (EX-
PENSE):
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.. (6,146) 1,550 599 (33) 1,522 1,404 (1,781) 12,282 9,397
INCOME TAX PROVISION.. 349 569 -- (55) 228 24 -- 3,002 (e) 4,117
------- ------- ------- ------- ------- ------- ------- -------- --------
NET INCOME (LOSS)..... $(6,495) $ 981 $ 599 $ 22 $ 1,294 $ 1,380 $(1,781) $ 9,280 $ 5,280
======= ======= ======= ======= ======= ======= ======= ======== ========
PRO FORMA NET INCOME
PER SHARE............. $ .26
========
SHARES USED IN COMPUT-
ING PRO FORMA NET IN-
COME PER SHARE........ (f) 20,159
========
</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.
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.
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.
The following table sets forth the consideration paid or to be paid in (a)
cash, (b) shares of non-convertible, non-voting Preferred Stock to the
shareholders of the Pre-Offering Companies and (c) shares of Common Stock to
the shareholders of the Pre-Offering and Offering Acquisition Companies. The
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.
For purposes of computing the estimated purchase price for accounting
purposes, the value of the Preferred Stock is based on the liquidation value
of $1.00 per share and the value of the Common Stock is determined using an
estimated weighted average fair value of approximately $10.00 per share, which
represents a discount rate of approximately 28% from the anticipated initial
public offering price of $14.00 due primarily to restrictions on the sale and
transferability of both the privately issued shares and shares to be issued
simultaneous with the Offering. The total estimated purchase price of $87.0
million for the Pre-Offering and Offering Acquisition
F-14
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Companies (excluding Airtron, the accounting acquirer) is comprised of (a)
cash of $40.7 million, (b) Preferred Stock of $4.4 million and (c) Common
Stock of $41.9 million, based on the estimated fair values per share discussed
in this paragraph.
The estimated purchase price 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. Based upon management's
preliminary analysis, it is anticipated that the historical carrying value of
the assets and liabilities of the acquired companies (representing $15.3
million) will approximate fair value. This results in an allocation to
goodwill of approximately $71.7 million. Management has not identified any
other material tangible or identifiable intangible assets to which a portion
of the purchase price could reasonably be allocated. 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.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
PREFERRED COMMON TOTAL
CASH STOCK(1) STOCK CONSIDERATION
------- --------- --------- -------------
<S> <C> <C> <C> <C>
PRE-OFFERING COMPANIES
Pre-June 30, 1997 Acquisitions:
Airtron........................... $20,849 14,873 4,652 $ 58,192
A-ABC/A-1......................... 1,886 -- 359 5,635(2)
Charlie's......................... 1,503 -- 157 3,113
Costner........................... 501 100 66 1,197(3)
Hallmark.......................... 2,081 580 106 3,743
Jarrell........................... 150 -- 13 280
K&N............................... 1,568 1,568 403 7,263
Way Residential (asset purchase).. 16 -- 6 79(3)
------- ------ ----- --------
28,554 17,121 5,762 79,502
------- ------ ----- --------
Remaining Pre-Offering
Acquisitions:
Callahan Roach.................... 2,450 1,050 192 5,685
Sibley............................ 1,202 665 62 2,501
USA (asset purchase).............. 436 436 50 1,438
------- ------ ----- --------
4,088 2,151 304 9,624
------- ------ ----- --------
Total Pre-Offering Acquisitions..... 32,642 19,272 6,066 89,127
------- ------ ----- --------
OFFERING ACQUISITION COMPANIES
All Service....................... 2,312 -- 202 4,101
Arkansas Mechanical............... 2,121 -- 151 3,219
Central Carolina.................. 3,638 -- 281 5,974
Evans ............................ 1,167 -- 102 2,166
Linford .......................... 651 -- 126 1,554
MacDonald-Miller.................. 6,002 -- 643 12,304
Masters........................... 6,605 -- 491 10,810
Mechanical........................ 109 -- 8 185
Paul E. Smith..................... -- -- 217 1,929
Southeast Mechanical.............. 2,149 -- 154 3,500
Van's............................. 1,559 -- 113 2,667
Willis............................ 2,257 -- 242 4,626
Yale.............................. 2,215 -- 158 3,028
------- ------ ----- --------
30,785 -- 2,888 56,063
------- ------ ----- --------
Sub S Corp Distributions............ (1,856) -- (119) (3,530)
------- ------ ----- --------
Totals.......................... $61,571 19,272 8,835 $141,660
======= ====== ===== ========
</TABLE>
F-15
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(1) The preferred stock is valued at $1 per share.
(2) Consideration value includes 6,886 shares related to post-closing
adjustments which had not been issued at June 30, 1997 and are not
included in the shares of common stock shown.
(3) Consideration value excludes 13,107 and 1,285 shares issuable as
acquisition consideration adjustments for Costner and Way Residential,
respectively, which are included in the shares of common stock shown.
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.
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. In connection with the acquisitions of
certain of the GroupMAC Companies, the Company has agreed to make contingent
payments, if earned, to the former owners over periods up to two years based
on formulas in their respective acquisition agreements. These payments will be
made through a combination of cash, shares of Common Stock and warrants to
purchase Common Stock. Amounts earned under the terms of the agreements will
be recorded as additional goodwill and amortized over the remaining
amortization period.
h) Records the proceeds from the issuance of 7,500,000 shares of GroupMAC
Common Stock, net of estimated offering costs of $11,850,000. 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.
F-16
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
<TABLE>
<CAPTION>
OFFERING
(H) (I) (J) (K) (L) ADJUSTMENTS
------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $93,347 $(32,500) $(30,918) $(19,271) $(11,415) $ (757)
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............ (8) (8)
Additional paid-in
capital................ (93,142) (93,142)
Retained earnings
(deficit).............. --
------- -------- -------- -------- -------- -------
Total................. $ -- $ -- $ -- $ -- $ -- $ --
======= ======== ======== ======== ======== =======
</TABLE>
F-17
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
The salaries, bonuses, benefits and other compensation items recorded in the
individual financial statements of each of the acquired companies amounted to
$15.1 million, $6.2 million and $7.2 million for the twelve month period ended
at or around December 31, 1996 and the six month periods ended June 30, 1996
and 1997, respectively. The contractually agreed upon compensation and
benefits for these same companies, on a going forward basis, amount to $4.0
million, $2.0 million and $2.0 million for the twelve month period ended at or
around December 31, 1996 and the six month periods ended June 30, 1996 and
1997, respectively. The differences between these amounts for the periods
noted herein equate to $11.1 million, $4.2 million and $5.2 million,
respectively and are reflected as pro forma adjustments.
Also reflects the reduction in compensation expense related to the non-
recurring, non-cash compensation charge of $7.0 million recorded by the
Company in the second quarter of 1997 related to the reverse acquisition of
GroupMAC Parent.
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............................. 7,500,000
Shares issued under Subscription Agreement dated October 24, 1996.... 2,600,000
Shares issued to Pre-Offering Companies.............................. 6,066,085
Shares issued to Offering Acquisition Companies...................... 2,768,804
Shares issued to Founding Management and Directors................... 1,026,817
Incremental effect of options and warrants on shares outstanding..... 196,957
----------
Shares estimated to be outstanding................................... 20,158,663
==========
</TABLE>
F-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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............. 2,701,116 2,646,093 16,410,586
Retained earnings (deficit)............ 3,666,584 3,339,696 (27,715,511)
----------- ----------- ------------
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-30
<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
COMPENSATION EXPENSE
FROM REVERSE
ACQUISITION............ -- -- -- -- 6,978,300
WARRANT COMPENSATION.... 2,400,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) from
operations........... 1,483,811 3,475,854 3,562,795 1,569,892 (4,768,049)
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 (loss) before
income tax
provision.......... 1,699,724 3,789,817 3,907,751 1,575,759 (5,024,682)
INCOME TAX PROVISION.... 910,664 1,650,956 1,571,680 633,614 800,000
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)....... $ 789,060 $ 2,138,861 $ 2,336,071 $ 942,145 $(5,824,682)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING............ 8,008,122 6,190,337 5,172,201 5,172,201 8,875,295
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER
SHARE.................. $ 0.10 $ 0.35 $ 0.45 $ 0.18 $ (0.66)
=========== =========== =========== =========== ===========
</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 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 2,753,813 3,476,282 (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 2,701,116 3,666,584 -- 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 2,646,093 3,339,696 -- 5,990,441
Purchase of Acquired
Companies............. 2,713,858 2,714 16,614,130 -- -- 16,616,844
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)
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 (loss)............. -- -- -- (5,824,682) -- (5,824,682)
---------- -------- ----------- ------------ ----------- ------------
BALANCE, June 30, 1997.. 8,707,998 $ 8,708 $23,388,886 $(34,693,811) $ -- $(11,296,217)
========== ======== =========== ============ =========== ============
</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.)
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 (loss)...... $ 789,060 $ 2,138,861 $ 2,336,071 $ 942,145 $ (5,824,682)
Adjustments to
reconcile net income
(loss) 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
Non-cash compensation
expense from reverse
acquisition........... -- -- -- -- 6,978,300
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-33
<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. In connection with the purchase of GroupMAC Parent, the
consideration paid to the shareholders of GroupMAC Parent was recorded as a
nonrecurring compensation expense of $6,978,300 in the accompanying statements
of operations for the four month period ended June 30, 1997. 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 13 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.
F-34
<PAGE>
GROUP MAINTENANCE AMERICA CORP. AND SUBSIDIARIES
(FORMERLY AIRTRON, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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-35
<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-36
<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........... -- -- -- -- 2,953,345
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 8,875,295
========= ========= ========= ========= =========
</TABLE>
3. BUSINESS COMBINATIONS
During May and June 1997, the Company acquired the Acquired Companies for an
aggregate consideration of approximately $21,310,000. This consisted of
$7,705,000 in cash and payables to the former shareholders of the Acquired
Companies, and 2,248,000 and 1,110,019 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-37
<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-38
<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-39
<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-40
<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 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-41
<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 Loss:
As Reported...................................................... $(5,824,682)
Pro forma........................................................ $(5,853,682)
Net Loss Per Share:
As Reported...................................................... $ (0.66)
Pro forma........................................................ $ (0.66)
</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-42
<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 (benefit) at
statutory rate............ $577,906 $1,288,538 $1,328,635 $(1,708,392)
Increase (decrease)
resulting from:
State income taxes, net
of federal benefit...... 406,560 354,061 253,663 78,210
Compensation expense from
reverse acquisition..... -- -- -- 2,372,622
Other.................... (73,802) 8,357 (10,618) 57,560
-------- ---------- ---------- -----------
$910,664 $1,650,956 $1,571,680 $ 800,000
======== ========== ========== ===========
</TABLE>
F-43
<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-44
<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 various legal actions. 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 13 companies with
combined annual revenues of approximately $168.7 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-45
<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, except for Note 11, as to which the date is August 18, 1997
F-46
<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-47
<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-48
<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-49
<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-50
<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 exclude MMR, include only the
operations of MMI to be acquired in the merger and have been prepared on the
basis that the distribution of the net assets of MMR had been completed as of
December 31, 1993. Therefore, these financial statements do not include any of
the net assets or operations of MMR for the periods presented which were
included in previously issued financial statements of MMI. Effects of
adjustments related to the unconsolidated affiliate have been shown as a
reduction in shareholders' equity for each of the years presented.
The following provides summary financial information of MMI, including MMR,
as presented in previously issued financial statements:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $42,806,970 $50,371,690 $71,597,840 $38,979,761 $41,972,630
Income from operations.. 816,888 1,007,683 1,238,957 395,035 1,605,945
Net income.............. 322,226 388,738 384,718 113,768 963,965
Total assets............ 15,213,014 19,318,982 20,828,390
Net assets.............. 3,317,211 3,794,995 4,822,554
</TABLE>
MMR is a separate operating entity with separate facilities and management.
Following is a summary of the net assets of MMR as of June 30, 1997 which will
be distributed to shareholders (unaudited):
<TABLE>
<S> <C>
Receivables...................................................... $ 726,675
Inventories...................................................... 230,574
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... 102,038
Property and equipment........................................... 189,649
Other assets..................................................... 15,881
Accounts payable................................................. (230,250)
Accrued expenses................................................. (185,587)
Due to MMI....................................................... (388,000)
---------
Net assets..................................................... $ 460,980
=========
</TABLE>
F-51
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-52
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-53
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
F-54
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-55
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
F-56
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
11. COMMITMENTS
The Company conducts its operation from facilities which are leased from an
affiliated entity. The lease was amended on August 18, 1997 resulting in
increased rental payments which now expire July 2007. The lease modifications
are reflected in the schedule below. 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...................................... $ 418,000 $ 511,000 $ 929,000
1999...................................... 475,000 467,000 942,000
2000...................................... 475,000 350,000 825,000
2001...................................... 475,000 211,000 686,000
2002...................................... 475,000 59,000 534,000
Thereafter................................. 2,177,000 -- 2,177,000
---------- ---------- ----------
$4,495,000 $1,598,000 $6,093,000
========== ========== ==========
</TABLE>
F-57
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense under operating leases:
<TABLE>
<CAPTION>
YEARS ENDING RELATED
DECEMBER 31, PARTY OTHER TOTAL
------------ -------- -------- --------
<S> <C> <C> <C>
1994............................................ $380,000 $368,000 $748,000
1995............................................ 380,000 521,000 901,000
1996............................................ 380,000 582,000 962,000
<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 11, 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.
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.
F-58
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-59
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
A-ABC Appliance, Inc. and
A-1 Appliance & Air Conditioning, Inc.:
We have audited the accompanying combined balance sheets of A-ABC Appliance,
Inc. and A-1 Appliance & 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 & 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-83
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & 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-84
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & 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-85
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & 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-86
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & 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-87
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
A-ABC Appliance, Inc. (A-ABC) and A-1 Appliance & 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-88
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & 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-89
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & 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 & Air Conditioning, 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-90
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & 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-91
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE & 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-92
<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-93
<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-94
<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-95
<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-96
<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-97
<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-98
<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-99
<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-100
<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-101
<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-102
<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-103
<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-104
<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-105
<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-106
<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-107
<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-108
<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-109
<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-110
<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-111
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Central Carolina Air Conditioning Company:
We have audited the accompanying balance sheets of Central Carolina Air
Conditioning Company (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 Company 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-112
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
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-113
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
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-114
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
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-115
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
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-116
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Central Carolina Air Conditioning Company (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-117
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
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-118
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
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-119
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
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-120
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING COMPANY
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-121
<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-122
<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-123
<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-124
<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-125
<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-126
<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-127
<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-128
<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-129
<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-130
<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-131
<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-132
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sibley Services, Incorporated:
We have audited the accompanying balance sheets of Sibley Services,
Incorporated (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,
Incorporated 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-133
<PAGE>
SIBLEY SERVICES, INCORPORATED
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-134
<PAGE>
SIBLEY SERVICES, INCORPORATED
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-135
<PAGE>
SIBLEY SERVICES, INCORPORATED
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-136
<PAGE>
SIBLEY SERVICES, INCORPORATED
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-137
<PAGE>
SIBLEY SERVICES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Sibley Services, Incorporated (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-138
<PAGE>
SIBLEY SERVICES, INCORPORATED
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-139
<PAGE>
SIBLEY SERVICES, INCORPORATED
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-140
<PAGE>
SIBLEY SERVICES, INCORPORATED
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-141
<PAGE>
SIBLEY SERVICES, INCORPORATED
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, Incorporated 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-142
<PAGE>
SIBLEY SERVICES, INCORPORATED
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-143
<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-144
<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-145
<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-146
<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-147
<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-148
<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-149
<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-150
<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-151
<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-152
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Willis Refrigeration, Air Conditioning & Heating, Inc.:
We have audited the accompanying balance sheets of Willis Refrigeration, Air
Conditioning & Heating, 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, Air
Conditioning & Heating, 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-153
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, 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-154
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, 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-155
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, 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-156
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, 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-157
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Willis Refrigeration, Air Conditioning & Heating, 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-158
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, 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-159
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, 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-160
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, 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-161
<PAGE>
WILLIS REFRIGERATION, AIR CONDITIONING & HEATING, 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-162
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Yale Incorporated
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 Incorporated 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-163
<PAGE>
YALE INCORPORATED
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-164
<PAGE>
YALE INCORPORATED
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-165
<PAGE>
YALE INCORPORATED
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-166
<PAGE>
YALE INCORPORATED
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-167
<PAGE>
YALE INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Yale Incorporated (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-168
<PAGE>
YALE INCORPORATED
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-169
<PAGE>
YALE INCORPORATED
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-170
<PAGE>
YALE INCORPORATED
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-171
<PAGE>
YALE INCORPORATED
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-172
<PAGE>
[The inside back cover of the Prospectus contains a collage of nine
photographs. The photographs are in color and depict the following: a worker
with a clip board standing next to the open driver's door of an Airtron panel
truck, MacDonald-Miller workers in a classroom receiving instructions, a
Jarrell Plumbing six-wheel service truck, Linford employees discussing a
project at the rear of a panel truck, employees making a house call at a
residence, a worker unloading a step ladder from an All Service Electric panel
truck in front of a commercial building, a technician working on an electric
oven installation, a Paul E. Smith Company employee in a panel truck, and a
dispatcher working in front of a keyboard and color monitor.]
<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............................................................... 16
Use of Proceeds........................................................... 17
Capitalization............................................................ 18
Dividend Policy........................................................... 18
Dilution.................................................................. 19
Selected Historical and Pro Forma Financial Data.......................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 40
Management................................................................ 51
Related Party Transactions................................................ 59
Security Ownership of Certain Beneficial Owners and Management............ 61
The Acquisitions.......................................................... 63
Description of Capital Stock.............................................. 64
Description of Bank Credit Agreement...................................... 66
Shares Eligible for Future Sale........................................... 68
Underwriting.............................................................. 71
Legal Matters............................................................. 72
Experts................................................................... 72
Available Information..................................................... 73
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 MAINTENANCE APPEARS HERE]
GROUP MAINTENANCE AMERICA CORP.
COMMON STOCK
----------------
PROSPECTUS
----------------
THE ROBINSON-HUMPHREY COMPANY
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............................................... 13,748
NYSE listing fee.............................................. 116,391
Printing and Engraving expenses............................... 225,000
Legal fees and expenses....................................... 1,700,000
Accounting fees and expenses.................................. 2,000,000
Blue sky fees and expenses.................................... 2,000
Transfer Agent's and Registrar's fees......................... 12,000
Miscellaneous................................................. 390,716
----------
TOTAL....................................................... $4,500,000
==========
</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 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.
II-1
<PAGE>
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 (225,000 shares to Mr.
Reiling and 17,000 shares to certain designees named by Mr. Reiling), J.
Patrick Millinor (220,000 shares), Jr., Richard S. Rouse (112,600 shares to
Mr. Rouse and 21,400 shares to certain designees named by Mr. Rouse), Chester
J. Jachimiec (132,000 shares to Mr. Jachimiec, including 16,000 shares held in
each of the Paula Ann Jachimiec Trust and the Sarah Elizabeth Jachimiec Trust,
of which Mr. Jachimiec is the trustee, and 2,000 shares to a designee named by
Mr. Jachimiec), Edward J. Hoffer (107,200 shares), James Ford (100,000 shares)
and Darren B. Miller (40,000 shares)) 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 B. 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 all of such shares for an aggregate of
$8,000,000. On that same day, the Company granted options to purchase shares
of Common Stock as follows: 50,000 share to Mr. Millinor (of which 16,667 will
vest on December 31, 1997); 46,000 shares to Mr. Jachimiec (of which 15,333
shares will vest on December 31, 1997); 40,000 shares to Mr. Rouse (of which
13,333 will vest on December 31, 1997); and 145,600 shares to nine other
individuals (of which 55,199 shares will vest on or before December 31, 1997).
Such options were issued for services rendered pursuant to employment
agreements and have an exercise price of $3.08. 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
II-2
<PAGE>
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 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
2,783,195 shares of Common Stock in connection with the acquisitions of the
Offering Acquisition Companies, Costner and Way Residential (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 legality of the
Common Stock being offered.
10.1* Form of Stock Awards Plan.
10.2* Form of Option Agreement for Stock Awards Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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. (Confidential information has
been omitted from this document and has been filed separately with the
Commission.)
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.
(Confidential information has been omitted from this document and has
been filed separately with the Commission.)
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. (Confidential information has
been omitted from this document and has been filed separately with the
Commission.)
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. (Confidential information has
been omitted from this document and has been filed separately with the
Commission.)
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. (Confidential information has been
omitted from this document and has been filed separately with the
Commission.)
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. (Confidential information has
been omitted from this document and has been filed separately with the
Commission.)
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. (Confidential information has been omitted from this document
and has been filed separately with the Commission.)
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. (Confidential information has
been omitted from this document and has been filed separately with the
Commission.)
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.
(Confidential information has been omitted from this document and has
been filed separately with the Commission.)
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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.
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.
10.35 Subscription Agreement between the Company and Gordon Cain.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.36 Airtron, Inc. 1997 Corporate Staff Bonus Plan.
10.37* Credit Agreement by and among Group Maintenance America Corp., the
Subsidiaries listed as guarantors, Texas Commerce Bank National
Association and the signatory banks, dated as of May 2, 1997, as
amended by the Amendment and Waiver of Credit Agreement by and among
Group Maintenance America Corp., Texas Commerce Bank National
Association and the signatory banks, dated as of July 14, 1997.
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>
- --------
* Filed herewith.
** To be filed by amendment.
(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 OCTOBER 10, 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 OCTOBER 10, 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>
EXHIBIT 4.1
TEMPORARY CERTIFICATE EXCHANGEABLE FOR DEFINITIVE ENGRAVED
CERTIFICATE WHEN READY FOR DELIVERY.
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
PAR VALUE $.001 PAR VALUE $.001
NUMBER SHARES
[ ] [ ]
INCORPORATED UNDER THE LAWS THIS CERTIFICATE IS TRANSFERABLE
OF THE STATE OF TEXAS IN NEW YORK, N.Y.
GROUPMAC(TM)
GROUP MAINTENANCE AMERICA CORP.
CUSIP 39943E 10 7
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF
Group Maintenance America Corp. (the "Company"), transferable on the books of
the Company by the holder hereof in person, or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Company and the
facsimile signatures of its duly authorized representatives.
CERTIFICATE OF STOCK
[GROUP MAINTENANCE AMERICA CORP. CERTIFICATION SEAL APPEARS HERE]
/s/ D.L. LUKE Countersigned and Registered:
President CHASEMELLON SHAREHOLDER SERVICES, LLC.
Transfer Agent
/s/ RANDOLPH W. BRYANT and Registrar
Corporate Secretary By
Authorized Signature
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
THE ARTICLES OF INCORPORATION OF THE CORPORATION STATE, IN PART, "SHARES OF
STOCK OF THE CORPORATION DO NOT CARRY PREEMPTIVE RIGHTS."
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 THE CORPORATION WILL FURNISH A COPY OF EACH SUCH STATEMENT TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON WRITTEN REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE (1) A
STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS, OF
THE SHARES OF EACH CLASS OR SERIES OF THE CORPORATION'S CAPITAL STOCK TO THE
EXTENT THAT THEY HAVE BEEN FIXED AND DETERMINED AND (2) A STATEMENT OF THE
AUTHORITY OF THE BOARD OF DIRECTORS OF THE CORPORATION TO FIX AND DETERMINE THE
DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS, INCLUDING VOTING
RIGHTS, OF ANY SERIES OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -- Custodian
------------------- ------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------------------
(State)
UNIF TRF MIN ACT -- Custodian (until age )
------------------- ______
(Cust)
---------------------- under Uniform Transfers
(Minor)
to Minors Act
----------------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
-----------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- ------------------------------------------------------------------------------
shares of Common Stock
- ------------------------------------------------------------------------------
represented by the within certificate, and do hereby irrevocably constitute and
appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said shares on the books of the within-named Company with full
power of substitution in the premises.
Dated,
-------------------------
X
-----------------------------------
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFI-
CATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
X
-----------------------------------
(SIGNATURE)
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN "ELIGIBLE GUARANTOR INSTITUTION" AS
DEFINED IN RULE 174Ad-15 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
----------------------------------------
SIGNATURE(S) GUARANTEED BY
<PAGE>
EXHIBIT 10.1
GROUP MAINTENANCE AMERICA CORP.
1997 STOCK AWARDS PLAN
1. PURPOSE. The purpose of the GROUP MAINTENANCE AMERICA CORP. 1997
STOCK AWARDS PLAN (The "Plan") is to provide a means through which GROUP
MAINTENANCE AMERICA CORP., a Texas corporation (the "Company"), and its
subsidiaries, may attract, retain and motivate key employees, directors and
persons affiliated with the Company and to provide a means whereby such persons
can acquire and maintain stock ownership, thereby strengthening their concern
for the welfare of the Company. A further purpose of the Plan is to provide
such participants with additional incentive and reward opportunities designed to
enhance the profitable growth and increase shareholder value of the Company.
Accordingly, the Plan provides for granting Incentive Stock Options, options
that do not constitute Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock Awards, Performance Awards, Phantom Stock Awards, or any
combination of the foregoing, as is best suited to the particular circumstances
as provided herein.
2. DEFINITIONS. The following definitions shall be applicable throughout
the Plan unless specifically modified by any paragraph:
(a) "Affiliates" means any "parent corporation" of the Company and any
"subsidiary" of the Company within the meaning of Code Sections 424(e) and
(f), respectively, and any entity which directly or indirectly through one
or more intermediaries controls, is controlled by, or is under common
control with the Company.
(b) "Award" means, individually or collectively, any Option,
Restricted Stock Award, Phantom Stock Award, Performance Award or Stock
Appreciation Right.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of
an entity other than a previously wholly-owned subsidiary of the Company),
(ii) the Company sells, leases or exchanges all or substantially all of its
assets to any other person or entity (other than a wholly-owned subsidiary
of the Company), (iii) the Company is to be dissolved and liquidated, (iv)
any person or entity, including a "group" as contemplated by Section
13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power),
or (v)
______________________________
1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such
election shall cease to constitute a majority of the Board.
(e) "Change of Control Value" shall mean (i) the per share price
offered to stockholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price
per share offered to stockholders of the Company in any tender offer or
exchange offer whereby a Change of Control takes place, or (iii) if such
Change of Control occurs other than pursuant to a tender or exchange offer,
the Fair Market Value per share of the shares into which Awards are
exercisable, as determined by the Committee, whichever is applicable. In
the event that the consideration offered to stockholders of the Company
consists of anything other than cash, the Committee shall determine the
fair cash equivalent of the portion of the consideration offered which is
other than cash.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include
any amendments or successor provisions to any section and any regulations
under such section.
(g) "Committee" means the Compensation Committee of the Board which
shall be constituted solely of "outside directors," within the meaning of
Section 162(m) of the Code and applicable interpretive authority
thereunder.
(h) "Company" means Group Maintenance America Corp.
(i) "Director" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law
who is serving on the Board on the date the Plan is adopted by the Board or
is elected to the Board after such date.
(j) An "employee" means any person (including an officer or a
Director) in an employment relationship with the Company or any parent or
subsidiary corporation (as defined in Section 424 of the Code).
(k) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means, as of any specified date, the mean of
the high and low sales prices of the Stock (i) reported by any interdealer
quotation system on which the Stock is quoted on that date or (ii) if the
Stock is listed on a national stock exchange, reported on the stock
exchange composite tape on that date; or, in either case, if no prices are
reported on that date, on the last preceding date
-2-
______________________________
1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
on which such prices of the Stock are so reported. If the Stock is traded
over the counter at the time a determination of its Fair Market Value is
required to be made hereunder, its fair market value shall be deemed to be
equal to the average between the reported high and low or closing bid and
asked prices of Stock on the most recent date on which Stock was publicly
traded. In the event Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee in
such manner as it deems appropriate.
(m) "Holder" means an employee who has been granted an Award.
(n) "Incentive Stock Option" means an incentive stock option within
the meaning of Section 422(b) of the Code.
(o) "Nonqualified Stock Option" means an option granted under Section
7 of the Plan to purchase Stock that does not constitute an Incentive Stock
Option.
(p) "Option" means an Award granted under Section 7 of the Plan and
includes both Incentive Stock Options to purchase Stock and Nonqualified
Stock Options to purchase Stock.
(q) "Option Agreement" means a written agreement between the Company
and a Holder with respect to an Option.
(r) "Participant" means individually or collectively, an employee,
member of the Board of Directors or consultant of the Company or any of its
Affiliates, who participates in the Plan.
(s) "Performance Award" means an Award granted under Section 10 of the
Plan.
(t) "Performance Award Agreement" means a written agreement between
the Company and a Holder with respect to a Performance Award.
(u) "Phantom Stock Award" means an Award granted under Section 11 of
the Plan.
(v) "Phantom Stock Award Agreement" means a written agreement between
the Company and a Holder with respect to a Phantom Stock Award.
(w) "Reload Option" means the grant of a new Option to a Holder who
exercises an Option(s) as provided in Section 7(f) of the Plan.
-3-
______________________________
1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
(x) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(y) "Restricted Stock Award" means an Award granted under Section 9 of
the Plan.
(z) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the 1934 Act, as such may be amended from time to
time, and any successor rule, regulation or statute fulfilling the same or
a similar function.
(aa)"Spread" means, in the case of a Stock Appreciation Right, an
amount equal to the excess, if any, of the Fair Market Value of a share of
Stock on the date such right is exercised over the price designated in such
Stock Appreciation Right.
(bb)"Stock" means the common stock par value, $.001 per share, of the
Company.
(cc)"Stock Appreciation Right" means an Award granted under Section 8
of the Plan.
(dd)"Stock Appreciation Rights Agreement" means a written agreement
between the Company and a Holder with respect to an Award of Stock
Appreciation Rights.
3. EFFECTIVE DATE AND TERM. The Plan shall be effective upon the date of
its adoption by the Board, provided that the Plan has been or is approved by the
stockholders of the Company within twelve months of its adoption by the Board.
No further Awards may be granted under the Plan after June 30, 2007. The Plan
shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.
4. ADMINISTRATION. The Plan shall be administered by the Board or by the
Committee as authorized by the Board (hereinafter where the term "Committee" is
used "Board" shall be substituted, if no Committee has been established).
Subject to the provisions of the Plan, the Committee shall have sole authority,
in its discretion, to determine which Participant shall receive an Award, the
time or times when such Award shall be made, whether an Incentive Stock Option,
Nonqualified Option or Stock Appreciation Right shall be granted, the number of
shares of Stock which may be issued under each Option, Stock Appreciation Right
or Restricted Stock Award, and the value of each Performance Award and Phantom
Stock Award. In making such determinations the Committee may take into account
the nature of the services rendered by the respective Participants, their
present and potential contributions to the Company's success and such other
factors as the Committee in its discretion shall deem relevant. The Committee
shall have such
-4-
______________________________
1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
additional powers as are delegated to it by the other provisions of the Plan.
Subject to the express provisions of the Plan, the Committee is authorized to
construe the Plan and the respective agreements executed thereunder, to
prescribe such rules and regulations relating to the Plan as it may deem
advisable to carry out the Plan, and to determine the terms, restrictions and
provisions of each Award, including such terms, restrictions and provisions as
shall be requisite in the judgment of the Committee to cause designated Options
to qualify as Incentive Stock Options, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in any agreement
relating to an Award in the manner and to the extent it shall deem expedient to
carry it into effect. The determinations of the Committee on the matters
referred to in this Section 4 shall be conclusive.
5. SHARES SUBJECT TO THE PLAN. Subject to Section 12, the aggregate
number of shares of Stock that may be issued under the Plan shall not exceed 9%
of the aggregate number of shares of common stock issued and outstanding at the
end of each fiscal quarter during the term of the Plan; provided, however, the
maximum number of shares for which Incentive Stock Options may be granted shall
be _____ shares. The Stock to be offered pursuant to the grant of an Award may
be authorized but unissued Stock or Stock previously issued and outstanding and
reacquired by the Company. Shares of Stock shall be deemed to have been issued
under the Plan only to the extent actually issued and delivered pursuant to an
Award. To the extent that an Award lapses or the rights of its Holder terminate
or the Award is paid in cash, any shares of Stock subject to such Award shall
again be available for the grant of an Award. Separate stock certificates shall
be issued by the Company for those shares acquired pursuant to the exercise of
an Incentive Stock Option and for those shares acquired pursuant to the exercise
of a Nonqualified Stock Option.
6. ELIGIBILITY. Awards may be granted only to persons who, at the time
of grant, are employees, members of the Board or consultants of the Company or
any of its Affiliates. An Award may be granted on more than one occasion to the
same person, and, subject to the limitations set forth in the Plan, such Award
may include an Incentive Stock Option or a Nonqualified Stock Option, a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award, a Phantom
Stock Award or any combination thereof.
7. STOCK OPTIONS.
(a) Option Period. The term of each Option shall be as specified by
the Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable
in whole or in such installments and at such times as determined by the
Committee.
(c) Special Limitations on Incentive Stock Options. Incentive Stock
Options may only be granted to key management employees of the Company and
its Affiliates. To the extent that the aggregate Fair Market Value
(determined at the time the respective Incentive Stock Option is granted)
of Stock with respect to which
-5-
______________________________
1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year (under all "incentive stock option" plans of the
Company and its parent and subsidiary corporations) exceeds $100,000, such
Incentive Stock Options shall be treated as Nonqualified Stock Options as
determined by the Committee. The Committee shall determine, in accordance
with applicable provisions of the Code, Treasury Regulations and other
administrative pronouncements, which of an optionee's Incentive Stock
Options will not constitute Incentive Stock Options because of such
limitation and shall notify the optionee of such determination as soon as
practicable after such determination. No Incentive Stock Option shall be
granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of Section 422(b)(6) of the Code, unless
(i) at the time such Option is granted the option price is at least 110% of
the Fair Market Value of the Stock subject to the Option and (ii) such
Option by its terms is not exercisable after the expiration of five years
from the date of grant.
(d) Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with
the provisions of the Plan as the Committee from time to time shall
approve, including, without limitation, provisions to qualify an Incentive
Stock Option under Section 422 of the Code. An Option Agreement may
provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Stock (plus cash if necessary) having a
Fair Market Value equal to such option price. Payment in full or in part
may also be made by reduction in the number of shares of Stock issuable
upon the exercise of an Option, based on the Fair Market Value of the
shares of Stock on the date the Option is exercised. Each Option Agreement
shall provide that the Option may not be exercised earlier than six months
from the date of grant and shall specify the effect of termination of
employment or service on the exercisability of the Option. Moreover, an
Option Agreement may provide for a "cashless exercise" of the Option by
establishing procedures whereby the Holder, by a properly-executed written
notice, directs (i) an immediate market sale or margin loan respecting all
or a part of the shares of Stock to which he is entitled upon exercise
pursuant to an extension of credit by the Company to the Holder of the
option price, (ii) the delivery of the shares of Stock from the Company
directly to a brokerage firm and (iii) the delivery of the option price
from the sale or margin loan proceeds from the brokerage firm directly to
the Company. Such Option Agreement may also include, without limitation,
provisions relating to (i) vesting of Options, subject to the provisions
hereof accelerating such vesting on a Change of Control, (ii) tax matters
(including provisions (y) permitting the delivery of additional shares of
Stock or the withholding of shares of Stock from those acquired upon
exercise to satisfy federal or state income tax withholding requirements
and (z) dealing with any other applicable employee wage withholding
requirements), and (iii) any other
-6-
______________________________
1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
matters not inconsistent with the terms and provisions of this Plan that
the Committee shall in its sole discretion determine. The terms and
conditions of the respective Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Stock may
be purchased upon exercise of an Option shall be determined by the
Committee, but such purchase price shall not be less than the Fair Market
Value of Stock subject to an Option on the date the Option is granted and
(ii) such purchase price shall be subject to adjustment as provided in
Section 12. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of
the Option or portion thereof shall be paid in full in the manner
prescribed by the Committee.
(f) Reload Options. The Committee shall have the authority to and, in
its sole discretion may, specify at or after the time of grant of a Non-
Qualified Stock Option, that a Holder shall be automatically granted a
Reload Option in the event such Holder exercises all or part of an original
option ("Original Option") within five years of the date of grant of the
Original Option, by means of, in accordance with Section 7(d) of this Plan,
(i) a cashless exercise, (ii) a reduction in the number of shares of Stock
issuable upon such exercise sufficient to pay the purchase price and the
applicable withholding taxes, based on the Fair Market Value of the shares
of Stock on the date the Option is exercised, or (iii) surrendering to the
Company already owned shares of Stock in full or partial payment of the
purchase price under the Original Option and the applicable withholding
taxes. The grant of Reload Options shall be subject to the availability
of shares of Stock under this Plan at the time of exercise of the Original
Option and to the limits provided for in Section 5 of this Plan. The
Committee shall have the authority to determine the terms of any Reload
Options granted.
(g) Stockholder Rights and Privileges. The Holder shall be entitled
to all the privileges and rights of the stockholder only with respect to
such shares of Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Holder's name.
(h) Options and Rights in Substitution for Stock Options Granted by
Other Corporations. Options and Stock Appreciation Rights may be granted
under the Plan from time to time in substitution for stock options held by
individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company or
any subsidiary, or the acquisition by the Company or a subsidiary of the
assets of the employing corporation, or the acquisition by the Company or a
subsidiary of stock of the employing corporation with the result that such
employing corporation becomes a subsidiary.
-7-
______________________________
1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
8. STOCK APPRECIATION RIGHTS.
(a) Stock Appreciation Rights. A Stock Appreciation Right is the
right to receive an amount equal to the Spread with respect to a share of
Stock upon the exercise of such Stock Appreciation Right. Stock
Appreciation Rights may be granted in connection with the grant of an
Option, in which case the Option Agreement will provide that the Stock
Appreciation Right shall be cancelled when and to the extent the related
Option is exercised and that exercise of Stock Appreciation Rights will
result in the surrender of the right to purchase the shares under the
Option as to which the Stock Appreciation Rights were exercised.
Alternatively, Stock Appreciation Rights may be granted independently of
Options in which case each Award of Stock Appreciation Rights shall be
evidenced by a Stock Appreciation Rights Agreement which shall contain such
terms and conditions as may be approved by the Committee. The Spread with
respect to a Stock Appreciation Right may be payable either in cash, shares
of Stock with a Fair Market Value equal to the Spread or in a combination
of cash and shares of Stock. With respect to Stock Appreciation Rights that
are subject to Section 16 of the 1934 Act, however, the Committee shall,
except as provided in Section 12(c), retain sole discretion (i) to
determine the form in which payment of the Stock Appreciation Right will be
made (i.e., cash, securities or combination thereof) or (ii) to approve an
election by a Holder to receive cash in full or partial settlement of Stock
Appreciation Rights. Each Stock Appreciation Rights Agreement shall
provide that the Stock Appreciation Rights may not be exercised earlier
than six months from the date of grant and shall specify the effect of
termination of employment on the exercisability of the Stock Appreciation
Rights.
(b) Other Terms and Conditions. At the time of such Award, the
Committee, may in its sole discretion, prescribe additional terms,
conditions or restrictions relating to Stock Appreciation Rights, including
but not limited to rules pertaining to termination of employment (by
retirement, disability, death or otherwise) or termination of service of a
Holder prior to the expiration of such Stock Appreciation Rights. Such
additional terms, conditions or restrictions shall be set forth in the
Stock Appreciation Rights Agreement made in conjunction with the Award.
Such Stock Appreciation Rights Agreements may also include, without
limitation, provisions relating to (i) vesting of Awards, subject to the
provisions hereof accelerating vesting on a Change of Control, (ii) tax
matters (including provisions covering applicable wage withholding
requirements), and (iii) any other matters not inconsistent with the terms
and provisions of this Plan, that the Committee shall in its sole
discretion determine. The terms and conditions of the respective
Appreciation Rights Agreements need not be identical.
-8-
______________________________
1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
(c) Award Price. The award price of each Stock Appreciation Right
shall be determined by the Committee, but such award price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be
required if such Stock Appreciation Right is granted in connection with an
Incentive Stock Option that must have an exercise price equal to 110% of
the Fair Market Value of the Stock on the date of grant pursuant to Section
7(c)), and (ii) shall be subject to adjustment as provided in Section 12.
(d) Exercise Period. The term of each Stock Appreciation Right shall
be as specified by the Committee at the date of grant.
(e) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments
and at such times as determined by the Committee.
9. RESTRICTED STOCK AWARDS.
(a) Forfeiture Restrictions to be Established by the Committee.
Shares of Stock that are the subject of a Restricted Stock Award shall be
subject to restrictions on disposition by the Holder and an obligation of
the Holder to forfeit and surrender the shares to the Company under certain
circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions
shall be determined by the Committee in its sole discretion, and the
Committee may provide that the Forfeiture Restrictions shall lapse upon (i)
the attainment of business objectives established by the Committee that are
based on (1) the price of a share of Stock, (2) the Company's earnings per
share, (3) the Company's revenue, (4) the revenue of a business unit of the
Company designated by the Committee, (5) the return on stockholders' equity
achieved by the Company, (6) the Company's pre-tax cash flow from
operations, or (7) similar criteria established by the Committee, (ii) the
Holder's continued employment with the Company for a specified period of
time, or (iii) other measurements of individual, business unit or Company
performance. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the discretion of the Committee. The Forfeiture
Restrictions applicable to a particular Restricted Stock Award shall not be
changed except as permitted by Section 9(b) or Section 12.
(b) Other Terms and Conditions. Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate
registered in the name of the Holder of such Restricted Stock Award. The
Holder shall have the right to receive dividends with respect to Stock
subject to a Restricted Stock Award, to vote Stock subject thereto and to
enjoy all other stockholder rights, except that (i) the Holder shall not be
entitled to delivery of the stock certificate until the Forfeiture
Restrictions shall have expired, (ii) the Company shall retain custody of
the Stock
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1997 Stock Awards Plan - Group
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<PAGE>
until the Forfeiture Restrictions shall have expired, (iii) the Holder may
not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of
the Stock until the Forfeiture Restrictions shall have expired, and (iv) a
breach of the terms and conditions established by the Committee pursuant to
the Restricted Stock Agreement, shall cause a forfeiture of the Restricted
Stock Award. At the time of such Award, the Committee may, in its sole
discretion, prescribe additional terms, conditions or restrictions relating
to Restricted Stock Awards, including, but not limited to, rules pertaining
to the termination of employment (by retirement, disability, death or
otherwise) or termination of service of a Holder prior to expiration of the
Forfeiture Restrictions. Such additional terms, conditions or restrictions
shall be set forth in a Restricted Stock Agreement made in conjunction with
the Award. Such Restricted Stock Agreement may also include, without
limitation, provisions relating to (i) subject to the provisions hereof
accelerating vesting on a Change of Control, vesting of Awards, (ii) tax
matters (including provisions (y) covering any applicable employee wage
withholding requirements and (z) prohibiting an election by the Holder
under Section 83(b) of the Code), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee
shall in its sole discretion determine. The terms and conditions of the
respective Restricted Stock Agreements need not be identical.
(c) Payment for Restricted Stock. The Committee shall determine the
amount and form of any payment for Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a Holder
shall not be required to make any payment for Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
(d) Agreements. At the time any Award is made under this Section 9,
the Company and the Holder shall enter into a Restricted Stock Agreement
setting forth each of the matters as the Committee may determine to be
appropriate. The terms and provisions of the respective Restricted Stock
Agreements need not be identical.
10. PERFORMANCE AWARDS.
(a) Performance Period. The Committee shall establish, with respect
to and at the time of each Performance Award, a performance period over
which the performance of the Holder shall be measured.
(b) Performance Awards. Each Performance Award shall have a maximum
value established by the Committee at the time of such Award.
(c) Performance Measures. A Performance Award shall be awarded to a
Participant contingent upon future performance of the Participant, the
Company or any subsidiary, division or department thereof by or in which he
is employed during
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Maintenance America Corp.
<PAGE>
the performance period. The Committee shall 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
shall deem appropriate to reflect significant, unforeseen events or
changes.
(d) Awards Criteria. In determining the value of Performance Awards,
the Committee shall take into account a Participant's responsibility level,
performance, potential, other Awards and such other considerations as it
deems appropriate.
(e) Payment. Following the end of the performance period, the Holder
of a Performance Award shall be entitled to receive payment of an amount,
not exceeding the maximum value of the Performance Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. Payment of a Performance Award may be made in
cash, Stock or a combination thereof, as determined by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee. Any payment to be made in Stock shall be based on the Fair
Market Value of the Stock on the payment date. If a payment of cash is to
be made on a deferred basis, the Committee shall establish whether interest
shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
(f) Termination of Employment or Service. A Performance Award shall
terminate if the Holder does not remain continuously in the employ or
service of the Company at all times during the applicable performance
period, except as may be determined by the Committee or as may otherwise be
provided in the Award at the time granted.
(g) Agreements. At the time any Award is made under this Section 10,
the Company and the Holder shall enter into a Performance Award Agreement
setting forth each of the matters contemplated hereby and such matters
described in Section 9(b) as the Committee may determine to be appropriate.
The terms and provisions of the respective agreements need not be
identical.
11. PHANTOM STOCK AWARDS.
(a) Phantom Stock Awards. Phantom Stock Awards are rights to receive
an amount equal to the Fair Market Value of Stock over a specified period
of time, which vest over a period of time or upon the occurrence of an
event (including without limitation a Change of Control) as established by
the Committee, without payment of any amounts by the Holder thereof (except
to the extent otherwise required by law). Each Phantom Stock Award shall
have a maximum value established by the Committee at the time of such
Award.
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<PAGE>
(b) Award Period. The Committee shall establish, with respect to and
at the time of each Phantom Stock Award, a period over which or the event
upon which the Award shall vest with respect to the Holder.
(c) Awards Criteria. In determining the value of Phantom Stock
Awards, the Committee shall take into account a Participant's
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate.
(d) Payment. Following the end of the vesting period for a Phantom
Stock Award, the Holder of a Phantom Stock Award shall be entitled to
receive payment of an amount, not exceeding the maximum value of the
Phantom Stock Award, based on the then vested value of the Award. Payment
of a Phantom Stock Award may be made in cash, Stock or a combination
thereof as determined by the Committee. Payment shall be made in a lump
sum or in installments as prescribed by the Committee in its sole
discretion. Any payment to be made in Stock shall be based on the Fair
Market Value of the Stock on the payment date. Cash dividend equivalents
may be paid during or after the vesting period with respect to a Phantom
Stock Award, as determined by the Committee. If a payment of cash is to be
made on a deferred basis, the Committee shall establish whether interest
shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
(e) Termination of Employment or Service. A Phantom Stock Award shall
terminate if the Holder does not remain continuously in the employ or in
the service of the Company at all times during the applicable vesting
period, except as may be otherwise determined by the Committee or as set
forth in the Award at the time of grant.
(f) Agreements. At the time any Award is made under this Section 11,
the Company and the Holder shall enter into a Phantom Stock Award Agreement
setting forth each of the matters contemplated hereby and such matters
described in Section 9(b) as the Committee may determine to be appropriate.
The terms and provisions of the respective agreements need not be
identical.
12. RECAPITALIZATION AND REORGANIZATION.
(a) The shares with respect to which Awards may be granted are shares
of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Award theretofore granted, the Company shall effect a
subdivision or consolidation by the Company of the shares of Stock, then
the number of shares of Stock with respect to which such Award may
thereafter be exercised or satisfied, as applicable, (i) in the event of an
increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately
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1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
reduced, and (ii) in the event of a reduction in the number of outstanding
shares shall be proportionately reduced, and the purchase price per share
shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of
an Award theretofore granted the Holder shall be entitled to (or entitled
to purchase, if applicable) under such Award, in lieu of the number of
shares of Stock then covered by such Award, the number and class of shares
of stock and securities to which the Holder would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to
such recapitalization, the Holder had been the holder of record of the
number of shares of Stock then covered by such Award.
(c) In the event of a Change of Control, all outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a
Change of Control, each Award other than an Option outstanding hereunder
shall terminate within a specified number of days after notice to the
Holder, and such Holder shall receive, with respect to each share of Stock
subject to such Award, cash in an amount equal to the excess, if any, of
the Change of Control Value. Further, in the event of a Change of Control,
the Committee, in its discretion shall act to effect one or more of the
following alternatives with respect to outstanding Options, which may vary
among individual Holders and which may vary among Options held by any
individual Holder: (i) determine a limited period of time on or before a
specified date (before or after such Change of Control) after which
specified date all unexercised Options and all rights of Holders thereunder
shall terminate, (2) require the mandatory surrender to the Company by
selected Holders of some or all of the outstanding Options held by such
Holders (irrespective of whether such Options are then exercisable under
the provisions of the Plan) as of a date, before or after such Change of
Control, specified by the Committee, in which event the Committee shall
thereupon cancel such Options and the Company shall pay to each Holder an
amount of cash per share equal to the excess, if any, of the Change of
Control Value of the shares subject to such Option over the exercise
price(s) under such Options for such shares, (3) make such adjustments to
Options then outstanding as the Committee deems appropriate to reflect such
Change of Control (provided, however, that the Committee may determine in
its sole discretion that no adjustment is necessary to Options then
outstanding) or (4) provide that thereafter upon any exercise of an Option
theretofore granted the Holder shall be entitled to purchase under such
Option, in lieu of the number of shares of Stock then covered by such
Option the number and class of shares of stock or other securities or
property (including, without limitation, cash) to which the Holder would
have been entitled pursuant to the terms of the agreement of merger,
consolidation or sale of assets and dissolution if, immediately prior to
such merger, consolidation or sale of assets and dissolution
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Maintenance America Corp.
<PAGE>
the Holder has been the holder of record of the number of shares of Stock
then covered by such Option. The provisions contained in this paragraph
shall be inapplicable to an Award granted within six months before the
occurrence of a Change of Control if the Holder of such Award is subject to
the reporting requirements of Section 16(a) of the 1934 Act. The provisions
contained in this paragraph shall not terminate any rights of the Holder to
further payments pursuant to any other agreement with the Company following
a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the
date of the grant of any Award and not otherwise provided for by this
Section 12, any outstanding Awards and any agreements evidencing such
Awards shall be subject to adjustment by the Committee at its discretion as
to the number and price of shares of Stock or other consideration subject
to such Awards. In the event of any such change in the outstanding Stock,
the aggregate number of shares available under the Plan may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall
not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any other
corporate act or proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d)
above shall be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares of obligations of the Company convertible into
such shares or other securities, and in any case whether or not for fair
value, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Stock subject to Awards
theretofore granted or the purchase price per share, if applicable.
13. AMENDMENT AND TERMINATION. The Board in its discretion may terminate
the Plan at any time with respect to any shares for which Awards have not
theretofore been granted. The Board shall have the right to alter or amend the
Plan or any part thereof from time to time; provided that no change in any Award
theretofore granted may be made which would impair the rights of the
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1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
Holder without the consent of the Holder (unless such change is required in
order to cause the benefits under the Plan to qualify as performance-based
compensation within the meaning of Section 162(m) of the Code and applicable
interpretive authority thereunder), and provided, further, that the Board may
not, without approval of the stockholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Section 12;
(b) to change the Option price;
(c) to change the Participants eligible to receive Awards or
materially increase the benefits accruing to Participants under the Plan;
(d) to extend the maximum period during which Awards may be granted
under the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
14. MISCELLANEOUS.
(a) No Right to An Award. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to
give a Participant any right to be granted an Award to purchase Stock, a
right to a Stock Appreciation Right, a Restricted Stock Award, a
Performance Award or a Phantom Stock Award or any of the rights hereunder
except as may be evidenced by an Award or by an Option Agreement, Stock
Appreciation Rights Agreement, Restricted Stock Agreement, Performance
Award Agreement or Phantom Stock Award Agreement on behalf of the Company,
and then only to the extent and on the terms and conditions expressly set
forth therein. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of funds or assets to assure the payment of any Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any Participant any right to continue as an employee
or consultant with the Company or any subsidiary or (ii) interfere in any
way with the right of the Company or any subsidiary to terminate his or her
employment or consulting arrangement at any time.
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1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
(c) Other Laws; Withholding. The Company shall not be obligated to
issue any Stock pursuant to any Award granted under the Plan at any time
when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules or regulations available for
the issuance and sale of such shares. No fractional shares of Stock shall
be delivered, nor shall any cash in lieu of fractional shares be paid. The
Company shall have the right to deduct in connection with all Awards any
taxes required by law to be withheld and to require any payments required
to enable it to satisfy its withholding obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have
an adverse effect on the Plan or any Award made under the Plan. No
Participant, beneficiary or other person shall have any claim against the
Company or any subsidiary as a result of any such action.
(e) Restrictions on Transfer. An Award shall not be transferable
otherwise than by will or the laws of descent and distribution or pursuant
to a "qualified domestic relations order" as defined by the Code or Title I
of the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder, and shall be exercisable during the Holder's lifetime
only by such Holder or the Holder's guardian or legal representative.
(f) Rule 16b-3. It is intended that the Plan and any grant of an
Award made to a person subject to Section 16 of the 1934 Act meet all of
the requirements of Rule 16b-3. If any provision of the Plan or any such
Award would disqualify the Plan or such Award under, or would otherwise not
comply with, Rule 16b-3, such provision or Award shall be construed or
deemed amended to conform to Rule 16b-3.
(g) Section 162(m). If the plan is subject to Section 162(m) of the
Code, it is intended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that Options and Stock
Appreciation Rights granted hereunder and, if determined by the Committee,
Restricted Stock Awards, shall constitute "performance-based" compensation
within the meaning of such section. If any provision of the Plan would
disqualify the Plan or would not otherwise permit the Plan to comply with
Section 162(m) as so intended, such provision shall be construed or deemed
amended to conform to the requirements or provisions of Section 162(m);
provided that no such construction or amendment shall have an
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1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
adverse effect on the economic value to a Holder of any Award previously
granted hereunder.
(h) Governing Law. This Plan shall be construed in accordance with
the laws of the State of Texas.
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1997 Stock Awards Plan - Group
Maintenance America Corp.
<PAGE>
EXHIBIT 10.2
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Option Agreement") is between
Group Maintenance America Corp., a Texas corporation (the "Company"), and
___________________ (the "Optionee").
1. Grant of Option. Subject to the terms and conditions of this
Agreement and the 1997 Stock Awards Plan (the "Plan"), the Company hereby
irrevocably grants to Optionee the right and option ("Option") to purchase from
the Company _________ shares of the Company's common stock, $0.01 par value
("Common Stock"), at a price of $________ per share.
2. Option Period. The Option herein granted may be exercised by Optionee
in whole or in part at any time during a _____ year period (the "Option Period")
beginning on __________ (the "Grant Date") subject to the limitation that said
Option shall be exercisable in increments ratably as set forth in Exhibit A
hereto (the "Vesting Schedule"), determined by the number of full years of
employment with the Company or its Affiliates from the Grant Date, to the date
of such exercise. Notwithstanding anything in this Option Agreement to the
contrary, (i) the vesting schedule is subject to Section 8 herein and (ii) the
Committee, in its sole discretion, may waive the Vesting Schedule and, upon
written notice to the Optionee, accelerate the earliest date or dates on which
any of the Options granted hereunder are exercisable.
3. Procedure of Exercise. The vested portion of the Option may be
exercised by written notice by Optionee to the Secretary of the Company setting
forth the number of shares of Common Stock with respect to which the Option is
to be exercised accompanied by payment for the shares to be purchased, and
specifying the address to which the certificate for such shares is to be mailed.
The notice shall be accompanied by one or a combination of the following payment
methods, equal in value to the aggregate exercise price: (i) cash, cashier's
check, bank draft, or postal or express money order payable to the order of the
Company, (ii) certificates representing shares of Common Stock owned by Optionee
duly endorsed for transfer to the Company, or (iii) a written election by
Optionee to transact a "cashless exercise" as described in Section 7(d) of the
Plan. Notice may also be delivered by facsimile provided that the exercise
price of such shares is received by the Company via wire transfer on the same
day the facsimile transmission is received by the Company. An option to
purchase shares of Common Stock in accordance with this Plan shall be deemed to
have been exercised immediately prior to the close of business on the date (i)
written notice of such exercise and (ii) payment in full of the exercise price
for the number of shares for which Options are being exercised, are both
received by the Company, and Optionee shall be treated for all purposes as the
record holder of such shares of Common Stock as of such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effective for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to Optionee at the address specified pursuant to this Section 3.
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Nonqualified Stock Option Agreement--
Group Maintenance America Corp.
<PAGE>
4. Termination of Employment. If Optionee's employment with the Company
or its Affiliates is terminated during the Option Period for any reason other
than death or disability, Options granted to Optionee which are not exercisable
on such date shall terminate. Any Options which are exercisable on the date of
Optionee's termination of employment shall expire upon the earlier of (i) the
expiration of the remaining term of the Option or (ii) 30 days from the date of
such termination of employment.
5. Death or Disability. If Optionee's employment with the Company or its
Affiliates is terminated by death or disability, all Options hereunder
exercisable at the date of such death or disability shall be thereafter
exercisable by Optionee, his executor or administrator, or the person or persons
to whom his rights under this Option Agreement shall pass by will or by the laws
of descent and distribution, as the case may be, for a period of six months from
the date of Optionee's death or disability, unless this Option Agreement should
earlier terminate in accordance with its other terms. In no event may any
Option be exercised after the end of the Option Period. Optionee shall be
deemed to be disabled if, in the opinion of a physician selected by the
Committee, he or she is incapable of performing services for the Company or its
Affiliates by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of a long, continued and
indefinite duration.
6. Transferability. This Option shall not be transferable by Optionee
otherwise than by Optionee's will or by the laws of descent and distribution.
During the lifetime of Optionee, the Option shall be exercisable only by him.
Any heir or legatee of Optionee shall take rights herein granted subject to the
terms and conditions hereof. No such transfer of this Option Agreement to heirs
or legatees of Optionee shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
7. No Rights as Stockholder. Optionee shall have no rights as a
stockholder with respect to any shares of Common Stock covered by this Option
Agreement until the date of issuance of a certificate for shares of Common Stock
purchased pursuant to this Option Agreement. Until such time, Optionee shall
not be entitled to dividends or to vote at meetings of the stockholders of the
Company. Except as provided in Section 10 hereof, no adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or securities or other
property) paid or distributions or other rights granted in respect of any share
of Common Stock for which the record date for such payment, distribution or
grant is prior to the date upon which the Optionee shall have been issued share
certificates, as provided hereinabove.
8. Change of Control. In the event of a Change of Control (as defined in
the Plan), all outstanding Options, whether exercisable or not, shall
immediately vest and become exercisable. Further, in the event of a Change of
Control, the Committee, in its discretion, shall act to effect one or more of
the alternatives set forth in Section 12(c) of the Plan.
9. Corporate Transactions. If the Company recapitalizes or otherwise
changes its capital structure, or merges, consolidates, sells all of its assets
or dissolves and such transaction is not a
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Nonqualified Stock Option Agreement--
Group Maintenance America Corp.
2
<PAGE>
Change of Control, then thereafter upon any exercise of the Option hereunder,
the Optionee shall be entitled to purchase under the Option, in lieu of the
number of shares of Common Stock covered by this Option then exercisable, the
number and class of shares of stock and securities to which the Optionee would
have been entitled pursuant to the terms of the agreement of merger,
consolidation, sale of assets or dissolution, if, immediately prior to such
agreement of merger, consolidation, sale of assets or dissolution, the Optionee
had been the holder of record of the number of shares of Common Stock as to
which the Option is then exercisable.
10. Changes in Capital Structure. If the outstanding shares of Common
Stock of the Company shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, the
number and kind of shares subject to the Option heretofore granted, and the
Option prices, shall be appropriately and equitably adjusted so as to maintain
the proportionate number of shares without changing the aggregate Option price.
11. Other Corporate Transactions. The existence of outstanding Options
shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issuance of
Common Stock or subscription rights thereto, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceedings, whether of a similar character or otherwise.
In the event of changes in the outstanding Common Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations, or
exchanges or other relative changes in capitalization occurring after the Grant
Date and not otherwise provided for by Sections 8, 9 and 10 above, this Option
shall be subject to adjustment by the Committee at its discretion as to the
number and price of shares of Common Stock or other considerations subject to
this Option.
12. Compliance With Securities Laws. Upon the acquisition of any shares
pursuant to the exercise of the Option herein granted, Optionee (or any person
acting under Section 6) will enter into such written representations, warranties
and agreements as the Company may reasonably request in order to comply with
applicable securities laws or with this Option Agreement.
13. Compliance With Laws. Notwithstanding any of the other provisions
hereof, Optionee agrees that he will not exercise the Option(s) granted hereby,
and that the Company will not be obligated to issue any shares pursuant to this
Option Agreement, if the exercise of the Option(s) or the issuance of such
shares of Common Stock would constitute a violation by the Optionee or by the
Company of any provision of any law or regulation of any governmental authority.
14. Withholding of Tax. To the extent that the exercise of this Option or
the disposition of shares of Common Stock acquired by exercise of this Option
results in compensation income to the Optionee for federal or state income tax
purposes, the Optionee shall pay to the Company at the time of such exercise or
disposition (or such other time as the law permits if the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended) such amount of
money as the
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Nonqualified Stock Option Agreement--
Group Maintenance America Corp.
3
<PAGE>
Company may require to meet its obligation under applicable tax laws or
regulations; and, if the Optionee fails to do so, the Company is authorized to
withhold from any cash remuneration then or thereafter payable to the Optionee
any tax required to be withheld by reason of such resulting compensation income,
or the Company may otherwise refuse to issue or transfer any shares otherwise
required to be issued or transferred pursuant to the terms hereof.
15. Resolution of Disputes. As a condition of the granting of the Option
hereby, the Optionee and his heirs and successors agree that any dispute or
disagreement which may arise hereunder shall be determined by the Committee in
its sole discretion and judgment, and that any such determination and any
interpretation by the Committee of the terms of this Option Agreement shall be
final and shall be binding and conclusive, for all purposes, upon the Company,
Optionee, his heirs and personal representatives.
16. Legends on Certificates. The certificates representing the shares of
Common Stock purchased by exercise of an Option will be stamped or otherwise
imprinted with legends in such form as the Company or its counsel may require
with respect to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer instructions with
respect to such shares.
17. Notices. Every notice hereunder shall be in writing and shall be
given by registered or certified mail. All notices of the exercise of any
Option hereunder shall be directed to the Company at its principal place of
business at Houston, Texas (Attention: Corporate Secretary). Any notice given
by the Company to Optionee directed to him at his address on file with the
Company shall be effective to bind him and any other person who shall acquire
rights hereunder. The Company shall be under no obligation whatsoever to advise
Optionee of the existence, maturity or termination of any of Optionee's rights
hereunder and Optionee shall be deemed to have familiarized himself with all
matters contained herein and in the Plan which may affect any of Optionee's
rights or privileges hereunder.
18. Construction and Interpretation. Whenever the term "Optionee" is used
herein under the circumstances applicable to any other person or persons to whom
this award, in accordance with the provisions of Section 6 hereof, may be
transferred, the term "Optionee" shall be deemed to include such person or
persons. References to the masculine gender herein also include the feminine
gender for all purposes.
19. Agreement Subject to Plan. This Option Agreement is subject to the
Plan. The terms and provisions of the Plan (including any subsequent amendments
thereto) are hereby incorporated herein by reference thereto. In the event of a
conflict between any term or provision contained herein and a term or provision
of the Plan, the applicable terms and provisions of the Plan will govern and
prevail. All definitions of words and terms contained in the Plan shall be
applicable to this Option Agreement.
20. Employment Relationship. Employees shall be considered to be in the
employment of the Company as long as they remain employees of the Company or an
Affiliate. Any questions as to whether and when there has been a termination of
such employment and the cause of such
- -------------------------------------
Nonqualified Stock Option Agreement--
Group Maintenance America Corp.
4
<PAGE>
termination shall be determined by the Committee, and its determination shall be
final. Nothing contained herein shall be construed as conferring upon the
Optionee the right to continue in the employ of the Company, nor shall anything
contained herein be construed or interpreted to limit the "employment at will"
relationship between the Optionee and the Company.
21. Binding Effect. This Option Agreement shall be binding upon and inure
to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee.
IN WITNESS WHEREOF, this Option Agreement has been executed as of the
______ day of _____________, 19___.
GROUP MAINTENANCE AMERICA CORP.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
OPTIONEE
--------------------------------------------
Printed Name:
-------------------------------
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Nonqualified Stock Option Agreement--
Group Maintenance America Corp.
<PAGE>
EXHIBIT A
VESTING SCHEDULE
<TABLE>
<CAPTION>
CONDITIONS TO VESTING AMOUNT EXERCISABLE
<S> <C>
Upon the continuous employment by Optionee Cumulative proportion of the Stock as to all
through the applicable date indicated below: or part of which the Option can be exercised
after satisfaction of the respective conditions
to vesting:
1. January 1, 1998 8.33%
2. April 1, 1998 16.66%
3. July 1, 1998 24.99%
4. October 1, 1998 33.32%
5. January 1, 1999 41.65%
6. April 1, 1999 49.98%
7. July 1, 1999 58.31%
8. October 1, 1999 66.64%
9. January 1, 2000 74.97%
10. April 1, 2000 83.3%
11. July 1, 2000 91.63%
12. October 1, 2000 100%
</TABLE>
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Nonqualified Stock Option Agreement--
Group Maintenance America Corp.
<PAGE>
EXHIBIT 10.19
AGREEMENT AND PLAN OF MERGER
by and among
GROUP MAINTENANCE AMERICA CORP.
LSC ACQUISITION CORP.
LINFORD SERVICE COMPANY
and
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
LINFORD SERVICE COMPANY
August 18,1997
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TABLE OF CONTENTS
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Page
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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 Unanimous Written Consent of the Shareholders; Other Matters....................... 2
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......................................................... 3
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration.................. 3
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.................................. 4
1.9.1 Statement.......................................................................... 4
1.9.2 Review............................................................................. 4
1.9.3 Disputes........................................................................... 4
1.9.4 Resolution by Parties.............................................................. 5
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................................................................................. 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
3.1 Representations and Warranties............................................................ 6
3.1.1 Organization....................................................................... 6
3.1.2 Capitalization of the Parent....................................................... 6
3.1.3 Authority.......................................................................... 7
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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
3.2 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
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 Audit..................................................................................... 11
4.4 Certain Payables and Receivables.......................................................... 11
4.5 Purchase of Certain Receivables.......................................................... 11
4.6 Pre-Closing Covenants and Agreements...................................................... 11
4.7 Confidentiality........................................................................... 11
4.8 Tax-Free Reorganization................................................................... 12
4.9 Company Plans............................................................................. 12
4.10 Employee Options.......................................................................... 12
4.11 Payment of Indebtedness................................................................... 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........................................................... 13
5.1.3 Legal Actions or Proceedings....................................................... 13
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
5.1.11 Financing.......................................................................... 13
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company............... 14
5.2.1 Accuracy of Representations and Warranties......................................... 14
</TABLE>
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5.2.2 Performance of Covenants.......................................................... 14
5.2.3 Approvals......................................................................... 14
5.2.4 Closing Deliveries................................................................ 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 Agreements............................................................. 14
5.3.4 Lease Agreement................................................................... 14
5.3.5 Registration Rights Agreement..................................................... 14
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.................................................. 15
5.4.1 Closing Certificates.............................................................. 15
5.4.2 Registration Rights Agreement..................................................... 15
5.4.3 Opinion of Counsel for the Parent and Merger Sub.................................. 16
5.4.4 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....................................................................... 19
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............................................................ 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
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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............................................................. 22
8.11 Amendments and Waivers................................................................... 22
8.12 No Employee Rights....................................................................... 22
8.13 Non-Recourse............................................................................. 22
8.14 When Effective........................................................................... 22
8.15 Takeover Statutes........................................................................ 22
8.16 Number and Gender of Words............................................................... 22
8.17 Invalid Provisions....................................................................... 22
8.18 Multiple Counterparts.................................................................... 23
8.19 No Rule of Construction.................................................................. 23
8.20 Expenses................................................................................. 23
</TABLE>
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<PAGE>
LIST OF EXHIBITS
<TABLE>
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<S> <C>
Exhibit 1......................................................................... Determination of Final Merger Consideration
Exhibit 1.5.1............................................. Unanimous Written Consent of Shareholders of Linford Service Company
Exhibit 1.5.2..................................................... Written Consent of Sole Shareholder of LSC 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 4.2.......................................................................................... Expenses to be Eliminated
Exhibit 4.6.................................................................................................. Certain Covenants
Exhibit 4.9.................................................................................. Company Plans to Remain in Effect
Exhibit 4.10A........................................................................ Linford Service Company Stock Option Plan
Exhibit 4.10B................................................................................... Employees Eligible For 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 (Almini)
Exhibit 5.3.3B.................................................................................. Employment Agreement (Linford)
Exhibit 5.3.3C................................................................................... Employment Agreement (Larkin)
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
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</TABLE>
<PAGE>
INDEX OF DEFINED TERMS
Accountants................................................. 5
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
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........................................... 18
Indemnifying Party.......................................... 18
IPO......................................................... 1
IPO Price to the Public.................................Exhibit 1
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
Operating EBITDA Amount.................................Exhibit 1
Parent...................................................... 1
Parent Common Stock......................................... 1
Parent Financial Statements................................. 7
Parent Indemnified Parties.................................. 17
Parent Material Adverse Effect.............................. 8
Parent Preferred Stock...................................... 6
Parent Related Documents.................................... 7
Price Notice................................................ 4
Registration Statement...................................... 7
SEC......................................................... 7
Securities Act.............................................. 2
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<PAGE>
Settlement Notice........................................... 18
Shareholder................................................. 1
Shareholder Related Document................................ 6
Statement of Closing Consideration.......................... 4
Statement of Final Per Share Amounts........................ 4
Stock Certificate........................................... 3
Survival Period............................................. 15
Surviving Corporation....................................... 1
Terminated Obligations...................................... 1
Total Consideration.....................................Exhibit 1
Working Capital.........................................Exhibit 1
Working Capital Addition................................Exhibit 1
Working Capital Deduction...............................Exhibit 1
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
August 18, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), LSC Acquisition Corp., a California corporation
("Merger Sub"), Linford Service Company, a California 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 California, 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,
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 Section 1103 of the California Corporations 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 documents under the Applicable Corporate Law shall
be prepared, executed and submitted for filing with the California Corporations
Commission 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 the Parent in Houston, Texas on the date of 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
<PAGE>
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, 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 "Linford Service 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
2
<PAGE>
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.
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 Section 1300 et seq. 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), (ii) cash equal to the Final Per Share Cash
3
<PAGE>
Amount (as defined in Exhibit 1 attached hereto), (iii) that number of shares of
Parent Common Stock equal to the Contingent Per Share Common Stock Amount (as
defined in Exhibit 1 attached hereto), and (iv) cash equal to the Contingent 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 and shares of
Parent Common Stock (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 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. Except as contemplated by Section 4.10, no
assignment, transfer or other disposition of record or beneficial ownership of
any shares of Company Common Stock may 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
4
<PAGE>
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 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 defined in Exhibit 1 attached hereto), the Final Per
Share Cash Amount, the Final Per Share Common Stock Amount and the Final Merger
Consideration (as defined in Exhibit 1 attached hereto) (the "Statement of Final
Per Share Amounts").
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 KPMG Peat Marwick LLP (the
"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
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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 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) 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.
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
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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.
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 100,000,000
shares of Parent Common Stock, of which 22,833,363 shares are issued and
outstanding and of which 0 are held in the treasury of the Parent, 50,000,000
shares of Preferred Stock, $.001 par value ("Parent Preferred Stock"), divided
into 15,000,000 shares of Series A Preferred Stock, of which 2,088,258 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 1,568,000 shares are issued and outstanding,
600,000 shares of Series E Preferred Stock, of which 580,000 shares are issued
and outstanding and 800,000 shares of Series F Preferred Stock, of which 644,691
shares are issued and outstanding, 600,000 shares of Series G Preferred Stock,
none of which are issued and outstanding, 600,000 shares of Series H Preferred
Stock, of which 500,000 are issued and outstanding, and 600,000 shares of Series
I Preferred Stock, none of which 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.
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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 Certificate of Merger and
other required documents with the California Corporations Commission.
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
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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.
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:
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(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.
(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.
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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 California.
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 covenant by Robert G. Linford in this Section is a
material inducement to the Parent to enter into and perform this Agreement,
Robert G. Linford agrees that for the period from the Closing Date to the
fifth anniversary of 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 engage in any
business that involves indoor air quality, heating, ventilation, air
conditioning, appliance, mechanical construction, plumbing, electrical
contracting, sewer cleaning products or services within a 100 mile radius
of the cities of Oakland, Sacramento, Ontario, San Diego and San Jose;
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provided, however, that Robert G. Linford may engage in a consulting
practice in the HVAC industry if (i) he does not directly assist any
company that competes with the Surviving Corporation or any its affiliates
during such five year period in any market where the Surviving Corporation
or any of its affiliates operates and (ii) he provides the Parent with
notice of any consulting engagement that is expected to provide to him
consulting fees of $10,000 or more in any twelve consecutive month period
to allow the Parent the opportunity to assess the engagement for any
conflict with this Section 4.1.1(i).
(ii) Robert G. Linford agrees that the limitations set forth in
Section 4.1.1(i) on his 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, Robert G. Linford
specifically agrees that the limitations as to period of time and
geographic area, as well as all other restrictions on his activities
specified herein, are reasonable and necessary for the protection of the
Parent and its affiliates. Robert G. Linford 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) Robert G. Linford 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, 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 on Exhibit 4.2 hereto have been eliminated
as expenses of the Surviving Corporation as of and following the Closing Date.
4.3 Audit. Prior to Closing, the Accountants shall complete an audit of
the Company for the fiscal year ended March 31, 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.
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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 (or any affiliate thereof) 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 (or any affiliate
thereof).
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 90 days or more after the
Closing, the Shareholders shall, upon written request by the Surviving
Corporation made within 120 days after the Closing, purchase the same from the
Surviving Corporation, without recourse, for the uncollected amount thereof
(less any bad debt reserve allocable thereto). During the 90 day period after
the Closing Date, Parent shall cause the Company to use reasonable efforts to
collect such receivables, and after the purchase of such receivables by the
Shareholders the Company shall cooperate with the Shareholders to assist them
with the collection of such receivables; provided, however, that in connection
with such cooperation neither Parent nor the Company shall be obligated to incur
any expense unless reimbursed by the Shareholders, give preferential treatment
to the collection of such receivables over the collection of receivables held by
the Company or take action that could damage its ongoing business relationships.
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 within
the meaning of Section 368(a) of the Code.
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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.
4.10 Employee Options. Notwithstanding the other provisions of this
Agreement, 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 Exhibit 4.10A attached hereto (the "Company Option
Plan") under which the Company may, during the period from the date hereof
through September 15, 1997 grant options ("Company Options") to certain of its
employees listed in 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 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 15, 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 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 Payment of Indebtedness. Within 10 days following the Closing, Parent
shall cause all indebtedness owed by the Company to The Mechanics Bank of
Richmond to be paid.
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.
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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.
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 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 Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
5.1.6 No Casualty, Loss or Damage. Since June 30, 1997, 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 June 30, 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
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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 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.
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 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. Richard Almini, Robert M. Linford and
Jack
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Larkin shall execute and deliver Employment Agreements (with the
blanks appropriately completed) with the Company on the Closing Date,
effective as of the Effective Time, substantially in the forms set forth in
Exhibit 5.3.3A, Exhibit 5.3.3B and Exhibit 5.3.3C, respectively.
5.3.4 Lease Agreement. The Shareholders shall cause the owner of the
property located at 2850 Poplar Street, Oakland, California, 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 McPhee & Aiman-Smith,
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
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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. Prior to the Closing, the Parent will promptly notify the Company
and the Shareholders if it believes that any representation of the Shareholders
is inaccurate in any material respect.
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
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. Prior to the
Closing, each of the Company and the Shareholders will promptly notify the
Parent if it believes that any representation of the Parent or Merger Sub is
inaccurate in any material respect.
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
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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 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 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 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 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 any insurance recoveries)(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 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 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
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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;
(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); and
(vi) the investigation, study, correction, cleanup, removal,
remediation or monitoring of the soil or groundwater (or both) at the
Company's leased facility located in Oakland, California, that may be
required in connection with any condition, circumstance, event or incident
at such facility existing on or prior to the date of this Agreement.
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) and (iii) shall not exceed the cash amount equal to 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) shall not exceed the cash amount of the Final Merger
Consideration, with the Parent Common Stock being valued at the IPO Price to the
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Public for such purpose. Furthermore, neither the Shareholders, on the one
hand, nor the Parent, on the other hand, shall have an obligation to provide
indemnification until the Losses for which indemnification is sought exceeds
$25,000, at which time indemnification may be sought for all such Losses.
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
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
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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 Insurance. Except as otherwise provided herein, Parent shall use
commercially reasonable efforts and shall cause the Surviving Corporation to
use commercially reasonable efforts to (i) file (or cause to be filed) claims
under insurance policies for all damages that may be recoverable in respect of
any losses thereunder, (ii) pursue all claims for indemnification, contribution
or other recoveries (whether for breach of contract or otherwise) under
agreements with third parties, and (iii) pursue all rights for contribution or
other recoveries against third parties afforded under applicable law. Nothing in
this Agreement shall be construed to require either Parent or the Surviving
Corporation to obtain insurance coverage for their respective operations, but
Parent shall cause the Surviving Corporation to be provided with insurance
coverage that is comparable with the insurance coverage that is provided to its
other subsidiaries. Any insurance policy covering the operations of the
Surviving Corporation shall waive subrogation by and between the signatories
hereto and will name Robert G. Linford and Robert M. Linford as named insureds
thereunder. In the event Parent or the Surviving Corporation determines to
cancel or not renew any insurance policy listed on Schedule 8(vi) of the
Disclosure Schedule, Parent shall give the Shareholders written notice the
earlier of 20 days prior to the effective date of such cancellation or
expiration or five days after receipt of a written notice of cancellation. The
Shareholders shall be afforded the opportunity to renew any such policy at their
own cost. Parent shall cooperate, and shall cause the Surviving Corporation to
cooperate, with the Shareholders in respect of the renewal or extension of such
insurance or in securing a replacement policy therefor. No right of subrogation
shall accrue hereunder to any insurer or other party. There shall be no third
party beneficiaries of any provision of this Section 6 other than the
Shareholders under Section 6.2.2.
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
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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.
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:
Linford Service Company
2850 Poplar Street
Oakland, California 94608
Attention: Robert G. Linford
Telecopy: 510-451-5216
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
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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; provided, however, that any such
assignment shall not relieve Parent of its obligations hereunder. 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
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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 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
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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, however, that the Company may pay
the costs of any business broker, legal counsel, accountants or other advisors
engaged by the Shareholders; 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, if the
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Merger is not consummated as a result of (i) the termination of this agreement
by the Shareholders other than as a result of a material misrepresentation or
breach of covenant by the Parent, (ii) the representations and warranties of the
Company or the Shareholders are untrue or incorrect in any material respect and
such fact results in a final price that is unacceptable to the Company or (iii)
the Company or the Shareholders fail to perform or offer to perform all of their
material agreements and covenants, then the Company shall pay the fees of the
Accountants that do not exceed $35,000 (or shall reimburse the Parent for such
fees within 15 days after being requested to do so) and the Parent shall pay the
fees of the Accountants that exceed $35,000. If the Merger is consummated or the
Merger is not consummated for a reason not described in the preceding sentence,
then the fees of the Accountants shall be paid by the Parent.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By: /s/ J. Patrick Millinor, Jr.
-----------------------------------------
J. Patrick Millinor, Jr., President
MERGER SUB:
LSC ACQUISITION CORP.
By: /s/ J. Patrick Millinor, Jr.
-----------------------------------------
J. Patrick Millinor, Jr., President
SHAREHOLDERS:
/s/ Robert G. Linford
-----------------------------------------
Name: Robert G. Linford
/s/ Robert M. Linford
-----------------------------------------
Name: Robert M. Linford
COMPANY:
LINFORD SERVICE COMPANY
/s/ ROBERT G. LINFORD
By: ___________________________________________
Name: Robert G. Linford
Title: President
27
<PAGE>
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective as of June 1,
1997, by and between GROUP MAINTENANCE AMERICA CORP., a Texas corporation (the
"Company"), and JAMES NORRIS, an individual with an address of 1401 17th Street,
N.W., No. 1003, Washington, D.C. 20036 (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and the
Employee hereby agrees to work for the Company upon the terms and conditions set
forth herein.
2. Term of Employment. This Agreement shall continue in effect for an
initial term of three (3) years from the date of this Agreement, unless
terminated in accordance with Section 7, and shall be extended from year to year
thereafter, unless terminated effective as of the end of the initial term or any
one-year extension thereafter by written notice from the Company to Employee, or
by written notice of Employee to the Company, delivered not less than ninety
(90) days prior to the end of the initial term, or the anniversary of such one-
year extension, as applicable.
3. Scope of Duties; Representations and Warranties.
(a) The Employee shall be initially employed by the Company as its
Chairman of the Board. At all times, the Employee shall serve under the
direction of the Board of Directors of the Company and shall perform the
functions set forth on Exhibit A and such other services as the Board of
Directors, in its sole discretion, shall deem appropriate.
(b) So long as he is employed by the Company, the Employee shall
devote his skill, energy and best efforts to the faithful discharge of his
duties as an employee of the Company. The Employee agrees that in the provision
of all services to the Company, he will comply with and follow all directives,
policies, standards and regulations from time to time established by the Board
of Directors of the Company.
(c) The Employee represents and warrants that he is under no
contractual or other restrictions or obligations which will significantly limit
his activities on behalf of the Company or which will prohibit or limit the
disclosure or use of by the Employee of any information which directly or
indirectly relates to the nature of the Company or the services to be rendered
by the Employee under this Agreement.
(d) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all patents, trademarks, copyrights, trade secrets, and other
intellectual property rights, all inventions, whether or not patentable and any
product, drawing, design, recording, writing, literary work or other author's
work, in any other tangible form developed in whole or in part by Employee
during the term of this Agreement, or otherwise developed, purchased or acquired
by Employer, shall be the exclusive property of the Employer ("Intellectual
Property"), and unless otherwise agreed by Employer, all right, title and
interest therein shall remain in Employer.
(e) The Employee will hold all Intellectual Property and Confidential
Information (defined below) in trust for the Company and will deliver all
Intellectual Property and Confidential
Norris Employment Agreement/Page 1
<PAGE>
Information in his possession or control to the Company upon request and, in any
event, at the end of his employment with the Company. The Employee will promptly
disclose to the Company all Confidential Information, as well as any business
opportunity which comes to his attention during the term of his employment with
the Company. The Employee will not take advantage of or divert any business
opportunity for the benefit of himself or any other party without the prior
written consent of the Company.
(f) The Employee shall assign and does hereby assign to the Company
all property rights that he may now or hereafter have in the Intellectual
Property and Confidential Information. The Employee shall take such action,
including, but not limited to, the execution, acknowledgment, delivery and
assistance in preparation of documents, and the giving of testimony, as may be
requested by the Company to evidence, transfer, vest or confirm the Company's
right, title and interest in the Intellectual Property.
(g) The Employee will not contest the validity of any invention, any
copyright, any trademark or any mask work registration owned by or vesting in
the Company under this Agreement.
(h) The terms and conditions of Sections 3(d), (e), (f), and (g) will
survive the termination of this Agreement for any reason whatsoever.
4. Compensation.
(a) During the first year, the Company shall pay the Employee a base
salary, payable semi-monthly, in equal installments at a rate equal to $150,000
per year. In each subsequent year of this Agreement, the Company shall pay to
the Employee a salary equal to the greater of (i) his salary for the immediately
preceding year or (ii) if determined otherwise by the Board of Directors, a
salary determined by the Board of Directors following its annual salary and
performance review.
(b) Commencing with calendar year 1998, Employee shall receive an
annual cash performance bonus for each calendar year during the term of this
Agreement to be determined according to the following procedure. The Board of
Directors of the Company, or the Compensation Committee of the Board of
Directors, if so authorized, shall establish specific annual performance goals
for the Company and for Employee with respect to each calendar year during the
term of this Agreement (commencing January 1, 1998). Such goals shall be
communicated to Employee not later than the end of the first quarter of the
applicable calendar year. At the end of each calendar year during the term of
this Agreement, or within a reasonable time thereafter, the Board of Directors
of the Company, or the Compensation Committee of the Board of Directors, if so
authorized, shall review the actual performance of the Company and Employee,
giving due consideration to market and other developments outside of the control
or influence of Employee and the Company, and based upon the extent to which the
applicable annual performance goals have been achieved, shall determine in its
sole and absolute discretion, the amount of performance bonus payable to
Employee with respect to such year. The Board of Directors may also declare
bonuses for fiscal year 1997, in its discretion.
Norris Employment Agreement/Page 2
<PAGE>
(c) Notwithstanding the foregoing, so long as Employee is employed by
Company, Employee shall be entitled to receive a minimum bonus of $25,000 during
the period ending May 31, 1998, and shall be entitled to draw against his
minimum bonus payment at the rate of $1,000 per calendar month ("Bonus Draws"),
in accordance with the following provisions. If the Board of Directors declares
one or more bonuses payable to Employee on or prior to May 31, 1998
("Discretionary Bonuses"), at each such payment date, Employee will be paid the
amount of such Discretionary Bonus minus the amount of Bonus Draws previously
paid to Employee and not previously offset against a prior Discretionary Bonus
payment ("Discretionary Payments"). If the sum of Bonus Draws and Discretionary
Payments paid to Employee on or prior to May 31, 1998 is less than $25,000, the
Company shall pay to Employee, as a bonus, the amount of such difference (the
"Special Bonus Payment"). If at any time the Employee has received bonus
payments (Discretionary or Special) plus Bonus Draws equal to $25,000, the
payment of subsequent Bonus Draws shall cease. With respect to any bonuses
declared with respect to the calendar year 1998 and paid after May 31, 1998
(including bonuses with respect to calendar year 1998 performance, which may
actually be paid in 1999), the amount actually payable to Employee will be
reduced by the sum of (i) all Bonus Draws paid in calendar 1998 and not applied
as an offset against a Discretionary Bonus payment, plus (ii) the Special Bonus
Payment. Commencing in calendar year 1999 with respect to performance for 1999
and subsequent periods, Employee shall be entitled to such bonuses as the Board
of Directors may establish without further reduction for any portion of the
Bonus Draws or the Special Bonus Payment not offset in or with respect to
calendar year 1998.
(d) All payments of salary and other compensation to the Employee
shall be made after deduction of any taxes which are required to be withheld
with respect thereto under applicable federal and state laws.
5. Senior Management Stock Options.
(a) The Company will grant the Employee non-qualified stock options
(the "Initial Senior Management Options") to purchase 70,000 shares of the
common stock of the Company as presently constituted, at an exercise price of
$1.231 per share on the terms set forth in the form of Option Agreement proposed
to be executed between the Company and the Employee in the form attached hereto
as Exhibit B (the "Option Agreement"). Subject to the Option Agreement, the
Initial Senior Management Options will vest ratably as of June 1 of the three
calendar years, 1998, 1999, and 2000. The Initial Senior Management Options
shall have a term of ten (10) years from the date of grant, and may be exercised
in whole or in part, from time to time, at any time after vesting by the payment
of cash or the tender of shares of the Company's common stock having a
Designated Value equal to the exercise price of the Initial Senior Management
Options being exercised, all as set forth in the Option Agreement. Upon the
issuance of shares of Common Stock in connection with the exercise of the
Initial Senior Management Options and as a condition precedent to receiving
certificates representing such Common Stock, Option Holder shall become a party
to that certain Shareholders Agreement dated October 24, 1996 (the
"Shareholders'
Norris Employment Agreement/Page 3
<PAGE>
Agreement"), by executing and delivering (and by causing his spouse to execute
and deliver) a counterpart of the Shareholders Agreement provided same is then
in effect.
(b) Commencing with the Company's initial public offering of Common
Stock and for each partial or full calendar year thereafter during the term
hereof, provided Employee is then serving as an employee of the Company, the
Company shall grant to Employee options (together with the Initial Senior
Management Options, collectively referred to as the "Senior Management Options")
to purchase such number of additional shares as the Board of Directors of the
Company may determine, on such terms and conditions as shall be established at
such time.
(c) For purposes hereof, "Designated Value" of the shares on a
specified date shall mean (i) the average of the closing prices of the common
stock on the principal market or registered exchange on which the Company's
common stock is traded (or the average of the closing bid and ask prices, if a
single closing price is not reported for such market) on the ten (10)
consecutive trading days next preceding the date for the determination of such
value, provided that the stock is then traded on the over the counter market or
on the NASDAQ System or any registered securities exchange, or (ii) if not
publicly traded, the book value per share of the Company as of the end of the
calendar quarter next preceding the date of determination of such value.
(d) From time to time the Company agrees to register under the
Securities Act of 1933 and all applicable state securities laws and regulations
the shares of common stock issuable upon the exercise of the foregoing Senior
Management Options in the same manner as shares issuable under any other stock
options or stock purchase plans of the Company. Further, the Company agrees to
grant to the Employee "demand" or "piggyback" registration rights with respect
to all such Senior Management Option shares (to the extent same have not been
registered), and all other shares of common stock owned directly or indirectly
by the Employee or Employee's immediate family, equivalent to the "demand" or
"piggyback" registration rights granted under that certain Registration Rights
Agreement dated October 24, 1996, by and among the Company, Gordon Cain and
other holders of common stock of the Company.
6. Fringe Benefits; Expenses.
(a) So long as the Employee is employed by the Company, the Employee
shall participate in all employee benefit plans sponsored by the Company for its
executive employees, including but not limited to vacation policy, sick leave
and disability leave, health insurance, dental insurance and pension and/or
profit sharing plans; provided, however, that except as provided below, the
nature, amount and limitations of such plans shall be determined from time to
time by the Board of Directors of the Company.
(b) The Company will reimburse the Employee for all reasonable
business expenses incurred by the Employee in the scope of his employment.
Norris Employment Agreement/Page 4
<PAGE>
(c) Employees shall be entitled to participate in any other stock
bonus, stock purchase or stock option plan instituted by the Company for its
managers or employees generally in the same manner as any other senior executive
officer of the Company, with proper regard and weight given in the issuance of
shares or the grant of options for the Employee's position (and without
consideration of the above Senior Management Options or any shares of the
Company otherwise owned by Employee directly or indirectly).
(d) The Company shall make reasonable efforts to provide life
insurance payable to Employee's designated beneficiary in an amount at least
three times Employee's annual base salary.
(e) The Company shall make a reasonable effort to maintain disability
insurance on behalf of Employee which, as a goal, shall provide for salary
continuation in the event of permanent disability in an amount not less than 60%
of the Employee's regular base salary.
(f) The Employee shall be entitled to a minimum of three weeks paid
vacation, increasing to four weeks at June 1, 2000.
(g) The Company will pay all license fees, occupation taxes and
reasonable educational costs and expenses necessary to maintain Employee's good
standing under any professional licenses.
7. Termination.
(a) Employee agrees that this Agreement may be terminated by the
Company with or without "Cause" at any time, subject to the terms of this
Section 7. Such termination shall be effective upon delivery of written notice
to Employee of the Company's election to terminate this Agreement under this
Section 7. "Cause" when used in connection with the termination of employment
with the Company, shall mean the termination of the Employee's employment by the
Company by reason of (i) the conviction of the Employee of a crime involving
moral turpitude by a court of competent jurisdiction as to which no further
appeal can be taken; (ii) the proven commission by the Employee of an act of
fraud upon the Company; (iii) the willful and proven misappropriation of any
funds or property of the Company by the Employee; (iv) the willful, continued
and unreasonable failure by the Employee to perform material duties assigned to
him and agreed to by him after reasonable notice and opportunity to cure such
performance; (v) the knowing engagement by the Employee in any direct, material
conflict of interest with the Company without compliance with the Company's
conflict of interest policy, if any, then in effect; (vi) the knowing engagement
by the Employee, without the written approval of the Board of Directors of the
Company, in any activity which competes with the business of the Company or
which would result in a material injury to the Company; or (vii) the knowing
engagement in any activity which would constitute a material violation of the
provisions of the Company's Insider Trading Policy or Business Ethics Policy, if
any, then in effect.
Norris Employment Agreement/Page 5
<PAGE>
If the Employee's employment terminates, unless the Company terminates
the Employee's employment under this Agreement for Cause or the Employee
resigns, the Company shall, subject to the terms of Section 7(c) below, and only
if and as long as Employee is not in breach of his obligations under this
Agreement, pay to the Employee an amount equal to twelve (12) months
compensation at his then current salary, payable semimonthly, and shall continue
to provide benefits in the kind and amounts provided up to the date of
termination for said twelve (12) month period including, without limitation,
continuation of any Company-paid benefits as described in Section 6 for the
Employee and his family; provided, however, that in the event that Gordon A.
Cain elects to cease payments of outstanding installments in compliance with the
Subscription Agreement dated October 24, 1996 with the Company, and the Company
elects to terminate Employee under this Section 7, or Employee resigns within 60
days of such termination (each a "Cain Termination Event"), then if Employee is
not in breach of his obligations under this Agreement, the Company shall pay to
the Employee, in lieu of the severance payments described above, three (3)
months compensation under this Agreement, payable semi-monthly, and the Company
shall continue to provide benefits in the kind and amount provided up to the
date of termination for said three (3) month period. Notwithstanding anything
in this Agreement to the contrary, in the event the Employee's employment
terminates (other than as a result of a Cain Termination Event) within twelve
months after (A) a sale of all or substantially all of the assets of the
Company, or (B) a merger, consolidation, liquidation or reorganization of the
Company, in which the purchaser or the surviving entity, as applicable, adopts
the Company's obligations under this Agreement, the Company shall pay to the
Employee, an amount equal to thirty six (36) months compensation at Employee's
then current annual salary, payable semimonthly, and shall continue to provide
benefits in the kind and amounts provided up to the date of termination for such
thirty six (36) month period.
In the event that this Agreement is terminated by Company without Cause,
Employee agrees to accept, in full settlement of any and all claims, losses,
damages and other demands which Employee may have arising out of such
termination as liquidated damages and not as a penalty, the applicable amount
which is set out above. Employee hereby waives any and all rights he may have to
bring any cause of action or proceeding contesting any termination without
Cause, provided, however, that such waiver shall not be deemed to affect
Employee's rights to enforce any other obligations of the Company. Under no
circumstances shall Employee be entitled to any compensation or confirmation of
any benefits under this Agreement for any period of time following his date of
termination if his termination is for Cause.
(b) If at any time during the term of this Agreement, Employee is
unable due to physical or mental disability, to perform effectively his duties
hereunder, the Company shall continue payment of compensation as provided in
Section 4 during the first twelve (12) month period of such disability to the
extent not covered by the Company's disability insurance policies. Upon the
Norris Employment Agreement/Page 6
<PAGE>
expiration of such twelve (12) month period, the Company, at its sole option,
may continue payment of Employee's salary for such additional periods as the
Company elects, or may terminate this Agreement without any further obligations
hereunder. If Employee should die during the term of this Agreement, Employee's
employment and the Company's obligations hereunder shall terminate as of the end
of the month in which Employee's death occurs and there will be no salary and
benefit continuation period pursuant to Section 7(a).
(c) So long as Employee receives a severance as provided in Section
7(a) or (b) above, Employee agrees that he will sign any lock-up letters,
standstill agreements, or other similar documentation required by an underwriter
in connection with a public offering of securities by the Company or take other
actions reasonably related thereto as requested by the Board of Directors of the
Company. Failure to take any such action shall cause Employee to forfeit any
further rights to the salary continuation payments in Section 7(a) or (b). In
addition, Employee agrees that in such event the Company can seek and obtain
specific performance of such covenant, including any injunction requiring
execution thereof, and the Employee hereby appoints the then current president
of the Company to sign any such documents on his behalf so long as such
documents are prepared on the same basis as other shareholders generally or as
all management shareholders.
8. Covenant Not to Compete.
(a) During the term of this Agreement, Employee will not compete with
the Company or its affiliates, directly or indirectly, either for himself or as
a member of a partnership or as a stockholder (except as a stockholder of less
than one percent (1 %) of the issued and outstanding stock of a publicly-held
company whose gross assets exceed one hundred million dollars), investor, owner,
officer or director of a company or other entity, or as an employee, agent,
associate or consultant of any person, partnership, corporation or other entity,
in any business in competition with that carried on by the Company or any of its
affiliates.
(b) Employee further agrees that, for a period of six (6) months from
and after the date of termination of Employee's employment under this Agreement,
regardless of the reason for such termination, he will neither represent the
Company nor engage in or carry on, directly or indirectly, either for himself or
as a member of a partnership or as a stockholder (other than as a stockholder of
less than one percent (1 %) of the issued and outstanding stock of a publicly-
held company whose gross assets exceed one hundred million dollars), investor,
owner, officer or director of a company or other entity, or as an employee,
agent, associate or consultant of any person, partnership, corporation or other
entity, any business in any State of the United States or in any other part of
the world which directly competes with any services or products produced, sold,
conducted, developed, or in the process of development by the Company or its
affiliates on the date of termination of Employee's employment. Notwithstanding
the
Norris Employment Agreement/Page 7
<PAGE>
foregoing, nothing herein shall prevent Employee from working in the indoor
air quality, heating, ventilation and air conditioning or plumbing maintenance
services industry, provided that such activities are in areas not in direct
competition with any services or products produced, sold, conducted, developed,
or in the process of development by the Company or its affiliates on the date of
termination of Employee's employment.
(c) Employee agrees that the limitations set forth herein on his
rights to compete with the Company and its affiliates are reasonable and
necessary for the protection of the Company and its affiliates. In this regard,
Employee specifically agrees that the limitations as to period of time and
geographic area, as well as all other restrictions on his activities specified
herein, are reasonable and necessary for the protection of the Company and its
affiliates. In particular, Employee acknowledges that the parties anticipate
that the Employee will be actively seeking markets for the Company's products
throughout the United States during his employment with the Company.
(d) Employee agrees that the remedy at law for any breach by him of
this Section 8 will be inadequate and that the Company shall also be entitled to
injunctive relief.
9. Confidential Information and Results of Services. Employee agrees that
during the term of this Agreement, and for five (5) years after his termination
of employment, he will not make use of or disclose, without the prior consent of
the Company, Confidential Information (as hereinafter defined) relating to the
Company, or any of its affiliates, and further agrees, that he will return to
the Company all written materials in his possession embodying such Confidential
Information. For purposes of this Agreement, "Confidential Information"
includes information conveyed or assigned to the Company by Employee or
conceived, compiled, created, developed, discovered or obtained by Employee from
and during his employment relationship with the Company, whether solely by the
Employee or jointly with others, which concerns the affairs of the Company or
its affiliates and which the Company could reasonably be expected to desire be
held in confidence, or the disclosure of which would likely be embarrassing,
detrimental or disadvantageous to the Company or its affiliates and without
limiting the generality of the foregoing includes information relating to
inventions, and the trade secrets, technologies, algorithms, products, services,
finances, business plans, marketing plans, legal affairs, supplier lists, client
lists, potential clients, business prospects, business opportunities, personnel
assignments, contracts and assets of the Company and information made available
to the Company by other parties under a confidential relationship. Confidential
Information, however, shall not include information (a) which is, at the time in
question, in the public domain through no wrongful act of Employee, (b) which is
later disclosed to Employee by one not under obligations of confidentiality to
the Company or Employee, (c) which is required by court or governmental order,
law or regulation to be disclosed, or (d) which the Company has expressly given
Employee the right to
Norris Employment Agreement/Page 8
<PAGE>
disclose pursuant to written agreement. Employee agrees that the remedy at law
for any breach by him of this Section 9 will be inadequate and that the Company
shall also be entitled to injunctive relief.
10. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to the Employee, to the address set out in the beginning of
this Agreement;
(b) If to the Company:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Either party may change such party's address by such notice to the
other parties.
11. Assignment. This Agreement is personal to the Employee, and he shall
not assign any of his rights or delegate any of his duties hereunder without the
prior written consent of the Company. Neither the employee nor his spouse will
have the right to commute, encumber, or otherwise dispose of any payments under
this Agreement. The Company shall have the right to assign this Agreement to a
successor in interest in connection with a merger, sale of substantially all
assets, or the like; provided however, that an assignment of this Agreement to
an entity with operations, products or services outside of the industries in
which the Company is then active shall not be deemed to expand the scope of
Employee's covenant not to compete with such operations, products or services
without Employee's written consent.
12. Survival. The provisions of this Agreement shall survive the
termination of the Employee's employment hereunder in accordance with their
terms.
13. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of Texas.
14. Binding Upon Successors. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Employee with respect to the terms of employment of
the Employee by the Company and supersedes all prior agreements and
understandings, whether written or oral, between them concerning such terms of
employment.
Norris Employment Agreement/Page 9
<PAGE>
16. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented, and any
obligation hereunder may be waived, only by a written instrument executed by the
parties hereto. The waiver by either party of a breach of any provision of this
Agreement shall not operate as a waiver of any subsequent breach.
(b) No failure on the part of any party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver hereof, nor
shall any single or partial exercise of any such right or remedy by such party
preclude any other or further exercise thereof or the exercise of any other
right or remedy. All rights and remedies hereunder are cumulative and are in
addition to all other rights and remedies provided by law, agreement or
otherwise.
(c) The Employee's obligations to the Company and the Company's rights
and remedies hereunder are in addition to all other obligations of the Employee
and rights and remedies of the Company created pursuant to any other agreement.
17. 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.
18. Severability. In the event that any provision or provisions of this
Agreement is held to be invalid, illegal or unenforceable by any court of law or
otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, 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 unenforceable.
Norris Employment Agreement/Page 10
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written.
GROUP MAINTENANCE AMERICA CORP., A
TEXAS CORPORATION
By:_________________________________________
J. Patrick Millinor, Jr., President
EMPLOYEE:
____________________________________________
James Norris
Norris Employment Agreement/Page 11
<PAGE>
EXHIBIT A
DUTIES AND FUNCTIONS
<PAGE>
EXHIBIT B
FORM OF STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of October 24, 1996, by
and between MAINTENANCE SPECIALISTS OF AMERICA, INC., a Texas corporation (the
"Company"), and J. PATRICK MILLINOR, JR., an individual with an address of c/o
Maintenance Specialists of America, Inc., 1225 North Loop West, Suite 324,
Houston, Texas 77008 (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and the
Employee hereby agrees to work for the Company upon the terms and conditions set
forth herein.
2. Term of Employment. This Agreement shall continue in effect for an
initial term of three (3) years from the date of this Agreement, unless
terminated in accordance with Section 7, and shall be extended from year to year
thereafter, unless terminated effective as of the end of the initial term or any
one-year extension thereafter by written notice from the Company to Employee, or
by written notice of Employee to the Company, delivered not less than ninety
(90) days prior to the end of the initial term, or the anniversary of such one-
year extension, as applicable.
3. Scope of Duties; Representations and Warranties.
(a) The Employee shall be initially employed by the Company as its
President and Chief Executive Officer. At all times, the Employee shall serve
under the direction of the Board of Directors of the Company and shall perform
such services as the Board of Directors, in its sole discretion, shall deem
appropriate.
(b) So long as he is employed by the Company, the Employee shall
devote his skill, energy and best efforts to the faithful discharge of his
duties as an employee of the Company. The Employee agrees that in the provision
of all services to the Company, he will comply with and follow all directives,
policies, standards and regulations from time to time established by the Board
of Directors of the Company.
(c) The Employee represents and warrants that he is under no
contractual or other restrictions or obligations which will significantly limit
his activities on behalf of the Company or which will prohibit or limit the
disclosure or use of by the Employee of any information which directly or
indirectly relates to the nature of the Company or the services to be rendered
by the Employee under this Agreement.
(d) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all patents, trademarks, copyrights, trade secrets, and other
intellectual property rights, all inventions, whether or not patentable and any
product, drawing, design, recording, writing, literary work or other author's
work, in any other tangible form developed in whole or in part by Employee
during the term of this Agreement, or otherwise developed, purchased or acquired
by Employer, shall be the exclusive property of the Employer ("Intellectual
Property"), and unless otherwise agreed by Employer, all right, title and
interest therein shall remain in Employer.
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(e) The Employee will hold all Intellectual Property and Confidential
Information (defined below) in trust for the Company and will deliver all
Intellectual Property and Confidential Information in his possession or control
to the Company upon request and, in any event, at the end of his employment with
the Company. The Employee will promptly disclose to the Company all
Confidential Information, as well as any business opportunity which comes to his
attention during the term of his employment with the Company. The Employee will
not take advantage of or divert any business opportunity for the benefit of
himself or any other party without the prior written consent of the Company.
(f) The Employee shall assign and does hereby assign to the Company
all property rights that he may now or hereafter have in the Intellectual
Property and Confidential Information. The Employee shall take such action,
including, but not limited to, the execution, acknowledgment, delivery and
assistance in preparation of documents, and the giving of testimony, as may be
requested by the Company to evidence, transfer, vest or confirm the Company's
right, title and interest in the Intellectual Property.
(g) The Employee will not contest the validity of any invention, any
copyright, any trademark or any mask work registration owned by or vesting in
the Company under this Agreement.
(h) The terms and conditions of Sections 3(d), (e), (f), and (g) will
survive the termination of this Agreement for any reason whatsoever.
4. Compensation.
(a) During the first year, the Company shall pay the Employee a base
salary, payable semi-monthly, in equal installments at a rate equal to $150,000
per year. In each subsequent year of this Agreement, the Company shall pay to
the Employee a salary equal to the greater of (i) his salary for the immediately
preceding year or (ii) if determined otherwise by the Board of Directors, a
salary determined by the Board of Directors following its annual salary and
performance review.
(b) Employee shall receive an annual cash performance bonus of from
zero-percent (0%) to one hundred percent (100%) of Employee's annual base salary
for the calendar year during the term of this Agreement to be determined
according to the following procedure. The Board of Directors of the Company, or
the Compensation Committee of the Board of Directors, if so authorized, shall
establish specific annual performance goals for the Company and for Employee
with respect to each calendar year during the term of this Agreement commencing
on January 1, 1997. Such goals shall be communicated to Employee not later than
the end of the first quarter of the applicable calendar year. At the end of
each calendar year during the term of this Agreement, or within a reasonable
time thereafter, the Board of Directors of the Company, or the Compensation
Committee of the Board of Directors, if so authorized, shall review the actual
performance of the Company and Employee, giving due consideration to market and
other developments outside of the control or influence of Employee and the
Company, and based upon the extent to which the
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applicable annual performance goals have been achieved, shall determine in its
sole and absolute discretion, the amount of performance bonus payable to
Employee with respect to such year.
(c) All payments of salary and other compensation to the Employee
shall be made after deduction of any taxes which are required to be withheld
with respect thereto under applicable federal and state laws.
5. Senior Management Stock Options.
(a) Employee is hereby granted options (the "1996 Senior Management
Options") to purchase 125,000 shares of the common stock of the Company as
presently constituted, at an exercise price of $1.231 per share. The 1996
Senior Management Options shall vest ratably as of the earlier of (i) the end of
the three calendar years, 1997, 1998, 1999, or (ii) when and as the Designated
Value of the Company's common stock has achieved the milestones of $7.00, $9.00,
and $11.00 per share, respectively. The 1996 Senior Management Options may be
exercised in whole or in part, from time to time, at any time after vesting
through December 31, 2006 by the payment of cash or the tender of shares of the
Company's common stock (including shares of common stock otherwise receivable as
a result of the exercise of said options or any other options) having a
Designated Value equal to the exercise price of the 1996 Senior Management
Options being exercised. To the extent that certain Shareholders Agreement of
even date herewith among the Corporation and the shareholders of the Company,
including Employee (the "Shareholders Agreement") is in effect at the time
Employee exercises any of the Senior Management Options, such shares of the
Company's common stock issued to Employee shall be subject to the provisions of
the Shareholders Agreement.
(b) Commencing with the Company's initial public offering of Common
Stock and for each partial or full calendar year thereafter during the term
hereof, provided Employee is then serving as an employee of the Company, the
Company shall grant to Employee options (together with the 1996 Senior
Management Options, collectively referred to as the "Senior Management Options")
to purchase such number of additional shares as the Board of Directors of the
Company may determine, on such terms and conditions as shall be established at
such time.
(c) For purposes hereof, "Designated Value" of the shares on a
specified date shall mean (i) the average of the closing prices of the common
stock on the principal market or registered exchange on which the Company's
common stock is traded (or the average of the closing bid and ask prices, if a
single closing price is not reported for such market) on the ten (10)
consecutive trading days next preceding the date for the determination of such
value, provided that the stock is then traded on the over the counter market or
on the NASDAQ System or any registered securities exchange, or (ii) if not
publicly traded, the book value per share of the Company as of the end of the
calendar quarter next preceding the date of determination of such value.
(d) From time to time the Company agrees to register under the
Securities Act of 1933 and all applicable state securities laws and regulations
the shares of common stock issuable upon the exercise of the foregoing Senior
Management Options in the same manner as shares issuable under any other stock
options or stock purchase plans of the Company. Further, the
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Company agrees to grant to the Employee "demand" or "piggyback" registration
rights with respect to all such Senior Management Option shares (to the extent
same have not been registered), and all other shares of common stock owned
directly or indirectly by the Employee or Employee's immediate family,
equivalent to the "demand" or "piggyback" registration rights granted under that
certain Registration Rights Agreement dated October 24, 1996, by and among the
Company, Gordon Cain and other holders of common stock of the Company.
6. Fringe Benefits; Expenses.
(a) So long as the Employee is employed by the Company, the Employee
shall participate in all employee benefit plans sponsored by the Company for its
executive employees, including but not limited to vacation policy, sick leave
and disability leave, health insurance, dental insurance and pension and/or
profit sharing plans; provided, however, that except as provided below, the
nature, amount and limitations of such plans shall be determined from time to
time by the Board of Directors of the Company.
(b) The Company will reimburse the Employee for all reasonable
business expenses incurred by the Employee in the scope of his employment.
(c) Employees shall be entitled to participate in any other stock
bonus, stock purchase or stock option plan instituted by the Company for its
managers or employees generally in the same manner as any other senior executive
officer of the Company, with proper regard and weight given in the issuance of
shares or the grant of options for the Employee's position (and without
consideration of the above Senior Management Options or any shares of the
Company otherwise owned by Employee directly or indirectly).
(d) The Company shall make reasonable efforts to provide life
insurance payable to Employee's designated beneficiary in an amount at least
three times Employee's annual base salary.
(e) The Company shall make a reasonable effort to maintain disability
insurance on behalf of Employee which, as a goal, shall provide for salary
continuation in the event of permanent disability in an amount not less than 60%
of the Employee's regular base salary.
(f) The Employee shall be entitled to a minimum of three weeks paid
vacation, increasing to four weeks at January 1, 1999.
(g) The Company will pay all license fees, occupation taxes and
reasonable educational costs and expenses necessary to maintain Employee's good
standing under any professional licenses.
7. Termination.
(a) Employee agrees that this Agreement may be terminated by the
Company with or without "Cause" at any time, subject to the terms of this
Section 7. Such termination shall
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be effective upon delivery of written notice to Employee of the Company's
election to terminate this Agreement under this Section 7. "Cause" when used in
connection with the termination of employment with the Company, shall mean the
termination of the Employee's employment by the Company by reason of (i) the
conviction of the Employee of a crime involving moral turpitude by a court of
competent jurisdiction as to which no further appeal can be taken; (ii) the
proven commission by the Employee of an act of fraud upon the Company; (iii) the
willful and proven misappropriation of any funds or property of the Company by
the Employee; (iv) the willful, continued and unreasonable failure by the
Employee to perform material duties assigned to him and agreed to by him after
reasonable notice and opportunity to cure such performance; (v) the knowing
engagement by the Employee in any direct, material conflict of interest with the
Company without compliance with the Company's conflict of interest policy, if
any, then in effect; (vi) the knowing engagement by the Employee, without the
written approval of the Board of Directors of the Company, in any activity which
competes with the business of the Company or which would result in a material
injury to the Company; or (vii) the knowing engagement in any activity which
would constitute a material violation of the provisions of the Company's Insider
Trading Policy or Business Ethics Policy, if any, then in effect.
If the Employee's employment terminates, unless the Company terminates
the Employee's employment under this Agreement for Cause or the Employee
resigns, the Company shall, subject to the terms of Section 7(c) below, and only
if and as long as Employee is not in breach of his obligations under this
Agreement, pay to the Employee an amount equal to twelve (12) months
compensation at his then current salary, payable semimonthly, and shall continue
to provide benefits in the kind and amounts provided up to the date of
termination for said twelve (12) month period including, without limitation,
continuation of any Company-paid benefits as described in Section 6 for the
Employee and his family; provided, however, that in the event that Gordon A.
Cain elects to cease payments of outstanding installments in compliance with the
Subscription Agreement dated October 24, 1996 with the Company, and the Company
elects to terminate Employee under this Section 7, or Employee resigns within 60
days of such termination, then if Employee is not in breach of his obligations
under this Agreement, the Company shall pay to the Employee, in lieu of the
severance payments described above, three (3) months compensation under this
Agreement, payable semi-monthly, and the Company shall continue to provide
benefits in the kind and amount provided up to the date of termination for said
three (3) month period. Notwithstanding anything in this Agreement to the
contrary, in the event the Employee's employment terminates within six months
after (A) a sale of all or substantially all of the assets of the Company, or
(B) a merger, consolidation, liquidation or reorganization of the Company, in
which the purchaser or the surviving entity, as applicable, adopts the
Company's obligations under this Agreement, the Company shall pay to the
Employee, an amount equal to two times Employee's severance benefits otherwise
available to Employee under this Agreement.
In the event that this Agreement is terminated by Company without Cause,
Employee agrees to accept, in full settlement of any and all claims, losses,
damages and other demands which Employee may have arising out of such
termination as liquidated damages and not as a penalty, the applicable amount
which is set out above. Employee hereby waives any and all rights he may have
to bring any cause of action or proceeding contesting any termination without
Cause, provided, however, that such waiver shall not be deemed to affect
Employee's rights to enforce any other
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obligations of the Company. Under no circumstances shall Employee be entitled to
any compensation or confirmation of any benefits under this Agreement for any
period of time following his date of termination if his termination is for
Cause.
(b) If at any time during the term of this Agreement, Employee is
unable due to physical or mental disability, to perform effectively his duties
hereunder, the Company shall continue payment of compensation as provided in
Section 4 during the first twelve (12) month period of such disability to the
extent not covered by the Company's disability insurance policies. Upon the
expiration of such twelve (12) month period, the Company, at its sole option,
may continue payment of Employee's salary for such additional periods as the
Company elects, or may terminate this Agreement without any further obligations
hereunder. If Employee should die during the term of this Agreement, Employee's
employment and the Company's obligations hereunder shall terminate as of the end
of the month in which Employee's death occurs and there will be no salary and
benefit continuation period pursuant to Section 7(a).
(c) So long as Employee receives a severance as provided in Section
7(a) or (b) above, Employee agrees that he will sign any lock-up letters,
standstill agreements, or other similar documentation required by an underwriter
in connection with a public offering of securities by the Company or take other
actions reasonably related thereto as requested by the Board of Directors of the
Company. Failure to take any such action shall cause Employee to forfeit any
further rights to the salary continuation payments in Section 7(a) or (b). In
addition, Employee agrees that in such event the Company can seek and obtain
specific performance of such covenant, including any injunction requiring
execution thereof, and the Employee hereby appoints the then current president
of the Company to sign any such documents on his behalf so long as such
documents are prepared on the same basis as other shareholders generally or as
all management shareholders.
8. Covenant Not to Compete.
(a) During the term of this Agreement, Employee will not compete with
the Company or its affiliates, directly or indirectly, either for himself or as
a member of a partnership or as a stockholder (except as a stockholder of less
than one percent (1 %) of the issued and outstanding stock of a publicly-held
company whose gross assets exceed one hundred million dollars), investor, owner,
officer or director of a company or other entity, or as an employee, agent,
associate or consultant of any person, partnership, corporation or other entity,
in any business in competition with that carried on by the Company or any of its
affiliates.
(b) Employee further agrees that, for a period of six (6) months from
and after the date of termination of Employee's employment under this Agreement,
regardless of the reason for such termination, he will neither represent the
Company nor engage in or carry on, directly or indirectly, either for himself or
as a member of a partnership or as a stockholder (other than as a stockholder of
less than one percent (1 %) of the issued and outstanding stock of a publicly-
held company whose gross assets exceed one hundred million dollars), investor,
owner, officer or director of a company or other entity, or as an employee,
agent, associate or consultant of any person, partnership, corporation or other
entity, any business in any State of the United States or in any other part of
the world which directly competes with any services or products produced, sold,
conducted,
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developed, or in the process of development by the Company or its affiliates on
the date of termination of Employee's employment. Notwithstanding the foregoing,
nothing herein shall prevent Employee from working in the indoor air quality,
heating, ventilation and air conditioning or plumbing maintenance services
industry, provided that such activities are in areas not in direct competition
with any services or products produced, sold, conducted, developed, or in the
process of development by the Company or its affiliates on the date of
termination of Employee's employment.
(c) Employee agrees that the limitations set forth herein on his
rights to compete with the Company and its affiliates are reasonable and
necessary for the protection of the Company and its affiliates. In this regard,
Employee specifically agrees that the limitations as to period of time and
geographic area, as well as all other restrictions on his activities specified
herein, are reasonable and necessary for the protection of the Company and its
affiliates. In particular, Employee acknowledges that the parties anticipate
that the Employee will be actively seeking markets for the Company's products
throughout the United States during his employment with the Company.
(d) Employee agrees that the remedy at law for any breach by him of
this Section 8 will be inadequate and that the Company shall also be entitled to
injunctive relief.
9. Confidential Information and Results of Services. Employee agrees
that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not make use of or disclose, without the
prior consent of the Company, Confidential Information (as hereinafter defined)
relating to the Company, or any of its affiliates, and further agrees, that he
will return to the Company all written materials in his possession embodying
such Confidential Information. For purposes of this Agreement, "Confidential
Information" includes information conveyed or assigned to the Company by
Employee or conceived, compiled, created, developed, discovered or obtained by
Employee from and during his employment relationship with the Company, whether
solely by the Employee or jointly with others, which concerns the affairs of the
Company or its affiliates and which the Company could reasonably be expected to
desire be held in confidence, or the disclosure of which would likely be
embarrassing, detrimental or disadvantageous to the Company or its affiliates
and without limiting the generality of the foregoing includes information
relating to inventions, and the trade secrets, technologies, algorithms,
products, services, finances, business plans, marketing plans, legal affairs,
supplier lists, client lists, potential clients, business prospects, business
opportunities, personnel assignments, contracts and assets of the Company and
information made available to the Company by other parties under a confidential
relationship. Confidential Information, however, shall not include information
(a) which is, at the time in question, in the public domain through no wrongful
act of Employee, (b) which is later disclosed to Employee by one not under
obligations of confidentiality to the Company or Employee, (c) which is required
by court or governmental order, law or regulation to be disclosed, or (d) which
the Company has expressly given Employee the right to disclose pursuant to
written agreement. Employee agrees that the remedy at law for any breach by him
of this Section 9 will be inadequate and that the Company shall also be entitled
to injunctive relief.
10. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered
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by hand, by courier service, or sent by registered or certified mail, postage
prepaid, to the parties at their respective addresses listed below:
(a) If to the Employee, to the address set out in the beginning of
this Agreement;
(b) If to the Company:
Maintenance Specialists of America, Inc.
1225 North Loop West, Suite 324
Houston, Texas 77008
Either party may change such party's address by such notice to the
other parties.
11. Assignment. This Agreement is personal to the Employee, and he shall
not assign any of his rights or delegate any of his duties hereunder without the
prior written consent of the Company. Neither the employee nor his spouse will
have the right to commute, encumber, or otherwise dispose of any payments under
this Agreement. The Company shall have the right to assign this Agreement to a
successor in interest in connection with a merger, sale of substantially all
assets, or the like; provided however, that an assignment of this Agreement to
an entity with operations, products or services outside of the industries in
which the Company is then active shall not be deemed to expand the scope of
Employee's covenant not to compete with such operations, products or services
without Employee's written consent.
12. Survival. The provisions of this Agreement shall survive the
termination of the Employee's employment hereunder in accordance with their
terms.
13. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of Texas.
14. Binding Upon Successors. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Employee with respect to the terms of employment of
the Employee by the Company and supersedes all prior agreements and
understandings, whether written or oral, between them concerning such terms of
employment.
16. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented, and any
obligation hereunder may be waived, only by a written instrument executed by the
parties hereto. The waiver by either party of a breach of any provision of this
Agreement shall not operate as a waiver of any subsequent breach.
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(b) No failure on the part of any party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver hereof, nor
shall any single or partial exercise of any such right or remedy by such party
preclude any other or further exercise thereof or the exercise of any other
right or remedy. All rights and remedies hereunder are cumulative and are in
addition to all other rights and remedies provided by law, agreement or
otherwise.
(c) The Employee's obligations to the Company and the Company's rights
and remedies hereunder are in addition to all other obligations of the Employee
and rights and remedies of the Company created pursuant to any other agreement.
17. 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.
18. Severability. In the event that any provision or provisions of this
Agreement is held to be invalid, illegal or unenforceable by any court of law or
otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, 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 unenforceable.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written.
MAINTENANCE SPECIALISTS OF AMERICA INC., A TEXAS CORPORATION
By:
------------------------------------------
Chester J. Jachimiec, Executive Vice President
EMPLOYEE:
---------------------------------------------
J. Patrick Millinor, Jr.
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EXHIBIT 10.30
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made effective as of
August 1, 1997, by and between GroupMAC Management Co., a Delaware corporation
(the "Company") and Donald L. Luke, an individual with an address of 7400 E.
Gainey Club Drive, #122, Scottsdale, Arizona 85258 (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and
Employee hereby accepts employment with the Company upon the terms and
conditions set forth herein.
2. Term of Employment. This Agreement shall continue in effect for an
initial term of three years from the date of this Agreement and shall be
extended from year to year thereafter, unless written notice electing not to
extend from the Company to Employee, or from Employee to the Company, is
delivered not less than 90 days prior to the end of the initial term, or the
anniversary of such one-year extension, as applicable.
3. Scope of Duties; Representations and Warranties.
(a) Employee shall be initially employed by the Company as its President
and Chief Operating Officer. Subject to consultation with the Chief Executive
Officer of the Company and directions, guidelines or policies established by the
Board of Directors of the Company, Employee will have the duties and functions
set forth on Exhibit A hereto. The Company shall nominate Employee to be
elected as a Director and President and Chief Operating Officer of Group
Maintenance America Corp.
(b) So long as he is employed by the Company, Employee shall devote his
skill, energy and best efforts to the faithful discharge of his duties as an
employee of the Company. In the provision of all services to the Company,
Employee shall comply with and follow all directives, policies, standards and
regulations from time to time established by the Board of Directors of the
Company.
(c) Employee represents and warrants that he is under no contractual or
other restrictions or obligations that will significantly limit his activities
on behalf of the Company or that will prohibit or limit the disclosure or use of
by Employee of any information directly or indirectly relating to the nature of
the Company or the services to be rendered by Employee under this Agreement.
(d) To the extent they relate to, or result from, directly or indirectly,
the actual or anticipated operations of the Company, all patents, trademarks,
copyrights, trade secrets and other intellectual property rights, all
inventions, whether or not patentable, and any product, drawing, design,
recording, writing, literary work or other author's work, in any other tangible
form developed in whole or in part by Employee during the term of this
Agreement, or otherwise developed, purchased or acquired by the Company, shall
be
Employment Agreement/Page 1
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the exclusive property of the Company ("Intellectual Property"), and unless
otherwise agreed by the Company, all right, title and interest therein shall
remain in the Company.
(e) Employee shall hold all Intellectual Property and Confidential
Information (defined in Section 9 below) in trust for the Company and shall
deliver all Intellectual Property and Confidential Information in his possession
or control to the Company upon request and, in any event, at the end of his
employment with the Company. Employee will promptly disclose to the Company all
Confidential Information, as well as any business opportunity that comes to his
attention during the term of his employment with the Company. Employee shall not
take advantage of or divert any business opportunity for the benefit of himself
or any other party without the prior written consent of the Company.
(f) Employee shall assign and does hereby assign to the Company all
property rights that he may now or hereafter have in the Intellectual Property
and Confidential Information. Employee shall take such action, including, but
not limited to, the execution, acknowledgment, delivery and assistance in
preparation of documents, and the giving of testimony, as may be requested by
the Company to evidence, transfer, vest or confirm the Company's right, title
and interest in the Intellectual Property.
(g) Employee shall not contest the validity of any invention, any
copyright, any trademark or any mask work registration owned by or vesting in
the Company under this Agreement.
(h) The terms and conditions of Sections 3(d), (e), (f) and (g) will
survive the termination of this Agreement for any reason whatsoever.
4. Compensation.
(a) During the first year of the term of this Agreement, the Company shall
pay Employee a base salary, payable semi-monthly, in equal installments at a
rate no less than $150,000.00 per year. In each subsequent year of this
Agreement, the Company shall pay to Employee a salary equal to the greater of
(i) his salary for the immediately preceding year or (ii) if determined
otherwise by the Board of Directors, a salary determined by the Board of
Directors following its annual salary and performance review.
(b) In respect to the calendar year 1997, Employee shall be entitled to
receive such bonus or bonuses as the Board of Directors or the Compensation
Committee of the Board of Directors (if so authorized), in its sole discretion,
may determine to be payable to Employee. Such bonus or bonuses may be payable
in 1997 or 1998.
(c) Commencing with calendar year 1998, Employee shall be eligible for any
annual cash performance bonus instituted for senior management during the term
of this Agreement. Current plans are for the Board of Directors of the Company,
in its sole discretion, or the Compensation Committee of the Board of Directors,
if so authorized, to establish specific annual performance goals for the Company
with respect to each calendar year during the term of this Agreement commencing
after December 31, 1997.
Employment Agreement/Page 2
<PAGE>
Such goals will be communicated to Employee not later than the end of the first
quarter of the applicable calendar year. At the end of each such calendar year,
or within a reasonable time thereafter, the Board of Directors of the Company,
or the Compensation Committee of the Board of Directors, if so authorized, will
review the actual performance of the Company and Employee, giving due
consideration to market and other developments outside of the control or
influence of Employee and the Company, and based upon the extent to which the
applicable annual performance goals have been achieved, will determine the
amount of performance bonus payable to Employee with respect to such year. It
is anticipated that the cash performance bonus plan will provide for up to 200%
of Employee's base salary to be earned as a bonus.
(d) The Company shall deduct from all payments of salary and other
compensation to Employee any taxes that are required to be withheld with respect
thereto under applicable federal and state laws.
5. Senior Management Stock Options.
(a) The Company shall grant Employee non-qualified stock options (the
"Initial Senior Management Options") to purchase no less than 35,000 shares of
the common stock of the Company as presently constituted, at an exercise price
of $1.231 per share on the terms set forth in the form of Option Agreement
proposed to be executed between the Company and Employee in the form attached
hereto as Exhibit B (the "Option Agreement"). Subject to the Option Agreement,
the Initial Senior Management Options will vest ratably as of August 1 of the
calendar years 1998, 1999 and 2000. The Initial Senior Management Options shall
have a term of 10 years from the date of grant, and may be exercised in whole or
in part, from time to time, at any time after vesting by the payment of cash or
the tender of shares of the Company's Common Stock having a Designated Value
equal to the exercise price of the Initial Senior Management Options being
exercised, all as set forth in the Option Agreement. Upon the issuance of
shares of Common Stock in connection with the exercise of the Initial Senior
Management Options and as a condition precedent to receiving certificates
representing such Common Stock, Employee shall become a party to that certain
Amended and Restated Shareholders Agreement dated April 30, 1997 (the
"Shareholder's Agreement"), by executing and delivering (and by causing his
spouse to execute and deliver) a counterpart of the Shareholders Agreement
provided same is then in effect.
(b) Commencing with the Company's initial public offering of Common Stock
or earlier, if the Board of Directors so elects, and for each partial or full
calendar year thereafter during the term hereof, provided Employee is then
serving as an employee of the Company, the Company shall grant to Employee
options (together with the Initial Senior Management Options, collectively
referred to as the "Senior Management Options") to purchase such number of
additional shares of Common Stock as the Board of Directors of the Company, or
the Compensation Committee of the Board of Directors, if so authorized, may
determine, on such terms and conditions as shall be established at such time.
At the initial public offering, Employee shall receive Senior Management Options
equal to those given the Chief Executive Officer of the Company. It is
currently
Employment Agreement/Page 3
<PAGE>
anticipated that the number of such options (prior to any stock split or reverse
stock split) will be between 125,000 and 140,000.
(c) For purposes hereof, "Designated Value" (i) the average of the closing
prices of the Common Stock on the principal market or registered exchange on
which the Common Stock is traded (or the average of the closing bid and ask
prices, if a single closing price is not reported for such market) on the 10
consecutive trading days next preceding the date for the determination of such
value, provided that the stock is then traded on the over-the-counter market or
on the NASDAQ System or any registered securities exchange, or (ii) if not
publicly traded, the book value per share of the Company as of the end of the
calendar quarter next preceding the date of determination of such value.
(d) The Company shall register under the Securities Act of 1933 and all
applicable state securities laws and regulations the shares of Common Stock
issuable upon the exercise of the foregoing Senior Management Options in the
same manner as shares issuable under any other stock options or stock purchase
plans of the Company. Further, the Company shall grant to Employee "demand" or
"piggyback" registration rights with respect to all such Senior Management
Option shares (to the extent same have not been registered), and all other
shares of common stock owned directly or indirectly by Employee or Employee's
immediate family, equivalent to the "demand" or "piggyback" registration rights
granted under that certain Registration Rights Agreement dated October 24,
1996, by and among Maintenance Specialists of America, Inc., Gordon Cain and
other holders of common stock of the Company.
6. Fringe Benefits; Expenses.
(a) So long as Employee is employed by the Company, Employee shall
participate in all employee benefit plans sponsored by the Company for its
executive employees, including but not limited to vacation policy, sick leave
and disability leave, health insurance, dental insurance and pension and/or
profit sharing plans; provided, however, that except as provided below, the
nature, amount and limitations of such plans shall be determined from time to
time by the Board of Directors of the Company.
(b) The Company will reimburse Employee for all reasonable business
expenses incurred by Employee in the scope of his employment in accordance with
the Company's standard expense reporting and reimbursement policies.
(c) Employee shall be entitled to participate in any other stock bonus,
stock purchase or stock option plan instituted by the Company for its managers
or employees generally in the same manner as any other senior executive officer
of the Company, with proper regard and weight given in the issuance of shares or
the grant of options for Employee's position (and without consideration of the
above Senior Management Options or any shares of the Company otherwise owned by
Employee directly or indirectly).
Employment Agreement/Page 4
<PAGE>
(d) The Company shall make reasonable efforts to provide life insurance
payable to Employee's designated beneficiary in an amount at least three times
Employee's annual base salary.
(e) The Company shall make a reasonable effort to maintain disability
insurance on behalf of Employee which, as a goal, shall provide for salary
continuation in the event of permanent disability in an amount not less than 60%
of Employee's regular base salary.
(f) Employee shall be entitled to a minimum of three weeks paid vacation,
increasing to four weeks at August 1, 2000 during each calendar year. Any
unused vacation with respect to any calendar year shall lapse and shall not
accumulate.
(g) The Company will pay all license fees, occupation taxes and reasonable
educational costs and expenses necessary to maintain Employee's good standing
under any required professional licenses.
(h) The Company shall reimburse Employee for all reasonable costs of
relocation to Houston, Texas, from Scottsdale, Arizona, including up to three
months' rental expense for temporary living quarters in Houston beginning on the
date of this Agreement. Such reimbursement will be grossed-up to cover any
income tax liability generated as a result of this Section 6(h).
7. Termination.
(a) This Agreement may be terminated by the Company with or without "Cause"
at any time, subject to the terms of this Section 7. Such termination shall be
effective upon delivery of written notice to Employee of the Company's election
to terminate this Agreement under this Section 7. "Cause" when used in
connection with the termination of employment with the Company, shall mean the
termination of Employee's employment by the Company by reason of (i) the
conviction of Employee of a crime involving moral turpitude by a court of
competent jurisdiction as to which no further appeal can be taken; (ii) the
proven commission by Employee of an act of fraud upon the Company, (iii) the
willful and proven misappropriation of any funds or property of the Company by
Employee; (iv) the willful, continued and unreasonable failure by Employee to
perform material duties assigned to him and agreed to by him after reasonable
notice and opportunity to cure such performance; (v) the knowing engagement by
Employee in any direct, material conflict of interest with the Company without
compliance with the Company's conflict of interest policy, if any, then in
effect; (vi) the knowing engagement by Employee, without the written approval of
the Board of Directors of the Company, in any activity that competes with the
business of the Company or that would result in a material injury to the
Company, or (vii) the knowing engagement in any activity that would constitute a
material violation of the provisions of the Company's Insider Trading Policy or
Business Ethics Policy, if any, then in effect.
Employment Agreement/Page 5
<PAGE>
(b) If Employee's employment terminates, unless the Company terminates
Employee's employment under this Agreement for Cause or Employee resigns, the
Company shall, subject to the terms of Section 7(d) below, and only if and as
long as Employee is not in breach of his obligations under this Agreement, pay
to Employee an amount equal to 12 months compensation at his then current
salary, payable semimonthly, and shall continue to provide benefits in the kind
and amounts provided up to the date of termination for said 12 months period
including, without limitation, continuation of any Company-paid benefits as
described in Section 6 for Employee and his family. Notwithstanding anything in
this Agreement to the contrary, in the event Employee's employment terminates
within 12 months after (A) a sale of all or substantially all of the assets of
the Company, or (B) a merger, consolidation, liquidation, reorganization or any
other change of control related to a singular event such as a tender offer
involving the Company, the Company shall pay to Employee an amount equal to 36
months compensation at Employee's then current annual salary, payable either in
one lump sum or semimonthly as determined by the Company in its sole discretion,
and shall continue to provide benefits in the kind and amounts provided up to
the date of termination for such 36 month period.
In the event that this Agreement is terminated by Company without Cause,
Employee shall accept, in full settlement of any and all claims, losses, damages
and other demands that Employee may have arising out of such termination as
liquidated damages and not as a penalty, the applicable amount of which is set
out above and Employee will not be required to mitigate the amount of such
payments by seeking other employment of otherwise, nor will any profits, income,
earnings or other benefits from any source whatsoever create any mitigation,
offset, reduction or any other obligation on the part of Employee under this
Agreement.
(c) If at any time during the term of this Agreement, Employee is unable
due to physical or mental disability, to perform effectively his duties
hereunder, the Company shall continue payment of compensation as provided in
Section 4 during the first 12 month period of such disability to the extent not
covered by the Company's disability insurance policies. Upon the expiration of
such 12 month period, the Company, at its sole option, may continue payment of
Employee's salary for such additional periods as the Company elects, or may
terminate this Agreement without any further obligations hereunder.
(d) If Employee should die during the term of this Agreement, Employee's
employment and the Company's obligations hereunder shall terminate as of the end
of the month in which Employee's death occurs and there will be no salary and
benefit continuation period pursuant to Section 7(b).
(e) Employee shall enter into any lock-up letters, standstill agreements or
other similar documentation required by an underwriter in connection with a
public offering of securities by the Company or take other actions reasonably
related thereto as requested by the Board of Directors of the Company. If
Employee fails to take any such action, Employee shall forfeit any further
rights to the payments in Section 7(b) or (c),
Employment Agreement/Page 6
<PAGE>
and the Company can seek and obtain specific performance of such covenant,
including any injunction requiring execution thereof. Employee hereby appoints
the then current chief executive officer of the Company to sign any such
documents on his behalf so long as such documents are prepared on the same basis
as other shareholders generally or as all management shareholders.
8. Covenant Not to Compete.
(a) During the term of this Agreement, Employee will not compete with the
Company or its affiliates, directly or indirectly, either for himself or as a
member of a partnership or as stockholder (except as a stockholder of less than
one percent of the issued and outstanding stock of a publicly-held company whose
gross assets exceed $100 million), investor, owner, officer or director of a
company or other entity, or as an employee, agent, associate or consultant of
any person, partnership, corporation or other entity, in any business in
competition with that carried on by the Company or any of its affiliates.
(b) For a period of six months from and after the date of termination of
Employee's employment under this Agreement, regardless of the reason for such
termination, Employee will neither represent the Company nor engage in or carry
on, directly or indirectly, either for himself or as a member of a partnership
or as a stockholder (other than as a stockholder of less than one percent of the
issued and outstanding stock of a publicly-held company whose gross assets
exceed $100 million), investor, owner, officer or director of a company or other
entity, or as an employee, agent, associate or consultant of any person,
partnership, corporation or other entity, any business in any State of the
United States or in any other part of the world that directly competes with any
services or products produced, sold, conducted, developed or in the process of
development by the Company or its affiliates on the date of termination of
Employee's employment. Notwithstanding the foregoing, nothing herein shall
prevent Employee from working in the indoor air quality, heating, ventilation
and air conditioning or plumbing maintenance services industry, provided that
such activities are in areas not in direct competition with any services or
products produced, sold, conducted, developed or in the process of development
by the Company or its affiliates on the date of termination of Employee's
employment.
(c) Employee acknowledges that the limitations set forth herein on his
rights to compete with the Company and its affiliates are reasonable and
necessary for the protection of the Company and its affiliates. In this regard,
Employee specifically agrees that the limitations to period of time and
geographic area, as well as all other restrictions on his activities specified
herein, are reasonable and necessary for the protection of the Company and its
affiliates. In particular, Employee acknowledges that the parties anticipate
that Employee will be actively seeking markets for the Company's products
throughout the United States during his employment with the Company.
Employment Agreement/Page 7
<PAGE>
(d) Employee acknowledges that the remedy at law for any breach by him of
this Section 8 will be inadequate and that the Company shall also be entitled to
injunctive relief.
(e) If there shall be any violation of the covenant not to compete set
forth in Section 8(a) above, then the time limitation thereof shall be extended
for a period of time equal to the period of time during which such violation
continues; and in the even the Company is required to seek relief from such
violation in any court, board of arbitration or tribunal, then the covenant
shall be extended for a period of time equal to the pendency of such
proceedings, including all appeals.
(f) This Agreement shall be construed as a separate agreement covering each
separate jurisdiction in which the Company or any of its affiliates has
conducted business.
9. Confidential Information and Results of Services. During the term of
this Agreement, and for five years after his termination of employment, Employee
shall not make use of or disclose, other than in the discharge and performance
of his duties and responsibilities to the Company, Confidential Information (as
hereinafter defined) relating to the Company or any of its affiliates and shall
return to the Company all written materials in his possession embodying such
Confidential Information. For purposes of this Agreement, "Confidential
Information" includes information conveyed or assigned to the Company by
Employee or conceived, compiled, created, developed, discovered or obtained by
Employee from and during his employment relationship with the Company, whether
solely by Employee or jointly with others, which concerns the affairs of the
Company or its affiliates and which the Company could reasonably be expected to
desire be held in confidence, or the disclosure of which would likely be
embarrassing, detrimental or disadvantageous to the Company or any of its
affiliates and, without limiting the generality of the foregoing, includes
information relating to inventions, trade secrets, technologies, algorithms,
products, services, finances, business plans, marketing plans, legal affairs,
supplier lists, client lists, potential clients, business prospects, business
opportunities, personnel assignments, contracts and assets of the Company and
information made available to the Company by other parties under a confidential
relationship. Confidential Information, however, shall not include information
(i) in the public domain through no wrongful act of Employee, (ii) disclosed to
Employee by one not under obligations of confidentiality to the Company or
Employee, or (iii) which is required by court or governmental order, law or
regulation to be disclosed. Employee acknowledges that the remedy at law for
any breach by him of this Section 9 will be inadequate and that the Company
shall also be entitled to injunctive relief.
10. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to Employee, to the address set out in the beginning of this
Agreement;
Employment Agreement/Page 8
<PAGE>
(b) If to the Company:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Either party may change such party's address by such notice to the other
parties.
11. Assignment. This Agreement is personal to Employee, and he shall not
assign any of his rights or delegate any of his duties hereunder without the
prior written consent of the Company. Neither Employee nor his spouse shall
have the right to commute, encumber or otherwise dispose of any payments under
this Agreement. The Company shall have the right to assign this Agreement to a
successor in interest in connection with a merger, sale of substantially all
assets, or the like; provided however, that an assignment of this Agreement to
an entity with operations, products or services outside of the industries in
which the Company is then active shall not be deemed to expand the scope of
Employee's covenant not to compete with such operations, products or services
without Employee's written consent.
12. Survival. The provisions of this Agreement shall survive the
termination of Employee's employment hereunder in accordance with their terms.
13. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of Texas without regard to the choice-of-
law provisions thereof.
14. Binding Upon Successors. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and Employee with respect to the terms of employment of
Employee by the Company and supersedes all prior agreements and understandings,
whether written or oral, between them concerning such terms of employment.
16. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented, and any
obligations hereunder may be waived, only by a written instrument executed by
the parties hereto. The waiver by either party of a breach of any provision of
this Agreement shall not operate as a waiver of any subsequent breach.
(b) No failure on the part of any party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver hereof, nor
shall any single or partial exercise of any such right or remedy by such party
preclude any other or further exercise thereof or the exercise of any other
right or remedy. All rights and remedies
Employment Agreement/Page 9
<PAGE>
hereunder are cumulative and are in addition to all other rights and remedies
provided by law, agreement or otherwise.
(c) Employee's obligations to the Company and the Company's rights and
remedies hereunder are in addition to all other obligations of Employee and
rights and remedies of the Company created pursuant to any other agreement.
17. 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.
18. Severability. If any provision or provisions of this Agreement is held
to be invalid, illegal or unenforceable by any court of law or otherwise, the
remaining provisions of this Agreement shall nevertheless continue to be valid,
legal and enforceable as though the invalid or unenforceable parts had not been
included therein. In addition, 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 that are
held to be invalid, illegal or unenforceable.
IN WITNESS WHEREOF, the Company and Employee have executed this Agreement
under seal on the date first above written.
GROUP MAC MANAGEMENT CO., a
Delaware corporation
By: /s/ J. Patrick Millinor, Jr.
-----------------------------------
J. Patrick Millinor, Jr.
President
EMPLOYEE:
/s/ Donald M. Luke
-----------------------------------
Donald L. Luke
Employment Agreement/Page 10
<PAGE>
EXHIBIT A
DUTIES AND FUNCTIONS
Employee will report to the Chief Executive Officer and serve as a member
of the Board. He will serve as the senior Operations professional, and as a
result, all operating companies will report directly to him as displayed in the
attached organization chart as the same may be changed by the Chief Executive
Officer and/or Board of Directors of the Company. His principle responsibility
will be to begin to build a cohesive operating unit out of the acquired
companies, directing them to achieve maximum financial results. While
preserving the local identities of each company, he will begin to implement
programs that offer synergies in both operating efficiencies and cost savings
across a broad range of functions such as finance, insurance and purchasing.
Simultaneously, he should develop a "best practices" program that will impact
areas such as training, safety and quality. Working with the existing
management at the company level, the Chief Operating Officer will over time need
to put into place a succession management plan at each company. He will also
focus on increasing market share through cross-marketing and other initiatives.
The Chief Operating Officer will be responsible for working closely with
other senior management, including finance, legal and acquisitions. Given the
growth strategy of the Company, he will assist in both identifying and
conducting due diligence on acquisition targets. Finally, as a member of senior
management, he will be a key participate in all strategic and tactical matters
affecting the Company.
Employment Agreement/Page 11
<PAGE>
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective as of August 1,
1997, by and between Group Maintenance America Corp., a Texas corporation (the
"Company"), and William Michael Callahan, an individual with an address of 4260
Tuller Road, Suite 102, Dublin, Ohio 43017 (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and the
Employee hereby agrees to work for the Company upon the terms and conditions set
forth herein.
2. Term of Employment. This Agreement shall continue in effect for an
initial term of three (3) years from the date of this Agreement, unless
terminated in accordance with Section 7, and shall be extended from year to year
thereafter, unless terminated effective as of the end of the initial term or any
one-year extension thereafter by written notice from the Company to Employee, or
by written notice of Employee to the Company, delivered not less than ninety
(90) days prior to the end of the initial term, or the anniversary of such one-
year extension, as applicable.
3. Scope of Duties; Representations and Warranties.
(a) The Employee shall be initially employed by the Company as an
Executive Vice President. At all times, the Employee shall serve under the
direction of the Board of Directors of the Company and shall perform the
functions set forth on Exhibit A and such other services as the Board of
Directors shall deem appropriate, consistent with the duties of Employee stated
herein.
(b) So long as he is employed by the Company, the Employee shall
devote his skill, energy and best efforts to the faithful discharge of his
duties as an employee of the Company. The Employee agrees that in the provision
of all services to the Company, he will comply with and follow all directives,
policies, standards and regulations from time to time established by the Board
of Directors of the Company, provided such directives, policies, standards and
regulations are lawful and reasonably attainable given the resources available
to Employee.
(c) The Employee while employed hereunder will not be required to
relocate from [Columbus, Ohio] [Atlanta, Georgia] unless the Board of Directors
of the Company determines that the Employee's continued residence in such
location would be detrimental to the best interests of the Company.
(d) The Employee represents and warrants that he is under no
contractual or other restrictions or obligations which will significantly limit
his activities on behalf of the Company or which will prohibit or limit the
disclosure or use of by the Employee of any information which directly or
indirectly relates to the nature of the Company or the services to be rendered
by the Employee under this Agreement.
(e) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all patents, trademarks, copyrights, trade secrets, and other
intellectual property rights, all inventions, whether or not patentable and any
product,
<PAGE>
drawing, design, recording, writing, literary work or other author's work, in
any other tangible form developed in whole or in part by Employee during the
term of this Agreement, or otherwise developed, purchased or acquired by
Employer, shall be the exclusive property of the Employer ("Intellectual
Property"), and unless otherwise agreed by Employer, all right, title and
interest therein shall remain in Employer.
(f) The Employee will hold all Intellectual Property and Confidential
Information (defined below) in trust for the Company and will deliver all
Intellectual Property and Confidential Information in his possession or control
to the Company upon request and, in any event, at the end of his employment with
the Company. The employee will promptly disclose to the Company all
Confidential Information, as well as any business opportunity which comes to his
attention during the term of his employment with the Company. The Employee will
not take advantage of or divert any business opportunity for the benefit of
himself or any other party without the prior written consent of the Company.
(g) The Employee shall assign and does hereby assign to the Company
all property rights that he may now or hereafter have in the Intellectual
Property and Confidential Information. The Employee shall take such action,
including, but not limited to, the execution, acknowledgment, delivery and
assistance in preparation of documents, and the giving of testimony, as may be
requested by the Company to evidence, transfer, vest or confirm the Company's
right, title and interest in the Intellectual Property.
(h) The Employee will not contest the validity of any invention, any
copyright, any trademark or any mask work registration owned by or vesting in
the Company under this Agreement.
(i) The terms and conditions of Sections 3(d), (e), (f), and (g) will
survive the termination of this Agreement for any reason whatsoever.
4. Compensation.
(a) During the first year, the Company shall pay the Employee a base
salary, payable semi-monthly, in equal installments at a rate equal to $150,000
per year. In each subsequent year of this Agreement, the Company shall pay to
the Employee a salary equal to the greater of (i) his salary for the immediately
preceding year or (ii) if determined otherwise by the Board of Directors a
salary determined by the Board of Directors following its annual salary and
performance review.
(b) Commencing with calendar year 1998, Employee shall receive an
annual cash performance bonus for each calendar year during the term of this
Agreement to be determined according to the following procedure. The Board of
Directors of the Company, or the Compensation Committee of the Board of
Directors, if so authorized, shall establish specific annual performance goals
for the Company and for Employee with respect to each calendar year during the
term of the Agreement (commencing January 1, 1998). Such goals shall be
communicated to Employee not later than the end of the first quarter of the
applicable calendar year. At the end of each calendar year during the term of
this Agreement, or within a reasonable time thereafter, the Board of Directors
of the Company, or the Compensation Committee of the
-2-
<PAGE>
Board of Directors, if so authorized, shall review the actual performance of the
Company and Employee, giving due consideration to markets and other developments
outside of the control or influence of Employee and the Company, and based upon
the extent to which the applicable annual performance goals have been achieved,
shall determine in its sole and absolute discretion, the amount of performance
bonus payable to Employee with respect to such year. The Board of Directors may
also declare bonuses for fiscal year 1997, in its discretion, and Employee will
participate in accordance with his level of participation.
(c) All payments of salary and other compensation to the Employee
shall be made after deduction of any taxes which are required to be withheld
with respect thereto under applicable federal and state laws.
5. Senior Management Stock Options
(a) Commencing with the Company's initial public offering of Common
Stock and for each partial or full calendar year thereafter during the term
hereof, provided Employee is then serving as an employee of the Company, the
Company shall grant to Employee options (together with the Initial Senior
Management Options, collectively referred to as the "Senior Management Options")
to purchase such number of additional shares as the Board of Directors of the
Company may determine, on such terms and conditions as shall be established at
such time. Such grants of Senior Management Options shall be in a number and
form commensurate with other employees of the Company in the same or similar
position as Employee.
(b) From time to time the Company agrees to register under the
Securities Act of 1933 and all applicable state securities laws and regulations
the shares of common stock issuable upon the exercise of the foregoing Senior
Management Options in the same manner as shares issuable under any other stock
options or stock purchase plans of the Company. Further, the Company agrees to
grant to the Employee "demand" or "piggyback" registration rights with respect
to all such Senior Management Option shares (to the extent same have not been
registered), and all other shares of common stock owned directly or indirectly
by the Employee or Employee's immediate family, equivalent to the "demand" or
"piggyback" registration rights granted under that certain Registration Rights
Agreement dated October 24, 1996, by and among the Company, Gordon Cain and
other holders of common stock of the Company.
6. Fringe Benefits; Expenses.
(a) So long as the Employee is employed by the Company, the Employee
shall participate in all employee benefit plans sponsored by the Company for its
executive employees, including but not limited to vacation policy, sick leave
and disability leave, health insurance, dental insurance and pension and/or
profit sharing plans; provided, however, that except as provided below, the
nature, amount and limitations of such plans shall be determined from time to
time by the Board of Directors of the Company.
-3-
<PAGE>
(b) The Company will reimburse the Employee for all reasonable
business expenses incurred by the Employee in the scope of his employment.
(c) Employees shall be entitled to participate in any other stock
bonus, stock purchase or stock option plan instituted by the Company for its
managers or employees generally in the same manner as any other senior executive
officer of the Company, with proper regard and weight given in the issuance of
shares or the grant of options for the Employee's position (and without
consideration of the above Senior Management Options or any shares of the
Company otherwise owned by Employee directly or indirectly).
(d) The Company shall make reasonable efforts to provide life
insurance payable to Employee's designated beneficiary in an amount at least
three times Employee's annual base salary.
(e) The Company shall make a reasonable effort to maintain disability
insurance on behalf of Employee which, as a goal, shall provide for salary
continuation in the event of permanent disability in an amount not less than 60%
of the Employee's regular base salary.
(f) The Employee shall be entitled to a minimum of three weeks paid
vacation, increasing to four weeks at June 1, 2000.
(g) The Company will pay all license fees, occupation taxes and
reasonable educational costs and expenses necessary to maintain Employee's good
standing under any professional licenses.
7. Termination.
(a) Employee agrees that this Agreement may be terminated by the
Company with or without "Cause" at any time, subject to the terms of this
Section 7. Such termination shall be effective upon delivery of written notice
to Employee of the Company's election to terminate this Agreement under this
Section 7. "Cause" when used in connection with the termination of employment
with the Company, shall mean the termination of the Employee's employment by the
Company, after review and approval by the Board of Directors of the Company, by
reason of (i) the conviction of the Employee of a crime involving moral
turpitude by a court of competent jurisdiction as to which no further appeal can
be taken; (ii) the proven commission by the Employee of an act of fraud upon the
Company; (iii) the willful and proven misappropriation of any funds or property
of the Company by the Employee; (iv) the willful, continued and unreasonable
failure by the Employee to perform material duties assigned to him and agreed to
by him after reasonable notice and opportunity to cure such performance; (v) the
knowing engagement by the Employee in any direct, material conflict of interest
with the Company without compliance with the Company's conflict of interest
policy, if any, then in effect; (vi) the knowing engagement by the Employee,
without the written approval of the Board of Directors of the Company, in any
activity which competes with the business of the Company or which would result
in a material injury to the Company; or (vi) the knowing engagement in any
activity which would constitute a material violation of the provisions of the
Company's Insider Trading Policy or Business Ethics Policy, if any, then in
effect.
-4-
<PAGE>
If the Employee's employment terminates, unless the Company terminates the
Employee's employment under this Agreement for Cause or the Employee resigns
(unless such termination or resignation is in conjunction with a refusal by
Employee to relocate pursuant to Section 3(c)), the Company shall, subject to
the terms of Section 7(c) below, and only if and as long as Employee is not in
breach of his obligations under this Agreement, pay to the Employee an amount
equal to twelve (12) months compensation at his then current salary, payable
semimonthly, and shall continue to provide benefits in the kind and amounts
provided up to the date of termination for said twelve (12) month period
including, without limitation, continuation of any Company-paid benefits as
described in Section 6 for the Employee and his family; provided, however, that
in the event that Gordon A. Cain elects to cease payments of outstanding
installments in compliance with the Subscription Agreement dated October 24,
1996 with the Company, and the Company elects to terminate Employee under this
Section 7, or Employee resigns within 60 days of such termination (each a "Cain
Termination Event"), then if Employee is not in breach of his obligations under
this Agreement, the Company shall pay to the Employee, in lieu of the severance
payments described above, three (3) months compensation under this Agreement,
payable semi-monthly, and the Company shall continue to provide benefits in the
kind and amount provided up to the date of termination for said three (3) month
period. Notwithstanding anything in this Agreement to the contrary, in the event
the Employee's employment terminates (for any reason other than as a result of a
Cain Termination Event) within twelve months after (A) a sale of all or
substantially all of the assets of the Company or (B) a merger, tender offer,
consolidation, liquidation or reorganization resulting in a change of control of
the Company in which the shareholders of the Company immediately prior to such
event own less than 51% of the Company immediately following such event, the
Company shall pay to the Employee an amount equal to thirty six (36) months
compensation at Employee's then current annual salary, payable semimonthly, and
shall continue to provide benefits in the kind and amounts provided up to the
date of termination for such thirty six (36) month period; provided, however,
that if such payments would trigger an excise tax under Section 280G of the
Internal Revenue Code of 1986, as amended, such payments shall be cut back to
the extent necessary to avoid such excise tax.
In the event that this Agreement is terminated by Company without Cause,
Employee agrees to accept, in full settlement of any and all claims, losses,
damages and other demands which Employee may have arising out of such
termination as liquidated damages and not as a penalty, the applicable amount
which is set out above. Employee hereby waives any and all rights he may have
to bring any cause of action or proceeding contesting any termination without
Cause, provided, however, that such waiver shall not be deemed to affect
Employee's rights to enforce any other obligations of the Company. Under no
circumstances shall Employee be entitled to any compensation or confirmation of
any benefits under this Agreement for any period of time following his date of
termination if his termination is for Cause.
(b) If at any time during the term of this Agreement, Employee is
unable due to physical or mental disability, to perform effectively his duties
hereunder, the Company shall continue payment of compensation as provided in
Section 4 during the first twelve (12) month period of such disability to the
extent not covered by the Company's disability insurance policies. Upon the
expiration of such twelve (12) month period, the Company, at its sole option,
may continue payment of Employee's salary for such additional periods as the
Company elects, or may terminate this Agreement without any further obligations
hereunder. If Employee should die during the term of this Agreement, Employee's
employment and the
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Company's obligations hereunder shall terminate as of the end of the month in
which Employee's death occurs and there will be no salary and benefit
continuation period pursuant to Section 7(a).
(c) So long as Employee receives a severance as provided in Section
7(a) or (b) above, Employee agrees that he will sign any lock-up letters,
standstill agreements, or other similar documentation required by an underwriter
in connection with a public offering of securities by the Company or take other
actions reasonably related thereto as requested by the Board of Directors of the
Company so long as the other senior officers of the Company are required to sign
such lock-up letters, standstill agreements or other similar documentation.
Failure to take any such action shall cause Employee to forfeit any further
rights to the salary continuation payments in Section 7(a) or (b). In addition,
Employee agrees that in such event the Company can seek and obtain specific
performance of such covenant, including any injunction requiring execution
thereof, and the Employee hereby appoints the then current president of the
Company to sign any such documents on his behalf so long as such documents are
prepared on the same basis as other shareholders generally or as all management
shareholders.
8. Covenant Not to Compete.
(a) During the term of this Agreement, Employee will not compete with
the Company or its affiliates, directly or indirectly, either for himself or as
a member of a partnership or as a stockholder (except as a stockholder of less
than one percent (1%) of the issued and outstanding stock of a publicly-held
company whose gross assets exceed one hundred million dollars), investor, owner,
officer or director of a company or other entity, or as an employee, agent,
associate or consultant of any person, partnership, corporation or other entity,
in any business in competition with that carried on by the Company or any of its
affiliates.
(b) Employee further agrees that, for a period of six (6) months from
and after the date of termination of Employee's employment under this Agreement,
regardless of the reason for such termination, he will neither represent the
Company nor engage in or carry on, directly or indirectly, either for himself or
as a member of a partnership or as a stockholder (other than as a stockholder of
less than one percent (1%) of the issued and outstanding stock of a publicly-
held company whose gross assets exceed one hundred million dollars), investor,
owner, officer or director of a company or other entity, or as an employee,
agent, associate or consultant of any person, partnership, corporation or other
entity, any business in any State of the United States or in any other part of
the world which directly competes with any services or products produced, sold,
conducted, developed, or in the process of development by the Company or its
affiliates on the date of termination of Employee's employment. Notwithstanding
the foregoing, nothing herein shall prevent Employee from working in the indoor
air quality, heating, ventilation and air conditioning or plumbing maintenance
services industry, provided that such activities are in areas not in direct
competition with any services or products produced, sold, conducted, developed,
or in the process of development by the Company or its affiliates on the date of
termination of Employee's employment.
(c) Employee agrees that the limitations set forth herein on his
rights to compete with the Company and its
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affiliates are reasonable and necessary for the protection of the Company and
its affiliates. In this regard, Employee specifically agrees that the
limitations as to period of time and geographic area, as well as other
restrictions on his activities specified herein, are reasonable and necessary
for the protection of the Company and its affiliates. In particular, Employee
acknowledged that the parties anticipate that the Employee will be actively
seeking markets for the Company's products throughout the United States during
his employment with the Company.
(d) Employee agrees that the remedy at law for any breach by him of
this Section 8 will be inadequate and that the Company shall also be entitled to
injunctive relief.
9. Confidential Information and Results of Services. Employee agrees
that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not make use of or disclose, without the
prior consent of the Company, Confidential Information (as hereinafter defined)
relating to the Company, or any of its affiliates, and further agrees, that he
will return to the Company all written materials in his possession embodying
such Confidential Information. For purposes of this Agreement, "Confidential
Information" includes information conveyed or assigned to the Company by
Employee or conceived, compiled, created, developed, discovered or obtained by
Employee from and during his employment relationship with the Company, whether
solely by the Employee or jointly with others, which concerns the affairs of the
Company or its affiliates and which the Company could reasonably be expected to
desire be held in confidence, or the disclosure of which would likely be
embarrassing, detrimental or disadvantageous to the Company or its affiliates
and without limiting the generality of the foregoing includes information
relating to inventions, and the trade secrets, technologies, algorithms,
products, services, finances, business plans, marketing plans, legal affairs,
supplier lists, client lists, potential clients, business prospects, business
opportunities, personnel assignments, contracts and assets of the Company and
information made available to the Company by other parties under a confidential
relationship. Confidential Information, however, shall not include information
(a) which is, at the time in question, in the public domain through no wrongful
act of Employee, (b) which is later disclosed to Employee by one not under
obligations of confidentiality to the Company or Employee, (c) which is required
by court or governmental order, law or regulation to be disclosed, or (d) which
the Company has expressly given Employee the right to disclose pursuant to
written agreement. Employee agrees that the remedy at law for any breach by him
of this Section 9 will be inadequate and that the Company shall also be entitled
to injunctive relief.
10. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to the Employee, to the address set out in the beginning of
this Agreement;
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(b) If to the Company:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Either party may change such party's address by such notice to the
other parties.
11. Assignment. This Agreement is personal to the Employee, and he shall
not assign any of his rights or delegate any of his duties hereunder without the
prior written consent of the Company. Neither the employee nor his spouse will
have the right to commute, encumber, or otherwise dispose of any payments under
this Agreement. The Company shall have the right to assign this Agreement to a
successor in interest in connection with a merger, sale of substantially all
assets, or the like; provided however, that an assignment of this Agreement to
an entity with operations, products or services outside of the industries in
which the Company is then active shall not be deemed to expand the scope of
Employee's covenant not to compete with such operations, products or services
without Employee's written consent.
12. Survival. The provisions of this Agreement shall survive the
termination of the Employee's employment hereunder in accordance with their
terms.
13. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of Texas.
14. Binding Upon Successors. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Employee with respect to the terms of employment of
the Employee by the Company and supersedes all prior agreements and
understanding, whether written or oral, between them concerning such terms of
employment.
16. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented, and any
obligation hereunder may be waived, only by a written instrument executed by the
parties hereto. The waiver by either party of a breach of any provision of this
Agreement shall not operate as a waiver of any subsequent breach.
(b) No failure on the part of any party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver hereof, nor
shall any single or partial exercise of any such right or remedy by such party
preclude any other or further exercise thereof or the exercise of any other
right
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or remedy. All rights and remedies hereunder are cumulative and are in addition
to all other rights and remedies provided by law, agreement or otherwise.
(c) The Employee's obligations to the Company and the Company's rights
and remedies hereunder are in addition to all other obligations of the Employee
and rights and remedies of the Company created pursuant to any other agreement.
17. 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.
18. Severability. In the event that any provision or provisions of this
Agreement is held to be invalid, illegal or unenforceable by any court of law or
otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, 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 unenforceable.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written.
GROUP MAINTENANCE AMERICA CORP.,
a Texas corporation
By: ___________________________________
J. Patrick Millinor, Jr., President
EMPLOYEE:
_______________________________________
William Michael Callahan
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EXHIBIT 10.34
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective as of
August 1, 1997, by and between Group Maintenance America Corp., a Texas
corporation (the "Company"), and Alfred R. Roach, Jr., an individual with an
address of 1532 Dunwoody Village parkway, Suite 212, Dunwoody, Georgia 30338
(the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and the
Employee hereby agrees to work for the Company upon the terms and conditions set
forth herein.
2. Term of Employment. This Agreement shall continue in effect for an
initial term of three (3) years from the date of this Agreement, unless
terminated in accordance with Section 7, and shall be extended from year to year
thereafter, unless terminated effective as of the end of the initial term or any
one-year extension thereafter by written notice from the Company to Employee, or
by written notice of Employee to the Company, delivered not less than ninety
(90) days prior to the end of the initial term, or the anniversary of such one-
year extension, as applicable.
3. Scope of Duties; Representations and Warranties.
(a) The Employee shall be initially employed by the Company as an
Executive Vice President. At all times, the Employee shall serve under the
direction of the Board of Directors of the Company and shall perform the
functions set forth on Exhibit A and such other services as the Board of
Directors shall deem appropriate, consistent with the duties of Employee stated
herein.
(b) So long as he is employed by the Company, the Employee shall
devote his skill, energy and best efforts to the faithful discharge of his
duties as an employee of the Company. The Employee agrees that in the provision
of all services to the Company, he will comply with and follow all directives,
policies, standards and regulations from time to time established by the Board
of Directors of the Company, provided such directives, policies, standards and
regulations are lawful and reasonably attainable given the resources available
to Employee.
(c) The Employee while employed hereunder will not be required to
relocate from [Columbus, Ohio] [Atlanta, Georgia] unless the Board of Directors
of the Company determines that the Employee's continued residence in such
location would be detrimental to the best interests of the Company.
(d) The Employee represents and warrants that he is under no
contractual or other restrictions or obligations which will significantly limit
his activities on behalf of the Company or which will prohibit or limit the
disclosure or use of by the Employee of any information which directly or
indirectly relates to the nature of the Company or the services to be rendered
by the Employee under this Agreement.
<PAGE>
(e) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all patents, trademarks, copyrights, trade secrets, and other
intellectual property rights, all inventions, whether or not patentable and any
product, drawing, design, recording, writing, literary work or other author's
work, in any other tangible form developed in whole or in part by Employee
during the term of this Agreement, or otherwise developed, purchased or acquired
by Employer, shall be the exclusive property of the Employer ("Intellectual
Property"), and unless otherwise agreed by Employer, all right, title and
interest therein shall remain in Employer.
(f) The Employee will hold all Intellectual Property and Confidential
Information (defined below) in trust for the Company and will deliver all
Intellectual Property and Confidential Information in his possession or control
to the Company upon request and, in any event, at the end of his employment with
the Company. The employee will promptly disclose to the Company all
Confidential Information, as well as any business opportunity which comes to his
attention during the term of his employment with the Company. The Employee will
not take advantage of or divert any business opportunity for the benefit of
himself or any other party without the prior written consent of the Company.
(g) The Employee shall assign and does hereby assign to the Company
all property rights that he may now or hereafter have in the Intellectual
Property and Confidential Information. The Employee shall take such action,
including, but not limited to, the execution, acknowledgment, delivery and
assistance in preparation of documents, and the giving of testimony, as may be
requested by the Company to evidence, transfer, vest or confirm the Company's
right, title and interest in the Intellectual Property.
(h) The Employee will not contest the validity of any invention, any
copyright, any trademark or any mask work registration owned by or vesting in
the Company under this Agreement.
(i) The terms and conditions of Sections 3(d), (e), (f), and (g) will
survive the termination of this Agreement for any reason whatsoever.
4. Compensation.
(a) During the first year, the Company shall pay the Employee a base
salary, payable semi-monthly, in equal installments at a rate equal to $150,000
per year. In each subsequent year of this Agreement, the Company shall pay to
the Employee a salary equal to the greater of (i) his salary for the immediately
preceding year or (ii) if determined otherwise by the Board of Directors a
salary determined by the Board of Directors following its annual salary and
performance review.
(b) Commencing with calendar year 1998, Employee shall receive an
annual cash performance bonus for each calendar year during the term of this
Agreement to be determined according to the following procedure. The Board of
Directors of the Company, or the Compensation Committee of the Board of
Directors, if so authorized, shall establish specific annual performance goals
for the Company and for Employee with respect to each calendar year during the
term of the Agreement (commencing January 1, 1998).
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Such goals shall be communicated to Employee not later than the end of the first
quarter of the applicable calendar year. At the end of each calendar year during
the term of this Agreement, or within a reasonable time thereafter, the Board of
Directors of the Company, or the Compensation Committee of the Board of
Directors, if so authorized, shall review the actual performance of the Company
and Employee, giving due consideration to markets and other developments outside
of the control or influence of Employee and the Company, and based upon the
extent to which the applicable annual performance goals have been achieved,
shall determine in its sole and absolute discretion, the amount of performance
bonus payable to Employee with respect to such year. The Board of Directors may
also declare bonuses for fiscal year 1997, in its discretion, and Employee will
participate in accordance with his level of participation.
(c) All payments of salary and other compensation to the Employee
shall be made after deduction of any taxes which are required to be withheld
with respect thereto under applicable federal and state laws.
5. Senior Management Stock Options
(a) Commencing with the Company's initial public offering of Common
Stock and for each partial or full calendar year thereafter during the term
hereof, provided Employee is then serving as an employee of the Company, the
Company shall grant to Employee options (together with the Initial Senior
Management Options, collectively referred to as the "Senior Management Options")
to purchase such number of additional shares as the Board of Directors of the
Company may determine, on such terms and conditions as shall be established at
such time. Such grants of Senior Management Options shall be in a number and
form commensurate with other employees of the Company in the same or similar
position as Employee.
(b) From time to time the Company agrees to register under the
Securities Act of 1933 and all applicable state securities laws and regulations
the shares of common stock issuable upon the exercise of the foregoing Senior
Management Options in the same manner as shares issuable under any other stock
options or stock purchase plans of the Company. Further, the Company agrees to
grant to the Employee "demand" or "piggyback" registration rights with respect
to all such Senior Management Option shares (to the extent same have not been
registered), and all other shares of common stock owned directly or indirectly
by the Employee or Employee's immediate family, equivalent to the "demand" or
"piggyback" registration rights granted under that certain Registration Rights
Agreement dated October 24, 1996, by and among the Company, Gordon Cain and
other holders of common stock of the Company.
6. Fringe Benefits; Expenses.
(a) So long as the Employee is employed by the Company, the Employee
shall participate in all employee benefit plans sponsored by the Company for its
executive employees, including but not limited to vacation policy, sick leave
and disability leave, health insurance, dental insurance and pension and/or
profit sharing plans; provided, however, that except as provided below, the
nature, amount
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and limitations of such plans shall be determined from time to time by the Board
of Directors of the Company.
(b) The Company will reimburse the Employee for all reasonable
business expenses incurred by the Employee in the scope of his employment.
(c) Employees shall be entitled to participate in any other stock
bonus, stock purchase or stock option plan instituted by the Company for its
managers or employees generally in the same manner as any other senior executive
officer of the Company, with proper regard and weight given in the issuance of
shares or the grant of options for the Employee's position (and without
consideration of the above Senior Management Options or any shares of the
Company otherwise owned by Employee directly or indirectly).
(d) The Company shall make reasonable efforts to provide life
insurance payable to Employee's designated beneficiary in an amount at least
three times Employee's annual base salary.
(e) The Company shall make a reasonable effort to maintain disability
insurance on behalf of Employee which, as a goal, shall provide for salary
continuation in the event of permanent disability in an amount not less than 60%
of the Employee's regular base salary.
(f) The Employee shall be entitled to a minimum of three weeks paid
vacation, increasing to four weeks at June 1, 2000.
(g) The Company will pay all license fees, occupation taxes and
reasonable educational costs and expenses necessary to maintain Employee's good
standing under any professional licenses.
7. Termination.
(a) Employee agrees that this Agreement may be terminated by the
Company with or without "Cause" at any time, subject to the terms of this
Section 7. Such termination shall be effective upon delivery of written notice
to Employee of the Company's election to terminate this Agreement under this
Section 7. "Cause" when used in connection with the termination of employment
with the Company, shall mean the termination of the Employee's employment by the
Company, after review and approval by the Board of Directors of the Company, by
reason of (i) the conviction of the Employee of a crime involving moral
turpitude by a court of competent jurisdiction as to which no further appeal can
be taken; (ii) the proven commission by the Employee of an act of fraud upon the
Company; (iii) the willful and proven misappropriation of any funds or property
of the Company by the Employee; (iv) the willful, continued and unreasonable
failure by the Employee to perform material duties assigned to him and agreed to
by him after reasonable notice and opportunity to cure such performance; (v) the
knowing engagement by the Employee in any direct, material conflict of interest
with the Company without compliance with the Company's conflict of interest
policy, if any, then in effect; (vi) the knowing engagement by the Employee,
without the written approval of the Board of Directors of the Company, in any
activity which competes with the business of the Company or which would result
in a material injury to the Company; or (vi) the knowing engagement in any
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activity which would constitute a material violation of the provisions of the
Company's Insider Trading Policy or Business Ethics Policy, if any, then in
effect.
If the Employee's employment terminates, unless the Company terminates the
Employee's employment under this Agreement for Cause or the Employee resigns
(unless such termination or resignation is in conjunction with a refusal by
Employee to relocate pursuant to Section 3(c)), the Company shall, subject to
the terms of Section 7(c) below, and only if and as long as Employee is not in
breach of his obligations under this Agreement, pay to the Employee an amount
equal to twelve (12) months compensation at his then current salary, payable
semimonthly, and shall continue to provide benefits in the kind and amounts
provided up to the date of termination for said twelve (12) month period
including, without limitation, continuation of any Company-paid benefits as
described in Section 6 for the Employee and his family; provided, however, that
in the event that Gordon A. Cain elects to cease payments of outstanding
installments in compliance with the Subscription Agreement dated October 24,
1996 with the Company, and the Company elects to terminate Employee under this
Section 7, or Employee resigns within 60 days of such termination (each a "Cain
Termination Event"), then if Employee is not in breach of his obligations under
this Agreement, the Company shall pay to the Employee, in lieu of the severance
payments described above, three (3) months compensation under this Agreement,
payable semi-monthly, and the Company shall continue to provide benefits in the
kind and amount provided up to the date of termination for said three (3) month
period. Notwithstanding anything in this Agreement to the contrary, in the event
the Employee's employment terminates (for any reason other than as a result of a
Cain Termination Event) within twelve months after (A) a sale of all or
substantially all of the assets of the Company or (B) a merger, tender offer,
consolidation, liquidation or reorganization resulting in a change of control of
the Company in which the shareholders of the Company immediately prior to such
event own less than 51% of the Company immediately following such event, the
Company shall pay to the Employee an amount equal to thirty six (36) months
compensation at Employee's then current annual salary, payable semimonthly, and
shall continue to provide benefits in the kind and amounts provided up to the
date of termination for such thirty six (36) month period; provided, however,
that if such payments would trigger an excise tax under Section 280G of the
Internal Revenue Code of 1986, as amended, such payments shall be cut back to
the extent necessary to avoid such excise tax.
In the event that this Agreement is terminated by Company without Cause,
Employee agrees to accept, in full settlement of any and all claims, losses,
damages and other demands which Employee may have arising out of such
termination as liquidated damages and not as a penalty, the applicable amount
which is set out above. Employee hereby waives any and all rights he may have
to bring any cause of action or proceeding contesting any termination without
Cause, provided, however, that such waiver shall not be deemed to affect
Employee's rights to enforce any other obligations of the Company. Under no
circumstances shall Employee be entitled to any compensation or confirmation of
any benefits under this Agreement for any period of time following his date of
termination if his termination is for Cause.
(b) If at any time during the term of this Agreement, Employee is
unable due to physical or mental disability, to perform effectively his duties
hereunder, the Company shall continue payment of compensation as provided in
Section 4 during the first twelve (12) month period of such disability to the
extent not covered by the Company's disability insurance policies. Upon the
expiration of such twelve (12)
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month period, the Company, at its sole option, may continue payment of
Employee's salary for such additional periods as the Company elects, or may
terminate this Agreement without any further obligations hereunder. If Employee
should die during the term of this Agreement, Employee's employment and the
Company's obligations hereunder shall terminate as of the end of the month in
which Employee's death occurs and there will be no salary and benefit
continuation period pursuant to Section 7(a).
(c) So long as Employee receives a severance as provided in Section
7(a) or (b) above, Employee agrees that he will sign any lock-up letters,
standstill agreements, or other similar documentation required by an underwriter
in connection with a public offering of securities by the Company or take other
actions reasonably related thereto as requested by the Board of Directors of the
Company so long as the other senior officers of the Company are required to sign
such lock-up letters, standstill agreements or other similar documentation.
Failure to take any such action shall cause Employee to forfeit any further
rights to the salary continuation payments in Section 7(a) or (b). In addition,
Employee agrees that in such event the Company can seek and obtain specific
performance of such covenant, including any injunction requiring execution
thereof, and the Employee hereby appoints the then current president of the
Company to sign any such documents on his behalf so long as such documents are
prepared on the same basis as other shareholders generally or as all management
shareholders.
8. Covenant Not to Compete.
(a) During the term of this Agreement, Employee will not compete with
the Company or its affiliates, directly or indirectly, either for himself or as
a member of a partnership or as a stockholder (except as a stockholder of less
than one percent (1%) of the issued and outstanding stock of a publicly-held
company whose gross assets exceed one hundred million dollars), investor, owner,
officer or director of a company or other entity, or as an employee, agent,
associate or consultant of any person, partnership, corporation or other entity,
in any business in competition with that carried on by the Company or any of its
affiliates.
(b) Employee further agrees that, for a period of six (6) months from
and after the date of termination of Employee's employment under this Agreement,
regardless of the reason for such termination, he will neither represent the
Company nor engage in or carry on, directly or indirectly, either for himself or
as a member of a partnership or as a stockholder (other than as a stockholder of
less than one percent (1%) of the issued and outstanding stock of a publicly-
held company whose gross assets exceed one hundred million dollars), investor,
owner, officer or director of a company or other entity, or as an employee,
agent, associate or consultant of any person, partnership, corporation or other
entity, any business in any State of the United States or in any other part of
the world which directly competes with any services or products produced, sold,
conducted, developed, or in the process of development by the Company or its
affiliates on the date of termination of Employee's employment. Notwithstanding
the foregoing, nothing herein shall prevent Employee from working in the indoor
air quality, heating, ventilation and air conditioning or plumbing maintenance
services industry, provided that such activities are in areas not in direct
competition with any services or products produced, sold, conducted, developed,
or in the process of development by the Company or its affiliates on the date of
termination of Employee's employment.
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(c) Employee agrees that the limitations set forth herein on his
rights to compete with the Company and its affiliates are reasonable and
necessary for the protection of the Company and its affiliates. In this regard,
Employee specifically agrees that the limitations as to period of time and
geographic area, as well as other restrictions on his activities specified
herein, are reasonable and necessary for the protection of the Company and its
affiliates. In particular, Employee acknowledged that the parties anticipate
that the Employee will be actively seeking markets for the Company's products
throughout the United States during his employment with the Company.
(d) Employee agrees that the remedy at law for any breach by him of
this Section 8 will be inadequate and that the Company shall also be entitled to
injunctive relief.
9. Confidential Information and Results of Services. Employee agrees
that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not make use of or disclose, without the
prior consent of the Company, Confidential Information (as hereinafter defined)
relating to the Company, or any of its affiliates, and further agrees, that he
will return to the Company all written materials in his possession embodying
such Confidential Information. For purposes of this Agreement, "Confidential
Information" includes information conveyed or assigned to the Company by
Employee or conceived, compiled, created, developed, discovered or obtained by
Employee from and during his employment relationship with the Company, whether
solely by the Employee or jointly with others, which concerns the affairs of the
Company or its affiliates and which the Company could reasonably be expected to
desire be held in confidence, or the disclosure of which would likely be
embarrassing, detrimental or disadvantageous to the Company or its affiliates
and without limiting the generality of the foregoing includes information
relating to inventions, and the trade secrets, technologies, algorithms,
products, services, finances, business plans, marketing plans, legal affairs,
supplier lists, client lists, potential clients, business prospects, business
opportunities, personnel assignments, contracts and assets of the Company and
information made available to the Company by other parties under a confidential
relationship. Confidential Information, however, shall not include information
(a) which is, at the time in question, in the public domain through no wrongful
act of Employee, (b) which is later disclosed to Employee by one not under
obligations of confidentiality to the Company or Employee, (c) which is required
by court or governmental order, law or regulation to be disclosed, or (d) which
the Company has expressly given Employee the right to disclose pursuant to
written agreement. Employee agrees that the remedy at law for any breach by him
of this Section 9 will be inadequate and that the Company shall also be entitled
to injunctive relief.
10. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to the Employee, to the address set out in the beginning of
this Agreement;
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(b) If to the Company:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Either party may change such party's address by such notice to the
other parties.
11. Assignment. This Agreement is personal to the Employee, and he shall
not assign any of his rights or delegate any of his duties hereunder without the
prior written consent of the Company. Neither the employee nor his spouse will
have the right to commute, encumber, or otherwise dispose of any payments under
this Agreement. The Company shall have the right to assign this Agreement to a
successor in interest in connection with a merger, sale of substantially all
assets, or the like; provided however, that an assignment of this Agreement to
an entity with operations, products or services outside of the industries in
which the Company is then active shall not be deemed to expand the scope of
Employee's covenant not to compete with such operations, products or services
without Employee's written consent.
12. Survival. The provisions of this Agreement shall survive the
termination of the Employee's employment hereunder in accordance with their
terms.
13. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of Texas.
14. Binding Upon Successors. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Employee with respect to the terms of employment of
the Employee by the Company and supersedes all prior agreements and
understanding, whether written or oral, between them concerning such terms of
employment.
16. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented, and any
obligation hereunder may be waived, only by a written instrument executed by the
parties hereto. The waiver by either party of a breach of any provision of this
Agreement shall not operate as a waiver of any subsequent breach.
(b) No failure on the part of any party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver hereof, nor
shall any single or partial exercise of any such right or remedy by such party
preclude any other or further exercise thereof or the exercise of any other
right
-8-
<PAGE>
or remedy. All rights and remedies hereunder are cumulative and are in addition
to all other rights and remedies provided by law, agreement or otherwise.
(c) The Employee's obligations to the Company and the Company's rights
and remedies hereunder are in addition to all other obligations of the Employee
and rights and remedies of the Company created pursuant to any other agreement.
17. 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.
18. Severability. In the event that any provision or provisions of this
Agreement is held to be invalid, illegal or unenforceable by any court of law or
otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, 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 unenforceable.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written.
GROUP MAINTENANCE AMERICA CORP.,
a Texas corporation
By: ___________________________________
J. Patrick Millinor, Jr., President
EMPLOYEE:
_______________________________________
Alfred R. Roach, Jr.
-9-
<PAGE>
EXHIBIT 10.37
CREDIT AGREEMENT
$3,000,000.00 REVOLVING CREDIT LOAN
$12,000,000.00 ADVANCING ACQUISITION LINE OF CREDIT LOAN
$20,000,000.00 TERM LOAN
AMONG
GROUP MAINTENANCE AMERICA CORP.,
AS THE COMPANY,
THE SUBSIDIARIES OF THE COMPANY
LISTED AS GUARANTORS HEREIN
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
AS THE AGENT
AND
THE BANKS NAMED HEREIN
DATED AS OF MAY 2, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION................ 1
SECTION 1.01. Definitions................................... 1
SECTION 1.02. Types of Advances............................. 15
SECTION 1.03. Accounting Terms.............................. 15
SECTION 1.04. Schedules..................................... 15
ARTICLE II THE LOANS..................................................... 16
SECTION 2.01. The Loans..................................... 16
SECTION 2.02. The Notes..................................... 17
SECTION 2.03. Notice of Advance............................. 17
SECTION 2.04. Disbursement of Funds for Loans............... 17
SECTION 2.05. Conversions and Continuances.................. 18
SECTION 2.06. Voluntary Prepayments......................... 18
SECTION 2.07. Mandatory Repayments.......................... 18
SECTION 2.08. Method and Place of Payment................... 19
SECTION 2.09. Pro Rata Advances............................. 19
SECTION 2.10. Interest...................................... 19
SECTION 2.11. Interest Periods.............................. 21
SECTION 2.12. Interest Rate Not Ascertainable............... 22
SECTION 2.13. Change in Legality............................ 22
SECTION 2.14. Increased Costs, Taxes or Capital
Adequacy Requirements........................ 23
SECTION 2.15. Eurodollar Advance Prepayment and Default
Penalties................................... 24
SECTION 2.16. Voluntary Reduction of Commitment............. 25
SECTION 2.17. Tax Forms..................................... 25
ARTICLE III FEES.......................................................... 25
SECTION 3.01. Fees........................................ 25
ARTICLE IV CONDITIONS PRECEDENT.......................................... 26
SECTION 4.01. Conditions Pracedent to the Initial Advance... 26
SECTION 4.02. Conditions Precedent to All Credit Events..... 28
SECTION 4.03. Advances Under the Acquisition Loan
Commitment................................... 29
SECTION 4.04. Delivery of Documents......................... 30
<PAGE>
ARTICLE V REPRESENTATIONS AND WARRANTIES................................ 30
SECTION 5.01. Organization and Qualification................ 30
SECTION 5.02. Authorization and Validity.................... 30
SECTION 5.03. Governmental Consents......................... 31
SECTION 5.04. Conflicting or Adverse Agreements or
Restrictions................................. 31
SECTION 5.05. Title to Assets............................... 31
SECTION 5.06. Litigation.................................... 31
SECTION 5.07. Financial Statements.......................... 31
SECTION 5.08. Default....................................... 32
SECTION 5.09. Investment Company Act........................ 32
SECTION 5.10. Public Utility Holding Company Act............ 32
SECTION 5.11. ERISA......................................... 32
SECTION 5.12. Tax Returns and Payments...................... 32
SECTION 5.13. Environmental Matters......................... 32
SECTION 5.14. Purpose of Loans.............................. 33
SECTION 5.15. Franchises and Other Rights................... 34
SECTION 5.16. Subsidiaries and Assets....................... 34
SECTION 5.17. Solvency...................................... 34
ARTICLE VI AFFIRMATIVE COVENANTS......................................... 34
SECTION 6.01. Information Covenants......................... 34
SECTION 6.02. Books, Records and Inspections................ 36
SECTION 6.03. Insurance and Maintenance of Properties....... 36
SECTION 6.04. Payment of Taxes.............................. 37
SECTION 6.05. Corporate Existence........................... 37
SECTION 6.06. Compliance with Statutes...................... 37
SECTION 6.07. ERISA......................................... 37
SECTION 6.08. Additional Subsidiaries....................... 38
ARTICLE VII NEGATIVE COVENANTS............................................ 38
SECTION 7.01. Change in Business............................ 38
SECTION 7.02. Consolidation, Merger or Sale of Assets....... 38
SECTION 7.03. Indebtedness.................................. 38
SECTION 7.04. Liens......................................... 40
SECTION 7.05. Investments................................... 40
SECTION 7.06. Restricted Payments........................... 41
SECTION 7.07. Change in Accounting.......................... 41
SECTION 7.08. Certain Indebtedness.......................... 42
SECTION 7.09. Transactions with Affiliates.................. 42
SECTION 7.10. Consolidated Net Worth........................ 42
SECTION 7.11. Funded Debt to Adjusted EBITDA Ratio.......... 42
SECTION 7.12. Total Funded Debt to Consolidated Net
Worth Ratio................................. 42
SECTION 7.13. Capital Expenditures.......................... 42
<PAGE>
SECTION 7.14. Fixed Charge Coverage Ratio................... 42
SECTION 7.15. Subscription Agreement........................ 42
ARTICLE VIII GUARANTY...................................................... 43
SECTION 8.01. Guaranty...................................... 43
SECTION 8.02. Continuing Guaranty........................... 43
SECTION 8.03. Effect of Debtor Relief Laws.................. 44
SECTION 8.04. Waiver of Subrogation......................... 45
SECTION 8.05. Subordination................................. 45
SECTION 8.06. Waiver........................................ 46
SECTION 8.07. Full Force and Effect......................... 46
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES................................ 47
SECTION 9.01. Events of Default............................. 47
SECTION 9.02. Primary Remedies.............................. 48
SECTION 9.03. Other Remedies................................ 48
ARTICLE X THE AGENT.................................................... 49
SECTION 10.01. Authorization and Action...................... 49
SECTION 10.02. Agent's Reliance.............................. 49
SECTION 10.03. Agent and Affiliates; TCB and Affiliates...... 50
SECTION 10.04. Bank Credit Decision.......................... 51
SECTION 10.05. Agent's Indemnity............................. 51
SECTION 10.06. Successor Agent............................... 51
SECTION 10.07. Notice of Default............................. 52
ARTICLE XI MISCELLANEOUS................................................. 52
SECTION 11.01. Amendments.................................... 52
SECTION 11.02. Notices....................................... 53
SECTION 11.03. No Waiver; Remedies........................... 54
SECTION 11.04. Costs, Expenses and Taxes..................... 54
SECTION 11.05. Release and Indemnity......................... 54
SECTION 11.06. Right of Setoff............................... 55
SECTION 11.07. Governing Law................................. 55
SECTION 11.08. Interest...................................... 56
SECTION 11.09. Survival of Representations and Warranties.... 57
SECTION 11.10. Successors and Assigns; Participations........ 57
SECTION 11.11. Confidentiality............................... 58
SECTION 11.12. Pro Rata Treatment............................ 58
SECTION 11.13. Separability.................................. 59
<PAGE>
SECTION 11.14. Execution in Counterparts..................... 59
SECTION 11.15. Interpretation................................ 59
SECTION 11.16. Submission to Jurisdiction.................... 60
SECTION 11.17. Waiver of Jury Trial.......................... 61
SECTION 11.18. Final Agreement of the Parties................ 61
Exhibits and Schedules:
Exhibit 1.01 Form of Borrowing Base Certificate
Exhibit 1.01A Administrative Questionnaire
Exhibit 1.01B Amendment to Subscription Agreement
Exhibit 1.01C Florida Real Estate
Exhibit 1.01D Subscription Agreement
Exhibit 2.02(a) Form of Revolving Credit Note
Exhibit 2.02(b) Form of Term Note
Exhibit 2.02(c) Form of Acquisition Note
Exhibit 2.03 Form of Notice of Advance
Exhibit 2.05 Form of Notice of Conversion
Exhibit 4.01(h)(i) Form of Security Agreement
Exhibit 4.01(h)(ii) Form of Pledge Agreement
Exhibit 4.01(k) Form of Opinion of Borrower's Counsel
Exhibit 7.03(p) Preferred Stock Indebtedness
Exhibit 11.10(c) Form of Assignment and Acceptance
Schedule 5.04 Agreements
Schedule 5.06 Litigation
Schedule 5.13 Exceptions to Environmental Matters
Schedule 5.16 Subsidiaries
Schedule 6.03 Existing Insurance Policies
Schedule 7.03(b) Existing Indebtedness
Schedule 7.04(a) Existing Liens
Schedule 7.05(b) Investments
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT dated as of May 2, 1997 (this "Agreement") is
among GROUP MAINTENANCE AMERICA CORP., a Texas corporation (the "Company"), the
Subsidiaries of the Company listed on the signature pages hereto as Guarantors
(together with each other person who subsequently becomes a Guarantor,
collectively the "Guarantors"), the banks and other financial institutions
listed on the signature pages hereto under the caption "Banks" (together with
each other person who becomes a Bank, collectively the "Banks") and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, individually as a Bank ("TCB") and as agent
for the other Banks (in such capacity together with any other Person who becomes
the agent, the "Agent").
The Company has requested that the Banks provide the Company with a
credit facility, pursuant to which the Banks will commit to make a revolving
credit loan of up to $3,000,000.00 to the Company for use as working capital and
in connection with the acquisition of Airtron, Inc., a $20,000,000.00 term loan
to finance the acquisition of Airtron, Inc., and a $12,000,000.00 acquisition
line of credit to finance the acquisition of stock of Qualified Companies as
defined in Section 1.01.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the Company, the Agent, the Guarantors, and the
Banks agree as follows:
ARTICLE I
DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION
Section 1.0. Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"Accounts" means all accounts, accounts receivable or other
indebtedness owing to the Company or any Guarantor as consideration for goods
sold or services rendered billed within thirty (30) days of the providing of
such goods or services.
"Acquisition Loan" has the meaning specified in Section 2.01(c).
"Acquisition Loan Advance Termination Date" means October 31, 1998.
"Acquisition Loan Commitment" means that portion of the Commitment
that relates to the Acquisition Loan.
"Acquisition Loan Maturity Date" means April 30, 2003.
<PAGE>
"Acquisition Note" has the meaning specified in Section 2.02.
"Adjusted EBITDA" means EBITDA plus historical expenses of acquisition
targets which (i) in the reasonable determination of each of the Banks for all
acquisitions made prior to July 31, 1997 and (ii) thereafter, in the sole
discretion of the Agent, will terminate as a result of the acquisition of said
target or otherwise.
"Administrative Questionnaire" means the questionnaire attached hereto
as Exhibit 1.01A to be completed by each Bank and returned to the Agent.
"Advance" means an advance, pursuant to a Notice of Advance, comprised
of a single Type of Loan from all the Banks (or resulting from a conversion or
conversions on the same date having, in the case of Eurodollar Rate Advances,
the same Interest Period (except as otherwise provided in this Agreement)), made
by all of the Banks concurrently to the Company.
"Advance Date" means, with respect to each Advance, the Business Day
upon which the proceeds of such Advance are to be made available to the Company.
"Affiliate" means any other Person directly or indirectly controlling
(including all directors and officers of such Person), controlled by, or under
direct or indirect common control with such Person, and any other Person in
which such Person's direct or indirect equity interest is 10% or more of the
total outstanding equity interests of such Person and any immediate family
member (parent, spouse or child) and all spouses of said Persons.
"Agent" has the meaning specified in the introduction to this
Agreement.
"Agreement" has the meaning specified in the introduction to this
Agreement.
"Airtron" means Airtron, Inc., a Delaware corporation the stock of
which is being acquired by the Company simultaneously herewith.
"Alternate Base Rate" means, for any date, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and (b) the
Prime Rate in effect on such day. For purposes hereof, the term "Prime Rate"
means, as of a particular date, the prime rate of TCB most recently announced by
TCB and in effect on such date, automatically fluctuating upward or downward, as
the case may be, with and at the time of each change therein without notice to
the Company or any other Person, which prime rate may not necessarily represent
the lowest or best rate actually charged to a customer. "Federal Funds Effective
Rate" means, for any day, the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so
<PAGE>
published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Agent from three federal funds
brokers of recognized standing selected by it. If, for any reason, the Agent
shall have determined (which determination shall be conclusive absent manifest
error) that it is unable to ascertain the Federal Funds Effective Rate,
including the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms hereof, the Alternate Base Rate shall be determined
without regard to clause (a) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
"Alternate Base Rate Advance" means any Advance bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Amendment to Subscription Agreement" means that certain Amendment to
Subscription Agreement and Consent to Assignment, substantially in the form of
Exhibit 1.01B, executed by the Company and Gordon Cain, an individual residing
in Houston, Harris County, Texas.
"Applicable Lending Office" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of an Alternate Base Rate Advance and
such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.
"Assignment and Acceptance" has the meaning specified in Section
11.10(c).
"Bank" has the meaning provided in the introduction to this Agreement.
"Bankruptcy Code" has the meaning specified in Section 9.01(e).
"Board" means the Board of Governors of the Federal Reserve System of
the United States (or any successor).
"Borrowing Base" means an amount equal to 70% of the Eligible
Accounts.
"Borrowing Base Certificate" means a certificate calculating the
Borrowing Base, substantially in the form of Exhibit 1.01.
"Business Day" means any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Texas) on which most banks are open for
business in Houston, Texas.
"Capitalized Lease Obligations" means all lease or rental obligations
which, pursuant to GAAP, are capitalized for balance sheet purposes.
<PAGE>
"Change of Control" means either (i) any Unrelated Person, or two or
more Unrelated Persons acting in concert, acquire after the date hereof
beneficial ownership of 50% or more of the shares of voting stock of the Company
outstanding at the time of such acquisition, or (ii) all or substantially all of
the assets of the Company are sold after the date hereof in a single transaction
or series of related transactions to any Persons, if the effect of such
transaction or transactions is to change the Persons controlling the Company.
The term "Unrelated Person" shall mean any Person other than a Related Person. A
"Related Person" shall mean (i) Gordon Cain, (ii) any Person that acquires at
any time any stock of the Company in connection with or pursuant to the
Company's acquisition of Airtron, (iii) any estate, executor, administrator,
immediate family member, or trust or trustee if such trust is, or such trustee
acts, for the benefit of such Person or his or her immediate family member or
members, if such estate, executor, immediate family member, trust or trustee
acquires stock of the Company from any Related Person, (iv) any Plan or trust
for any Plan, and (v) any wholly-owned Subsidiary of the Company. Any Person who
is a party to any stockholders' agreement shall not be considered to be acting
in concert with any other party thereto merely because such Person is a party
thereto.
"Code" means the Internal Revenue Code of 1986 and the regulations
promulgated thereunder.
"Collateral" means all, or substantially all, of the assets of the
Company and its material Subsidiaries, real and personal, tangible and
intangible, all as more fully described in the Security Documents, but excluding
the Florida Real Estate until October 31, 1997 and excluding leasehold
interests.
"Commitment" and "Commitments"means the obligation of each of the
Banks to enter into and perform this Agreement, to make available the Loans to
the Company in the amounts shown on the signature page of each Bank hereto for
each Type of Loan and all other duties and obligations of the Banks hereunder.
"Commitment Fee" has the meaning specified in Section 3.01(b).
"Company" has the meaning specified in the introduction to this
Agreement.
"Consolidated Net Worth" means total assets (exclusive of any unfunded
portion of the Subscription Agreement) minus total liabilities.
"Conversion" or "Convert" (in each case whether or not capitalized)
means the changing of a Eurodollar Rate Advance to an Alternate Base Rate
Advance or vice versa in accordance with the provisions hereof.
""Credit Event" means the making of any Advance or the conversion of
any Advance into a Eurodollar Rate Advance.
<PAGE>
"Default" means the occurrence of any event which with or without the
giving of notice or the passage of time or both would become an Event of
Default.
"Default Rate" means the lesser of (i) the Highest Lawful Rate and
(ii) the Alternate Base Rate plus two percent (2%).
"Designated Payment Date" means February 28, May 31, August 31 and
November 30 of each year; provided, however, if a Designated Payment Date shall
be a day which is not a Business Day, such Designated Payment Date shall be the
next succeeding Business Day, and such extension of time shall be included in
determining the amount to be paid on such date.
"Domestic Lending Office" means, with respect to any Bank, the office
of such Bank designated from time to time as its "Domestic Lending Office"
hereunder.
"EBITDA" means, for any period, the consolidated pre-tax income for
such period, plus the aggregate amount which was deducted for such period in
determining such consolidated, pre-tax income in respect of interest expense
(including amortization of debt discount, imputed interest and capitalized
interest), plus depreciation and amortization, plus income attributable to any
minority interest in any Person, for so long as said Person remains a Guarantor,
provided, the calculations of EBITDA for the period up to and including October
31, 1997, but not thereafter, shall not include any general and administrative
expenses of the Company, up to a maximum of $1,000,000.00, to the extent of
amounts paid by Gordon Cain to the Company under the Subscription Agreement
after the Execution Date, provided further, however, such payments shall not
constitute an asset of, or equity in, the Company until October 31, 1997 for
purposes of the calculations in Sections 7.10 and 7.12.
"Effective Date" means the date on which all conditions to make an
Advance set forth in Section 4.01 are first met or waived in accordance with
Section 11.01 hereof.
"Eligible Accounts" means any Account which meets all of the following
criteria on the date of determination:
(i) is owned by the Company or a Subsidiary of the Company
which is a Guarantor, arising in the ordinary course of business;
(ii) is not more than ninety (90) days old from the original
invoice date;
(iii) has not been challenged by the obligor thereon beyond the
extent herein provided;
(iv) in respect of which no notice of the bankruptcy, insolvency
or dissolution of the obligor thereon is known to the Company;
<PAGE>
(v) is not owed by (i) a foreign Person unless supported by a
letter of credit or other insurance satisfactory to the Agent, (ii)
the United States government or (iii) any Affiliate of the Company or
of any Subsidiary of the Company;
(vi) is not owed by an obligor that has 20% or more of its
aggregate accounts payable to the Company more than 90 days old (but
amounts that are more than 90 days old solely as a result of contract
retention requirements shall be considered to be not more than 90 days
old); and
(vii) is not subject to set-off, counterclaim, or deduction of
any kind beyond the extent herein; provided that if any Account is
subject to a claim of any third party or is subject to set-off,
counterclaim or deduction by the account debtor, the amount of such
Account included within the term "Eligible Accounts" shall be net of
the amount of such claim, set-off, counterclaim or deduction;
provided, further, if more than twenty-five percent (25%) of the
Accounts owed by any particular obligor are being challenged by such
obligor, then no such Accounts owed by such obligor shall be
considered Eligible Accounts.
"Eligible Assignee" means (a) any Bank; (b) a commercial bank
organized under the laws of the United States, or any state thereof, and having
total assets in excess of $1,000,000,000.00; (c) a commercial bank organized
under the laws of any other country which is a member of the Organization for
Economic Cooperation and Development or any successor organization, or a
political subdivision of any such country, and having total assets in excess of
$1,000,000,000.00; provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the Organization for Economic Cooperation and Development or any
successor organization; (d) the central bank of any country which is a member of
the Organization for Economic Cooperation and Development or any successor
organization; and (e) any other bank or similar financial institution approved
by the Agent and the Majority Banks.
"Environmental Laws" means federal, state or local laws, rules or
regulations, and any judicial, arbitral or administrative interpretations
thereof, including any judicial, arbitral or administrative order, judgment,
permit, approval, decision or determination pertaining to conservation or
protection of the environment as in effect and enforceable against the Company
or any of its Subsidiaries at the time in question, including the Clean Air Act,
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Federal Water Pollution Control Act, the Occupational Safety and
Health Act, the Resource Conservation and Recovery Act, the Safe Drinking Water
Act, the Toxic Substances Control Act, the Superfund Amendment and
Reauthorization Act of 1986, the Hazardous Materials Transportation Act, and
comparable state and local laws, and other environmental conservation and
protection laws.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
the regulations promulgated thereunder.
<PAGE>
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is either a member of the same "controlled group" or under
"common control," within the meaning of Section 414 of the Code and the
regulations thereunder, with the Company.
"Eurocurrency Liabilities" has the meaning specified in Regulation D
as in effect from time to time.
"Eurodollar Lending Office" means, with respect to each Bank, the
branches or affiliates of such Bank designated as its "Eurodollar Lending
Office" from time to time hereunder.
"Eurodollar Rate" means, with respect to any Eurodollar Rate Advance,
the rate (rounded to 1\16 of 1%) at which dollar deposits approximately equal in
principal amount to the entire portion of such Advance and for a maturity equal
to the applicable Interest Period are offered in immediately available funds to
the Agent by prime banks in whatever Eurodollar interbank market may be selected
by the Agent in its sole and absolute discretion at the time of determination
and in accordance with the then usual practice in such market at approximately
10:00 a.m. (Houston, Texas time) two Business Days prior to the commencement of
such Interest Period.
"Eurodollar Rate Advance" means any Advance bearing interest at a rate
determined by reference to the Eurodollar Rate in accordance with the provisions
of Article II.
"Events of Default" has the meaning specified in Section 9.01.
"Excess Cash Flow" means, for any period, EBITDA of Airtron less (a)
the following items in respect of Airtron (but not the Company on a consolidated
basis): cash taxes actually paid, cash interest expense, and capital
expenditures permitted by Section 7.13 hereof and (b) mandatory and optional
principal payments on the Term Loan permitted hereby.
"Execution Date" means May 2, 1997.
"Federal Funds Effective Rate" has the meaning specified in the
definition of the term "Alternate Base Rate."
"Fees" has the meaning specified in Section 3.01.
"Financials" has the meaning specified in Section 5.07.
"Florida Real Estate" means the property described on Exhibit 1.01C
hereto.
<PAGE>
"Funded Debt" means all indebtedness for borrowed money evidenced by a
written document and subject to periodic, required payments of interest and/or
principal.
"GAAP" means generally accepted accounting principles as in effect
from time to time as set forth in the opinions, statements and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board and such other Persons who
shall be approved by a significant segment of the accounting profession and
concurred in by the independent certified public accountants certifying any
audited financial statements of the Company.
"Guaranteed Obligations" has the meaning specified in Section 8.01.
"Guarantors" has the meaning provided in the introduction to this
Agreement and, except as otherwise agreed by the Majority Banks and the Company,
shall include all of the domestic Subsidiaries of the Company.
"Guaranty" means the obligations contained in Article VIII hereof.
"Hazardous Materials" means (a) hazardous waste as defined in the
Resource Conservation and Recovery Act of 1976, or in any applicable federal,
state or local law or regulation, (b) hazardous substances, as defined in
CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or
any other petroleum product or by-product, (d) toxic substances, as defined in
the Toxic Substances Control Act of 1976, or in any applicable federal, state or
local law or regulation or (e) insecticides, fungicides, or rodenticides, as
defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or
in any applicable federal, state or local law or regulation, as each such Act,
statute or regulation may be amended from time to time.
"Highest Lawful Rate" means, as to any Bank, the maximum nonusurious
rate of interest that, under applicable law, may be contracted for, taken,
reserved, charged or received by such Bank on the Loans or under the Loan
Documents at any time or from time to time. If the maximum rate of interest
which, under applicable law, any of the Banks are permitted to charge the
Company on the Loans shall change after the date hereof, to the extent permitted
by applicable law, the Highest Lawful Rate shall be automatically increased or
decreased, as the case may be, as of the effective time of such change without
notice to the Company or any other Person.
"Indebtedness" means, without duplication, (a) all indebtedness for
borrowed money (whether by loan or the issuance and sale of debt securities) or
for the deferred purchase price of property or services, (b) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property, (c) all Capitalized Lease Obligations, (d) all
guaranties, hedge or swap agreements or other contingent liabilities of any kind
(including letter of credit reimbursement obligations) and (e) all other
indebtedness, to the extent it would constitute a liability on a balance sheet
prepared in accordance with GAAP
<PAGE>
or would be disclosed as a contingent liability in a footnote to financial
statements of such Person prepared in accordance with GAAP.
"Interest Period" has the meaning specified in Section 2.11.
"Investment" means, as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of the assets, stock or other
securities of any other Person, or any direct or indirect loan, advance or
capital contribution by such Person to any other Person, and any other item
which would be classified as an "investment" on a balance sheet of such Person,
including any direct or indirect contribution by such Person of property or
assets to a joint venture, partnership or other business entity in which such
Person retains an interest but shall not include demand deposits.
"Lien" means, when used with respect to any Person, any mortgage,
lien, charge, pledge, security interest or encumbrance of any kind (whether
voluntary or involuntary and whether imposed or created by operation of law or
otherwise) upon, or pledge of, any of its property or assets, whether now owned
or hereafter acquired, any capital lease in the nature of the foregoing, any
conditional sale agreement or other title retention agreement, in each case, for
the purpose, or having the effect, of protecting a creditor against loss or
securing the payment or performance of an obligation.
"Loan" and "Loans" means the Term Loan, the Acquisition Loan and the
Revolving Credit Loan.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Notice of Advance, the corporate resolutions authorizing the Loan
Documents and the Borrowing Base Certificate.
"Majority Banks" means Banks holding at least 66% of the Advances
outstanding under the Loans, or, if no Advances are outstanding, Banks holding
such percentage of the Total Commitment.
"Margin" means the positive or negative percentage determined in
accordance with the following table:
Funded Debt/ Adjusted
EBITDA Ratio 2.25 or Higher 1.75 - 2.25 1.75 or Lower
------------ -------------- ----------- -------------
Alternate Base Rate
Margin 0% -.25% -.5%
Eurodollar Margin Not Available 2% 1.75%
<PAGE>
If sufficient information does not exist to calculate the Margin,
Eurodollar Rate Advances shall not be available to the Company and the Margin
for Alternate Base Rate Advances shall be deemed to be 0%.
"Margin Period" means a period commencing on the date on which the
quarterly or annual financial statements of the Company are required to be
delivered pursuant to Section 6.01(a) or Section 6.01(b), as the case may be,
and ending on the next date a financial statement is required to be so
delivered.
"Material Adverse Effect" means, relative to any occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding), (a) a material adverse
effect on the financial condition, business or operations of the Company and its
Subsidiaries taken as a whole or (b) a material impairment of the collective
ability of the Company and its Subsidiaries taken as a whole to make payment
hereunder or under any Note or the right of any Bank to enforce any of its
remedies to collect any amounts owing under the Loan Documents.
"Maximum Guaranteed Amount" means for each Guarantor the maximum
amount which any Guarantor could pay under the Guaranty without having such
payment set aside as a fraudulent transfer or conveyance or similar action under
the Bankruptcy Code or any applicable state or foreign law.
"Multiemployer Plan" means any plan which is a "multiemployer plan"
(as such term is defined in Section 4001(a)(3) of ERISA).
"Note" and "Notes" have the meaning specified in Section 2.02 and
include the Revolving Credit Notes, the Acquisition Notes and the Term Notes.
"Notice of Advance" has the meaning provided in Section 2.03(a).
"Notice of Conversion" has the meaning provided in Section 2.05.
"Notice of Default" has the meaning specified in Section 9.02.
"Obligations" means all the obligations of the Company now or
hereafter existing under the Loan Documents, whether for principal, interest,
Fees, expenses, indemnification or otherwise.
"Other Activities" has the meaning specified in Section 10.03.
"Other Financings" has the meaning specified in Section 10.03.
<PAGE>
"Payment Office" means the office of the Agent located at 1111 Fannin
Street, Houston, Texas 77002, or such other office as the Agent may hereafter
designate in writing as such to the other parties hereto.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Permitted Investments" means, as to any Person:
(a) securities issued or directly and fully guaranteed or insured
by the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is
pledged in support thereof) having maturities of not more than twelve
months from the date of acquisition thereof,
(b) time deposits and certificates of deposit with maturities of
not more than twelve months from the date of acquisition by such
Person which deposits or certificates are either: (a) fully insured by
the Federal Deposit Insurance Corporation or (b) in any Bank or other
commercial bank incorporated in the United States or any U.S. branch
of any other commercial bank, in each case having capital, surplus and
undivided profits aggregating $100,000,000.00 or more with a long-term
unsecured debt rating of at least A- from Standard & Poor's Ratings
Group or A3 from Moody's Investors Service,
(c) commercial paper issued by any Person incorporated in the
United States rated at least A2 or the equivalent thereof by Standard
& Poor's Ratings Group or at least P2 or the equivalent thereof by
Moody's Investors Service and, in each case, maturing not more than
270 days after the date of issuance,
(d) investments in money market mutual funds having assets in
excess of $2,000,000,000.00 substantially all of whose assets are
comprised of securities of the types described in clauses (a) through
(c) above, and
(e) repurchase or reverse purchase agreements respecting
obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into
with any bank listed in or meeting the qualifications specified in
clause (b) above.
"Permitted Liens" shall mean: (a) Liens for taxes, assessments, levies
or other governmental charges not yet due or which are being contested in good
faith by appropriate proceedings and for which adequate reserves are maintained
in accordance with GAAP; (b) Liens in connection with worker's compensation,
unemployment insurance or other social security, old age pension or public
liability obligations not yet due or which are being contested in good faith by
appropriate proceedings and for which adequate reserves are maintained in
accordance with GAAP; (c) operator's, vendors', carriers', warehousemen's,
<PAGE>
repairmen's, mechanics', workers', materialmen's or other like Liens arising by
operation of law in the ordinary course of business (or deposits to obtain the
release of any such Lien) and securing amounts of $50,000.00 or less or amounts
not yet due or which are being contested in good faith by appropriate
proceedings and for which adequate reserves are maintained in accordance with
GAAP; (d) deposits to secure insurance in the ordinary course of business; (e)
deposits and other Liens to secure the performance of bids, tenders, contracts
(other than contracts for the payment of indebtedness for borrowed money or the
deferred purchase price of goods or services), leases, licenses, franchises,
trade contracts, statutory obligations, surety and appeal bonds and performance
bonds and other obligations of a like nature incurred in the ordinary course of
business; (f) easements, rights of way, covenants, restrictions, reservations,
exceptions, encroachments, zoning and similar restrictions and other similar
encumbrances (other than to secure the payment of indebtedness for borrowed
money or the deferred purchase price of goods or services) or title defects, in
each case incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount, and which do not in any case singly or in the
aggregate materially detract from the value or usefulness of the Property
subject thereto for the business conducted by the Company and its Subsidiaries
or materially interfere with the ordinary conduct of the business of the Company
and its Subsidiaries; (g) bankers' liens arising by operation of law; (h)
inchoate Liens arising under ERISA to secure contingent liabilities of the
Company and its Subsidiaries; (i) landlord's liens that are subordinated to the
liens in favor of the Agent, unless waived by the Agent; (j) Liens on assets of
Subsidiaries to secure indebtedness to the Company provided same are
collaterally assigned to the Agent, provided further, such Liens may be incurred
only to the extent the underlying Indebtedness is otherwise permitted under the
terms of this Agreement; and (k) liens on the right to rebates of prepaid
insurance premiums financed by third parties on behalf of the Company or any of
its Subsidiaries to secure up to $500,000.00 outstanding at any time of
Indebtedness incurred pursuant to Section 7.03(n) with respect to the repayment
of amounts so paid on behalf of the Company or any of its Subsidiaries.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a foreign or
domestic state or political subdivision thereof or any agency of such state or
subdivision.
"Plan" means any employee pension benefit plan (as defined in Section
3(2) of ERISA), subject to Title IV of ERISA or Section 412 of the Code, other
than a Multiemployer Plan, with respect to which the Company or an ERISA
Affiliate contributes or has an obligation or liability to contribute, including
any such plan that may have been terminated.
"Prescribed Forms" shall mean such duly executed form(s) or
statement(s), and in such number of copies, which may, from time to time, be
prescribed by law and which, pursuant to applicable provisions of the Code or an
income tax treaty between the United States and the country of residence of the
Bank providing the form(s) or statement(s), permit
<PAGE>
each of the Company and the Agent to make payments hereunder for the account of
such Bank free of deduction or withholding of income and other taxes.
"Property" or "assets" (whether or not capitalized) means any interest
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible.
"Qualified Company" means any Person in the residential or commercial
service industry whose primary business is to provide residential or commercial
services, consisting of heating, ventilation and air conditioning, indoor air
quality, plumbing, appliance, electrical, septic, or sewer repair,
reinstallation and maintenance services.
"Regulations A, D, G, T, U and X" means Regulations A, D, G, T, U and
X of the Board as the same are from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including the abandonment or discarding of barrels, containers
and other closed receptacles).
"Reportable Event" means an event described in Section 4043(b) of
ERISA with respect to a Plan as to which the 30-day notice requirement has not
been waived by the PBGC.
"Requirements of Environmental Laws" means, as to any Person, the
requirements of any applicable Environmental Law relating to or affecting such
Person or the condition or operation of such Person's business or its
properties, both real and personal.
"Reserve Percentage" means, for any Interest Period and for any Bank,
the reserve percentage applicable during such Interest Period under regulations
issued from time to time by the Board (or if more than one such percentage is so
applicable, the daily average for such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) for
determining the maximum reserve requirement (including any marginal,
supplemental or emergency reserves) for such Bank in respect of liabilities or
assets consisting of or including Eurocurrency Liabilities.
"Responsible Officer" means, with respect to the Company, the chairman
of the board of directors, president, any vice president, chief executive
officer, chief operating officer, treasurer or chief financial officer of the
Company.
"Revolving Credit Loan" has the meaning specified in Section 2.01(a).
"Revolving Credit Loan Commitment" means that portion of the
Commitment that relates to the Revolving Credit Loan.
<PAGE>
"Revolving Credit Maturity Date" means October 31, 1998.
"Revolving Credit Note" has the meaning specified in Section 2.02.
"Security Documents" means the documents described in Section 4.01
(h), executed by the Company and its Subsidiaries in favor of TCB, as Agent, for
the benefit of the Banks, pursuant to the terms hereof.
"Subscription Agreement" means the Subscription Agreement between the
Company, a successor in interest to Maintenance Specialists of America, Inc) and
Gordon Cain, an individual residing in Houston, Harris County, Texas, as
Subscriber dated October 24, 1996, substantially in the form of Exhibit 1.01D,
as amended from time to time.
"Subsidiary" means and includes, with respect to any Person, (a) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person, directly
or indirectly and (b) any partnership, association, joint venture or other
entity in which such Person, directly or indirectly, has greater than 50% of the
equity interest. Unless otherwise provided or the context otherwise requires,
the term "Subsidiary" or "Subsidiaries" shall mean a Subsidiary or Subsidiaries
of the Company.
"TCB" means Texas Commerce Bank National Association, 712 Main Street,
Houston, Texas 77002.
"Term Loan" has the meaning specified in Section 2.01(b).
"Term Loan Commitment" means that portion of the Commitment that
relates to the Term Loan.
"Term Loan Maturity Date" means April 30, 2003.
"Term Note" has the meaning specified in Section 2.02.
"Total Acquisition Loan Commitment" means the aggregate Acquisition
Loan Commitments for all Banks totaling a maximum of $12,000,000.00 for all
Banks.
"Total Commitment" means the sum of the Total Acquisition Loan
Commitment, the Total Revolving Credit Loan Commitment and the Total Term Loan
Commitment, totaling a maximum of $35,000,000.00 for all Banks.
"Total Revolving Credit Loan Commitment" means the aggregate Revolving
Credit Loan Commitments for all Banks totaling a maximum of $3,000,000.00.
<PAGE>
"Total Term Loan Commitment" means the aggregate Term Loan Commitments
for all Banks, totaling a maximum of $20,000,000.00.
"Unutilized Revolving Loan Commitment" means the Total Revolving
Credit Loan Commitment less the outstanding Advances under the Revolving Credit
Loan.
"Unutilized Acquisition Loan Commitment" means the Total Acquisition
Loan Commitment less the Advances made under the Acquisition Loan at any time
(whether or not outstanding).
SECTION 1.02. Types of Advances. Advances and Loans hereunder are
distinguished by "Type". The Type of an Advance refers to the determination
whether such Advance is a Eurodollar Rate Advance or an Alternate Base Rate
Advance. The Type of a Loan refers to whether such Loan is a Term Loan, an
Acquisition Loan or a Revolving Credit Loan.
SECTION 1.03. Accounting Terms. All accounting terms not defined
herein shall be construed in accordance with GAAP, as applicable, and all
calculations required to be made hereunder and all financial information
required to be provided hereunder shall be done or prepared in accordance with
GAAP.
SECTION 1.04. Schedules. Schedules hereto may be updated by the
Company from time to time to reflect transactions and other matters not
prohibited by the Loan Documents.
ARTICLE II
THE LOANS
SECTION 2.01. The Loans. (a) The Revolving Credit Loans. Subject
to the terms and conditions hereof, each Bank severally agrees at any time and
from time to time on and after the Execution Date and prior to the Revolving
Credit Maturity Date, to make and maintain a revolving credit loan or loans
(each a "Revolving Credit Loan" and collectively, the "Revolving Credit Loans")
to the Company not to exceed at any time outstanding the maximum amount of its
Revolving Credit Loan Commitment, which Revolving Credit Loans (i) shall, at the
option of the Company, be made and maintained pursuant to one or more Advances
comprised of Alternate Base Rate Advances or Eurodollar Rate Advances; provided
that, except as otherwise specifically provided herein, all Advances made
simultaneously under the Revolving Credit Loan shall be of the same Type, (ii)
in the case of Eurodollar Rate Advances, shall be made in the minimum amount of
$300,000.00 and integral multiples of $100,000.00 and, in the case of Alternate
Base Rate Advances, in the minimum amount of $100,000.00 and integral multiples
thereof, or, in either case, in the remaining balance of the Revolving Credit
Loan Commitment, (iii) may be repaid and, so long as no Default or Event of
Default exists hereunder, reborrowed, at the option of the Company in accordance
with the provisions hereof, and (iv) shall, in the aggregate at any time
outstanding, not exceed the lesser of the Borrowing Base or the maximum total
amount of the Total Revolving Credit Loan Commitment. There shall be no further
Revolving Credit Advances after the Revolving Credit Maturity Date.
<PAGE>
(b) The Term Loans. Subject to the terms and conditions hereof, each
Bank severally agrees to make a term loan (each a "Term Loan" and collectively
the "Term Loans") to the Company on the Effective Date, in the amount of its
Term Loan Commitment. There shall be no further Advances under the Term Loan
subsequent to the Effective Date. All conversions of the Term Loan shall be in
the minimum amount of $300,000.00.
(c) The Acquisition Loans. Subject to the terms and conditions
hereof, each Bank severally agrees to make an advancing acquisition loan (each
an "Acquisition Loan" and collectively, the "Acquisition Loans") to the Company,
up to the maximum amount of its Acquisition Loan Commitment, which Acquisition
Loans (i) shall, at the option of the Company, be made and maintained pursuant
to one or more Advances comprised of Alternate Base Rate Advances or Eurodollar
Rate Advances, provided that, except as otherwise specifically provided herein,
all Advances made simultaneously under the Acquisition Loan shall be of the same
Type, (ii) in the case of Eurodollar Rate Advances, shall be made in the minimum
amount of $300,000.00 and integral multiples of $100,000.00 or in the remaining
balance of the Acquisition Loan Commitment, (iii) so long as no Default or Event
of Default exists hereunder, may be advanced, but not reborrowed, in accordance
with the provisions hereof and for the purposes set forth herein, and (iv)
shall, in the aggregate, not exceed the maximum total amount of the Total
Acquisition Loan Commitment. There shall be no further Advances under the
Acquisition Loan after the Acquisition Loan Advance Termination Date.
SECTION 2.02. The Notes. Each of the Loans shall be evidenced by
Notes in favor of each Bank (individually a "Note" and collectively, the
"Notes"), substantially in the form of: (a) Exhibit 2.02(a) hereto for Revolving
Credit Notes (a "Revolving Credit Note"; (b) Exhibit 2.02(b) hereto for Term
Notes (a "Term Note"); and (c) Exhibit 2.02(c) hereto for Acquisition Notes (an
"Acquisition Note").
SECTION 2.03. Notice of Advance. (a) Whenever the Company desires
an Advance, it shall give written notice thereof (a "Notice of Advance") (or
telephonic notice promptly confirmed in writing) to the Agent (i) in the case of
an Alternate Base Rate Advance, not later than 10:00 a.m. (Houston, Texas time)
on the date of such Advance and (ii) in the case of a Eurodollar Rate Advance,
not later than 11:00 a.m. (Houston, Texas time) three Business Days prior to the
date of such Advance. Each Notice of Advance shall be irrevocable and shall be
in the form of Exhibit 2.03 hereto, specifying (i) the aggregate principal
amount of the Advance to be made, (ii) the date of such Advance (which shall be
a Business Day), (iii) whether it is to be an Alternate Base Rate Advance or a
Eurodollar Rate Advance and (iv) if the proposed Advance is to be a Eurodollar
Rate Advance, the initial Interest Period to be applicable thereto.
(b) The Agent shall promptly give the Banks written notice or
telephonic notice (promptly confirmed in writing) of each proposed Advance, of
each Bank's proportionate share thereof and of the other matters covered by each
Notice of Advance.
SECTION 2.04. Disbursement of Funds for Loans. (a) No later than
1:00 p.m. (Houston, Texas time) on any Advance Date for Loans, each Bank shall
make available its pro rata
<PAGE>
portion of the amount of such Advance in U.S. dollars and in immediately
available funds at the Payment Office. At such time, the Agent shall credit the
amounts so received to the general deposit account of the Company maintained
with the Agent in immediately available funds.
(b) Unless the Agent shall have been notified by any Bank prior to
disbursement of the Advance by the Agent that such Bank does not intend to make
available to the Agent such Bank's portion of the Advance to be made on such
date, the Agent may assume that such Bank has made such amount available to the
Agent on such Advance Date and the Agent may, in reliance upon such assumption,
make available to the Company a corresponding amount. If such corresponding
amount is not in fact made available to the Agent by such Bank and the Agent has
made available same to the Company, the Agent shall be entitled to recover such
corresponding amount on demand from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent shall
promptly notify the Company, and the Company shall pay such corresponding amount
to the Agent within two (2) Business Days after demand therefor. The Agent
shall also be entitled to recover from such Bank or the Company, as the case may
be, interest on such corresponding amount from the date such corresponding
amount was made available by the Agent to the Company to the date such
corresponding amount is recovered by the Agent, at a rate per annum equal to the
Alternate Base Rate or the Eurodollar Rate plus the applicable Margin, as
appropriate. Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its Commitments hereunder or to prejudice any rights which
the Company may have against any Bank as a result of any default by such Bank
hereunder. No failure of any Bank hereunder shall relieve any other Bank of its
obligations.
SECTION 2.05. Conversions and Continuances. The Company shall
have the option to convert or continue on any Business Day all or a portion of
the outstanding principal amount of one Type of Advance for any Loan into
another Type of Advance, provided, no Advances may be converted into or
continued as Eurodollar Rate Advances if a Default or Event of Default is in
existence on the date of the conversion. Any continuation of an Advance as the
same Type of Advance in the same amount shall be effected by the Company giving
notice to the Agent, in writing, or by telephone promptly confirmed in writing,
of its intention to continue such Advance as an Advance of the same Type. Each
such conversion shall be effected by the Company giving the Agent written notice
(each a "Notice of Conversion"), substantially in the form of Exhibit 2.05
hereto, prior to 11:00 a.m. (Houston, Texas time) at least (a) three (3)
Business Days prior to the date of such conversion in the case of conversion
into or continuance as Eurodollar Rate Advances and (b) prior to 10:00 a.m.
(Houston, Texas time) one Business Day prior to the date of conversion in the
case of a conversion into Alternate Base Rate Advances, specifying each Advance
(or portions thereof) to be so converted and, if to be converted into or
continued as Eurodollar Rate Advances, the Interest Period to be initially
applicable thereto. The Agent shall thereafter promptly notify each Bank of
such Notice of Conversion.
SECTION 2.06. Voluntary Prepayments. The Company shall have the
right to voluntarily prepay any Loan in whole or in part at any time on the
following terms and conditions: (a) no Eurodollar Rate Advance may be prepaid
prior to the last day of its Interest Period unless, simultaneously therewith,
the Company pays to the Agent for the benefit of the Banks, all sums
<PAGE>
necessary to compensate the Banks for all reasonable costs and expenses actually
incurred by the Banks as a result of such prepayment (excluding loss of
anticipated profits), as reasonably determined by the Banks, including but not
limited to those costs described in Section 2.15 hereof; and (b) each prepayment
pursuant to this section shall be applied first, to the payment of accrued and
unpaid interest, and then, to the outstanding principal, pro-rata, on all such
scheduled principal payments thereafter coming due on said Loans.
SECTION 2.07. Mandatory Repayments.
(a) Revolving Credit Loan. The Company shall repay Revolving Credit
Loans on any day on which the aggregate outstanding principal amount of the
Revolving Credit Loans exceeds the lesser of (i) the Revolving Credit Loan
Commitment or, (ii) as shown by the most recent Borrowing Base Certificate or
interim update thereof, the then current Borrowing Base, in the amount of such
excess. The aggregate amount under the Revolving Credit Notes (and all accrued,
unpaid interest) shall be due and payable, and the Revolving Credit Loan
Commitment shall terminate, on the Revolving Credit Maturity Date.
(b) Term Loan. (i) The Company shall repay the Term Loan in equal
quarterly installments of principal of $833,333.00 the first of which shall be
due and payable on August 31, 1997, with a like payment due on each Designated
Payment Date thereafter. The aggregate outstanding amount of the Term Loan (and
all accrued, unpaid interest) shall be due and payable on the Term Loan Maturity
Date. (ii) The Company shall reduce the amount outstanding under the Term Loan
on or before each anniversary date hereof by a percentage of Excess Cash Flow
(for the prior year or, in the case of the reduction to be made on the first
anniversary date hereof, for the period from the date the Term Loan is made
through December 31, 1997) based on the following table:
RATIO OF OUTSTANDING
BALANCE OF TERM REQUIRED EXCESS CASH
LOAN TO ADJUSTED EBITDA FLOW PAYMENT
OF AIRTRON
greater than or equal to 1.5 to 1.0 50%
less than 1.5 to 1.0 but greater than 1.0 to 1.0 25%
less than or equal to 1.0 to 1.0 0%
(c) Acquisition Loan. The Company shall repay the Acquisition Loan in
equal quarterly installments, each equal to one-eighteenth (1\18th) of the
amount outstanding thereunder on the Acquisition Loan Advance Termination Date,
the first of which shall be due and payable on the first Designated Payment Date
after said date, with a like payment due on each Designated Payment Date
thereafter. The aggregate outstanding amount of the Acquisition Loan (and all
accrued, unpaid interest) shall be due and payable on the Acquisition Loan
Maturity Date.
<PAGE>
SECTION 2.08. Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement due from the
Company shall be made to the Agent for the benefit of the Banks not later than
1:00 p.m. (Houston, Texas time) on the date when due and shall be made in lawful
money of the United States in immediately available funds at the Payment Office.
SECTION 2.09. Pro Rata Advances. All Advances under this Agreement
shall be incurred from the Banks pro rata, on the basis of their respective
Commitments. It is understood that no Bank shall be responsible for any default
by any other Bank in its obligation to make Loans hereunder and that each Bank
shall be obligated to make the Loans provided to be made by it hereunder,
regardless of the failure of any other Bank to fulfill its commitments
hereunder.
SECTION 2.10. Interest. (a) Subject to Section 11.08, the Company
agrees to pay interest for the period from the Execution Date to and including
the Revolving Credit Maturity Date, on the outstanding principal balance of all
Loans, at the lesser of the Alternate Base Rate or the Highest Lawful Rate.
(b) Subsequent to the Revolving Credit Maturity Date, and subject to
Section 11.08, the Company agrees to pay interest on the total outstanding
principal balance of all Alternate Base Rate Advances under all of the Loans
from the date of each respective Advance to maturity of said Loan (whether by
acceleration or otherwise) at a rate per annum which shall at all times be equal
to the lesser of (i) the Highest Lawful Rate and (ii) the Alternate Base Rate in
effect from time to time plus the Margin for Alternate Base Rate Advances, which
Margin shall be adjusted on the first day of each Margin Period. If the
Alternate Base Rate is based on the Prime Rate, interest shall be computed on
the basis of the actual number of days elapsed over a year of 365 or 366 days,
as the case may be. If the Alternate Base Rate is based on the Federal Funds
Effective Rate, interest shall be computed on the basis of the actual number
of days elapsed over a year of 360 days.
(c) Subsequent to the Revolving Credit Maturity Date, and subject to
Section 11.08, the Company agrees to pay interest on the total outstanding
principal balance of all Eurodollar Rate Advances under all of the Loans from
the date of each respective Advance to maturity of said Loan (whether by
acceleration or otherwise) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) which shall, during each
Interest Period applicable thereto, be equal to the lesser of (i) the Highest
Lawful Rate and (ii) the applicable Eurodollar Rate for such Interest Period
plus the Margin for Eurodollar Rate Advances. The applicable Eurodollar Rate
shall be fixed for each Interest Period and shall not change during said
Interest Period but the applicable Margin, which is added to said Eurodollar
Rate to determine the total interest payable to the Banks, may be adjusted, if
applicable, effective on the first day of each Margin Period, whether or not
said adjustment occurs at a time other than the beginning of an Interest Period.
<PAGE>
(d) Subject to Section 11.08, overdue principal and, to the extent
permitted by law, overdue interest in respect of any Advance and all other
overdue amounts owing hereunder shall bear interest for each day that such
amounts are overdue at a rate per annum equal to the Default Rate.
(e) Interest on each Advance shall accrue from and including the date
of such Advance to but excluding the date of any repayment thereof and shall be
payable (i) in respect of Eurodollar Rate Advances (A) on the last day of the
Interest Period (as defined below) applicable thereto and on each Designated
Payment Date during any Interest Period in excess of three (3) months and (B) on
the date of any voluntary or mandatory repayment or any conversion or
continuance, (ii) in respect of Alternate Base Rate Advances (A) on each
Designated Payment Date commencing August 31, 1997, and (B) on the date of any
voluntary or mandatory repayment of such Advances on the principal amount repaid
and (iii) in respect of each Advance, at maturity (whether by acceleration or
otherwise) and, after maturity, on demand.
(f) The Agent, upon determining the Eurodollar Rate for any Interest
Period, shall notify the Company thereof. Each such determination shall, absent
manifest error, be final and conclusive and binding on all parties hereto. In
addition, prior to the due date for the payment of interest on any Advances set
forth in the immediately preceding paragraph, the Agent shall notify the Company
of the amount of interest due by the Company on all outstanding Advances on the
applicable due date, but any failure of the Agent to so notify the Company shall
not reduce the Company's liability for the amount owed.
(g) The Company shall pay to the Agent for the Account of each Bank,
so long as the Banks shall be required under regulations of the Board to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional interest on the unpaid principal
amount of each such Eurodollar Rate Advance, from the date of such Advance until
such principal amount is paid in full, at an interest rate per annum equal at
all times during the Interest Period for such Advance to the lesser of (i) the
Highest Lawful Rate and (ii) the remainder obtained by subtracting (A) the
Eurodollar Rate for such Interest Period from (B) the rate obtained by dividing
such Eurodollar Rate referred to in clause (A) above by that percentage equal to
100% minus the Reserve Percentage of such Bank for such Interest Period. Such
additional interest shall be determined by such Bank as incurred and shall be
payable upon demand therefor by the Bank to the Company. Each determination by
such Bank of additional interest due under this Section shall be conclusive and
binding for all purposes in the absence of manifest error if such determination
is made on a reasonable basis.
SECTION 2.11. Interest Periods. (a) At the time the Company gives
any Notice of Advance or Notice of Conversion or provides notice of its intent
to continue a loan as the same Type in respect of the making of, or conversion
into, a Eurodollar Rate Advance, the Company shall have the right to elect, by
giving the Agent on the dates and at the times specified in Section 2.03 or
Section 2.05, as the case may be, notice of the interest period (each an
"Interest Period") applicable to such Eurodollar Rate Advance, which Interest
Period shall be either a one, two, three or six month period; provided, that:
<PAGE>
(i) the initial Interest Period for any Eurodollar Rate Advance
shall commence on the date of such Eurodollar Rate Advance (including the
date of any conversion thereto or continuance thereof pursuant to Section
2.05); each Interest Period occurring thereafter in respect of such
Eurodollar Rate Advance shall commence on the expiration date of the
immediately preceding Interest Period;
(ii) if any Interest Period relating to a Eurodollar Rate
Advance begins on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided, that if there are no more Business Days
in that month, the Interest Period shall expire on the preceding Business
Day;
(iv) no Interest Period for Advances shall extend beyond the
applicable Maturity Date; and
(v) the Company shall be entitled to have a maximum of nine (9)
separate Eurodollar Rate Advances hereunder for all Loans outstanding at
any one time.
(b) If, upon the expiration of any Interest Period applicable to a
Eurodollar Rate Advance, the Company has failed to elect a new Interest Period
to be applicable to such Advance as provided above, the Company shall be deemed
to have elected to convert such Advance into an Alternate Base Rate Advance
effective as of the expiration date of such current Interest Period.
SECTION 2.12. Interest Rate Not Ascertainable. In the event that
the Agent shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) that on any date for determining
the Eurodollar Rate for any Interest Period, by reason of any changes arising
after the date of this Agreement affecting the Eurodollar interbank market
adequate and fair means do not exist for ascertaining the applicable interest
rate on the basis provided for in the definition of Eurodollar Rate, then, and
in any such event, the Agent shall forthwith give notice to the Company and to
the Banks of such determination. Until the Agent notifies the Company that the
circumstances giving rise to the suspension described herein no longer exist,
the obligations of the Banks to make Eurodollar Rate Advances shall be
suspended.
SECTION 2.13. Change in Legality. (a) Notwithstanding anything to
the contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Bank or
its Eurodollar Lending Office to make or maintain any Eurodollar Rate Advance or
to give effect to its obligations as contemplated hereby, then, by prompt
written notice to the Company, such Bank may:
<PAGE>
(i) declare that Eurodollar Rate Advances will not thereafter
be made by such Bank hereunder, whereupon the Company shall be prohibited
from requesting Eurodollar Rate Advances from such Bank hereunder unless
such declaration is subsequently withdrawn, provided, such request for a
Eurodollar Rate Advance shall, if the Company so indicates, be
automatically converted (as to such Bank) into a request for an Alternate
Base Rate Advance and the affected Bank or Banks shall respond thereto as
provided herein; and
(ii) require that all outstanding Eurodollar Rate Advances made
by such Bank be converted to Alternate Base Rate Advances, in which event
(A) all such Eurodollar Rate Advances shall be automatically converted to
Alternate Base Rate Advances as of the effective date of such notice as
provided in paragraph (b) below if required by applicable law or
regulation, or if not so required, at the end of the current Interest
Period and (B) all payments and prepayments of principal which would
otherwise have been applied to repay the converted Eurodollar Rate Advances
shall instead be applied to repay the Alternate Base Rate Advances
resulting from the conversion of such Eurodollar Rate Advances.
(b) For purposes of this Section, a notice to the Company by the Agent
pursuant to paragraph (a) above shall be effective on the date of receipt
thereof by the Company.
SECTION 2.14. Increased Costs, Taxes or Capital Adequacy
Requirements. (a) If any change in the application or effectiveness of any
applicable law or regulation or compliance by any Bank with any applicable
guideline or request issued after the date hereof by any central bank or
governmental authority having jurisdiction over such Bank (whether or not having
the force of law) (i) shall change the basis of taxation of payments to such
Bank of the principal of or interest on any Eurodollar Rate Advance made by such
Bank or any other fees or amounts payable hereunder with respect to Eurodollar
Rate Advances (other than taxes imposed on the overall net income of such Bank
or its Applicable Lending Office or franchise taxes imposed upon it by the
jurisdiction in which such Bank or its Applicable Lending Office has an office),
(ii) shall impose, modify or deem applicable any reserve, special deposit or
similar requirement with respect to Eurodollar Rate Advances against assets of,
deposits with or for the account of, or credit extended by, such Bank (without
duplication of any amounts paid pursuant to Section 2.10(g)) or (iii) shall
impose on such Bank any other condition affecting this Agreement with respect to
Eurodollar Rate Advances or any Eurodollar Rate Advance made by such Bank, and
the result of any of the foregoing shall be to increase the cost to such Bank of
maintaining its Commitment or of making or maintaining any Eurodollar Rate
Advance or to reduce the amount of any sum received or receivable by such Bank
hereunder (whether of principal, interest or otherwise) in respect thereof by an
amount deemed in good faith by such Bank to be material, then the Company shall
pay to such Bank such additional amount as will compensate it for such increase
or reduction within ten (10) days after notice thereof pursuant to Section
2.14(c).
(b) If any Bank shall have determined in good faith that any change in
any law, rule, regulation or guideline regarding capital adequacy, or any change
in the interpretation or administration thereof of any such authority, central
bank or comparable agency has or would have the effect of reducing the rate of
return on the capital of such Bank as a consequence of, or with
<PAGE>
reference to, such Bank's obligations to lend hereunder to a level below that
which it could have achieved but for such adoption, change or compliance by an
amount deemed by such Bank to be material, then, from time to time, the Company
shall pay to the Agent for the benefit of such Bank such additional amount as
will reasonably compensate it for such reduction within ten (10) days after
notice thereof pursuant to Section 2.14(c).
(c) Each Bank will notify the Company through the Agent of any event
occurring after the date of this Agreement which will entitle it to compensation
pursuant to this Section, as promptly as practicable after it becomes aware
thereof and determines to request compensation and in any case, within 180 days
after becoming aware thereof. A certificate setting forth in reasonable detail
the amount necessary to compensate the Bank in question as specified in
paragraph (a) or (b) above, as the case may be, and the calculation of such
amount shall be delivered to the Company and shall be conclusive absent manifest
error if such determination is made on a reasonable basis. The Company shall
pay to the Agent for the account of such Bank the amount shown as due on any
such certificate within ten (10) days after its receipt of the same. The
failure on the part of any Bank to demand increased compensation with respect to
any Interest Period shall not constitute a waiver of the right to demand
compensation thereafter within the 180 day time limit set forth above. Each
Bank agrees, to the extent it may lawfully do so without incurring additional
costs, to use its best efforts to minimize costs arising under this section by
designating another lending office for the Loans affected, provided no Bank
shall be required to do so.
(d) In the event any Bank gives a notice to the Company pursuant to
Section 2.13 or 2.14 that it cannot fund certain Loans or that such funding will
be at an increased cost, or is unable to deliver the Prescribed Forms as
required by Section 2.17 below, the Company may give notice in response, with
copies to the Agent, that it wishes to seek one or more banks to replace such
Bank in accordance with the provisions set forth in Section 11.10. Each Bank
giving such a notice agrees that, at the request of the Company, it will assign
all of its interests hereunder and under the Notes and the Commitment to a
designated, Eligible Assignee for the full amount then owing to it, all in
accordance with Section 11.10. Thereafter, said assignee shall have all of the
rights hereunder and obligations of the Assigning Bank (except as otherwise
expressly set forth herein) and such Bank shall have no further obligations to
the Company hereunder.
(e) Any notice given pursuant to this Section 2.14 shall be deemed to
contain a representation by the Bank issuing such notice that the increased
costs and charges are common to substantially all of the loan customers of such
Bank and are not unique to the Company.
SECTION 2.15. Eurodollar Advance Prepayment and Default Penalties.
Subject to Section 11.08, the Company shall indemnify each Bank against any loss
or expense (excluding loss of anticipated profits) which it may sustain or incur
as a consequence of (a) an Advance of, or a conversion from or into, Eurodollar
Rate Advances that does not occur on the date specified therefor in a Notice of
Advance or Notice of Conversion, (b) any payment, prepayment or conversion of a
Eurodollar Rate Advance required by any other provision of this Agreement or
otherwise made on a date other than the last day of the applicable Interest
Period or (c) any default in the payment or prepayment of the principal amount
of any Eurodollar Advance or any part thereof or interest
<PAGE>
accrued thereon, as and when due and payable (at the due date thereof, by notice
of prepayment or otherwise). Such loss or expense shall include an amount equal
to the excess determined by each Bank of (i) its cost of obtaining the funds for
the Advance being paid, prepaid or converted or not borrowed (based on the
Eurodollar Rate) for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Advance (or, in the case of a failure to borrow, the Interest Period for the
Advance which would have commenced on the date of such failure to borrow) over
(ii) the amount of interest (as determined by each Bank) that would be realized
in reemploying the funds so paid, prepaid or converted or not borrowed for such
period or Interest Period, as the case may be. The Agent, on behalf of the
Banks, will notify the Company of any loss or expense which will entitle the
Banks to compensation pursuant to this Section, as promptly as possible after it
becomes aware thereof, but failure to so notify shall not affect the Company's
liability therefor. A certificate of any Bank setting forth any amount which it
is entitled to receive pursuant to this Section shall be delivered to the
Company and shall be conclusive absent manifest error if such determination is
made on a reasonable basis. The Company shall pay to the Agent for the account
of the Banks the amount shown as due on any certificate within ten (10) days
after its receipt of the same. Without prejudice to the survival of any other
obligations of the Company hereunder, the obligations of the Company under this
Section shall survive the termination of this Agreement and the assignment of
any of the Notes.
SECTION 2.16. Voluntary Reduction of Commitment. Upon at least
three (3) Business Days' prior written notice, the Company shall have the right,
without premium or penalty, to reduce or terminate: (i) the Revolving Loan
Credit Commitments, in whole or in part, in the amount of $1,500,000.00 or
integral multiples thereof, and (ii) the Acquisition Loan Commitment, in whole
or in part, in the amount of $3,000,00.00.
SECTION 2.17. Tax Forms. With respect to any Bank which is
organized under the laws of a jurisdiction outside the United States, on the
date of the initial Advance hereunder or on the date it becomes a party hereto,
and from time to time thereafter if requested by the Company or the Agent, each
such Bank shall provide the Agent and the Company with the Prescribed Forms.
Unless the Company and the Agent have received such Prescribed Forms, the Agent
and the Company if required by applicable law or regulation, may withhold taxes
from payments under the Loan Documents at the applicable rate in the case of
payments to or for any Bank organized under the laws of a jurisdiction outside
the United States, provided the Company shall, unless otherwise directed in
writing by the Agent or unless otherwise required by law, make all payments in
full to the Agent without deducting any withholding or similar taxes.
ARTICLE III
FEES
SECTION 3.01. Fees. Subject to Section 11.08 hereof, the Company
agrees to pay the following fees (the "Fees"):
<PAGE>
(a) The Company agrees to pay to the Agent for the ratable account of
the Banks a Commitment fee (the "Commitment Fee") for the period from and
including the Execution Date to the Revolving Credit Maturity Date and the
Acquisition Loan Advance Termination Date, respectively, computed at a rate
equal to .25% per annum and calculated on the basis of a 360 day-year on the
daily average of the Unutilized Revolving Loan Commitment and the Unutilized
Acquisition Loan Commitment of each Bank. Commitment Fees shall be due and
payable in arrears on each Designated Payment Date commencing on the first such
date following the Execution Date and on the Revolving Credit Maturity Date in
respect of the Revolving Credit Loan and the Acquisition Loan Advance
Termination Date in respect of the Acquisition Loan.
(b) The fees described in that one certain Fee Letter among the
Company, the Agent and Chase Securities, Inc. dated March 7, 1997.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.01. Conditions Precedent to the Initial Advance. The
obligation of each Bank to make its initial Advance to the Company is subject to
the occurrence of or receipt by the Agent of the following, all in form and
substance satisfactory to the Agent, and, where relevant, executed by all
appropriate parties:
(a) this Agreement (which includes the Guaranty);
(b) one Revolving Credit Note for each Bank;
(c) one Term Note for each Bank;
(d) one Acquisition Note for each Bank;
(e) Landlord's lien waivers as required by the Agent in respect of all
leased property;
(f) the Amendment to the Subscription Agreement;
(g) evidence satisfactory to the Agent that (i) the Company has merged
with GroupMAC Management Co., f/k/a Group Maintenance America Corp., f/k/a
Maintenance Specialists of America, Inc., and (ii) that the Company has
succeeded to all of the rights and obligations of said merged entity;
(h) each of the following security documents (the "Security
Documents") granting a first and prior (except for Liens permitted under Section
7.04) Lien or security interest on the Collateral to the Agent for the benefit
of itself and the Banks as security for the Obligations,
<PAGE>
substantially in the form of Exhibits 4.01(h)(i) and (ii) hereto, or in the case
of real estate collateral, in a form reasonably requested by the Agent.
(i) Security Agreements covering substantially all personal
property assets of the Company and each of its Subsidiaries (except as set
forth in such Security Agreement or other Security Documents which
exclusions have been agreed to by the Majority Banks), accompanied by all
documents, instruments and other items necessary to obtain and perfect a
Lien thereon, including all promissory notes, certificates of title (if
requested by the Agent) to vehicles and equipment, chattel paper and
similar items;
(ii) Pledge Agreements pledging to the Agent all stock of the
Company in any Subsidiaries or Affiliates accompanied by original stock
certificates evidencing such shares and executed stock powers for such
certificates;
(iii) Mortgages or deeds of trust on all owned real property,
including owned real estate, mineral interests or similar items owned by
the Company or any of its Subsidiaries, except as otherwise agreed to by
the Banks, accompanied by, if requested by the Agent, the following, all in
form, substance and amount reasonably satisfactory to the Agent:
(x) a mortgagee's title insurance policy issued by a
company satisfactory to the Agent insuring the Liens granted as first
and prior Liens;
(y) MAI appraisals for all real estate on which a Lien in
favor of the Agent is being granted, such appraisals to set forth the
market value of each parcel and to be in compliance with Title XI of
the Financial Institutions Reform, Recovery and Enforce Act of 1989,
as amended 12 U.S.C. 3331, et seq., and The Regulations and Statements
of General Policy on Appraisals promulgated by the Federal Deposit
Insurance Corporation, 12 C.F.R. Part 32, as amended; and
(z) an environmental assessment of any parcel of the real
property owned by the Company valued in excess of $250,000.00 on which
a Lien in favor of the Agent is being granted, conducted by an
environmental engineering firm reasonably accepted to the Agent and a
Phase II environmental audit or other supplemental data on such
parcels of land as the Agent may reasonably request based on the
information received in such environmental assessment on such site,
conducted by an environmental engineering firm reasonably acceptable
to the Agent and containing recommended remediation measures and cost
estimates associated with such measures satisfactory to the Agent in
its sole discretion; provided, in regard to the Florida Real Estate,
so long as same is being offered for sale, such items described in
this subparagraph (iii) shall not be required until October 31, 1997,
after which time such items may be required, in the sole discretion of
the Agent.
<PAGE>
Failure of the Agent to request the information contained in this
paragraph prior to the Execution Date shall not preclude it from requesting
such information at any time thereafter, in its sole discretion, during the
time the Loan is outstanding; and
(iv) UCC-1 and UCC-3 Financing Statements and other documents or
instruments necessary to perfect the Liens granted in the Security
Documents.
(i) Notices of Advance with respect to the initial Advances meeting
the requirements of Section 2.03(a);
(j) a certificate of an officer and of the secretary or an assistant
secretary of the Company certifying, inter alia, (i) true and complete copies of
each of the articles or certificate of incorporation, as amended and in effect
of the Company and each of the Guarantors, the bylaws, as amended and in effect,
of the Company and each of the Guarantors and the resolutions adopted by the
Board of Directors of the Company and each of the Guarantors (A) authorizing the
execution, delivery and performance by the Company and each of its Subsidiaries
of this Agreement and the other Loan Documents to which it is or will be a party
and, in the case of the Company, the Advances to be made hereunder, (B)
approving the forms of the Loan Documents to which it is or will be a party and
which will be delivered at or prior to the date of the initial Advance and (C)
authorizing officers of the Company and each of its Subsidiaries to execute and
deliver the Loan Documents to which it is or will be a party and any related
documents, including, any agreement contemplated by this Agreement, (ii) the
incumbency and specimen signatures of the officers of the Company and each of
its Subsidiaries executing any documents on its behalf and (iii) that there has
been no change in the businesses or financial condition of the Company which
could reasonably be expected to have a Material Adverse Effect since
February 28, 1997.
(k) a favorable, signed opinion addressed to the Agent and the Banks
from Bracewell & Patterson, L.L.P., counsel to the Company and the Guarantors,
substantially in the form set forth as Exhibit 4.01(k);
(l) the payment to the Agent and the Banks of all reasonable fees and
expenses (including the reasonable fees and disbursements of Andrews & Kurth
L.L.P.) agreed upon by such parties to be paid on the Execution Date;
(m) certificates of appropriate public officials as to the existence,
good standing and qualification to do business as a foreign corporation, as
applicable, of the Company and its Subsidiaries in each jurisdiction in which
the ownership of its properties or the conduct of its business requires such
qualifications and where the failure to so qualify would have a Material Adverse
Effect;
(n) certificates of insurance as contemplated by Section 6.03(a); and
(o) UCC searches and other title information reasonably requested by
the Agent on the Company and each of its Material Subsidiaries; and
<PAGE>
(p) a Borrowing Base Certificate, if available.
The acceptance of the benefits of the initial Credit Event shall
constitute a representation and warranty by the Company to the Agent and each of
the Banks that, to the best of its knowledge, all of the conditions specified in
this Section above shall have been satisfied or waived as of that time.
SECTION 4.02. Conditions Precedent to All Credit Events. The
obligation of the Banks to make any Advance is, including, without limitation,
the initial Advance, subject to the further conditions precedent that on the
date of such Credit Event:
(a) In the case of any Advance pursuant to Section 2.01(a), Agent
shall have received or waived all required Borrowing Base Certificates and the
most recently received certificate shall indicate that such Advance will not
cause the total of outstanding Revolving Credit Loans to exceed the Borrowing
Base.
(b) The representations and warranties set forth in Article V shall be
true and correct in all material respects as of, and as if such representations
and warranties were made on, the date of the proposed Advance (unless such
representation and warranty expressly relates to an earlier date or is no longer
true and correct solely as a result of transactions permitted by the Loan
Documents), and the Company shall be deemed to have certified to the Agent and
the Banks that such representations and warranties are true and correct in all
material respects by submitting a Notice of Advance.
(c) The Company shall have complied with the provisions of Section
2.03 hereof.
(d) No Default or Event of Default shall have occurred and be
continuing or would result from such Credit Event.
(e) No Material Adverse Effect shall have occurred in the consolidated
financial condition of the Company and its consolidated Subsidiaries since the
delivery of the most recent financial statements delivered pursuant to Section
6.01(b).
(f) Except for any foreign Subsidiaries, all Persons that have become
Subsidiaries subsequent to the Execution Date shall have executed this
Agreement.
(g) The Agent shall have received such other approvals, opinions or
documents as the Agent or the Banks may reasonably request.
The acceptance of the benefits of each such Credit Event shall
constitute a representation and warranty by the Company to the Agent and each of
the Banks that all of the conditions specified in this Section above exist as of
that time.
<PAGE>
SECTION 4.03. Advances Under the Acquisition Loan Commitment. The
obligation of the Banks to make any Advance under the Acquisition Loan is
subject to the further conditions that, as of the date of such Advance:
(a) (i) the ratio of Funded Debt to Adjusted EBITDA of the Company
(including all prior acquisitions by the Company, whether or not then owned by
the Company) for the most recent twelve (12) month period available, the last
month of which is not more than three (3) months old shall not exceed 2.35 to
1.0; and (ii) the ratio of Funded Debt to Consolidated Net Worth shall not
exceed 0.8 to 1.0;
(b) the ratio of the amount of such Advance to Adjusted EBITDA of the
target being acquired for the most recent twelve (12) month period available,
the last month of which is not more than three (3) months prior to the closing
of said acquisition shall not exceed 2.75 to 1.0; and
(c) Agent shall have received a counterpart of this Agreement or a
Guaranty executed by the entity being acquired if, after giving effect to such
acquisition, such entity would be a Subsidiary of the Company along with all
Security Documents covering substantially all of the assets (other than real
property leases in which the Company or a Subsidiary is lessee) of said entity
being acquired.
SECTION 4.04. Delivery of Documents. All of the Notes,
certificates, legal opinions and other documents and papers referred to in this
Article IV, unless otherwise specified, shall be delivered to the Agent for the
account of each of the Banks and, except for the Notes, in sufficient
counterparts for each of the Banks and shall be reasonably satisfactory in form
and substance to the Banks.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement and to make
the Advances provided for herein, the Company, as to itself and each of its
Subsidiaries, makes, on or as of the occurrence of each Credit Event (except to
the extent such representations or warranties relate to an earlier date or are
no longer true and correct in all material respects solely as a result of
transactions not prohibited by the Loan Documents), the following
representations and warranties to the Agent and the Banks:
SECTION 5.01. Organization and Qualification. Each of the Company
and its Subsidiaries (a) is duly formed or organized, validly existing and is in
good standing under the laws of the state of its organization, (b) has the power
to own its property and to carry on its business as now conducted, except where
the failure to do so would not have a Material Adverse Effect and (c) is duly
qualified to do business and is in good standing in every jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect.
<PAGE>
SECTION 5.02. Authorization and Validity. Each of the Company and
its Subsidiaries has the corporate power and authority to execute, deliver and
perform its obligations hereunder and under the other Loan Documents to which it
is a party and all such action has been duly authorized by all necessary
corporate proceedings on its part. The Loan Documents to which each of the
Company and its Subsidiaries is a party have been duly and validly executed and
delivered by such Person and constitute a valid and legally binding agreement of
such Person enforceable in accordance with the respective terms thereof, except,
in each case, as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws relating
to or affecting the enforcement of creditors' rights generally, and by general
principles of equity regardless of whether such enforceability is a proceeding
in equity or at law.
SECTION 5.03. Governmental Consents. No authorization, consent,
approval, license or exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is necessary for the valid execution or delivery by the
Company or any Subsidiary of any Loan Document.
SECTION 5.04. Conflicting or Adverse Agreements or Restrictions.
Neither the Company nor any Subsidiary is a party to any contract or agreement
or subject to any restriction which would reasonably be expected to have a
Material Adverse Effect. As of the Execution Date, all agreements of the
Company relating to the lending of money or the issuance of letters of credit by
any party are described hereto on Schedule 5.04. Neither the execution nor
delivery of the Loan Documents nor compliance with the terms and provisions
hereof or thereof will be contrary to the provisions of, or constitute a default
under (a) the charter or bylaws of the Company or any of its Subsidiaries or (b)
any law, regulation, order, writ, injunction or decree of any court or
governmental instrumentality that is applicable to the Company or any of its
Subsidiaries or (c) any material agreement to which the Company or any of its
Subsidiaries is a party or by which it is bound or to which it is subject.
SECTION 5.05. Title to Assets. Each of the Company and its
Subsidiaries has good title to all material personalty and good and indefeasible
title to all material realty as reflected on the Company's and the Subsidiaries'
books and records as being owned by them, except for properties disposed of in
the ordinary course of business, subject to no Liens, except those permitted
hereunder, except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect. All of such assets have been and are being
maintained by the appropriate Person in good working condition in accordance
with industry standards, except where the failure to do so could not reasonably
be expected to have a Material Adverse Effect..
SECTION 5.06. Litigation. No proceedings against the Company or
any Subsidiary are pending or, to the knowledge of the Company, threatened
before any court or governmental agency or department which involve a reasonable
material risk of having a Material Adverse Effect except those listed on
Schedule 5.06 hereof.
<PAGE>
SECTION 5.07. Financial Statements. Prior to the Execution Date,
the Company has furnished to the Banks the audited consolidated balance sheet
for Airtron as of February 28, 1997 and the audited consolidated income
statement and statement of cash flows for the twelve (12) months ended
February 28, 1997 (such financials, the "Financials"). The Financials have been
prepared in conformity with GAAP consistently applied (except as otherwise
disclosed in such financial statements) throughout the periods involved and
present fairly, in all material respects, the consolidated financial condition
of the Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations for the periods then ended. As of the
Execution Date, no Material Adverse Effect has occurred in the consolidated
financial condition of the Company and its consolidated Subsidiaries since
February 28, 1997.
SECTION 5.08. Default. Neither the Company nor any Subsidiary is
in default under any material provisions of any instrument evidencing any
Indebtedness or of any agreement relating thereto, or in default in any respect
under any order, writ, injunction or decree of any court, or in default in any
respect under or in violation of any order, injunction or decree of any
governmental instrumentality, in each case in such manner as to cause a Material
Adverse Effect.
SECTION 5.09. Investment Company Act. Neither the Company nor any
Subsidiary is, or is directly or indirectly controlled by or acting on behalf of
any Person which is, an "investment company," as such term is defined in the
Investment Company Act of 1940, as amended.
SECTION 5.10. Public Utility Holding Company Act. Neither the
Company nor any Subsidiary is a non-exempt "holding company," or subject to
regulation as such, or, to the knowledge of the Company's or such Subsidiary's
officers, an "affiliate" of a "holding company" or a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
SECTION 5.11. ERISA. No accumulated funding deficiency (as defined
in Section 412 of the Code or Section 302 of ERISA), whether or not waived,
exists or is expected to be incurred with respect to any Plan. No liability to
the PBGC (other than required premium payments) has been or is expected by the
Company to be incurred with respect to any Plan by the Company or any ERISA
Affiliate. Neither the Company nor any ERISA Affiliate has incurred any
withdrawal liability under Title IV of ERISA with respect to any Multi-Employer
Plans.
SECTION 5.12. Tax Returns and Payments. Each of the Company and
its Subsidiaries has filed all federal income tax returns and other tax returns,
statements and reports (or obtained extensions with respect thereto) which are
required to be filed and has paid or deposited or made adequate provision, in
accordance with GAAP for the payment of all taxes (including estimated taxes
shown on such returns, statements and reports) which are shown to be due
pursuant to such returns, except for such taxes as are being contested in good
faith and by appropriate proceedings, except, in each such case, where such
failure could not reasonably be expected to have a Material Adverse Effect.
<PAGE>
SECTION 5.13. Environmental Matters. Each of the Company and its
Subsidiaries (a) possesses all environmental, health and safety licenses,
permits, authorizations, registrations, approvals and similar rights necessary
under law or otherwise for the Company or such Subsidiary to conduct its
operations as now being conducted (other than those with respect to which the
failure to possess or maintain would not, individually or in the aggregate for
the Company and such Subsidiaries, reasonably be expected to have a Material
Adverse Effect) and (b) each of such licenses, permits, authorizations,
registrations, approvals and similar rights is valid and subsisting, in full
force and effect and enforceable by the Company or such Subsidiary, and each of
the Company and its Subsidiaries is in compliance with all effective terms,
conditions or other provisions of such permits, authorizations, registrations,
approvals and similar rights except for such failure or noncompliance that,
individually or in the aggregate for the Company and such Subsidiaries, would
not reasonably be expected to have a Material Adverse Effect. Except as
disclosed on Schedule 5.13, neither the Company nor any of its Subsidiaries has
received any notices of any violation of, noncompliance with, or remedial
obligation under, Requirements of Environmental Laws (which violation or non-
compliance has not been cured), and there are no writs, injunctions, decrees,
orders or judgments outstanding, or lawsuits, claims, proceedings,
investigations or inquiries pending or, to the knowledge of the Company or any
Subsidiary, threatened, relating to the ownership, use, condition, maintenance
or operation of, or conduct of business related to, any property owned, leased
or operated by the Company or such Subsidiary or other assets of the Company or
such Subsidiary, other than those violations, instances of noncompliance,
obligations, writs, injunctions, decrees, orders, judgments, lawsuits, claims,
proceedings, investigations or inquiries that, individually or in the aggregate
for the Company and such Subsidiaries, would not have a Material Adverse Effect.
Except as disclosed on Schedule 5.13, there are no material obligations,
undertakings or liabilities arising out of or relating to Environmental Laws to
which the Company or any of its Subsidiaries has agreed, assumed or retained,
or, to the knowledge of the Company, by which the Company or any of its
Subsidiaries is adversely affected, by contract or otherwise and, further,
except as disclosed on Schedule 5.13, neither the Company nor any of its
Subsidiaries has received a written notice or claim to the effect that the
Company or any of its Subsidiaries is or may be liable to any other Person as
the result of a Release or threatened Release of a Hazardous Material which, in
either case, could reasonably be expected to have a Material Adverse Effect.
SECTION 5.14. Purpose of Loans. (a) The proceeds of the Term Loan
will be used solely to finance the acquisition of Airtron and to repay certain
Indebtedness currently owing by Airtron.
(b) The proceeds of the Acquisition Loan will be used to finance the
purchase of stock, warrants, stock appreciation rights, other securities and/or
other assets of Qualified Companies.
(c) The proceeds of the Revolving Credit Loan will be used to finance
seasonal increases in Accounts and inventory, for working capital and in
connection with the acquisition of Airtron.
<PAGE>
(d) None of the proceeds of any Advance will be used directly or
indirectly for the purpose of purchasing or carrying any "margin stock" within
the meaning of Regulation U or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
stock.
SECTION 5.15. Franchises and Other Rights. The Company and each of
its Subsidiaries has all franchises, permits, licenses and other authority as
are necessary to enable them to carry on their respective businesses as now
being conducted and is not in default in respect thereof where the absence of
such or any such default could reasonably be expected to have a Material Adverse
Effect.
SECTION 5.16. Subsidiaries and Assets. The Subsidiaries listed on
Schedule 5.16 are all of the Subsidiaries of the Company as of the Execution
Date and the address given for such Guarantors is the correct mailing address as
of the Execution Date.
SECTION 5.17. Solvency. After giving effect to the initial Advance
hereunder and all other Indebtedness of the Company existing at the time of such
Advance, the Company and its Subsidiaries, viewed as a consolidated entity have
at such time (a) capital sufficient to carry on their businesses and
transactions and (b) assets, the fair market value of which exceeds their
consolidated liabilities (as reflected on the Financials or on the financial
statements most recently delivered to the Banks).
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company, as to itself and each of its Subsidiaries, covenants and
agrees that on and after the date hereof until the Notes have been paid in full
and the Commitments have terminated:
SECTION 6.01. Information Covenants. The Company will furnish to
each Bank:
(a) As soon as available, and in any event within 30 days after the
close of each month, up to and including the month ending September 30, 1997,
and within 50 days of each quarter thereafter, the consolidated and
consolidating balance sheet of the Company and its Subsidiaries as of the end of
such period and the related consolidated and consolidating statements of income
for such period and, in each case, also for the portion of the fiscal year ended
at the end of such period, setting forth, in each case after the first
anniversary of the Effective Date, comparative consolidated figures for the
related periods in the prior fiscal year, all of which shall be certified by the
chief financial officer or chief executive officer of the Company as fairly
presenting in all material respects, the financial position of the Company and
its Subsidiaries as of the end of such period and the results of their
operations for the period then ended in accordance with GAAP, subject to changes
resulting from normal year-end audit adjustments.
<PAGE>
(b) As soon as available, and in any event within ninety-five (95)
days after the close of each fiscal year of the Company, the audited
consolidated and the unaudited consolidating balance sheets of the Company and
its Subsidiaries as at the end of such fiscal year and the related consolidated
and consolidating statements of income, stockholders equity and cash flows for
such fiscal year, setting forth, in each case after the first anniversary of the
Effective Date, comparative figures for the preceding fiscal year and certified
by KPMG Peat Marwick LLP or other independent certified public accountants of
recognized national standing, whose report shall be without limitation as to the
scope of the audit and reasonably satisfactory in substance to the Banks.
(c) Immediately after any Responsible Officer of the Company obtains
verified knowledge thereof, notice of:
(i) any material violation of, noncompliance with, or remedial
obligations under, Requirements of Environmental Laws;
(ii) any material Release or threatened material Release of
Hazardous Materials affecting any property owned, leased or operated by the
Company or any of its Subsidiaries;
(iii) any event or condition which constitutes a Default or an
Event of Default;
(iv) any condition or event which, in the opinion of management
of the Company, would reasonably be expected to have a Material Adverse
Effect;
(v) any Person having given any written notice to the Company
or taken any other action with respect to a claimed material default or
event under any material instrument or material agreement;
(vi) the institution of any litigation which could reasonably be
expected in the good faith judgment of the Company either to have a
Material Adverse Effect or result in a final, non-appealable judgment or
award in excess of $500,000.00 with respect to any single cause of action;
and
(vii) all ERISA notices required by Section 6.07;
then, a notice of such event or condition will be delivered to each Bank
specifying the nature and period of existence thereof and specifying the notice
given or action taken by such Person and the nature of any such claimed default,
event or condition and, in the case of an Event of Default or Default, what
action has been taken, is being taken or is proposed to be taken with respect
thereto.
(d) At the time of the delivery of the quarterly and annual financial
statements provided for in Sections 6.01(a) and 6.01(b), a certificate of a
Responsible Officer to the effect that, to his knowledge, no Default or Event of
Default exists or, if any Default or Event of Default does
<PAGE>
exist, specifying the nature and extent thereof and the action that is being
taken or that is proposed to be taken with respect thereto, which certificate
shall set forth the calculations required to establish whether the Company was
in compliance with the provisions of Sections 7.10 through 7.14 as at the end of
such fiscal period or year, as the case may be.
(e) Quarterly, as soon as available, and in any event within thirty
(30) days after the end of each quarter, (i) a Borrowing Base Certificate
showing at least Eligible Accounts of the Company and its Subsidiaries in an
aggregate amount equal to or greater than 150% of the Total Revolving Credit
Loan Commitment or of all Accounts; and (ii) a summary report (by Subsidiary) of
all Accounts of the Company and its Subsidiaries.
(f) Promptly following request by the Agent such environmental
reports, studies and audits of the Company's procedures and policies, assets and
operations in respect of Environmental Laws as the Agent may reasonably request.
(g) Promptly upon receipt thereof, a copy of any report or letter
submitted to the Company by its independent accountants in connection with any
regular or special audit of the Company's records.
(h) From time to time and with reasonable promptness, such other
information or documents as the Agent or any Bank through the Agent may
reasonably request.
SECTION 6.02. Books, Records and Inspections. The Company and its
Subsidiaries will maintain, and will permit, or cause to be permitted, any
Person designated by any Bank or the Banks to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine the corporate books
and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any such corporations with the officers, employees and agents of the Company
and its Subsidiaries and with their independent public accountants, all at such
reasonable times and as often as the Agent or such Bank may request. Such
inspections shall be at the expense of the Company if made annually and shall be
at the expense of the Bank or Banks requiring same if made more often than
annually.
SECTION 6.03. Insurance and Maintenance of Properties. (a) Each of
the Company and its Subsidiaries will keep reasonably adequately insured by
financially sound and reputable insurers all of its material property, which is
of a character, and in amounts and against such risks, usually and reasonably
insured by similar Persons engaged in the same or similar businesses, including,
without limitation, insurance against fire, casualty and any other hazards
normally insured against, which policies shall name the Agent for the benefit of
the Banks, as a loss payee. Each of the Company and its Subsidiaries will at
all times maintain insurance against its liability for injury to Persons or
property, which insurance shall be by financially sound and reputable insurers
and in such amounts and form as are customary for corporations of established
reputation engaged in the same or a similar business and owning and operating
similar properties and which shall name the Agent, for the benefit of the Banks,
as an additional insured. The Company shall provide the Agent a listing of all
such insurance and such other certificates and other evidence thereof, on or
prior
<PAGE>
to the Execution Date hereof and annually thereafter. A listing of all presently
existing policies of the Company and its Subsidiaries is attached hereto as
Schedule 6.03.
(b) Each of the Company and its Subsidiaries will cause all of its
material properties used or useful in the conduct of its business to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all reasonably necessary
repairs, renewals and replacements thereof, all as in the reasonable judgment of
such Person may be reasonably necessary so that the business carried on in
connection therewith may be properly conducted at all times, except where such
failure could not reasonably be expected to have a Material Adverse Effect.
SECTION 6.04. Payment of Taxes. Each of the Company and its
Subsidiaries will pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
except for such amounts that are being contested in good faith and by
appropriate proceedings, except where such failure could not reasonably be
expected to have a Material Adverse Effect.
SECTION 6.05. Corporate Existence. Each of the Company and its
Subsidiaries will do all things necessary to preserve and keep in full force and
effect (a) the existence of the Company, and (b) unless the failure to do so
would not reasonably be expected to have a Material Adverse Effect, the rights
and franchises of each of the Company and its Subsidiaries.
SECTION 6.06. Compliance with Statutes. Each of the Company and
its Subsidiaries will comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property, except to the extent the failure to do so would not reasonably
be expected to have a Material Adverse Effect.
SECTION 6.07. ERISA. Immediately after any Responsible Officer of
the Company or any of its Subsidiaries knows or has reason to know any of the
following items are true the Company will deliver or cause to be delivered to
the Banks a certificate of the chief financial officer of the Company setting
forth details as to such occurrence and such action, if any, the Company or its
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Company or its ERISA
Affiliate with respect thereto: that a Reportable Event has occurred or that an
application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard; that a Multiemployer
Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that any required contribution to a Plan or
Multiemployer Plan has not been or may not be timely made; that proceedings may
be or have been instituted under Section 4069(a) of ERISA to impose liability on
the Company or an ERISA Affiliate or under Section 4042 of ERISA to terminate a
Plan or appoint a trustee to administer a Plan; that the Company or any ERISA
Affiliate has incurred or may incur any liability (including any contingent or
secondary liability) on account of the termination of or withdrawal from a Plan
or a
<PAGE>
Multiemployer Plan; and that the Company or an ERISA Affiliate may be required
to provide security to a Plan under Section 401(a)(29) of the Code.
SECTION 6.08. Additional Subsidiaries. The Company will cause any
Person that becomes a Subsidiary subsequent to the Execution Date, within ten
(10) Business Days after becoming a Subsidiary, to execute a Guaranty or a
counterpart of this Agreement and deliver same to the Agent and to deliver the
other Security Documents referenced in Section 4.03(c), provided if said
Subsidiary is not incorporated under the laws of the United States or one of its
states or territories, no such guaranty or Security Documents will be required
if the Company makes arrangements, satisfactory to the Agent, in its sole
discretion, regarding restrictions on transfer of funds or other assets by the
Company or any Subsidiary to said new foreign Subsidiary.
ARTICLE VII
NEGATIVE COVENANTS
The Company covenants and agrees, as to itself and, except as
otherwise provided herein, each of its Subsidiaries, that on and after the date
hereof until the Notes have been paid in full and the Commitments have
terminated:
SECTION 7.01. Change in Business. The Company will not, and will
not permit any of its Subsidiaries to, engage in any businesses not of the same
general type as those conducted by the Company on the Execution Date after
giving effect to the acquisition of Airtron, those conducted by a Qualified
Company when acquired and businesses reasonably related thereto.
SECTION 7.02. Consolidation, Merger or Sale of Assets. Except as
previously disclosed to the Agent, the Company will not, and will not permit any
of its Subsidiaries to, wind up, liquidate or dissolve their affairs, or enter
into any transaction of merger or consolidation in which the Company is not the
surviving entity, or sell or otherwise dispose of all or any substantial part of
their property or assets (other than sales of inventory and surplus or obsolete
assets in the ordinary course of business provided that any disposal does not
prejudice the Banks in any way), including the capital stock of any Subsidiary,
except for dispositions of the stock of Subsidiaries to other wholly-owned
Subsidiaries of the Company which have complied with Section 6.08.
SECTION 7.03. Indebtedness. Neither the Company nor any Subsidiary
of the Company will create, incur, assume or permit to exist any Indebtedness of
the Company or any Subsidiary except:
(a) Indebtedness existing hereunder;
(b) Indebtedness existing on the Execution Date and described in the
Financials or, if not shown, listed on Schedule 7.03(b);
<PAGE>
(c) letters of credit incurred in the ordinary course of business in
an amount not to exceed $750,000.00 outstanding at any one time, provided such
letters of credit are issued by one of the Banks, which letters of credit, and
the Company's liabilities thereunder, shall be secured, pro-rata and pari-passu
with all of the Obligations;
(d) Indebtedness arising as a result of the endorsement in the
ordinary course of business of negotiable instruments in the course of
collection;
(e) accounts payable and unsecured, current and long-term, liabilities
(including accrued insurance related liabilities), not the result of
indebtedness for borrowed money, to vendors, suppliers and other Persons for
goods and services in the ordinary course of business;
(f) agreements (including agreements of intent) to acquire any Person
or assets issued by the Company or any of its Subsidiaries in anticipation of
acquiring such Person or assets if such acquisition is not prohibited by this
Agreement, including any ongoing, contingent payment obligations contained in
such agreements (including obligations to make payments resulting from the
deferred tax assets arising from stock appreciation rights, warrants and its
deferred compensation plan previously in existence, all in accordance with the
acquisition agreement in respect of Airtron);
(g) Intercompany Indebtedness of any Subsidiary of the Company to the
Company or any other Subsidiary and Indebtedness of the Company to any
Subsidiary of the Company assuming same is subordinate to the Obligations in the
manner provided in Section 8.05 hereof;
(h) guarantees by the Company or any of its Subsidiaries of
Indebtedness of any Subsidiary of the Company permitted to be incurred, created
or existing pursuant to this Agreement, provided, that such guarantees are not
directly secured by any Liens;
(i) current and deferred taxes;
(j) contingent liabilities under surety bonds or otherwise incurred in
the ordinary course of business with a maximum exposure at any one time not to
exceed $1,000,000;
(k) Indebtedness of the type described in clause (d) of the definition
herein of Indebtedness if incurred in the ordinary course of business;
(l) earn-out agreements that are a part of Investments allowed under
Section 7.05(e);
(m) Other Indebtedness not in excess of $1,000,000.00 in the aggregate
at any time outstanding;
(n) Indebtedness not to exceed $500,000.00 at any time outstanding
secured in accordance with clause (k) of the definition herein of Permitted
Liens;
<PAGE>
(o) Indebtedness not to exceed $2,000,000.00, unsecured or
subordinated to the satisfaction of the Agent, owing to Sellers of Qualified
Companies, in connection with the acquisition of said Qualified Company;
(p) preferred stock issued on terms substantially similar to, or no
less favorable to the Company than, those contained on Exhibit 7.03(p); and
(q) renewals and extensions with the same lenders (in the same or
lesser principal amount on similar terms and conditions) of any Indebtedness
listed in subparagraphs (a) through (p) above.
SECTION 7.04. Liens. Neither the Company nor any Subsidiary of the
Company will create, incur, assume or suffer to exist any Lien upon or with
respect to any of its property or assets of any kind whether now owned or
hereafter acquired (nor will they covenant with any other Person not to grant
such a Lien to the Agent on Collateral, except property secured or to be secured
by a Lien permitted by this Agreement), except:
(a) Liens existing on the Execution Date and listed on Schedule
7.04(a);
(b) Liens securing currently secured Indebtedness permitted under
Section 7.03(b) or (m) above;
(c) Permitted Liens;
(d) Liens created by the Loan Documents;
(e) Other Liens securing obligations allowed pursuant to Section
7.03(l) or (m) not exceeding $500,000.00 in the aggregate at any one time; and
(f) any renewal, extension or replacement of any Lien referred to
above with the same lenders; provided, that no Lien arising or existing as a
result of such extension, renewal or replacement shall be extended to cover any
property not theretofore subject to the Lien being extended, renewed or replaced
and provided further that the principal amount of the Indebtedness secured
thereby shall not exceed the principal amount of the Indebtedness so secured at
the time of such extension, renewal or replacement.
SECTION 7.05. Investments. Neither the Company nor any Subsidiary
will, directly or indirectly, make or own any Investment in any Person, except:
(a) Permitted Investments;
(b) Investments owned on the Effective Date as set forth on Schedule
7.05(b), including Investments in Airtron and the Subsidiaries, direct and
indirect;
<PAGE>
(c) Investments arising out of loans and advances for expenses, travel
per diem and similar items in the ordinary course of business to officers,
directors and employees and intercompany Indebtedness permitted by Section
7.03(g);
(d) Investments in the stock, warrants, stock appreciation rights,
other securities and/or other assets of Qualified Companies with a cash
component of the purchase price of less than $500,000.00 for each such Qualified
Company;
(e) Investments in the stock, warrants, stock appreciation rights,
other securities and/or other assets of Qualified Companies funded, in part, by
the Acquisition Loans, with the approval of all of the Banks;
(f) other Investments not exceeding $250,000.00 in the aggregate at
any one time outstanding;
(g) Investments in the form of stock buy backs allowed under Section
7.06; and
(h) Investments in capital stock of wholly-owned Subsidiaries of the
Company.
SECTION 7.06. Restricted Payments. The Company will not pay any
dividends or redeem, retire, purchase or guaranty the value of or make any other
acquisition, direct or indirect, of any shares of any class of stock of the
Company, or of any warrants, rights or options to acquire any such shares, now
or hereafter outstanding, except to the extent that the consideration therefor
consists solely of shares of stock (including warrants, rights or options
relating thereto) of the Company or is approved by the Majority Banks; provided,
the Company may purchase the stock of departing officers and employees upon
their departure in a maximum, aggregate amount not to exceed $250,000.00 in the
aggregate.
SECTION 7.07. Change in Accounting. The Company will not and will
not permit any Subsidiary to, change its method of accounting except for (a)
changes permitted by GAAP in which the Company's auditors concur, (b) changes
with respect to any Person or assets acquired by the Company to conform with the
Company's policies and procedures and which are permitted by GAAP or (c) changes
required by GAAP. The Company shall advise the Agent in writing promptly upon
making any material change to the extent same is not disclosed in the financial
statements required under Section 6.01 hereof. In the event of any such change,
the Company, the Banks and the Agent agree to negotiate amendments to Sections
7.10 through 7.14 hereof (and related definitions, if relevant) so as to
equitably reflect such changes thereon with the intended result that the
criteria for evaluating the financial condition of the Company and its
Subsidiaries shall be substantially the same after such changes as before.
SECTION 7.08. Certain Indebtedness. The Company will not, and will
not permit any of its Subsidiaries after the occurrence and during the
continuance of any Event of Default to make any prepayments of principal or
interest on any other of the Company's Indebtedness, except as may be required
thereby.
<PAGE>
SECTION 7.09. Transactions with Affiliates. The Company will not,
directly or indirectly, engage in any transaction with any Affiliate, including
the purchase, sale or exchange of assets or the rendering of any service, except
in the ordinary course of business or pursuant to the reasonable requirements of
its business and, in each case, upon terms that are no less favorable than those
which might be obtained in an arm's-length transaction at the time from non-
Affiliates.
SECTION 7.10. Consolidated Net Worth. The Company will not permit
its Consolidated Net Worth to be less than the actual net worth as of the
Execution Date minus $200,000.00, plus, in all cases: (a) 100% of the increase
in Consolidated Net Worth resulting from the issuance of any capital stock by
the Company or any Subsidiary subsequent to the Execution Date at any time
during the term hereof and (b) 75% of the consolidated after tax income of the
Company and its Subsidiaries (to be adjusted semi-annually at mid-year and
fiscal year-end) for each fiscal year during the term hereof (including any
Subsidiaries acquired subsequent hereto).
SECTION 7.11. Funded Debt to Adjusted EBITDA Ratio. The Company
will not permit the ratio of its total Funded Debt to Adjusted EBITDA calculated
for the preceding four (4) quarters on a rolling four (4) quarter basis to be
greater than 3.0 to 1.0 at any time during the term hereof.
SECTION 7.12. Total Funded Debt to Consolidated Net Worth Ratio.
The Company will not permit the ratio of (a) its total Funded Debt to (b)
Consolidated Net Worth to be greater than 1.25 to 1.0 at any time during the
term hereof.
SECTION 7.13. Capital Expenditures. The Company will not permit
total consolidated capital expenditures (including Capitalized Lease
Obligations) to be greater than $5,000,000.00 for any fiscal year during the
term hereof.
SECTION 7.14. Fixed Charge Coverage Ratio. The Company will not
permit the ratio of (a) Adjusted EBITDA calculated for the preceding four (4)
quarters on a rolling four (4) quarter basis less cash taxes actually paid
during such four (4) quarters to (b) the sum of: required principal repayments
on all Funded Debt for the upcoming four quarters, plus required cash interest
payments, plus cash capital expenditures, both calculated for the preceding four
(4) quarters on a rolling four quarter basis, to be less than 1.25 to 1.0, as of
the end of any fiscal quarter.
SECTION 7.15. Subscription Agreement. The Company will not amend,
modify or cancel that certain Subscription Agreement dated as of October 24,
1996 between the Company and Gordon A. Cain, without the express approval of the
Majority Banks.
<PAGE>
ARTICLE VIII
GUARANTY
SECTION 8.01. Guaranty. In consideration of, and in order to
induce the Banks to make the Loans hereunder, the Guarantors hereby absolutely,
unconditionally and irrevocably, jointly and severally guarantee the punctual
payment and performance when due, whether at stated maturity, by acceleration or
otherwise, of the Obligations, and all other obligations and covenants of the
Company now or hereafter existing under this Agreement, the Notes and the other
Loan Documents whether for principal, interest (including interest accruing or
becoming owing both prior to and subsequent to the commencement of any
proceeding against or with respect to the Company under any chapter of the
Bankruptcy Code), Fees, commissions, expenses (including reasonable attorneys'
fees and expenses) or otherwise, and all reasonable costs and expenses, if any,
incurred by the Agent or any Bank in connection with enforcing any rights under
this Guaranty (all such obligations being the "Guaranteed Obligations"), and
agree to pay any and all reasonable expenses incurred by each Bank and the Agent
in enforcing this Guaranty; provided that notwithstanding anything contained
herein or in any of the Loan Documents to the contrary, the maximum liability of
each Guarantor hereunder and under the other Loan Documents shall in no event
exceed such Guarantor's Maximum Guaranteed Amount, provided further, each
Guarantor shall be unconditionally required to pay all amounts demanded of it
hereunder prior to any determination of such Maximum Guaranteed Amount and the
recipient of such payment, if so required by a final non-appealable order of a
court of competent jurisdiction, shall then be liable for the refund of any
excess amounts. If any such rebate or refund is ever required, all other
Guarantors (and the Company) shall be fully liable for the repayment thereof to
the maximum extent allowed by applicable law. This Guaranty is an absolute,
unconditional, present and continuing guaranty of payment and not of
collectibility and is in no way conditioned upon any attempt to collect from the
Company or any other action, occurrence or circumstance whatsoever. Each
Guarantor agrees that the Guaranteed Obligations may at any time and from time
to time exceed the Maximum Guaranteed Amount of such Guarantor without impairing
this Guaranty or affecting the rights and remedies of the Banks hereunder.
SECTION 8.02. Continuing Guaranty. Each Guarantor guarantees that
the Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement, the Notes and the other Loan Documents. Each Guarantor agrees
that the Guaranteed Obligations and Loan Documents may be extended or renewed,
and Loans repaid and reborrowed in whole or in part, without notice to or assent
by such Guarantor, and that it will remain bound upon this Guaranty
notwithstanding any extension, renewal or other alteration of any Guaranteed
Obligations or Loan Documents, or any repayment and reborrowing of Loans. To
the maximum extent permitted by applicable law, the obligations of each
Guarantor under this Guaranty shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms hereof under any
circumstances whatsoever, including:
(a) any extension, renewal, modification, settlement, compromise,
waiver or release in respect of any Guaranteed Obligations;
<PAGE>
(b) any extension, renewal, amendment, modification, rescission,
waiver or release in respect of any Loan Documents;
(c) any release, exchange, substitution, non-perfection or invalidity
of, or failure to exercise rights or remedies with respect to, any direct or
indirect security for any Guaranteed Obligations, including the release of any
Guarantor or other Person liable on any Guaranteed Obligations;
(d) any change in the corporate existence, structure or ownership of
the Company, any Guarantor, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting the Company, such Guarantor, any other
Guarantor or any of their respective assets;
(e) the existence of any claim, defense, set-off or other rights or
remedies which such Guarantor at any time may have against the Company, or the
Company or such Guarantor may have at any time against the Agent, any Bank, any
other Guarantor or any other Person, whether in connection with this Guaranty,
the Loan Documents, the transactions contemplated thereby or any other
transaction other than by the payment in full by the Company of the Guaranteed
Obligations after the termination of the Commitments of the Banks;
(f) any invalidity or unenforceability for any reason of this
Agreement or other Loan Documents, or any provision of law purporting to
prohibit the payment or performance by the Company, such Guarantor or any other
Guarantor of the Guaranteed Obligations or Loan Documents, or of any other
obligation to the Agent or any Bank; or
(g) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing.
SECTION 8.03. Effect of Debtor Relief Laws. If after receipt of
any payment of, or proceeds of any security applied (or intended to be applied)
to the payment of all or any part of the Guaranteed Obligations, the Agent or
any Bank is for any reason compelled to surrender or voluntarily surrenders
(under circumstances in which it believes it could reasonably be expected to be
so compelled if it did not voluntarily surrender), such payment or proceeds to
any Person (a) because such payment or application of proceeds is or may be
avoided, invalidated, declared fraudulent, set aside, determined to be void or
voidable as a preference, fraudulent conveyance, fraudulent transfer,
impermissible set-off or a diversion of trust funds or (b) for any other similar
reason, including (i) any judgment, decree or order of any court or
administrative body having jurisdiction over the Agent, any Bank or any of their
respective properties or (ii) any settlement or compromise of any such claim
effected by the Agent or any Bank with any such claimant (including the
Company), then the Guaranteed Obligations or part thereof intended to be
satisfied shall be reinstated and continue, and this Guaranty shall continue in
full force as if such payment or proceeds have not been received,
notwithstanding any revocation thereof or the cancellation of any Note or any
other instrument evidencing any Guaranteed Obligations or otherwise; and the
Guarantors, jointly and severally, shall be liable to pay the Agent and the
Banks, and hereby do indemnify the Agent and the Banks and hold them harmless
for the amount of such payment or proceeds so
<PAGE>
surrendered and all expenses (including reasonable attorneys' fees, court costs
and expenses attributable thereto) incurred by the Agent or any Bank in the
defense of any claim made against it that any payment or proceeds received by
the Agent or any Bank in respect of all or part of the Guaranteed Obligations
must be surrendered. The provisions of this paragraph shall survive the
termination of this Guaranty, and any satisfaction and discharge of the Company
by virtue of any payment, court order or any federal or state law.
SECTION 8.04. Waiver of Subrogation. Notwithstanding any payment
or payments made by any Guarantor hereunder, or any set-off or application by
the Agent or any Bank of any security or of any credits or claims, no Guarantor
will assert or exercise any rights of the Agent or any Bank or of such Guarantor
against the Company to recover the amount of any payment made by such Guarantor
to the Agent or any Bank hereunder by way of any claim, remedy or subrogation,
reimbursement, exoneration, contribution, indemnity, participation or otherwise
arising by contract, by statute, under common law or otherwise, and such
Guarantor shall not have any right of recourse to or any claim against assets or
property of the Company, in each case unless and until the Obligations of the
Company guaranteed hereby have been fully and finally satisfied. Until such
time, each Guarantor hereby expressly waives any right to exercise any claim,
right or remedy which such Guarantor may now have or hereafter acquire against
the Company that arises under this Agreement or any other Loan Document or from
the performance by any Guarantor of the Guaranty hereunder including any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification or participation in any claim, right or remedy of the Agent or
any Bank against the Company or any Guarantor, or any security that the Agent or
any Bank now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity, under contract, by statute, under common law or
otherwise. If any amount shall be paid to a Guarantor by the Company or another
Guarantor after payment in full of the Obligations, and the Obligations shall
thereafter be reinstated in whole or in part and the Agent or any Bank forced to
repay and sums received by any of them in payment of the Obligations, this
Guaranty shall be automatically reinstated and such amount shall be held in
trust for the benefit of the Agent and the Banks and shall forthwith be paid to
the Agent to be credited and applied to the Guaranteed Obligations, whether
matured or unmatured. The provisions of this paragraph shall survive the
termination of this Guaranty, and any satisfaction and discharge of the Company
by virtue of any payment, court order or any federal or state law.
SECTION 8.05. Subordination. If any Guarantor becomes the holder
of any indebtedness payable by the Company or another Guarantor, each Guarantor
hereby subordinates all indebtedness owing to it from the Company to all
indebtedness of the Company to the Agent and the Banks, and agrees that during
the continuance of any Event of Default it shall not accept any payment on the
same until payment in full of the Obligations of the Company under this
Agreement and the other Loan Documents after the termination of the Commitments
of the Banks and shall in no circumstance whatsoever attempt to set-off or
reduce any obligations hereunder because of such indebtedness. If any amount
shall nevertheless be paid in violation of the foregoing to a Guarantor by the
Company or another Guarantor prior to payment in full of the Guaranteed
Obligations, such amount shall be held in trust for the benefit of the Agent and
the Banks and shall forthwith be paid to the Agent to be credited and applied to
the Guaranteed Obligations, whether matured or unmatured.
<PAGE>
SECTION 8.06. Waiver. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and waives presentment, demand of
payment, notice of intent to accelerate, notice of dishonor or nonpayment and
any requirement that the Agent or any Bank institute suit, collection
proceedings or take any other action to collect the Guaranteed Obligations,
including any requirement that the Agent or any Bank protect, secure, perfect or
insure any Lien against any property subject thereto or exhaust any right or
take any action against the Company or any other Person or any collateral (it
being the intention of the Agent, the Banks and each Guarantor that this
Guaranty is to be a guaranty of payment and not of collection). It shall not be
necessary for the Agent or any Bank, in order to enforce any payment by any
Guarantor hereunder, to institute suit or exhaust its rights and remedies
against the Company, any other Guarantor or any other Person, including others
liable to pay any Guaranteed Obligations, or to enforce its rights against any
security ever given to secure payment thereof. Each Guarantor hereby expressly
waives to the maximum extent permitted by applicable law each and every right to
which it may be entitled by virtue of the suretyship laws of the State of Texas,
including any and all rights it may have pursuant to Rule 31, Texas Rules of
Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code
and Chapter 34 of the Texas Business and Commerce Code. Each Guarantor hereby
waives marshaling of assets and liabilities, notice by the Agent or any Bank of
any indebtedness or liability to which such Bank applies or may apply any
amounts received by such Bank, and of the creation, advancement, increase,
existence, extension, renewal, rearrangement or modification of the Guaranteed
Obligations. Each Guarantor expressly waives, to the extent permitted by
applicable law, the benefit of any and all laws providing for exemption of
property from execution or for valuation and appraisal upon foreclosure.
SECTION 8.07. Full Force and Effect. This Guaranty is a continuing
guaranty and shall remain in full force and effect until all of the Obligations
of the Company under this Agreement and the other Loan Documents and all other
amounts payable under this Guaranty have been paid in full (after the
termination of the Commitments of the Banks). All rights, remedies and powers
provided in this Guaranty may be exercised, and all waivers contained in this
Guaranty may be enforced, only to the extent that the exercise or enforcement
thereof does not violate any provisions of applicable law which may not be
waived.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
SECTION 9.01. Events of Default. The following events shall
constitute Events of Default ("Events of Default") hereunder:
<PAGE>
(a) any installment of principal is not paid when due or any payment
of interest or Fees is not paid on the date on which such payment is due and
such failure continues for a period of five (5) days; or
(b) any representation or warranty made or deemed made by the Company
or any Subsidiary herein or in any of the Loan Documents or other document,
certificate or financial statement delivered in connection with this Agreement
or any other Loan Document shall prove to have been incorrect in any material
respect when made or deemed made or reaffirmed, as the case may be; or
(c) the Company shall fail to perform or observe or cause any
Subsidiary to fail to perform or observe any duty or covenant contained in
Article VI of this Agreement or in any of the Security Documents and such
failure continues for a period of fifteen (15) days or shall fail to perform or
observe any other covenant or duty contained in this Agreement or in any of the
Loan Documents; or
(d) the Company or any Subsidiary shall (i) fail to make (whether as
primary obligor or as guarantor or other surety) any principal payment of or
interest or premium, if any, on any instrument of Indebtedness in excess of
$500,000.00 allowed hereunder outstanding beyond any period of grace provided
with respect thereto or (ii) shall fail to duly observe, perform or comply with
any agreement with any Person or any term or condition of any instrument of
Indebtedness in excess of $500,000.00, if the effect of such failure is to
cause, or to permit the holder or holders to cause, such obligations to become
due prior to any stated maturity; or
(e) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of the Company or any Subsidiary, or of a substantial part of the
property or assets of the Company or any Subsidiary, under Title 11 of the
United States Code, as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"), or any other federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company or any
Subsidiary or for a substantial part of the property or assets of the Company or
any Subsidiary or (iii) the winding-up or liquidation of the Company or any
Subsidiary; and such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing shall be
entered; or
(f) the Company or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under the Bankruptcy Code or any
other federal or state bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in clause (e)
above, (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company or any
Subsidiary or for a substantial part of the property or assets of the Company or
any Subsidiary, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors, (vi) become unable, or admit in writing its
inability or fail generally to pay
<PAGE>
its debts as they become due or (vii) take any action for the purpose of
effecting any of the foregoing; or
(g) either party to the Subscription Agreement shall be in default
thereunder of any kind and for any reason; or
(h) a judgment or order, which with other outstanding judgments and
orders against the Company and its Subsidiaries equal or exceed $500,000.00 in
the aggregate (to the extent not covered by insurance as to which the respective
insurer has acknowledged coverage), shall be entered against the Company or any
Subsidiary and (i) within 30 days after entry thereof such judgment shall not
have been paid or discharged or execution thereof stayed pending appeal or,
within 30 days after the expiration of any such stay, such judgment shall not
have been paid or discharged or (ii) any enforcement proceeding shall have been
commenced (and not stayed) by any creditor or upon such judgment; or
(i) a Change of Control shall occur.
SECTION 9.02. Primary Remedies. In any such event, and at any time
after the occurrence of any of the above described events, the Agent, if
directed by the Majority Banks, shall by written notice to the Company (a
"Notice of Default") take any or all of the following actions (without prejudice
to the rights of any Bank to enforce any other rights it may have against the
Company, provided that, if an Event of Default specified in Section 9.01(e) or
Section 9.01(f) shall occur, the following shall occur automatically without the
giving of any Notice of Default): (a) declare the Commitments terminated,
whereupon the Commitments shall forthwith terminate immediately and any
Commitment Fee and any other owing and unpaid Fee shall forthwith become due and
payable without any other notice of any kind; (b) declare the principal of and
any accrued and unpaid interest in respect of all Advances, and all obligations
owing hereunder, to be, whereupon the same shall become, forthwith due and
payable without presentment, demand, notice of demand or of dishonor and non-
payment, protest, notice of protest, notice of intent to accelerate, declaration
or notice of acceleration or any other notice of any kind (except as herein
provided), all of which are hereby waived by the Company; (c) set off any assets
or money of the Company or any Guarantor in its or any Bank's possession against
the Obligations; and (d) exercise any rights or remedies under any document
securing any of the Loan Documents or under any applicable state or federal law.
SECTION 9.03. Other Remedies. Upon the occurrence and during the
continuance of any Event of Default, the Agent may proceed to protect and
enforce its and the Banks' rights, either by suit in equity or by action at law
or both, whether for the specific performance of any covenant or agreement
contained in this Agreement or in any other Loan Document or in aid of the
exercise of any power granted in this Agreement or in any other Loan Document;
or may proceed to enforce the payment of all amounts owing to the Banks under
the Loan Documents and any accrued and unpaid interest thereon in the manner set
forth herein or therein; it being intended that no remedy conferred herein or in
any of the other Loan Documents is to be exclusive of any other remedy, and each
and every remedy contained herein or in any other Loan Document shall be
<PAGE>
cumulative and shall be in addition to every other remedy given hereunder and
under the other Loan Documents or now or hereafter existing at law or in equity
or by statute or otherwise.
ARTICLE X
THE AGENT
SECTION 10.01. Authorization and Action. Each Bank hereby
irrevocably appoints and authorizes the Agent to act on its behalf and to
exercise such powers under this Agreement and the other Loan Documents as are
specifically delegated to or required of the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. The Agent may perform
any of its duties hereunder by or through its agents and employees. The duties
of the Agent shall be mechanical and administrative in nature; the Agent shall
not have by reason of this Agreement or any other Loan Documents a fiduciary
relationship in respect of any Bank; and nothing in this Agreement or any other
Loan Document, expressed or implied, is intended to, or shall be so construed as
to, impose upon the Agent any obligations in respect of this Agreement or any
other Loan Document except as expressly set forth herein or therein. As to any
matters not expressly provided for by this Agreement, the Notes or the other
Loan Documents (including enforcement or collection of the Notes), the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority Banks,
and such instructions shall be binding upon the Banks and all holders of Notes
and the Obligations; provided, that the Agent shall not be required to take any
action which exposes the Agent to personal liability and shall not be required
or entitled to take any action which is contrary to any of the Loan Documents or
applicable law.
SECTION 10.02. Agent's Reliance. (a) Neither the Agent nor any of
its directors, officers, agents or employees shall be liable to the Banks for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement, the Notes or any of the other Loan Documents (i) with the
consent or at the request of the Majority Banks or (ii) in the absence of its or
their own gross negligence or willful misconduct, IT BEING THE EXPRESS INTENTION
OF THE PARTIES HERETO THAT THE AGENT AND ITS DIRECTORS, OFFICERS, AGENTS AND
EMPLOYEES SHALL HAVE NO LIABILITY TO THE BANKS FOR ACTIONS AND OMISSIONS UNDER
THIS SECTION RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE.
(b) Without limitation of the generality of the foregoing, the Agent:
(i) may treat the payee of each Note and the Obligations as the holder thereof
until the Agent receives written notice of the assignment or transfer thereof
signed by such payee and in form satisfactory to the Agent; (ii) may consult
with legal counsel (including counsel for the Company), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations made in or in connection with this
Agreement, any Note or any other Loan Document; (iv) except as otherwise
expressly provided herein, shall not have
<PAGE>
any duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions of this Agreement, any Note or any other
Loan Document or to inspect the property (including the books and records) of
the Company; (v) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, collectibility, genuineness, sufficiency or
value of this Agreement, any Note, any other Loan Document or any other
instrument or document furnished pursuant hereto or thereto; (vi) shall not be
responsible to any Bank for the perfection or priority of any Lien securing the
Obligations; and (vii) shall incur no liability to the Banks under or in respect
of this Agreement, any Note or any other Loan Document by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telegram, telecopier or cable) reasonably believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 10.03. Agent and Affiliates; TCB and Affiliates. Without
limiting the right of any other Bank to engage in any business transactions with
the Company or any of its Affiliates, with respect to their Commitments, the
Loans made by them and the Notes issued to them, TCB and each other Bank who may
become the Agent shall have the same rights and powers under this Agreement and
its Notes as any other Bank and may exercise the same as though it was not the
Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly
indicated, include TCB and any such other Bank, in their individual capacities.
TCB, each other Person who becomes the Agent and their respective Affiliates may
be engaged in, or may hereafter engage in, one or more loan, letter of credit,
leasing or other financing activity not the subject of this Agreement
(collectively, the "Other Financings") with the Company, any Subsidiary or any
of its Affiliates, or may act as trustee on behalf of, or depositary for, or
otherwise engage in other business transactions with the Company, any
Subsidiary or any of its Affiliates (all Other Financings and other such
business transactions being collectively, the "Other Activities") with no
responsibility to account therefor to the Banks. Without limiting the rights and
remedies of the Banks specifically set forth herein, no other Bank by virtue of
being a Bank hereunder shall have any interest in (a) any Other Activities, (b)
any present or future guaranty by or for the account of the Company not
contemplated or included herein, (c) any present or future offset exercised by
the Agent in respect of any such Other Activities, (d) any present or future
property taken as security for any such Other Activities or (e) any property now
or hereafter in the possession or control of the Agent which may be or become
security for the Obligations of the Company hereunder and under the Notes by
reason of the general description of indebtedness secured, or of property
contained in any other agreements, documents or instruments related to such
Other Activities; provided, however, that if any payment in respect of such
guaranties or such property or the proceeds thereof shall be applied to
reduction of the Obligations evidenced hereunder and by the Notes, then each
Bank shall be entitled to share in such application according to its pro rata
portion of such Obligations.
SECTION 10.04. Bank Credit Decision. Each Bank acknowledges and
agrees that it has, independently and without reliance upon the Agent or any
other Bank and based on the financial statements referred to in Section 6.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges and agrees that it will, independently and without reliance upon
the Agent or any other Bank and based on such documents and information as it
shall deem appropriate at the
<PAGE>
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Loan Documents.
SECTION 10.05. Agent's Indemnity. (a) The Agent shall not be
required to take any action hereunder or to prosecute or defend any suit in
respect of this Agreement, the Notes or any other Loan Document unless
indemnified to the Agent's satisfaction by the Banks against loss, cost,
liability and expense. If any indemnity furnished to the Agent shall become
impaired, it may call for additional indemnity and cease to do the acts
indemnified against until such additional indemnity is given. In addition, the
Banks agree to indemnify the Agent (to the extent not reimbursed by the
Company), ratably according to the respective aggregate principal amounts of the
Notes then held by each of them (or if no Notes are at the time outstanding,
ratably according to the respective amounts of the Commitments), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any action
taken or omitted by the Agent under this Agreement, the Notes and the other Loan
Documents. Without limitation of the foregoing, each Bank agrees to reimburse
the Agent promptly upon demand for its ratable share of any out-of-pocket
expenses (including reasonable counsel fees) incurred by the Agent in connection
with the preparation, execution, administration, or enforcement of, or legal
advice in respect of rights or responsibilities under, this Agreement, the Notes
and the other Loan Documents to the extent that the Agent is not reimbursed for
such expenses by the Company. The provisions of this Section shall survive the
termination of this Agreement, the payment of the Obligations and/or the
assignment of any of the Notes.
(b) Notwithstanding the foregoing, no Bank shall be liable under this
Section to the Agent for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
due to the Agent resulting from the Agent's gross negligence or willful
misconduct. EACH BANK AGREES, HOWEVER, THAT IT EXPRESSLY INTENDS, UNDER THIS
SECTION, TO INDEMNIFY THE AGENT RATABLY AS AFORESAID FOR ALL SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND DISBURSEMENTS ARISING OUT OF OR RESULTING FROM THE AGENT'S SOLE
ORDINARY OR CONTRIBUTORY NEGLIGENCE.
SECTION 10.06. Successor Agent. The Agent may resign at any time
by giving written notice thereof to the Banks and the Company and may be removed
as Agent under this Agreement, the Notes and the other Loan Documents at any
time with or without cause by the Majority Banks. Upon any such resignation or
removal, the Majority Banks shall have the right to appoint a successor Agent
with the approval of the Company, which shall not be unreasonably withheld. If
no successor Agent shall have been so appointed by the Majority Banks, and shall
have accepted such appointment, within 30 calendar days after the retiring
Agent's giving of notice of resignation or the Majority Banks' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent with the approval of the Company, which shall not be
unreasonably withheld, which shall be a commercial bank organized under the laws
of the United States of America or of any state thereof and having a combined
capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Agent hereunder and under the Notes and
<PAGE>
the other Loan Documents by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement, the Notes and the other
Loan Documents. After any retiring Agent's resignation or removal as Agent
hereunder and under the Notes and the other Loan Documents, the provisions of
this Article X shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement, the Notes and the other
Loan Documents.
SECTION 10.07. Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent shall have received notice from a Bank or the Company
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default." If the Agent receives such
notice, the Agent shall give notice thereof to the Banks; provided, however, if
such notice is received from a Bank, the Agent also shall give notice thereof to
the Company. The Agent shall be entitled to take action or refrain from taking
action with respect to such Default or Event of Default as provided in Section
10.01 and Section 10.02.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Amendments. No amendment or waiver of any provision
of this Agreement, any Note or any other Loan Document, nor consent to any
departure by the Company herefrom or therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Company, as to amendments,
and by the Majority Banks in all cases, and then, in any case, such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given provided, no such amendment shall be effective unless
signed by all of the Banks if it attempts to: (a) change the definition of
"Accounts", "Adjusted EBITDA", "Borrowing Base", "Commitment", "Designated
Payment Date", "EBITDA", "Eligible Accounts", "Excess Cash Flow", "Majority
Banks", "Margin" or "Maturity Date"; (b) modify this Section or Sections 3.01 or
7.01 through 7.14 or any definition related to said sections; (c) release any
Guarantor; (d) waive any Default under Section 9.01(a), (e) release any Liens on
any of the Collateral, or (f) in any other manner change the repayment terms of
the Loans, including required principal payments or the rate, amount or time of
interest payments.
SECTION 11.02. Notices. Except with respect to telephone
notifications specifically permitted pursuant to Article II, all notices,
consents, requests, approvals, demands and other communications provided for
herein shall be in writing (including telecopy communications) and mailed,
telecopied, sent by overnight courier or delivered:
<PAGE>
(a) If to the Company and the Guarantors:
Group Maintenance America Corp.
1800 West Loop South
Houston, Texas 77027
Telephone No.: (713) 626-4778
Telecopy No: (713) 626-4776
Attention: Darren B. Miller
(b) If to the Agent:
Texas Commerce Bank National Association
545 West 19th Street
Houston, Texas 77008
Telephone No.: (713) 868-6737
Telecopy No: (713) 868-8663
Attention: Mr. Mark Walshak
Senior Vice President
with copies to:
Loan Syndication Services
1111 Fannin
9th Floor - M.S. 46
Houston, Texas 77002
Attention: Gale Manning
and to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Telephone No.: (713) 220-4268
Telecopy No.: (713) 220-4285
Attention: Mr. Thomas J. Perich
or, in the case of any party hereto, such other address or telecopy number as
such party may hereafter specify for such purpose by notice to the other
parties.
(c) If to any Bank, to the address shown on the signature page hereof
or specified by such Bank (or the Agent on behalf of any Bank) to the Company.
All communications shall, when mailed, telecopied or delivered, be
effective when mailed by certified mail, return receipt requested to any party
at its address specified above, or
<PAGE>
telecopied to any party to the telecopy number set forth above, or delivered
personally to any party at its address specified above; provided, that
communications to the Agent pursuant to Article II shall not be effective until
actually received by the Agent, and provided further that communications sent by
telecopy after 5:00 p.m., Houston, Texas time, shall be effective on the next
succeeding business day.
SECTION 11.03. No Waiver; Remedies. No failure on the part of any
Bank or the Agent to exercise, and no delay in exercising, any right hereunder,
under any Note or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, or any
abandonment or discontinuance of any steps to enforce such right, preclude any
other or further exercise thereof or the exercise of any other right. No notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances. The remedies
herein are cumulative and not exclusive of any other remedies provided by law,
at equity or in any other agreement.
SECTION 11.04. Costs, Expenses and Taxes. The Company agrees to
pay on demand: (a) all reasonable out-of-pocket costs and expenses of the Agent
in connection with the preparation, execution and delivery of this Agreement,
the Notes, the other Loan Documents and the other documents to be delivered
hereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Agent with respect thereto and with respect to advising the Agent as to
its rights and responsibilities under this Agreement, the Notes and the other
Loan Documents, and any modification, supplement or waiver of any of the terms
of this Agreement or any other Loan Document, (b) all reasonable out-of-pocket
costs and expenses of any Bank including reasonable legal fees and expenses, in
connection with the enforcement of this Agreement, the Notes and the other Loan
Documents and (c) reasonable costs and expenses incurred in connection with
third party professional services required by the Agent such as appraisers,
environmental consultants, accountants or similar Persons, provided that, prior
to any Event of Default hereunder, the Agent will first obtain the consent of
the Company to such expense, which consent shall not be unreasonably withheld.
Without prejudice to the survival of any other obligations of the Company
hereunder and under the Notes, the obligations of the Company under this Section
shall survive the termination of this Agreement or the replacement of the Agent
and each assignment of the Notes.
SECTION 11.05. Release and Indemnity. (a) The Company shall and
hereby does indemnify the Agent and each Bank and each Affiliate thereof and
their respective directors, officers, employees and agents from, and hold each
of them harmless against, any and all losses, liabilities, claims or damages
(including reasonable legal fees and expenses) to which any of them may become
subject, insofar as such losses, liabilities, claims or damages arise out of or
result from any actual or proposed use by the Company of the proceeds of any
extension of credit hereunder or any investigation, litigation or other
proceeding (including any threatened investigation or proceeding) relating to
the foregoing or any of the other Loan Documents, and the Company shall
reimburse each Bank and each Affiliate thereof and their respective directors,
officers, employees and agents, upon demand for any expenses (including legal
fees) reasonably incurred in connection with any such investigation or
proceeding; but excluding any such losses, liabilities, claims, damages or
expenses
<PAGE>
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified (the "Indemnified Obligations").
(B) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS THE
EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
HEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL INDEMNIFIED
OBLIGATIONS: (I) ARISING OUT OF OR RESULTING FROM THE ORDINARY SOLE OR
CONTRIBUTORY NEGLIGENCE OF SUCH PERSON OR (II) IMPOSED UPON SAID PARTY UNDER ANY
THEORY OF STRICT LIABILITY. Without prejudice to the survival of any other
obligations of the Company hereunder and under the other Loan Documents, the
obligations of the Company under this Section shall survive the termination of
this Agreement and the other Loan Documents and the payment of the Obligations
or the assignment of the Notes.
SECTION 11.06. Right of Setoff. Without limiting the remedies
provided for in Article IX, each Bank is hereby authorized at any time and from
time to time, after acceleration of the Obligations after the occurrence of an
Event of Default to the fullest extent permitted by law, to set off and apply
any and all deposits held and other indebtedness owing by such Bank, or any
branch, subsidiary or Affiliate, to or for the credit or the account of the
Company against any and all the Obligations of the Company now or hereafter
existing under this Agreement and the other Loan Documents and other obligations
of the Company held by such Bank, irrespective of whether or not such Bank shall
have made any demand under this Agreement, its Note or the Obligations and
although the Obligations may be unmatured. The rights of each Bank under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Bank may have.
SECTION 11.07. Governing Law. This Agreement, all Notes, the other
Loan Documents and all other documents executed in connection herewith shall be
deemed to be contracts and agreements executed by the Company and each Bank
under the laws of the State of Texas and of the United States of America and for
all purposes shall be construed in accordance with, and governed by, the laws of
said state and of the United States of America. Without limitation of the
foregoing, nothing in this Agreement, or in the Notes or in any other Loan
Document shall be deemed to constitute a waiver of any rights which any Bank may
have under applicable federal legislation relating to the amount of interest
which such Bank may contract for, take, receive or charge in respect of the Loan
and the Loan Documents, including any right to take, receive, reserve and charge
interest at the rate allowed by the law of the state where any Bank is located.
The Agent, each Bank and the Company further agree that insofar as the
provisions of Article 5069-1.04, of the Revised Civil Statutes of Texas, as
amended, are applicable to the determination of the Highest Lawful Rate with
respect to the Notes and the Obligations hereunder and under the other Loan
Documents, the indicated rate ceiling of such Article shall be applicable;
provided, however, that to the extent permitted by such Article, the Agent may
from time to time by notice to the Company revise the election of such interest
rate ceiling as such ceiling affects the then current or future balances of the
Loans. The provisions of Article 5069-15.01 et seq. do not apply to this
Agreement, any Note issued hereunder or the other Loan Documents.
SECTION 11.08. Interest. Each provision in this Agreement and each
other Loan Document is expressly limited so that in no event whatsoever shall
the amount paid, or otherwise
<PAGE>
agreed to be paid, to the Agent or any Bank, or charged, contracted for,
reserved, taken or received by the Agent or any Bank, for the use, forbearance
or detention of the money to be loaned under this Agreement or any Loan Document
or otherwise (including any sums paid as required by any covenant or obligation
contained herein or in any other Loan Document which is for the use, forbearance
or detention of such money), exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate, and all amounts
owed under this Agreement and each other Loan Document shall be held to be
subject to reduction to the effect that such amounts so paid or agreed to be
paid, charged, contracted for, reserved, taken or received which are for the
use, forbearance or detention of money under this Agreement or such Loan
Document shall in no event exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate. Anything in any
Note or any other Loan Document to the contrary notwithstanding, the Company
shall not be required to pay unearned interest on any Note and the Company shall
not be required to pay interest on the Obligations at a rate in excess of the
Highest Lawful Rate, and if the effective rate of interest which would otherwise
be payable under such Note and such Loan Documents would exceed the Highest
Lawful Rate, or if the holder of such Note shall receive any unearned interest
or shall receive monies that are deemed to constitute interest which would
increase the effective rate of interest payable by the Company under such Note
and the other Loan Documents to a rate in excess of the Highest Lawful Rate,
then (a) the amount of interest which would otherwise be payable by the Company
shall be reduced to the amount allowed under applicable law and (b) any unearned
interest paid by the Company or any interest paid by the Company in excess of
the Highest Lawful Rate shall in the first instance be credited on the principal
of the Obligations of the Company (or if all such Obligations shall have been
paid in full, refunded to the Company). It is further agreed that, without
limitation of the foregoing, all calculations of the rate of interest contracted
for, reserved, taken, charged or received by any Bank under the Notes and the
Obligations and under the other Loan Documents are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate, and shall be
made, to the extent permitted by usury laws applicable to such Bank, by
amortizing, prorating and spreading in equal parts during the period of the full
stated term of the Notes and this Agreement all interest at any time contracted
for, charged or received by such Bank in connection therewith. Furthermore, in
the event that the maturity of any Note or other obligation is accelerated or in
the event of any required or permitted prepayment, then such consideration that
constitutes interest under applicable law may never include more than the
maximum amount allowed by applicable law and excess interest, if any, provided
for in this Agreement, any Note or otherwise shall be canceled automatically as
of the date of such acceleration or prepayment and, if theretofore paid, shall
be refunded to the Company.
SECTION 11.09. Survival of Representations and Warranties. All
representations, warranties and covenants contained herein or made in writing by
the Company in connection herewith and the other Loan Documents shall survive
the execution and delivery of this Agreement, the Notes and the other Loan
Documents, the termination of the Commitments of the Banks and will bind and
inure to the benefit of the respective successors and assigns of the parties
hereto, whether so expressed or not, provided, that the Commitments of the Banks
shall not inure to the benefit of any successor or assign of the Company.
<PAGE>
SECTION 11.10. Successors and Assigns; Participations. (a) All
covenants, promises and agreements by or on behalf of the Company or the Banks
that are contained in this Agreement shall bind and inure to the benefit of
their respective permitted successors and assigns. The Company may not assign or
transfer any of its rights or obligations hereunder.
(b) Any of the Banks may assign to or sell participations to one or
more banks of all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including all or a portion of its
Commitment, the Advances and the Obligations of the Company owing to it and the
Notes); provided, that the Company shall continue to deal solely and directly
with the Agent and such assigning or selling Bank in connection with such Bank's
rights and obligations under this Agreement and the other Loan Documents.
Except with respect to cost protections provided to a participant pursuant to
this paragraph and the items listed in Section 11.01 hereof, no participant
shall be a third party beneficiary of this Agreement nor shall it be entitled to
enforce any rights provided to the Banks against the Company under this
Agreement.
(c) A Bank may assign to any other Bank or Banks or to any Affiliate
of a Bank and, with the prior written consent of the Company and the Agent
(which consent shall not be unreasonably withheld), a Bank may assign to one or
more other Eligible Assignees all or a portion of its interests, rights, and
obligations under this Agreement and the other Loan Documents (including all or
a portion of its Commitment and the same portion of the Loans and other
Obligations of the Company at the time owing to it and the Note held by it);
provided, however, that (i) each such assignment shall be in a minimum principal
amount of not less than $5,000,000.00 for all Types of Loans and shall be of a
constant, and not a varying, percentage of all the assigning Bank's Acquisition
Loan Commitment, Revolving Credit Loan Commitment and Term Loan Commitment, its
rights and obligations under this Agreement, and its share of the outstanding
balance of each of the Notes (ii) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance, an Assignment and
Acceptance, substantially in the form of Exhibit 11.10(c) hereto, in form and
substance satisfactory to the Agent (an "Assignment and Acceptance") and any
Note subject to such assignment and (iii) no assignment shall be effective until
receipt by the Agent of a reasonable service fee from the Assignee Bank in
respect of said assignment equal to $2,000.00. Upon such execution, delivery
and acceptance, from and after the effective date specified in each Assignment
and Acceptance, which effective date (unless otherwise agreed to by the
assigning Bank, the Eligible Assignee thereunder and the Agent) shall be at
least five Business Days after the execution thereof, (x) the Eligible Assignee
thereunder shall be a party hereto as a "Bank" and to the other Loan Documents
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Bank hereunder and under the other Loan Documents and (y)
the assignor Bank thereunder shall, to the extent provided in such Assignment
and Acceptance, be released from its obligations under this Agreement and the
other Loan Documents (and, in the case of an Assignment and Acceptance covering
all of the remaining portion of an assigning Bank's rights and obligations under
this Agreement and the other Loan Documents, such Bank shall cease to be a party
hereto).
(d) Notwithstanding any other provision herein, any Bank may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this section,
<PAGE>
disclose to the assignee or participant or proposed assignee or participant, any
information relating to the Company furnished to such Bank by or on behalf of
the Company.
SECTION 11.11. Confidentiality. Each Bank agrees to keep any
information delivered or made available to it by the Company or any of its
Subsidiaries, confidential from anyone other than Persons employed or retained
by such Bank who are or are expected to become engaged in evaluating, approving,
structuring or administering the Loans and who are bound hereby; provided that
nothing herein shall prevent any Bank from disclosing such information (a) to
any other Bank, (b) pursuant to subpoena or upon the order of any court or
administrative agency, (c) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Bank, (d) which has been publicly
disclosed, (e) to the extent reasonably required in connection with any
litigation to which the Agent, any Bank, the Company or its respective
Affiliates may be a party, (f) to the extent reasonably required in connection
with the exercise of any remedy hereunder, (g) to such Bank's legal counsel and
independent auditors and who are bound hereby and (h) to any actual or proposed
participant or assignee of all or part of its rights hereunder which has agreed
in writing to be bound by the provisions of this Section. Each Bank will
promptly notify the Company of any information that it is required or requested
to deliver pursuant to clause (b) or (c) of this Section and, if the Company is
a party to any such litigation, clause (e) of this Section .
SECTION 11.12. Pro Rata Treatment. (a) Except as otherwise
specifically permitted hereunder, each payment or prepayment of principal, if
permitted under this Agreement, and each payment of interest with respect to an
Advance shall be made pro rata among the Banks.
(b) Each Bank agrees that if, through the exercise of a right of
banker's Lien, setoff or claim of any kind against the Company as a result of
which the unpaid principal portion of the Notes and the Obligations held by it
shall be proportionately less than the unpaid principal portion of the Notes and
Obligations held by any other Bank, it shall be deemed to have simultaneously
purchased from such other Bank a participation in the Notes and Obligations held
by such other Bank, in the amount required to render such amounts proportional;
provided, however, that if any such purchase or purchases or adjustments shall
be made pursuant to this Section and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustments restored without interest.
SECTION 11.13. Separability. Should any clause, sentence,
paragraph or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Agreement, and the parties hereto agree that the
part or parts of this Agreement so held to be invalid, unenforceable or void
will be deemed to have been stricken herefrom and the remainder will have the
same force and effectiveness as if such part or parts had never been included
herein.
SECTION 11.14. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute
<PAGE>
one and the same agreement. Any Subsidiary of the Company that executes this
Agreement after the date of this Agreement shall, upon such execution, become a
party hereto as a Guarantor.
SECTION 11.15. Interpretation. (a) In this Agreement, unless a
clear contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually,
provided that nothing in this clause is intended to authorize any
assignment not otherwise permitted by this Agreement;
(v) except as expressly provided to the contrary herein,
reference to any agreement, document or instrument (including this
Agreement) means such agreement, document or instrument as amended,
supplemented or modified and in effect from time to time in accordance with
the terms thereof and, if applicable, the terms hereof, and reference to
any Note or other note includes any Note issued pursuant hereto in
extension or renewal thereof and in substitution or replacement therefor;
(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section hereof
or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term;
(viii) with respect to the determination of any period of time,
except as expressly provided to the contrary, the word "from" means "from
and including" and the word "to" means "to but excluding"; and
(ix) reference to any law, rule or regulation means such as
amended, modified, codified or reenacted, in whole or in part, and in
effect from time to time.
(b) The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
<PAGE>
(c) No provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
(d) In the event of any conflict between the specific provisions of
this Agreement and the provisions of any application pertaining to any letter of
credit secured by a Loan Document, the terms of this Agreement shall control.
SECTION 11.16. SUBMISSION TO JURISDICTION. (a) ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS, IN HARRIS COUNTY OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. THE COMPANY AND
EACH GUARANTOR FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS
ADDRESS PROVIDED IN SECTION 11.02 AND WITH RESPECT TO ANY GUARANTOR, AT THE
ADDRESS PROVIDED ON SCHEDULE 5.16 HERETO, SUCH SERVICE TO BECOME EFFECTIVE
THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION.
(b) EACH OF THE COMPANY AND THE GUARANTORS HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
SECTION 11.17. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH
GUARANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
ARISING FROM OR RELATING TO ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREES, TO THE
<PAGE>
EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 11.18. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT
(INCLUDING THE SCHEDULES AND EXHIBITS HERETO), THE NOTES AND THE OTHER LOAN
DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF THE
TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
GROUP MAINTENANCE AMERICA CORP.
By: __________________________________
Chester J. Jachimiec
Executive Vice President -
Acquisitions and Finance
GUARANTORS/SUBSIDIARIES:
AIRTRON, INC.
By: ________________________________
Timothy Johnston
Vice President
AIRTRON OF CENTRAL FLORIDA, INC.
By: ________________________________
Timothy Johnston
President
JARL ACQUISITION CORP.
By: ________________________________
Chester J. Jachimiec
Secretary
<PAGE>
AMOUNT OF COMMITMENT: AGENT/SECURED PARTY:
Term Loan Commitment TEXAS COMMERCE BANK NATIONAL
$8,571,428.57 ASSOCIATION, as Agent and Individually,
as a Bank
Acquisition Loan Commitment:
$5,142,857.14
Revolving Credit Loan Commitment: By: ______________________________
$1,285,714.29 J. M. Walshak
Vice President
<PAGE>
BANKS:
AMOUNT OF COMMITMENT:
Term Loan Commitment BANQUE PARIBAS
$5,714,285.71
Acquisition Loan Commitment:
$3,428,571.43
By: ______________________________
Revolving Credit Loan Commitment: Name:_____________________________
$857,142.86 Title:____________________________
By: ______________________________
Name:_____________________________
Title:____________________________
Address for Notice:
1200 Smith, Suite 3100
Houston, Texas 77002
Telephone No.: (713) 659-4811
Telecopy No.: (713) 659-5305
Attention: Leah Evans-Hughes
<PAGE>
AMOUNT OF COMMITMENT:
Term Loan Commitment: ABN AMRO BANK, N.V.
$5,714,285.71
Acquisition Loan Commitment:
$3,428,571.43
By: ______________________________
Revolving Credit Loan Commitment: Name:_____________________________
$857,142.86 Title:____________________________
By: ______________________________
Name:_____________________________
Title:____________________________
Address for Notice:
Three Riverway, #1700
Houston, Texas 77056
Telephone No.: (713) 964-3314
Telecopy No.: (713) 629-7533
Attention: Josephine Zozobrato
<PAGE>
AMENDMENT AND WAIVER TO CREDIT AGREEMENT
This AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this "Amendment and
Waiver"), effective as of July 14, 1997, is entered into by and among GROUP
MAINTENANCE AMERICA CORP., a Texas corporation (the "Company"), TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, a national banking association, as Administrative
Agent (the "Agent") and the Banks signatory hereto (the "Banks"). Capitalized
terms used herein, unless otherwise defined, are as defined in the hereafter
referenced Credit Agreement.
WHEREAS, the Company, and the Agent, and the Banks, have executed that
certain Credit Agreement dated as of May 2, 1997 (as amended from time to time,
the "Credit Agreement"); and
WHEREAS, the Company has requested the Banks to modify certain terms
of the Credit Agreement; and
WHEREAS, the Banks have agreed to do so, provided the Company ratifies
and confirms all of its obligations under the Credit Agreement and the Loan
Documents.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Temporary Waiver of Sections 4.03(a)(ii) and (b). Sections
4.03(a)(ii) and (b) only of the Credit Agreement shall not be applicable to the
acquisition of the entities Sibley Services, Inc., Callahan/Roach & Associates,
Callahan Roach Products & Publications, Inc., or United Service Alliance, L.C.,
but shall remain applicable for all other acquisitions otherwise permitted
hereunder. All other terms, conditions and requirements contained in the Credit
Agreement remain applicable to the acquisition of said entities and for all
other purposes.
2. Amendment to Section 7.03(m). Section 7.03 of the Credit
Agreement, regarding other permitted indebtedness is hereby amended by deleting
the figure $1,000,000.00 and substituting therefor the figure $1,500,000.00.
3. Amendment to Section 7.12. Section 7.12 of the Credit Agreement
is hereby deleted and the following substituted therefor:
<PAGE>
"SECTION 7.12. Total Funded Debt to Consolidated Net Worth
Ratio. The Company will not permit the ratio of its Total Funded Debt to
Consolidated Net Worth to be greater than the following for the periods
indicated:
prior to 12/31/97 3.25 to 1.0
from 12/31/97 to 12/31/98 2.60 to 1.0
1/1/99 and thereafter 1.50 to 1.0
4. Ratification. The Company hereby ratifies all of its obligations
under the Credit Agreement and the Loan Documents, and agrees and acknowledges
that the Credit Agreement and each of the Loan Documents shall continue in full
force and effect as amended and modified by this Amendment and Waiver. Nothing
in this Amendment and Waiver extinguishes, novates or releases any right, claim,
lien, security interest or entitlement of any of the Banks created by or
contained in any of such documents nor is the Company released from any
covenant, warranty or obligation created by or contained herein.
5. Guarantor Ratification. The Guarantors execute this Amendment
and Waiver to guaranty the Loans and the Obligations, as amended hereby, to
ratify and confirm the Guaranty, the effectiveness thereof and the liability of
each of them thereunder and to state that the Guaranty is in full force and
effect notwithstanding the execution hereof and that the Guaranty extends to all
of the Obligations.
6. Representations and Warranties. The Company hereby represents
and warrants to the Banks that (a) this Amendment and Waiver has been duly
executed and delivered on behalf of the Company, (b) this Amendment and Waiver
constitutes a valid and legally binding agreement enforceable against the
Company in accordance with its terms, (c) the representations and warranties
contained in the Credit Agreement and the Loan Documents are true and correct on
and as of the date hereof in all material respects as though made as of the date
hereof except as heretofore otherwise disclosed in writing to the Agent (other
than those of such representations and warranties which by their express terms
speak to a date on or before the date hereof), (d) no Default exists under the
Credit Agreement or any of the Loan Documents and (e) the execution, delivery
and performance of this Amendment and Waiver has been duly authorized by the
Company. The Company will, upon request by the Agent, provide satisfactory
evidence of items (a) and (e) above.
7. Counterparts. This Amendment and Waiver may be signed in any
number of counterparts, by facsimile signature or in original document form,
each of which shall be construed as an original, but all of which together shall
constitute one and the same instrument.
8. Conditions to Effectiveness. This Amendment and Waiver shall
become effective immediately upon the execution hereof by all parties.
9. SUBMISSION TO JURISDICTION. (a) ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AMENDMENT AND WAIVER, THE CREDIT
-2-
<PAGE>
AGREEMENT, AND THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE
STATE OF TEXAS, IN HARRIS COUNTY OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH
RESPECT TO ANY SUCH ACTION OR PROCEEDING. THE COMPANY AND EACH GUARANTOR FURTHER
IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN
SECTION 11.02 OF THE CREDIT AGREEMENT AND WITH RESPECT TO ANY GUARANTOR, AT THE
ADDRESS PROVIDED ON SCHEDULE 5.16 ATTACHED TO THE CREDIT AGREEMENT, SUCH SERVICE
TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
(b) EACH OF THE COMPANY AND THE GUARANTORS HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH
THIS AMENDMENT AND WAIVER BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE
AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
10. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH GUARANTOR
HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AMENDMENT AND WAIVER OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
ARISING FROM OR RELATING TO ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AMENDMENT AND WAIVER OR THE CREDIT AGREEMENT, AND AGREES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
11. FINAL AGREEMENT OF THE PARTIES. THIS AMENDMENT AND WAIVER,
ALONG WITH THE CREDIT AGREEMENT (INCLUDING THE SCHEDULES, EXHIBITS, AND OTHER
AMENDMENTS THERETO), THE NOTES, AND THE OTHER
-3-
<PAGE>
LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF
THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[The remainder of this page intentionally left blank.]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be executed by their respective officers thereunto duly authorized as
of the date first above written.
BORROWER:
GROUP MAINTENANCE AMERICA CORP.
By:
-----------------------------------------
Darren B. Miller
Senior Vice President and
Chief Financial Officer
GUARANTORS/SUBSIDIARIES:
GROUP MAC HOLDING CORP.
GROUP MAC MANAGEMENT CO.
By:
-----------------------------------------
Darren B. Miller
Vice President
AIRTRON, INC.
AIRTRON OF CENTRAL FLORIDA, INC.
By:
-----------------------------------------
Darren B. Miller
Vice President
<PAGE>
A-ABC APPLIANCE, INC.
A-1 APPLIANCE AND AIR CONDITIONING,
INC.
AA JARL, INC
ALL SERVICE ACQUISITION CORP.
AMS ACQUISITION CORP.
CENTRAL CAROLINA ACQUISITION
CORP.
CHARLIE CRAWFORD, INC.
COSTNER BROTHERS, INC.
CRP ACQUISITION CORP.
EVANS ACQUISITION CORP.
HALLMARK AIR CONDITIONING, INC.
K&N PLUMBING, HEATING AND AIR
CONDITIONING, INC.
LSC ACQUISITION CORP.
MACDONALD MILLER ACQUISITION
CORP.
MASTERS ACQUISITION CORP.
SEMS ACQUISITION CORP.
SIBLEY SERVICES, INC.
SUBURBAN ACQUISITION CORP.
UNITED ACQUISITION CORP.
VAN'S ACQUISITION CORP.
WILLIS ACQUISITION CORP.
YALE ACQUISITION CORP.
By:
--------------------------------
Darren B. Miller
Vice President
<PAGE>
AMOUNT OF COMMITMENT: AGENT/SECURED PARTY:
Term Loan Commitment TEXAS COMMERCE BANK NATIONAL
$8,571,428.57 ASSOCIATION, as Agent and Individually,
as a Bank
Acquisition Loan Commitment:
$5,142,857.14
Revolving Credit Loan Commitment: By:
$1,285,714.29 ----------------------------------
J. M. Walshak
Vice President
<PAGE>
BANKS:
AMOUNT OF COMMITMENT:
Term Loan Commitment BANQUE PARIBAS
$5,714,285.71
Acquisition Loan Commitment:
$3,428,571.43
By: ------------------------------
Revolving Credit Loan Commitment: Name: ------------------------------
$857,142.86 Title: ------------------------------
By: ------------------------------
Name: ------------------------------
Title: ------------------------------
Address for Notice:
------------------
1200 Smith, Suite 3100
Houston, Texas 77002
Telephone No.: (713) 659-4811
Telecopy No.: (713) 659-5305
Attention: Leah Evans-Hughes
<PAGE>
AMOUNT OF COMMITMENT:
Term Loan Commitment: ABN AMRO BANK, N.V.
$5,714,285.71
Acquisition Loan Commitment:
$3,428,571.43
By: --------------------------------
Revolving Credit Loan Commitment: Name: --------------------------------
$857,142.86 Title: --------------------------------
By: --------------------------------
Name: --------------------------------
Title: --------------------------------
Address for Notice:
------------------
Three Riverway, #1700
Houston, Texas 77056
Telephone No.: (713) 964-3314
Telecopy No.: (713) 629-7533
Attention: Josephine Zozobrato
<PAGE>
EXHIBIT 23.2
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.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
October 10, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-34067 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.
/s/ Deloitte & Touche LLP
Washington, D.C.
October 9, 1997
<PAGE>
[MOSS-ADAMS LLP LETTERHEAD APPEARS HERE]
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of Amendment
No. 2 (Registration No. 333-34067) of this Registration Statement of Group
Maintenance America Corp., on Form S-1 of our report dated August 7, 1997,
except for Note 11, as to which the date is August 18, 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.
/s/ Moss Adams L.L.P.
Seattle, Washington
October 10, 1997
