<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997
REGISTRATION NO. 333-34067
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 1, 1997
7,500,000 SHARES
[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. Application has been made for listing of the Common
Stock 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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
- --------------------------------------------------------------------------------
Total(3)................................... $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</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>
[MAP OF THE UNITED STATES APPEARS HERE]
- -------------------------------------------------------------------------------
<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 and Air
Conditioning 1976 Dallas, TX
Sibley Services, Inc. 1974 Memphis, TN
Hallmark Air Conditioning, Inc. 1951 Houston, TX
Charles 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, Heating & Air Condi-
tioning, 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>
- -------------------------------------------------------------------------------
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). 19,961,726 Shares
Use of Proceeds....................................... To redeem or repay
outstanding warrants,
preferred stock and
indebtedness used to
acquire the Pre-Offering
Companies, to fund the
cash portion of the
consideration for the
Offering Acquisition
Companies, to repay
indebtedness of the
Offering Acquisition
Companies and for other
general corporate
purposes including
working capital and
future acquisitions. See
"Use of Proceeds."
Proposed NYSE Symbol.................................. MAK
</TABLE>
- --------
(1) Includes 2,783,195 shares to be issued in connection with the acquisition
of the Offering Acquisition Companies concurrently with the Offering (which
includes 14,392 shares issuable 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 2,395,407
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 Air Conditioning and Appliance, Inc. ("A-1" and, together
with A-ABC, "A-ABC/A-1"), Hallmark Air Conditioning, Inc. ("Hallmark") and K&N
Plumbing, Heating and Air Conditioning, Inc. ("K&N"), which were acquired
effective June 1, 1997, and Charlie Crawford, Inc. (d/b/a Charlie's Plumbing)
("Charlie's"), Costner Brothers, Inc. ("Costner"), AA JARL, Inc. (d/b/a Jarrell
Plumbing) ("Jarrell") and the 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> <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.
(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) -- (2,406)
Total
Revenues.................... $235,234 $258,834 $307,507 $151,396 $157,941
Gross Profit................ 56,486 61,987 71,596 33,479 36,582
Income from Operations...... 7,076 8,844 11,434 5,160 4,287
Pro Forma Income from
Operations................. 20,852 8,515 8,708
</TABLE>
- -------
(1) Several of the individual GroupMAC Companies have fiscal year ends that
differ from December 31, which is the year end all of the Group MAC
Companies will use concurrent with the Offering.
(2) The operating results of A-ABC/A-1, Hallmark and K&N include the activity
of each of these companies for the six months ended June 30, 1997, although
these companies were acquired, for accounting purposes, by Airtron on June
1, 1997. A-ABC/A-1 and Hallmark results are included in the Other
Residential Services group. Airtron results include Airtron on a stand
alone basis without inclusion of the results of any acquired companies.
(3) The remainder of the GroupMAC Companies are classified by their primary
revenue generating category.
(4) GroupMAC Parent's operating results include the six months ended June 30,
1997, although the company was acquired, for accounting purposes, by
Airtron in May 1997.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers of the Common Stock offered hereby should consider carefully the
following factors before deciding to invest in the Common Stock. To the extent
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. There can be no assurance that the consideration
paid or to be paid by the Company for the GroupMAC Companies accurately
reflects the value of the assets of these companies or that the percentage of
Common Stock of the Company owned by the former owners of the GroupMAC
Companies reflects the value of the assets of the GroupMAC Companies.
PROCEEDS OF OFFERING PAYABLE FOR EXISTING OBLIGATIONS AND TO AFFILIATES
The Company will use the net proceeds of the Offering to repay indebtedness
incurred to fund the cash portion of the consideration paid to acquire the
Pre-Offering Companies, to redeem warrants and preferred stock issued in
connection with the acquisition of the Pre-Offering Companies, to repay debt
assumed and certain obligations resulting from the acquisition of the GroupMAC
Companies and to fund the cash portion of the consideration to be paid to
acquire the Offering Acquisition Companies. Only a small portion, if any, of
the net proceeds of the Offering will be available to meet the Company's cash
requirements following the closing of the
11
<PAGE>
Offering. In connection with the closing of the purchase of the Offering
Acquisition Companies, the Company will pay, subject to adjustment,
approximately $28.9 million in cash for the stock of the Offering Acquisition
Companies. The Company will also use $32.5 million to repay bank debt incurred
to finance the acquisition of the Pre-Offering Companies, approximately $19.3
million to redeem warrants and preferred stock issued in connection with the
acquisition of the Pre-Offering Companies and approximately $12.5 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, 19,961,726 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 3,383,668 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 is expected to be approved for
listing on the NYSE, subject to official notice of issuance, but no assurance
can be given that an active trading market for the Common Stock will develop
or, if it developed, that it will continue after the Offering. The market
price of the Common Stock after the Offering may be subject to significant
fluctuations from time to time in response to numerous factors, including
variations in the reported financial results of the Company and changing
conditions in the economy in general or in the Company's industry in
particular. In addition, stock markets generally experience significant price
and volume volatility from time to time which may affect the market price of
the Common Stock for reasons unrelated to the Company's performance.
POTENTIAL ANTI-TAKEOVER EFFECTS
Provisions of the Company's Articles of Incorporation and Bylaws and the
TBCA may have the effect of delaying, discouraging, inhibiting, preventing or
rendering more difficult an attempt to obtain control of the Company by means
of a tender offer, business combination, proxy contest or otherwise. These
provisions include the authorization in the Company's Articles of
Incorporation of preferred stock having such preferences, powers and relative,
participating, optional and other rights (including preferences over the
Common Stock respecting dividends, distributions and voting rights) as the
Board of Directors may determine, classification of the Board of Directors, a
TBCA restriction on the ability of shareholders to take actions by written
consent and a TBCA provision imposing restrictions on business combinations
with certain interested parties. See "Description of Capital Stock."
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 Little Rock, AR Commercial HVAC
Mechanical(2).... 2,900 1993 Little Rock, AR Commercial HVAC
All Service...... 2,826 1990 Jacksonville, FL Commercial & Residential Electrical
Evans............ 2,295 1901 Birmingham, AL Residential Plumbing & HVAC
--------
Total........... $168,699
--------
Pro Forma Com-
bined........... $307,507
========
<CAPTION>
SOURCE OF 1996 REVENUES
-------------------------
MAINTENANCE,
NEW REPAIR AND
PRE-OFFERING COMPANIES: INSTALLATION REPLACEMENT
- ----------------------- ------------ ------------
<S> <C> <C> <C>
Airtron(2)....... 81% 19%
K&N(2)........... 89% 11%
A-ABC/A-1(2)..... 0% 100%
Sibley........... 0% 100%
Hallmark(2)...... 0% 100%
Charlie's........ 0% 100%
Costner.......... 0% 100%
Callahan
Roach(2)(3)..... N/A N/A
Jarrell.......... 0% 100%
USA.............. N/A N/A
Way 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
were acquired (effective as of June 30, 1997), and the Offering Acquisition
Companies are being acquired, for a combination of cash and 2,783,195 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, $32.5 million to repay bank debt incurred to finance
the acquisition of the Pre-Offering Companies and $12.5 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; 12,461,726 shares issued and
outstanding, pro forma; and 19,961,726 shares
issued and outstanding, pro forma as
adjusted(1).................................... 9 12 20
Additional Paid-in Capital...................... 16,411 49,158 142,300
Retained Earnings (Deficit)..................... (27,716) (27,716) (27,716)
------- ------- --------
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 2,395,407 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 6,158 24,068 26,978(7)
Goodwill Amorti-
zation(8)....... -- -- -- -- -- 1,791 -- 31 896 896
------- ------- ------- ------- ------- -------- ------- ------- -------- --------
Income from Oper-
ations.......... 2,917 3,217 1,484 3,476 3,563 20,852 1,570 2,210 8,515 8,708
Interest Income
(Expense), Net.. 152 127 76 68 89 154 (17) (259) 39 181
Other Income,
Net............. 114 33 140 246 256 297 23 3 240 508
------- ------- ------- ------- ------- -------- ------- ------- -------- --------
Income Before In-
come Tax Provi-
sion............ 3,183 3,377 1,700 3,790 3,908 21,303 1,576 1,954 8,794 9,397
Income Tax Provi-
sion............ 1,332 1,300 911 1,651 1,572 9,237 634 800 3,876 4,117
------- ------- ------- ------- ------- -------- ------- ------- -------- --------
Net Income....... $ 1,851 $ 2,077 $ 789 $ 2,139 $ 2,336 $12,066 $ 942 $ 1,154 $ 4,918 $ 5,280
======= ======= ======= ======= ======= ======== ======= ======= ======== ========
Net Income Per
Share........... $ .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 $ 2,408 $ 11,132 $ 11,843
======= ======= ======= ======= ======= ======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29, JUNE 30, 1997
--------------------------------------- -------------------------------------
PRO PRO FORMA
1993 1994 1995 1996 1997 ACTUAL(3) FORMA(2) AS ADJUSTED(2)
------- ------- ------- ------- ------- --------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equiva-
lents.................. $ 700 $ 186 $ 650 $ 1,774 $ 4,339 $ 5,875 $ 10,214 $ 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) 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 32,295 20.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from Operations.. 7,076 3.0 8,844 3.4 11,434 3.7 5,160 3.4 4,287 2.7
</TABLE>
- --------
(1) Several of the individual GroupMAC Companies have fiscal year ends that
differ from December 31, which is the year end all of the GroupMAC
Companies will use concurrent with the Offering.
Unaudited Six Months Ended June 30, 1997 Compared to Unaudited Six Months
Ended June 30, 1996
Revenues. Revenues increased $6.5 million, or 4.3%, from $151.4 million for
the six months ended June 30, 1996 to $157.9 million for the six months ended
June 30, 1997. The increase in revenues was 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 $32.3 million for the six months
ended June 30, 1997. Approximately $844,000 of the increase is due to
additional compensation paid to owners
23
<PAGE>
of the individual companies and $2.4 million relates to the formation and
build-up of the corporate management infrastructure necessary to build the
Company through acquisitions and manage the consolidated GroupMAC Companies.
As a percentage of revenues, selling, general and administrative expenses
increased from 18.7% to 20.5% from the six month period ended June 30, 1996
compared to the corresponding period in 1997.
Unaudited Fiscal Year 1996 Compared to Unaudited Fiscal Year 1995
Revenues. Revenues increased $48.7 million, or 18.9%, from $258.8 million in
fiscal 1995 to $307.5 million for fiscal 1996. The increase in revenues was
primarily attributable to an increase in all sectors of MacDonald-Miller's
business, particularly contracted "design and build" projects, retrofits,
remodeling and technical services; increased residential HVAC new installation
revenue at Airtron; and increased residential HVAC and plumbing installation
revenues at Masters. Additionally, other companies providing primarily
commercial services increased revenues by $8.0 million, or 20.8%, for the
period and companies providing primarily residential services increased
revenues by $5.8 million or 13.4% for the period. Of the 24 GroupMAC
Companies, 22 reported an increase in revenues from fiscal 1995 to 1996.
Gross Profit. Gross profit increased $9.6 million, or 15.5%, from $62.0
million in fiscal 1995 to $71.6 million in fiscal 1996. Gross margin declined
slightly from 23.9% to 23.3% from fiscal 1995 to fiscal 1996. Approximately
54% of the increase in gross profit was attributable to increased sales volume
at Airtron, Masters and K&N at consistent or slightly higher gross margins
between the periods coupled with an increase in sales volume at MacDonald-
Miller, although at lower gross margins. The decline in gross margin at
MacDonald-Miller largely resulted from a higher mix of larger contracts that
typically have lower margins. The remaining residential and commercial service
companies contributed 28% and 19%, respectively, to the increase in gross
profit which resulted from both volume increases and, in the residential
services group, margin increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.1 million, or 13.4%, from $53.1 million
in fiscal 1995 to $60.2 million in fiscal 1996. Approximately $2.7 million of
the increase was due to additional compensation paid to owners of the
individual businesses, $724,000 was due to the formation and building of the
corporate management infrastructure and the remainder was due to an overall
build-up of administrative infrastructure to manage and control the
significant growth at various companies. As a percentage of revenues, selling,
general and administrative expenses decreased from 20.5% to 19.6% from fiscal
1995 to fiscal 1996.
Unaudited Fiscal Year 1995 Compared to Unaudited Fiscal Year 1994
Revenues. Revenues increased $23.6 million, or 10.0%, from $235.2 million in
fiscal 1994 to $258.8 million in fiscal 1995. The increase in revenues was
primarily attributable to higher volumes in each sector of MacDonald-Miller's
business, particularly in "design and build" projects, retrofits and
remodeling; increased market penetration and additional revenues from existing
customers at Masters; incremental revenues from the purchase of A-1 by A-ABC
during fiscal 1994; a higher volume of "design and build" work at Yale;
increased market share captured at Airtron and the start-up of two new offices
in Austin, Texas and Las Vegas, Nevada by K&N.
Gross Profit. Gross profit increased $5.5 million, or 9.7%, from $56.5
million in fiscal 1994 to $62.0 million in fiscal 1995. The increase in gross
profit was primarily attributable to the higher sales volumes at MacDonald-
Miller, Masters, A-ABC/A-1, Yale, Airtron and K&N. Gross margin remained
fairly consistent at 24.0% in fiscal 1994 and 23.9% in fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.7 million, or 7.6%, from $49.4 million in
fiscal 1994 to $53.1 million in fiscal 1995. The increase in selling, general
and administrative expense was largely due to a $2.2 million increase in
compensation paid to owners of the individual businesses. As a percentage of
revenues, selling, general and administrative expenses decreased from 21.0% to
20.5%.
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 (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, (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 11,078 25.8
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 1,484 2.1 3,476 4.7 3,563 4.4 739 2.0 1,039 2.7 846 2.0
</TABLE>
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 $1.6 million,
or 16.8%, from $9.5 million for the six months ended June 30, 1996 to $11.1
million for the six months ended June 30, 1997. This increase resulted from
increased expenses for Historical Airtron and the inclusion of $1.3 million of
selling, general and administrative expenses related to the companies acquired
during the period. As a percentage of revenues, selling, general and
administrative expenses increased from 25.5% to 25.8% for the six months ended
June 30, 1996 and 1997, respectively, as a result of the inclusion of two
months of the corporate overhead expenses of GroupMAC Parent and higher
selling, general and administrative expenses as a percentage of revenues for
the companies acquired during the period.
Year Ended February 28, 1997 Compared to Year Ended February 29, 1996
Revenues. Revenues increased $8.1 million, or 11.0%, from $73.8 million for
the year ended February 29, 1996 to $81.9 million for the year ended February
28, 1997. The increase in revenues was attributable to increased market
penetration in new residential construction in the Indianapolis, Indiana and
Dallas, Texas markets, 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 1989 and provides HVAC maintenance, repair and
replacement services to residential customers in the Rock Hill, South Carolina
and Charlotte, North Carolina areas. Costner's revenues for fiscal 1996 were
$3.0 million, and income from operations was $7,487. Costner is headquartered
in Rock Hill, South Carolina.
Hallmark was founded in 1967 and provides HVAC maintenance, repair and
replacement services to residential customers in the Houston and San Antonio,
Texas areas. Hallmark's revenues for fiscal 1996 were $6.5 million, and income
from operations was $8,749. Hallmark is headquartered in Houston, Texas and
has facilities in Houston and San Antonio, Texas.
Jarrell was founded in 1959 and provides plumbing repair services to
residential customers in the Houston, Texas area. Jarrell's revenues for the
fiscal year ended February 28, 1997 were $1.2 million and it had income from
operations of $34,547 during that year. Jarrell is headquartered in Houston,
Texas.
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 1980 and provides plumbing and
HVAC services to residential customers in the Birmingham, Alabama area. Evans'
revenues for fiscal 1996 were $2.3 million and income from operations was
$86,000. Evans is headquartered in Birmingham, Alabama.
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, Heating & Air Conditioning, Inc. ("Willis") was
founded in 1968 and installs, maintains and repairs HVAC systems in new and
existing residences in the greater Cincinnati and northern Kentucky areas.
Willis' revenues for fiscal 1996 were $6.8 million and income from operations
was $542,000 Willis is headquartered in Cincinnati, Ohio.
RESULTS OF OPERATIONS--OTHER RESIDENTIAL SERVICE COMPANIES
The GroupMAC Companies included in the Other Residential Services Companies
derive a majority of their revenues from residential new installation and
maintenance, repair and replacement services. In the aggregate, these 11
companies derived 84% of their revenue in fiscal 1996 from residential
services and 16% from light commercial service. The following table sets forth
certain unaudited financial data for the periods indicated (dollars in
thousands).
<TABLE>
<CAPTION>
FISCAL YEAR(1) SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997(2)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $38,481 100.0% $43,216 100.0% $48,964 100.0% $23,255 100.0% $24,886 100.0%
Cost of Services........ 25,397 66.0 27,537 63.7 30,628 62.6 14,762 63.5 14,799 59.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit............ 13,084 34.0 15,679 36.3 18,336 37.4 8,493 36.5 10,087 40.5
Selling, General and Ad-
ministrative
Expenses............... 11,432 29.7 14,210 32.9 16,506 33.7 8,082 34.7 8,277 33.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from Operations.. 1,652 4.3 1,469 3.4 1,830 3.7 411 1.8 1,810 7.3
</TABLE>
- --------
(1) Several of the individual GroupMAC Companies have fiscal year ends that
differ from December 31, which is the year end all of the GroupMAC
Companies will use concurrent with the Offering.
(2) The operating results of the Other Residential Service Companies,
including Hallmark and A-ABC/A-1, represent six months of activity, even
though Hallmark and A-ABC/A-1 were acquired, for accounting purposes, by
Airtron on June 1, 1997.
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 1981 and provides plumbing maintenance, repair and
replacement services to commercial and residential customers in the Houston,
Texas area and specializes in the high-rise condominium market in Houston.
Charlie's revenues for fiscal 1996 were $3.1 million, and income from
operations was $65,000. Charlie's is headquartered in South Houston, Texas.
Sibley Services, Incorporated ("Sibley") was founded in 1974 and provides
HVAC and refrigeration maintenance, repair and replacement services to
commercial and industrial customers in the greater Memphis,
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 1995 and provides marketing products and training
materials to over 100 member companies across the country. USA's revenues for
fiscal 1996 were $763,000 and income from operations was $33,000. USA is
headquartered in Lakewood, Colorado.
Offering Acquisition Companies
All Service Electric, Inc. ("All Service") was founded in 1990 and provides
electrical contracting services (including new installation and repair
services) primarily to commercial customers in the Jacksonville, Florida area.
All Service's revenues for fiscal 1996 were $2.8 million and income from
operations was $687,000. All Service is headquartered in Jacksonville,
Florida.
Arkansas Mechanical Services, Inc. ("Arkansas Mechanical") was founded in
1988 and provides HVAC maintenance, repair and replacement services to
commercial and industrial customers in the greater Little Rock and
Fayetteville, Arkansas areas. Arkansas Mechanical also provides engineering
services for retrofit upgrades and replacements. Arkansas Mechanical's
revenues were $3.3 million and income from operations was $325,000. Arkansas
Mechanical is headquartered in North Little Rock, Arkansas and has facilities
in the North Little Rock and Fayetteville, Arkansas areas.
Linford Service Company ("Linford") was founded in 1960 and provides HVAC
maintenance, repair and replacement to commercial customers throughout
California. Linford's revenues for fiscal 1996 were $11.3 million and the loss
from operations was $267. Linford is headquartered in Oakland, California and
has facilities in Oakland, Ontario, Sacramento, San Diego and San Jose,
California.
Mechanical Services, Inc. ("Mechanical") was founded in 1993 and provides
design and build, engineering and installation services in the mechanical
trades industry in the Little Rock and Fayetteville, Arkansas areas.
Mechanical Services' revenues for fiscal 1996 were $2.9 million and income
from operations was $56,000. Mechanical Services is headquartered in North
Little Rock, Arkansas and has facilities in North Little Rock and
Fayetteville, Arkansas.
Southeast Mechanical Service, Inc. ("Southeast Mechanical") was founded in
1979 and provides HVAC maintenance, repair and replacement services in the
Miami and Fort Lauderdale, Florida areas. Southeast Mechanical's revenues for
fiscal 1996 were $5.3 million and income from operations was $585,000.
Southeast Mechanical is headquartered in Hollywood, Florida.
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
40
<PAGE>
publicly traded consolidators have emerged in these markets. The combined
revenues of these consolidators and the Company represent less than 2% of the
revenues for the HVAC, plumbing and electrical markets.
Growth in the HVAC service industry is affected by a number of factors,
particularly (i) the aging of the installed base of equipment, (ii) the
increasing efficiency, sophistication and complexity of HVAC systems and (iii)
the increasing restrictions on the use of refrigerants commonly used in older
HVAC systems. These factors also mitigate the effect on the HVAC service
industry of economic cycles inherent in the traditional construction industry.
An aging installed base has also positively affected growth in the plumbing
service industry. Industry sources report that 75% of the kitchen market and
65% of the bath market now consist of remodeling rather than new construction.
Growth in electrical services is closely tied to the new construction markets,
although the retrofitting of existing structures is driven by increased demand
for computer networks and other modernization.
The HVAC, plumbing and electrical service industries can be broadly divided
into the new installation segment and the maintenance, repair and replacement
segment. The new installation segment includes the installation of HVAC,
plumbing and electrical systems in new homes and commercial buildings for
contractors, builders, developers and other users. The maintenance, repair and
replacement segment includes the maintenance, repair, replacement and
reconfiguration of existing systems in residential homes and commercial
buildings. The new installation segment represents approximately 34% of
industry revenues, while the maintenance, repair and replacement segment
represents 66% of industry revenues.
The Company believes significant opportunities are available to a well
capitalized, national company employing professionally trained, customer-
oriented service technicians and providing a full complement of high quality
residential and commercial services in an industry that has been characterized
by inconsistent quality, reliability and pricing. In addition, the increasing
complexity of HVAC systems has led to a need for better trained technicians to
install, monitor and service these systems. The cost of recruiting, training
and retaining a sufficient number of qualified technicians makes it more
difficult for smaller HVAC companies to expand their businesses. The Company
also believes the highly fragmented nature of the residential and commercial
service industries will provide it with significant opportunities to
consolidate a large number of existing residential and commercial service
businesses.
OPERATING STRATEGY
The goal of the Company's operating strategy is to increase the revenues and
profitability of the GroupMAC Companies and subsequently acquired businesses,
while maintaining the highest level of service to its customers. The key
elements of the Company's operating strategy are as follows:
ACHIEVE OPERATING EFFICIENCIES. The Company intends to pursue significant
cost savings through the consolidation of purchasing power and to obtain
additional operating efficiencies through the implementation of a variety
of "best practices." It expects to achieve substantial purchasing economies
in the areas of equipment and supplies, service vehicles (including fuel
and maintenance), insurance and benefits, marketing and advertising, long
distance services and a variety of professional services. Callahan Roach
and USA, leading providers of integration, training and business consulting
services to the HVAC industry, will assist the Company in identifying and
refining its best practices and implementing such practices across the
GroupMAC Companies and future acquisitions through a systematic program of
training and consulting. In addition, the Company has recently established
a Council of Presidents consisting of the key operating management of
acquired companies, which will meet regularly to facilitate the sharing of
operating practices, synergies and strategies across the Company.
OPERATE ON A DECENTRALIZED BASIS. The Company intends to retain the
managers of the businesses it acquires, allow them to maintain substantial
responsibility for the day-to-day operations, profitability and growth of
those businesses and provide them with incentives based upon performance.
This will allow the Company to capitalize on the local market knowledge and
customer relationships at each acquired company. The Company believes that
the operating autonomy provided by this decentralized structure, together
with
41
<PAGE>
the implementation of reporting systems and financial controls at the
corporate level, will give it a competitive advantage in growing market
share and in attracting additional acquisition candidates.
ATTRACT, DEVELOP AND RETAIN HIGH QUALITY TECHNICIANS. The Company
believes operational success in this industry results from attracting and
retaining a highly trained and motivated workforce in order to deliver
consistently high-quality service at a fair price and to reduce re-work and
other costs. The Company's strategy is to become the employer of choice in
its industry by offering to its employees and managers a market-leading
combination of training, compensation and employee benefits, career
development opportunities and an equity participation in the Company's
success. Over time, the Company intends to develop an internal technical
training program to enhance the skill level of its employees.
ESTABLISH NATIONAL MARKET COVERAGE. The Company intends to expand its
existing relationships with home builders, commercial real estate
developers and property managers and other enterprises by offering
comprehensive HVAC, plumbing and electrical new installation and
maintenance, repair and replacement services on a national or regional
basis. The Company believes that significant demand exists from these
customers to utilize the services of a single company capable of providing
these services and that the GroupMAC Companies' many geographic locations
allow it to respond to this demand. Many of the GroupMAC Companies already
provide local or regional coverage to companies with nationwide operations.
In addition, the Company plans to utilize the customer bases of Callahan
Roach and USA, which are nationwide in scope, to establish an affiliate
network to market services on a national basis.
The Company began to implement its operating strategy following its
acquisition of the Pre-Offering Companies and has already entered into
negotiations with vendors in the areas of equipment and supplies, service
vehicles, casualty insurance, employee benefits, fuel supply arrangements,
Yellow Pages advertising, business forms and uniforms. Callahan Roach
personnel have conducted field visits with the GroupMAC Companies to assess
each company's operating strengths and weaknesses and to identify operating
best practices for use throughout the organization and are currently
developing customized training programs for the management and staff personnel
of these companies. Based on a study of the GroupMAC Companies' existing
benefit plans, the Company intends to implement a program that will preserve
or enhance the overall level of benefits resulting in projected cost savings
to the Company. The Compensation Committee has approved the issuance, after
the Offering, of up to 2,395,407 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
42
<PAGE>
providers operating within the region in order to expand its market
penetration and the range of services it offers in that market. The Company
will also pursue "tuck in" acquisitions of smaller companies whose customer
bases, operating assets and service personnel can be incorporated into the
Company's existing operations without a significant increase in selling,
general and administrative costs.
RETAIN AND PROVIDE INCENTIVES TO EXISTING MANAGEMENT. The Company will
seek acquisitions of successful companies whose senior managers will remain
as employees of the Company and continue to operate their respective
businesses on a local level. The Company intends to motivate these managers
and align their interests with those of the Company by utilizing Common
Stock as a significant portion of the purchase consideration, by
establishing a key manager stock option plan for their benefit and by
implementing a cash bonus plan that rewards managers and key employees for
improvement in after-tax earnings that exceeds the cost of capital
employed.
LEVERAGE INDUSTRY REPUTATION AND CONTACTS. The Company intends to utilize
existing industry relationships established by its acquired companies and
Company management, as well as the industry-wide contacts of Callahan Roach
and USA, to develop a broad base of potential acquisitions. The Company
believes that its ability to acquire additional high quality companies will
be influenced by the level of success enjoyed by companies that have
previously joined with the Company, as well as the continuing efforts of
the Company and its operating subsidiaries to maintain a high profile in
the industry. The Company intends to remain actively involved in industry
organizations on the local and national level, working with independent
companies to support issues of interest to the Company and its operating
subsidiaries.
The Company began implementing the above strategies with the acquisition of
Airtron in May 1997 and has since acquired 10 other companies providing both
new installation and maintenance, repair and replacement services in the
residential and commercial HVAC, plumbing and electrical markets. The Pre-
Offering Companies have combined fiscal 1996 revenues of $138.8 million. After
the acquisition of the 13 Offering Acquisition Companies, the Company will
have operations in 37 cities in 21 states with combined 1996 revenues of
$307.5 million. The Company will have two or more companies offering
complementary services in four geographical markets (Houston, Dallas, Austin
and Indianapolis). Within certain of its markets (Dallas, Houston, San Antonio
and Cincinnati), the Company has acquired or is acquiring at the Offering
companies with a primary focus on maintenance, repair and replacement services
to augment its new installation businesses in these areas.
BEST PRACTICES
The Company believes that one of the most significant competitive advantages
of a consolidation company is its ability to identify the best marketing,
sales and operating practices within individual acquired companies and to
spread those best practices across all of its operating locations. The key to
successful implementation is having a disciplined approach to identifying the
desired practices, developing the procedures and related training to ensure
these practices are understood and implemented properly in the field
locations, and measuring systematically the operating performance of the
companies against benchmarks or standards to ensure that the practices are
effective.
The Company believes it enjoys a distinct competitive advantage in this area
resulting from its purchase of Callahan Roach and USA in July 1997. These two
organizations provide the Company with professional level capabilities in the
areas of integration, training and management development for both the
residential and commercial segments of its business. The Company intends to
utilize the expertise of these two industry-recognized GroupMAC Companies in
developing, implementing and monitoring its best practices. Both of these
organizations have extensive industry-wide experience from which to draw best
practices, in addition to the ideas and procedures that come from existing
GroupMAC Companies and future acquisitions. The Company believes that this
expertise, and the exploitation of best practices in this manner, will enable
the Company to accelerate the integration of acquired companies.
43
<PAGE>
Callahan Roach serves HVAC and plumbing contractors across the United States
in such areas as advertising, marketing, business valuation, pricing
strategies, management information services, acquisition planning and
integration and general consulting. It provides the Customer Assurance
Pricing(TM) models to over 1,300 HVAC and plumbing service companies. Callahan
Roach has been an industry leader in the development and commercialization of
this flat rate pricing best practice known as Customer Assurance Pricing(TM),
successfully marketing it to over 3,500 independent contractors across the
United States. Callahan Roach has developed and is currently field testing a
flat rate pricing software product (derived from its manual Customer Assurance
Pricing(TM) systems) that will run on hand-held computers for use by sales and
service personnel in the field. USA provides training and other products and
services to a network of 105 independent service companies focused on
maintenance, repair and replacement of commercial HVAC systems. The Company
believes that its acquisition of USA adds significant commercial HVAC
expertise to complement the residential HVAC and plumbing expertise provided
by Callahan Roach.
In order to ensure that best practices are shared among each of the
individual GroupMAC Companies, the Company has created a Council of Presidents
composed of the president or senior executive of each of the GroupMAC
Companies. The Council will meet on a regular basis, as well as divide into
smaller working committees, to share operating practices and develop
additional means to improve the overall performance of the Company and the
individual GroupMAC Companies. Best practices that result from the work of the
Council will be included in the training and monitoring programs developed and
disseminated through Callahan Roach and USA.
SERVICES PROVIDED
The Company provides a broad variety of maintenance, repair and replacement
services for HVAC, plumbing, electrical and other systems to both residential
and commercial customers. These services include preventive maintenance
(periodic checkups, cleaning and filter change-outs); emergency repairs; and
the replacement (in conjunction with the retrofitting or remodeling of a
residence or commercial building, or as a result of an emergency repair
request) of HVAC systems and associated parts, plumbing fixtures, pipes, water
feed and sewer lines, water heaters, softeners, filters and controls, and
electrical control systems, wiring, data cabling, switches and panels. The
Company also acts as a subcontractor for a variety of national, regional and
local residential home builders in the installation of HVAC, plumbing,
electrical and other systems in new residential construction, as well as
designing and installing HVAC, plumbing, electrical and other systems on
behalf of owners or general contractors in commercial buildings. In a few of
its operating locations, the Company provides certain specialized services,
including repair of home appliances, duct cleaning, installation and repair of
fireplaces, installation of fire sprinkler systems and the provision of
technical facilities management services to commercial building owners or
building managers. In connection with both its new installation business and
its maintenance, repair and replacement services, the Company sells a wide
range of HVAC, plumbing and electrical equipment, parts and supplies.
The following table shows the approximate percentages of the revenues of the
combined GroupMAC Companies during fiscal 1996 represented by new installation
services and maintenance, repair and replacement services, respectively.
<TABLE>
<CAPTION>
ELECTRICAL
HVAC PLUMBING & OTHER TOTAL
---- -------- ---------- -----
<S> <C> <C> <C> <C>
Residential Services:
New Installation............................... 26% 16% --% 42%
Maintenance, Repair and Replacement............ 13% 2% 2% 17%
--- --- --- ---
Total Residential............................ 39% 18% 2% 59%
Commercial Services:
New Installation............................... 10% 2% --% 12%
Maintenance, Repair and Replacement............ 25% 3% 1% 29%
--- --- --- ---
Total Commercial............................. 35% 5% 1% 41%
</TABLE>
44
<PAGE>
The Company intends to make additional acquisitions across the three main
technical disciplines (HVAC, plumbing and electrical) within the residential
and commercial markets. The Company's long term objective is to develop
maintenance, repair and replacement capabilities (both residential and
commercial) in the top 100 markets within the United States, while offering
new installation services across a more limited range of markets where new
construction in the residential and/or commercial sectors is expected to out-
pace the national average over the long term. Over time, this objective is
expected to shift the revenues of the Company to an increased percentage of
service revenue. See "--Operating Strategy" and "--Acquisition Strategy."
FIELD OPERATIONS
The Company's field operations are conducted out of the individual operating
locations of the various GroupMAC Companies. Typically, the GroupMAC Companies
specialize in one of the technical disciplines in either the residential or
commercial market. However, a few of the GroupMAC Companies that operate
principally in the residential new installation or residential maintenance,
repair and replacement markets also engage to a limited extent in projects or
service work for "light commercial" customers (i.e., smaller commercial
buildings where systems are similar in design to residential systems). In
addition, six of the GroupMAC Companies offer services in more than one
technical discipline. The Company permits the GroupMAC Companies to function
in a largely autonomous manner in delivering products and services to their
respective markets. The Company believes this flexible operating strategy
improves each location's ability to respond quickly to opportunities and
competition.
New Installation
New installation service in the residential market begins with the home
builder providing architectural plans or mechanical drawings for the
particular type or types of residences within the tract to be developed, and
requesting a bid or contract proposal for the work (often broken into phases
within the tract). Company personnel analyze the plans and drawings and
estimate the equipment, materials and parts and the direct and supervisory
labor required for the project. The company delivers a written bid or
negotiates the written agreement for the job. In HVAC installations, a portion
of the required air ducts are fabricated and pre-assembled with other
components in the company's own facilities prior to delivery to the job site.
Other equipment and materials for the particular project are ordered from
manufacturers, distributors or other suppliers for delivery in time for the
scheduled onsite construction work. The installation work is coordinated by
the company's field supervisors along with the builder's construction
supervisors. Draw payments for the project are generally obtained within 30
days of completing the installation, at which time any mechanics' and
materialmen's liens securing such payments are released. Interim payments are
often obtained to cover labor and materials costs on larger installation
projects. During 1996, the GroupMAC Companies were involved in the
installation of approximately 18,000 HVAC systems and 6,500 plumbing systems
in new residences.
Commercial new installation work begins with a design request from the owner
or general contractor. Initial meetings with the parties allow the contractor
to prepare preliminary and then more detailed design specifications,
engineering drawings and cost estimates. Once a project is awarded, it is
conducted in pre-agreed phases and progress billings are rendered to the owner
for payment, less a retainage. Actual field work (ordering of equipment and
materials, fabrication or assembly of certain components, delivery of such
materials and components to the job site, scheduling of work crews with the
necessary skills, and inspection and quality control) is coordinated in these
same phases. During 1996, the GroupMAC Companies were involved in the
installation of approximately 480 HVAC systems and 95 plumbing systems in new
commercial facilities. The Company has established a policy to review and
approve any new installation project by a GroupMAC Company which exceeds 5% of
the projected annual revenue of that GroupMAC Company.
Substantially all the equipment and component parts the Company sells or
installs are purchased from manufacturers and other outside suppliers. The
Company is not materially dependent on any of these outside sources.
45
<PAGE>
Maintenance, Repair and Replacement
The GroupMAC Companies engaged in maintenance, repair and replacement
services use specialized systems to log service orders, schedule service
calls, identify and ready the necessary repair parts or equipment, track the
work order, provide information for communication with the service technicians
and customers, and prepare accurate invoices. Service histories and specific
product information are generally accessible to the dispatcher in a database
that may be searched by customer name or address. Maintenance, repair and
replacement service calls are initiated when a customer requests emergency
repair service or the Company calls the client to schedule periodic service
agreement maintenance. Service technicians are scheduled for the call or
routed to the customer's residence or business by the dispatcher via a
scheduling board or daily work sheet (for non-emergency service) or through
cellular telephone, pager or radio. Service personnel work out of the
Company's service vehicles, which carry an inventory of equipment, tools,
parts and supplies needed to complete the typical variety of jobs. The
technician assigned to a service call travels to the residence or business,
interviews the customer, diagnoses the problem, prepares and discusses a price
quotation, performs the work and often collects payment from the customer.
Service technicians of GroupMAC Companies that are existing clients of
Callahan Roach carry a Customer Assurance Pricing(TM) manual which lists labor
and equipment parts required to fulfill certain tasks and the associated
prices. This manual is custom generated for each company from a database
containing over 15,000 different repair operations and which is updated for
price changes periodically. This "flat rate pricing" strategy allows the
Company to monitor margins and labor productivity at the point of sale, while
increasing the level of customer satisfaction by demonstrating greater
fairness and objectivity in pricing. Payment for maintenance, repair and
replacement services not covered by a warranty or service contract is
generally requested in cash or by check or credit card at the service
location. During fiscal 1996, the GroupMAC Companies performed approximately
150,000 service calls for periodic maintenance under existing service
contracts, and approximately 175,000 emergency or other service calls.
A portion of the Company's service work is done to satisfy factory
warranties. For such services, the Company is generally compensated by the
manufacturer responsible for the defective equipment under warranty. The
Company attempts to enter into service contracts whereby the customer pays an
annual or semi-annual fee for periodic diagnostic services. The customers
under service contracts receive specific discounts from standard prices for
repair and replacement service.
CENTRALIZED SUPPORT SERVICES
The Company provides certain management, financial, accounting and
logistical support services for all of the GroupMAC Companies, including the
following:
Purchasing
The Company believes it will be able to structure volume purchasing
arrangements or otherwise achieve purchasing economies of scale in the
following areas: (i) HVAC, plumbing and electrical equipment, parts and
supplies, (ii) purchase or lease and maintenance of service vehicles, (iii)
casualty and liability insurance, (iv) health insurance and related benefits,
(v) retirement benefits administration, (vi) office equipment, (vii) marketing
and advertising (including Yellow Pages), (viii) long distance services and
(ix) a variety of accounting, financial management, marketing and legal
services. The principal manufacturers or suppliers of the products sold by the
Company include Carrier Air Conditioning, Inc., The Trane Company, Lennox
Industries, Inc., Goodman Manufacturing Corp. and Ferguson Enterprises, Inc.
Each GroupMAC Company will have the opportunity to order products from the
manufacturers or distributors at the discounted rate negotiated by the Company
and therefore, benefit from the Company's purchasing power while maintaining
existing supplier relationships.
Management Information Systems
With limited exceptions, the Company intends to continue to operate for the
near-term with the existing accounting and other computer systems currently in
place at the various GroupMAC Companies. The Company
46
<PAGE>
will, however, cause each of the GroupMAC Companies to adopt a uniform chart
of accounts and to standardize their budgeting process and reports so that
results among the GroupMAC Companies more easily can be compared and
integrated. In addition, where a GroupMAC Company or a future acquired company
has a system in place that is inadequate for its existing or near term needs,
the Company will begin the migration to a standard that will allow for greater
consistency (and a longer term change to a Company-wide, integrated system).
The Company has implemented regular financial and operational "flash reports"
and other mechanisms to allow for management control and oversight. The
Company will utilize this information to establish and monitor performance of
individual GroupMAC Companies against operating benchmarks and ratios.
Employee Screening, Training and Development
The Company is committed to providing the highest level of customer service
through the development of a highly trained workforce. Prior to employment,
the Company makes an assessment of the technical competence level of all
potential new employees, confirms background references and conducts criminal
and driving record checks. In addition, all employees of the Company are
subject to random drug testing. Once hired, employees of the Company are
required to complete a progressive training program to advance their technical
competencies and to ensure that they understand and follow the Company's
safety practices and other internal policies. Both technical and customer
service personnel are given intensive training in customer communication,
sales and problem-solving skills.
The Company also conducts a detailed internal evaluation of each acquired
company's strengths, weaknesses and compliance with recognized industry or
Company "best practices," and then designs a training program to develop and
enhance the communication, sales, management and other relevant skills of its
employees and management to bring about continuous improvement in these areas.
The Company acquired Callahan Roach and USA in part for their professional
training and consulting capabilities and intends to implement their market-
leading training programs within the GroupMAC Companies.
Advertising and Marketing
The Company intends to capitalize on cross-marketing and business
development opportunities that it believes will be available to the Company as
a national provider of comprehensive residential and commercial HVAC, plumbing
and electrical services. The Company will leverage the diverse technical and
marketing strengths of individual GroupMAC Companies to expand the overall
penetration of services within those local markets in which two or more
GroupMAC Companies are located. Eventually, the Company intends to offer
comprehensive services from all of its operating locations.
The GroupMAC Companies use both general advertising and a direct sales force
to market their residential and commercial services (both new installation and
repair services) in their respective geographic markets. The Company is
developing a marketing and advertising program to establish a national brand
identity while preserving and enhancing the value of the unique and long-
standing trade names and customer identification enjoyed by the individual
GroupMAC Companies. The GroupMAC logo and identifying marks will be featured
on service trucks, marketing materials and advertising of the GroupMAC
Companies, but in a manner that does not detract from the local brand. The
Company proposes to develop (initially for the GroupMAC Companies, but
ultimately for delivery to the market through licensed affiliates developed by
Callahan Roach and USA) market-leading warranty and service programs for the
residential and commercial markets, as well as an aggressive national account
sales program focused on national and large regional home builders, as well as
major corporations, governmental and private institutions, real estate
investment trusts, real estate management firms and other multi-location
commercial property owners and managers. In 1996, advertising and marketing
expenditures represented 0.9% of the Company's combined revenue.
47
<PAGE>
PROPERTIES AND VEHICLES
The Company operates a fleet of approximately 1,580 owned or leased service
trucks, vans and support vehicles. It believes these vehicles generally are
well-maintained, ordinary wear and tear excepted, and adequate for the
Company's current operations.
The Company has a total of 54 facilities, one of which it owns and 53 of
which are under leases with remaining terms ranging from four months to 15
years from the date hereof on terms the Company believes to be commercially
reasonable. The aggregate of the leased or owned space at the Company's
facilities is approximately 600,000 square feet. A majority of the Company's
facilities are leased from certain former shareholders (or entities controlled
by certain former shareholders) of the GroupMAC Companies. None of these
leases expire prior to 2000. 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. From time to time, one or more of the operating locations of the
Company may experience unionizing efforts. 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..... 51 Chief Executive Officer; Director
Donald L. Luke.............. 60 President and Chief Operating Officer; Director
William Michael Callahan.... 51 Executive Vice President-Training, Technology
and Field Support
Chester J. Jachimiec........ 42 Executive Vice President-Acquisitions; Director
Alfred R. Roach, Jr......... 53 Executive Vice President-Marketing, Sales and
Product Support
Richard S. Rouse............ 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........... 54 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............. 47 Director
Ronald D. Bryant............ 50 Director
David L. Henninger.......... 53 Director
Andrew Jeffrey Kelly........ 43 Director
Thomas B. McDade............ 74 Director
Lucian Morrison............. 60 Director
Fredric Sigmund............. 56 Director
</TABLE>
JAMES P. NORRIS became a Director and Chairman of the Board of the Company
in June 1997. From 1969 to May 1997, he served as Executive Vice President of
Air Conditioning Contractors of America ("ACCA"), an industry trade
association based in Washington, D.C.
J. PATRICK MILLINOR, JR. became a Director and Chief Executive Officer of
the Company upon its formation in 1997. From April 1997 to August 1997, he
served as President of the Company. From October 1996 through April 1997, he
served as Chief Executive Officer of the Company's predecessor, GroupMAC
Management Co. ("Management Co."). From September 1994 to October 1996, Mr.
Millinor worked directly for Gordon Cain, a major stockholder in the Company,
assisting in the formation and management of Agennix Incorporated and Lexicon
Genetics, two biotechnology companies. From March 1993 to September 1994, he
served as Chief Executive Officer of UltrAir, Inc., a start-up passenger
airline. From October 1992 to March 1993, he served as Chief Financial Officer
of UltrAir, Inc. From 1991 to 1992, he served as Chief Financial Officer of
Lifeco Travel Services, a travel management company. From 1986 to 1991, Mr.
Millinor served as Chief Operating Officer and Senior Vice President,
respectively, of Commonwealth Savings Association and Bank United. From 1979
to 1986, Mr. Millinor was a partner with KPMG Peat Marwick LLP. He currently
serves as a director of Agennix Incorporated, Haelan Health(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 2.5% of pre-tax profit of Airtron, excluding interest, closing costs
and gain or loss on sales of fixed assets). 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 1.0% of pre-tax profit of Airtron, excluding interest, closing costs
and gain or loss on sales of fixed assets). 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 2,395,407 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.
57
<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.
60
<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> <C> <C>
James P. Norris.................... -- -- --
J. Patrick Millinor, Jr............ 236,812(2) 2.4% 1.2%
Donald L. Luke..................... -- -- --
Chester J. Jachimiec............... 147,333(3) 1.5% *
Richard S. Rouse................... 125,933(4) 1.3% *
William Michael Callahan........... 18,400(5) * *
Alfred R. Roach, Jr................ 18,400(5) * *
John M. Sullivan................... 30,000 * *
James D. Weaver.................... 16,500(6) * *
James D. Jennings.................. 653,872(7) 6.8% 3.3%
Timothy Johnston................... 330,764(7) 3.4% 1.7%
Ronald D. Bryant................... 464,921(8) 4.8% 2.3%
David L. Henninger................. 113,033(8) 1.2% *
Andrew Jeffrey Kelly............... 403,111 4.2% 2.0%
Thomas B. McDade................... -- -- --
Lucian Morrison.................... 2,000 * *
Fredric Sigmund.................... 187,775(8)(9) 1.9% *
National City Bank Dayton, as
Trustee of the Airtron, Inc.
Savings and Profit Sharing Plan... 639,074 6.6% 3.2%
c/o Mr. David Smeltzer
6 North Main Street
Dayton, Ohio 45412
Richard M. Siefring................ 985,431(7) 10.2% 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(7) 5.5% 2.6%
7813 N. Dixie Drive
Dayton, Ohio 45414
Gordon A. Cain............................... 2,498,750 25.8% 12.5%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
All executive officers and named directors of
the Company as a group
(19 persons)................................ 2,830,854 29.0% 14.1%
</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 10,000 shares subject to currently exercisable warrants.
(7) Includes shares held in employee benefit plans.
(8) Such shares will be issued upon completion of the Offering.
(9) Includes shares held by the MacDonald-Miller Industries, Inc. Employee
Stock Ownership Plan and Trust.
62
<PAGE>
THE ACQUISITIONS
The Company entered into exchange agreements with shareholders of the Pre-
Offering Companies (other than Jarrell) and merger agreements with the
shareholders of Jarrell and the Offering Acquisition Companies. With respect
to the Pre-Offering Companies, the Company paid, and with respect to the
Offering Acquisition Companies the Company will pay, an agreed value for all
the issued and outstanding capital stock of each GroupMAC Company based
generally on the Company's evaluation of the operating results and
capitalization of such company. In some cases, the shareholders of a company
have the opportunity to receive additional amounts of purchase price
contingent upon the occurrence of future events. Shareholders of several Pre-
Offering Companies also received preferred stock which will be redeemed for
cash (at a redemption price equal to $1.00 per share) with a portion of the
proceeds of the Offering.
The following table sets forth for each GroupMAC Company, as of the date of
its acquisition, the consideration paid or to be paid to its shareholders (i)
in cash, (ii) in Common Stock, (iii) in preferred stock and (iv) in assumed
debt.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON PREFERRED ASSUMED
CASH(1)(4) STOCK(1)(4) STOCK(1)(5) DEBT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRE-OFFERING COMPANIES:
Airtron..................... $20,848,637 4,652,140 14,873,133 $ 1,289,927
A-ABC/A-1................... 1,886,000 359,302 -- 947,937
Charlie's................... 1,502,502 157,256 -- 112,741
CRPP(2)..................... 450,000 192,123 550,000(2) 78,236
CRA (asset purchase)(2)..... 2,000,000 -- 500,000 --
Costner(2)(3)............... 501,290 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.
63
<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 9,678,531 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
64
<PAGE>
will be entitled to receive pro rata all remaining assets of the Company
available to such holders. All outstanding shares of Common Stock are, and the
shares of Common Stock to be sold by the Company in this Offering will be,
duly and validly issued, fully paid and nonassessable.
Miscellaneous. There is no established public trading market for the Common
Stock. Application has been made to list the Common Stock for trading on the
New York Stock Exchange.
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., 450 West 33rd Street, Fifteenth Floor, New York,
New York 10001.
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.
65
<PAGE>
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
66
<PAGE>
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). 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).
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
19,961,726 shares of Common Stock (21,086,726 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 9,678,531 shares of Common Stock held by existing shareholders of
the Company immediately prior to the Offering and the 2,783,195 shares of
Common Stock to be issued to shareholders of the Offering Acquisition
Companies, Costner and Way Residential, 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 7,482,117 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 7,482,117 shares will become available for sale 180
days after the date of this Prospectus upon expiration of these lock-up
agreements, subject to compliance with Rule 144 promulgated under the
Securities Act.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for a
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock that does not exceed the greater of (i) one percent of the number of the
then outstanding shares or (ii) the average weekly reported trading volume of
the Common Stock during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and to the
availability of current public information about the Company and must be made
in unsolicited brokers' transactions or to a market maker. A person (or
persons whose shares are aggregated) who is not an "affiliate" of the Company
under the Securities Act during the three months preceding a sale and who has
beneficially owned such shares for at least two years is entitled to sell such
shares under Rule 144(k) without regard to the information, volume, manner of
sale and notice provisions of such Rule. Commencing October 24, 1997,
1,211,200 "restricted" shares of Common Stock will be eligible for resale
pursuant to Rule 144, subject to the volume, manner of sale and other
limitations thereof. The remaining "restricted" shares will become eligible
for resale pursuant to Rule 144 from time to time thereafter.
On the date of this Prospectus, the Company had outstanding options to
purchase 378,800 shares of Common Stock, 100,533 of which will be vested.
Options to purchase 10,000 shares of Common Stock have been exercised and
options to purchase at least an additional 2,395,407 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.
68
<PAGE>
TRANSFER RESTRICTIONS
Purchasers of Common Stock in the acquisitions of the Pre-Offering Companies
were, and Common Stock in the acquisitions of the Offering Acquisition
Companies will be, required to enter into a Stock Transfer Restriction
Agreement.
The Stock Transfer Restriction Agreements are substantially similar and
generally require that, at any time that the Company is engaged in an
underwritten public offering of its securities, each shareholder who is a
party thereto shall refrain from making any disposition of Common Stock on a
securities exchange or in the over-the-counter or any other public trading
market for the period of time requested by the Company; provided, however,
that (i) the restrictions on the transfer of Common Stock shall not limit any
shareholder's right to sell Common Stock pursuant to any piggyback
registration right that such shareholder may have pursuant to any registration
rights or similar agreement binding upon the Company and (ii) such
restrictions are no more restrictive than those imposed on the management of
the Company. Additionally, each Stock Transfer Restriction Agreement provides
that, during the one-year period following the date of such agreement (the
"First Holding Period"), the shareholder will not dispose of his or her shares
of Common Stock (subject to certain limited exceptions generally involving
transfers to family members and trusts or pursuant to an effective
registration statement). In addition to the foregoing restrictions, during the
one year period following the First Holding Period (the "Second Holding
Period"), no shareholder who is a party thereto may dispose of any Common
Stock in any calendar month in an amount greater than 3% of the number of
shares of Common Stock issued to such shareholder increasing cumulatively for
months in which less than 3% was sold. After expiration of the Second Holding
Period, all such restrictions under the Stock Transfer Restriction Agreements
lapse. Finally, any shareholder who is a party thereto shall provide five
business days' notice to the Company prior to any proposed disposition until
the later of (i) the end of the one-year period following the Second Holding
Period, (ii) for as long as such shareholder is an officer or director of the
Company or any of its Pre-Offering Companies or (iii) the date on which such
shareholder ceases to hold the greater of 20,000 shares of Common Stock or 20%
of the number of shares.
No shareholder who is a party thereto shall make a transfer of any Common
Stock if such action would constitute (i) a violation of any federal or state
securities law, (ii) a breach of any condition to any exemption from
registration of the Common Stock under any such laws or (iii) a breach of any
undertaking or agreement of such shareholder entered into pursuant to such
laws or in connection with obtaining an exemption thereunder.
The summary herein of certain provisions of the Stock Transfer Restriction
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all of the provisions thereof, the form of
which is filed as an exhibit to the Registration Statement.
REGISTRATION RIGHTS
Pursuant to several Registration Rights Agreements, as amended (the
"Registration Rights Agreements"), the Company has agreed to register under
the Securities Act substantially all of the shares of Common Stock outstanding
on the date of this Prospectus (9,678,531 shares) and will enter into similar
agreements with the shareholders of the Offering Acquisition Companies,
Costner and Way Residential (who will receive 2,783,195 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
69
<PAGE>
of such shares, the number of shares of each shareholder to be included in
such registration will be reduced pro rata based on the aggregate number of
shares for which registration was requested.
The Company at its option, may delay the filing of a registration statement
required pursuant to any Demand Registration for up to 120 days if it has
determined that filing a registration statement would be seriously detrimental
to the Company or its shareholders or that a delay in filing the registration
statement is necessary in light of a pending corporate development. In
addition, although the Company's founding shareholders have the right to have
the shares of Common Stock owned by them registered by the Company under the
Securities Act as described below, each of them has agreed not to exercise
their respective demand rights for the two year period following the Offering
except for Mr. Cain who has agreed to not exercise his demand rights for one
year.
The Registration Rights Agreements contain customary provisions whereby the
Company and the shareholders party thereto agree to indemnify and contribute
to the other with regard to losses caused by the misstatement of any
information or the omission of any information required to be provided in a
registration statement filed under the Securities Act. The Registration Rights
Agreements require the Company to pay the expenses associated with any
registration other than sales discounts, commissions, transfer taxes and
amounts to be borne by underwriters or as otherwise required by law.
The summary herein of certain provisions of the Registration Rights
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all of the provisions of the forms of
Registration Rights Agreements, copies of which are filed as exhibits to the
Registration Statement.
70
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom The Robinson-Humphrey
Company, 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.
71
<PAGE>
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 and Air Conditioning, Inc., Arkansas Mechanical Services,
Inc. and Mechanical Services, Inc., Callahan Roach Products and Publications,
Inc., Central Carolina Air Conditioning Company, Hallmark Air Conditioning,
Inc. and Subsidiary, Sibley Services, Inc., Southeast Mechanical Service,
Inc., Willis Refrigeration, Heating & Air Conditioning, Inc., and Yale, Inc.,
to the extent and for the periods indicated in their reports, have been
included herein and in the registration statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Masters, Inc. as of December 31, 1995, December
31, 1996 and June 30, 1997, and for each of the three years in the period
ended December 31, 1996 and for the six month period ended June 30, 1997
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The financial statements and schedules of MacDonald-Miller included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Moss Adams LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
72
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term encompasses any and all amendments thereto) under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is filed as
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which were omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus concerning
the contents of any contract, agreement or other document referred to are
summaries of the terms of such contract, agreement or other document and are
not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. For further information with respect to the Company, reference
is hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof, which may be inspected, without charge, at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: 7 World Trade Center, Suite 1300, New York, New
York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference facilities of the Commission, upon
payment of the prescribed fees. The Registration Statement is also available
on the Internet at the Commission's World Wide Web site at http://www.sec.gov.
The Common Stock has been approved for listing on the NYSE, and reports, proxy
statements and other information concerning the Company can be inspected and
copied at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
As a result of the Offering, the Company will be subject to the reporting
requirements under the Exchange Act and, in accordance therewith, will file
reports, proxy statements, information statements and other information with
the Commission. The Company intends to furnish annual reports to its
shareholders containing audited financial statements reported on by an
independent certified public accounting firm and quarterly reports containing
unaudited summary financial information for each of the first three quarters
of each year.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GROUP MAINTENANCE AMERICA CORP. UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements........ F-4
Unaudited Pro Forma Combined Balance Sheet............................... F-6
Unaudited Pro Forma Combined Statements of Operations.................... F-8
Notes to Unaudited Pro Forma Combined Financial Statements............... F-14
HISTORICAL FINANCIAL STATEMENTS
GROUP MAINTENANCE AMERICA CORP. (GROUPMAC PARENT)
Report of Independent Public Accountants................................. F-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 AND 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 CO., INC.
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, INC.
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, HEATING & AIR CONDITIONING, 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, INC.
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. & A-1 Appliance and Air Conditioning, Inc.... 6/1/97
Hallmark Air Conditioning, Inc..................................... 6/1/97
K&N Plumbing, Heating and Air Conditioning, Inc.................... 6/1/97
Way 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, Inc............................................... 7/1/97
United Service Alliance, L.C....................................... 7/31/97
All Service Electric, Inc.......................................... At offering
Arkansas Mechanical Services, Inc.................................. At offering
Central Carolina Air Conditioning Company.......................... At offering
Evans Services, Inc................................................ At offering
Linford Service Company............................................ At offering
MacDonald-Miller Industries, Inc................................... At offering
Masters, Inc....................................................... At offering
Mechanical Services, Inc........................................... At offering
Paul E. Smith Co., Inc............................................. At offering
Southeast Mechanical Service, Inc.................................. At offering
Van's Comfortemp Air Conditioning, Inc............................. At offering
Willis Refrigeration, Heating & Air Conditioning, Inc.............. At offering
Yale Incorporated.................................................. At offering
</TABLE>
All of the acquisitions have been or will be accounted for utilizing the
purchase method of accounting. The pending acquisitions, which are all
evidenced by signed definitive agreements, are expected to occur at or
immediately following the closing of the Company's initial public offering,
with Airtron, Inc. ("Airtron") as the acquirer for financial accounting
purposes. These unaudited pro forma combined financial statements are based on
the historical financial statements of the acquired companies and estimates
and assumptions set forth below and in the notes to the unaudited pro forma
combined financial statements.
The unaudited pro forma combined balance sheets 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....... 16,411 -- -- 41 107 16,559 32,599 49,158
Retained earnings
(deficit)........ (27,716) 4,007 4,495 4,451 4,417 (10,346) (17,370) (27,716)
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....... 93,142 142,300
Retained earnings
(deficit)........ -- (27,716)
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................. 11,047 3,788 1,197 1,376 7,820 5,171 1,783 (5,204)(a) 26,978
GOODWILL AMORTIZATION.. 31 -- -- -- 55 27 -- 783 (b) 896
------- ------- ------- ------- ------- ------- ------- ------- --------
Income (loss) from op-
erations.............. 846 1,597 664 15 1,453 1,495 (1,783) 4,421 8,708
OTHER INCOME (EXPENSE):
Interest expense...... (395) (214) (76) (40) (128) (142) (2) 934 (c) (63)
Interest income....... 153 -- 11 1 59 16 4 -- 244
Other................. 228 167 -- (9) 138 35 -- (51)(d) 508
------- ------- ------- ------- ------- ------- ------- ------- --------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION... 832 1,550 599 (33) 1,522 1,404 (1,781) 5,304 9,397
INCOME TAX PROVISION... 349 569 -- (55) 228 24 -- 3,002 (e) 4,117
------- ------- ------- ------- ------- ------- ------- ------- --------
NET INCOME (LOSS)...... $ 483 $ 981 $ 599 $ 22 $ 1,294 $ 1,380 $(1,781) $ 2,302 $ 5,280
======= ======= ======= ======= ======= ======= ======= ======= ========
PRO FORMA NET INCOME
PER SHARE.............. $ .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
SHARES OF OF
PREFERRED COMMON
CASH STOCK STOCK
------- --------- ------
<S> <C> <C> <C>
PRE-OFFERING COMPANIES
Airtron............................................ $20,849 14,873 4,652
A-ABC/A-1.......................................... 1,886 -- 359
Callahan Roach..................................... 2,450 1,050 192
Charlie's.......................................... 1,503 -- 157
Costner............................................ 501 100 66
Hallmark........................................... 2,081 580 106
Jarrell............................................ 150 -- 13
K&N................................................ 1,568 1,568 403
Sibley............................................. 1,202 665 62
USA (asset purchase)............................... 436 436 50
Way Residential (asset purchase)................... 16 -- 6
------- ------ -----
32,642 19,272 6,066
------- ------ -----
OFFERING ACQUISITION COMPANIES
All Service........................................ 2,312 -- 202
Arkansas Mechanical................................ 2,121 -- 151
Central Carolina................................... 3,638 -- 281
Evans ............................................. 1,167 -- 102
Linford ........................................... 651 -- 126
MacDonald-Miller................................... 6,002 -- 643
Masters............................................ 6,605 -- 491
Mechanical......................................... 109 -- 8
Paul E. Smith...................................... -- -- 217
Southeast Mechanical............................... 2,149 -- 154
Van's.............................................. 1,559 -- 113
Willis............................................. 2,257 -- 242
Yale............................................... 2,215 -- 158
------- ------ -----
30,785 -- 2,888
------- ------ -----
Sub S Corp Distributions............................. (1,856) -- (119)
------- ------ -----
Totals........................................... $61,571 19,272 8,835
======= ====== =====
</TABLE>
F-15
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.............................. 6,066,086
Shares issued to Offering Acquisition Companies...................... 2,768,803
Shares issued to Founding Management and Directors................... 1,026,837
Incremental effect of options and warrants on shares outstanding..... 196,957
----------
Shares estimated to be outstanding................................... 20,158,683
==========
</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
WARRANT COMPENSATION.... 2,400,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income from
operations........... 1,483,811 3,475,854 3,562,795 1,569,892 2,210,251
OTHER INCOME (EXPENSE):
Interest expense...... -- -- (82,211) (37,768) (352,666)
Interest income....... 75,835 67,744 170,918 20,100 93,212
Other................. 140,078 246,219 256,249 23,535 2,821
----------- ----------- ----------- ----------- -----------
Income before income
tax provision...... 1,699,724 3,789,817 3,907,751 1,575,759 1,953,618
INCOME TAX PROVISION.... 910,664 1,650,956 1,571,680 633,614 800,000
----------- ----------- ----------- ----------- -----------
NET INCOME.............. $ 789,060 $ 2,138,861 $ 2,336,071 $ 942,145 $ 1,153,618
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING............ 8,008,122 6,190,337 5,172,201 5,172,201 8,857,295
=========== =========== =========== =========== ===========
NET INCOME PER SHARE.... $ 0.10 $ 0.35 $ 0.45 $ 0.18 $ 0.13
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-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
Reverse acquisition of
GroupMAC Parent....... 1,611,345 1,611 (1,052,266) -- -- (1,050,655)
Preferred Stock issued
to Airtron sharehold-
ers in reverse acqui-
sition................ -- -- -- (14,873,133) -- (14,873,133)
Distribution to Airtron
shareholders in
reverse acquisition... -- -- -- (17,335,692) -- (17,335,692)
GroupMAC Parent acqui-
sition costs.......... -- -- (663,263) -- -- (663,263)
Purchase of Acquired
Companies............. 1,102,513 1,103 11,351,359 -- -- 11,352,462
Shares issued under
subscription agree-
ment.................. 1,332,000 1,332 4,097,898 -- -- 4,099,230
Exercise of options.... 10,000 10 30,765 -- -- 30,775
Net income............. -- -- -- 1,153,618 -- 1,153,618
---------- -------- ----------- ------------ ----------- ------------
BALANCE, June 30, 1997.. 8,707,998 $ 8,708 $16,410,586 $(27,715,511) $ -- $(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............. $ 789,060 $ 2,138,861 $ 2,336,071 $ 942,145 $ 1,153,618
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization.......... 228,759 238,338 208,037 71,836 194,477
Gain from sale of
property and
equipment............. 6,993 (9,222) (223,593) (5,521) --
Deferred income taxes.. (2,295,336) (1,400,500) 2,336,100 1,204,700 2,338,223
Warrant compensation... 2,400,000 -- -- -- --
Changes in operating
assets and
liabilities, net of
effect of
acquisitions
accounted for as
purchases:
(Increase) decrease
in -
Accounts receivable.. (571,196) (403,499) (401,940) (1,756,106) (2,078,958)
Inventories.......... (177,969) 171,699 332,040 456,037 29,553
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... (174,216) 163,218 22,894 -- (30,045)
Prepaid expenses and
other current
assets.............. 2,718 (33,805) (7,644) (1,068,085) 71,952
Refundable income
taxes............... -- -- (3,235,500) -- 431,378
Other noncurrent
assets.............. -- -- -- -- 4,821
Increase (decrease)
in -
Accounts payable..... (2,464) 425,430 (76,759) 1,400,875 461,236
Accrued expenses..... 417,434 667,499 2,533,826 (435,002) (5,848,590)
Due to related
parties............. -- -- -- -- (10,395)
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... 248,316 (143,888) (85,946) 340,007 311,465
Deferred service
contract revenue.... 46,264 23,516 5,904 27,844 (104,989)
Income tax payable... (77,096) 590,661 (295,525) (1,597,897) (221,172)
Other current
liabilities......... -- -- -- -- 619,120
Compensation and
benefits payable.... 1,498,152 1,579,127 254,920 (1,086,957) (8,513)
Other long-term
liabilities......... -- -- -- -- 121,405
----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) operating
activities......... 2,339,419 4,007,435 3,702,885 (1,506,124) (2,565,414)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Cash paid for
acquisitions, net of
cash acquired of
$2,011,220............ -- -- -- -- (5,342,855)
Deferred offering
costs................. -- -- -- -- (545,690)
Purchases of property
and equipment......... (370,289) (246,009) (182,256) (49,048) (364,955)
Proceeds from sale of
property and
equipment............. -- 56,909 296,026 -- --
Proceeds from note
receivable............ 29,396 -- 155,803 -- --
----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) investing
activities......... (340,893) (189,100) 269,573 (49,048) (6,253,500)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Purchases of stock..... (1,534,896) (2,657,565) (787,174) (205,471) --
Repurchase of warrants. -- -- (538,500) -- --
Proceeds from long-term
debt.................. -- -- -- -- 29,600,000
Payments of long-term
debt.................. -- -- (35,373) -- (2,976,681)
Payments of other long-
term obligations...... -- (37,000) (39,100) (13,000) --
Deferred offering
costs................. -- -- -- -- (31,838)
Issuance of stock...... -- -- -- -- 4,099,230
Exercise of options.... -- -- -- -- 30,775
Distributions to
shareholders.......... -- -- (6,548) -- (20,366,951)
----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) financing
activities......... (1,534,896) (2,694,565) (1,406,695) (218,471) 10,354,535
----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 463,630 1,123,770 2,565,763 (1,773,643) 1,535,621
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 186,243 649,873 1,773,643 1,773,643 4,339,406
----------- ----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 649,873 $ 1,773,643 $ 4,339,406 $ -- $ 5,875,027
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-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. Because the business combination is between a nonoperating
entity (Group MAC Parent) and an operating entity (Airtron), in which the
operating entity is the acquirer for financial reporting purposes, the
transaction was recorded as the issuance of securities by Airtron.
Accordingly, Airtron recorded the fair value of the tangible net assets
(liabilities) of Group MAC Parent to equity. The fair value of the tangible
net assets (liabilities) amounted to ($1,050,655) which represents the net
assets (liabilities) of Group MAC Parent reduced by any intangible assets
recorded at that date. 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........... -- -- -- -- 2,935,345
Shares issued for the
acquisition of the
Acquired Companies..... -- -- -- -- 1,102,513
Stock options, net of
assumed repurchase of
common shares as
treasury stock......... -- -- -- -- 167,297
--------- --------- --------- --------- ---------
8,008,122 6,190,337 5,172,201 5,172,201 8,857,295
========= ========= ========= ========= =========
</TABLE>
3. BUSINESS COMBINATIONS
During May and June 1997, the Company acquired the Acquired Companies for an
aggregate 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 1,102,513 shares of preferred and common stock,
respectively. The preferred stock was valued at its redemption value of $1 per
share. The common stock was valued at its estimated fair value at the time of
the respective acquisition. The Company financed the cash portion of the
purchase consideration through borrowings under its credit agreement. Purchase
price consideration is subject to final adjustment. The allocation of purchase
price to the assets acquired and liabilities assumed has been initially
assigned and recorded based on preliminary estimates of fair value and may be
revised as additional information becomes available.
F-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 Income:
As Reported........................................................ $1,153,618
Pro forma.......................................................... $1,124,618
Net Income Per Share:
As Reported........................................................ $ 0.13
Pro forma.......................................................... $ 0.13
</TABLE>
The pro forma compensation cost may not be representative of that to be
expected in future years because options vest over several years and
additional awards may be made each year.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for fiscal 1996 for the plan: no dividend yield; expected
volatility of 0%; risk-free interest rate of 6.26%; and expected lives of ten
years. The weighted average fair value per share of the options granted prior
to the Agreement is estimated to be $1.425.
In July 1994, Airtron extended 60,000 warrants to purchase common shares at
$1 each until August 1, 2011. The appraisal for market value of Airtron's
stock at that time, was $40 per share, resulting in a charge of $2,400,000 and
an offsetting increase in retained earnings in fiscal 1995. All 60,000
warrants were outstanding at February 29, 1996. In August 1996, 15,000 of
these warrants were purchased from a former shareholder for $538,500,
resulting in a reduction in retained earnings for the original recorded value
of the warrants of $600,000 with the offset recorded as other income. At
February 28, 1997, 45,000 warrants were outstanding. In connection with the
Agreement these warrants were exchanged for cash and preferred and common
shares of GroupMAC Parent.
Airtron had deferred compensation arrangements for certain members of
management and the Board of Directors.The assets and liabilities previously
recorded by the Company have been reflected as distributions in the
accompanying financial statements.
10. SHAREHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 100 million shares of common stock, $.001
par value. There are 8,707,998 shares of common stock outstanding at June 30,
1997.
On October 24, 1996, the Company entered into a stock subscription agreement
with an individual allowing for the purchase of up to 2.6 million shares of
common stock at a purchase price of $3.08 per share. Under this agreement, 0.2
million shares were purchased in October, 1996, 0.2 million in January, 1997,
0.2 million in April, 1997, 880,000 on May 5, 1997, 452,000 on June 12, 1997,
326,000 on July 14, 1997 and additional shares are required to be purchased
upon written notice from the Company, but in no event later than October 24,
1998.
F-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 at statutory
rate....................... $577,906 $1,288,538 $1,328,635 $664,230
Increase (decrease)
resulting from:
State income taxes, net of
federal benefit.......... 406,560 354,061 253,663 78,210
Other..................... (73,802) 8,357 (10,618) 57,560
-------- ---------- ---------- --------
$910,664 $1,650,956 $1,571,680 $800,000
======== ========== ========== ========
</TABLE>
F-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 have been prepared on the basis that
the distribution of the net assets of MMR had been completed as of December
31, 1993. Effects of adjustments related to the unconsolidated affiliate have
been shown as a reduction in shareholders' equity for each of the years
presented.
The following is a financial summary of MMI including MMR:
<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>
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.
F-51
<PAGE>
MACDONALD-MILLER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 and Air Conditioning, Inc.:
We have audited the accompanying combined balance sheets of A-ABC Appliance,
Inc. and A-1 Appliance and Air Conditioning, Inc. (collectively referred to as
the Company) as of December 31, 1996 and May 31, 1997, and the related
combined statements of operations, shareholders' equity and cash flows for the
year ended December 31, 1996 and the five months ended May 31, 1997. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of A-ABC Appliance,
Inc. and A-1 Appliance and Air Conditioning, Inc. as of December 31, 1996 and
May 31, 1997, and the results of its operations and its cash flows for the
year ended December 31, 1996 and the five months ended May 31, 1997 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 18, 1997
F-83
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 760,291 $ 654,324
Accounts receivable.................................. 144,519 217,461
Other receivables.................................... 35,226 --
Inventories.......................................... 570,007 517,587
Due from related parties and employees............... 30,912 162,580
Prepaid expenses..................................... 13,289 57,090
---------- ----------
Total current assets............................... 1,554,244 1,609,042
PROPERTY AND EQUIPMENT, net............................ 905,447 702,310
GOODWILL, net of accumulated amortization of $9,195 and
$9,820, respectively.................................. 50,808 50,183
OTHER NONCURRENT ASSETS................................ 334,372 263,599
---------- ----------
Total assets....................................... $2,844,871 $2,625,134
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................. $ 176,717 $ 168,425
Accounts payable..................................... 265,080 425,196
Accrued expenses..................................... 183,797 213,732
Due to related parties............................... 315,474 342,584
Deferred service contract revenue.................... 196,217 175,134
---------- ----------
Total current liabilities.......................... 1,137,285 1,325,071
LONG-TERM DEBT, net of current maturities.............. 844,549 779,511
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock......................................... 3,300 3,300
Additional paid-in capital........................... 304,140 304,140
Retained earnings.................................... 555,597 213,112
---------- ----------
Total shareholders' equity......................... 863,037 520,552
---------- ----------
Total liabilities and shareholders' equity......... $2,844,871 $2,625,134
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-84
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED MAY 31,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.................................. $8,546,450 $3,382,901 $3,419,026
COST OF SERVICES.......................... 5,446,934 2,147,150 2,227,471
---------- ---------- ----------
Gross profit............................ 3,099,516 1,235,751 1,191,555
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 2,766,293 1,124,839 996,082
---------- ---------- ----------
Income from operations.................. 333,223 110,912 195,473
OTHER INCOME (EXPENSE):
Interest expense........................ (94,434) (36,628) (34,313)
Interest income......................... 10,653 1,619 3,702
Other................................... 779 (15,130) (7,760)
---------- ---------- ----------
NET INCOME................................ $ 250,221 $ 60,773 $ 157,102
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-85
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $3,300 $304,140 $ 305,376 $ 612,816
Net income......................... -- -- 250,221 250,221
------ -------- --------- ---------
BALANCE, December 31, 1996........... 3,300 304,140 555,597 863,037
Net income......................... -- -- 157,102 157,102
Distributions to shareholders...... -- -- (499,587) (499,587)
------ -------- --------- ---------
BALANCE, May 31, 1997................ $3,300 $304,140 $ 213,112 $ 520,552
====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-86
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED MAY 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 250,221 $ 60,773 $ 157,102
Adjustments to reconcile net income to net
cash
provided by (used in) operating
activities:
Depreciation and amortization........... 318,259 138,454 133,448
Gain from sales of property and
equipment.............................. (18,765) (18,765) --
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable................... (8,567) (194,850) (72,942)
Other receivables..................... (28,778) 1,611 35,226
Inventories........................... 17,073 (31,888) 52,420
Due from related parties and
employees............................ 1,703 6,000 (11,186)
Prepaid expenses...................... 40,965 (16,391) (43,801)
Other noncurrent assets............... (4,952) (4,391) 24,940
Increase (decrease) in--
Accounts payable...................... (33,128) 143,415 160,116
Accrued expenses...................... (120,496) 69,937 29,935
Due to related parties................ (43,945) (359,419) (315,474)
Deferred service contract revenue..... 36,714 94,838 (21,083)
--------- --------- ---------
Net cash provided by (used in)
operating activities............ 406,304 (110,676) 128,701
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....... (456,877) (277,614) (4,335)
Proceeds from sales of property and
equipment................................ 20,585 20,585 --
--------- --------- ---------
Net cash used in investing
activities.......................... (436,292) (257,029) (4,335)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............. 376,714 376,714 --
Payments of long-term debt................ (135,202) (71,677) (73,330)
Distributions to shareholders............. -- -- (157,003)
--------- --------- ---------
Net cash provided by (used in)
financing activities............ 241,512 305,037 (230,333)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 211,524 (62,668) (105,967)
CASH AND CASH EQUIVALENTS, beginning of
period.................................... 548,767 548,767 760,291
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period... $ 760,291 $ 486,099 $ 654,324
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-87
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
A-ABC Appliance, Inc. (A-ABC) and A-1 Appliance and Air Conditioning, Inc.
(A-1), (collectively referred to as the Company), are under common ownership.
As common control exists among the entities, the financial statements have
been combined for all periods presented. There have been no intercompany
transactions between the entities. A-ABC and A-1 are primarily engaged in the
installation and servicing of heating and air conditioning systems, as well as
home appliances, for residential and light commercial customers in the Dallas,
Texas area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim combined financial statements for the five months ended May 31,
1996 are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the combined interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results of the entire fiscal year.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized upon completion of service. Revenues on service and
maintenance contracts are recognized over the life of the contract.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest were $92,052 and $34,313 for
the year ended December 31, 1996 and the five months ended May 31, 1997,
respectively.
Inventories
Inventories consist primarily of purchased materials and supplies. The
Company uses the first-in, first-out (FIFO) cost method to value its
inventories.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.
F-88
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Upon retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Income Taxes
The shareholders of the Company have elected to be taxed for federal tax
purposes as an S Corporation whereby the shareholders' respective equitable
shares in the taxable income of the Company are reportable on their individual
tax returns. The Company will make distributions to the shareholders each year
at least in amounts necessary to pay personal income taxes payable on the
Company's taxable income.
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Other noncurrent assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ --------
<S> <C> <C>
Covenant not to compete, net of accumulated
amortization of $247,500 and $293,333, respectively... $302,500 $256,667
Other noncurrent assets................................ 31,872 6,932
-------- --------
$334,372 $263,599
======== ========
Accrued expenses consists of the following:
Accrued payroll costs and benefits..................... $100,151 $165,233
Other accrued expenses................................. 83,646 48,499
-------- --------
$183,797 $213,732
======== ========
</TABLE>
F-89
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31, MAY 31,
LIVES 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Land.................................. -- $ 15,000 $ --
Buildings and improvements............ 20-30 years 138,958 --
Service and other vehicles............ 4-7 years 1,191,155 1,193,253
Office equipment, furniture and
fixtures............................. 5-10 years 450,086 452,323
Leasehold improvements................ -- 214,691 214,691
----------- -----------
2,009,890 1,860,267
Less accumulated depreciation......... (1,104,443) (1,157,957)
----------- -----------
$ 905,447 $ 702,310
=========== ===========
</TABLE>
5. GOODWILL AND OTHER NONCURRENT ASSETS
Goodwill represents the excess of the aggregate purchase price over the fair
value of net assets acquired and is amortized on a straight-line basis over a
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows compared to
the carrying value of goodwill. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
Other noncurrent assets include a covenant not to compete and deferred
charges related to the "Asset Purchase and Sale Agreement" made between the
Company's shareholders and former owners. The covenant not to compete and
deferred charges are amortized on a straight-line basis for a period of five
years, which is the period of the covenant in the agreement.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ ---------
<S> <C> <C>
Equipment installment loans payable to banks and
other financial institutions, interest varying from
8.75% to 9.0%, secured by certain equipment,
payable in monthly and quarterly installments
including interest, final installment
due November 2000.................................. $ 471,554 $ 419,900
Notes payable to the former shareholders of A-1
Appliance, Inc. at 8%, payable in monthly
installments of $7,783, including interest, final
installment due November 2004...................... 549,712 528,036
---------- ---------
Total long-term debt............................ 1,021,266 947,936
Less current maturities............................. (176,717) (168,425)
---------- ---------
$ 844,549 $ 779,511
========== =========
</TABLE>
F-90
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of the long-term debt as of December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
A-ABC A-1 COMBINED
-------- -------- ----------
<S> <C> <C> <C>
1997............................................ $ 97,304 $ 79,413 $ 176,717
1998............................................ 101,507 80,613 182,120
1999............................................ 108,743 71,823 180,566
2000............................................ 79,251 66,660 145,911
2001............................................ 23,435 72,477 95,912
Thereafter...................................... -- 240,040 240,040
-------- -------- ----------
$410,240 $611,026 $1,021,266
======== ======== ==========
</TABLE>
7. SHAREHOLDERS' EQUITY
The authorized, issued and outstanding common stock of the Company at
December 31, 1996 and May 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------ COMMON
AUTHORIZED ISSUED OUTSTANDING STOCK
---------- ------- ----------- ------
<S> <C> <C> <C> <C>
A-ABC voting........................... 50 50 50 $ 250
A-ABC non-voting....................... 50 50 50 50
A-1.................................... 300,000 300,000 300,000 3,000
------- ------- ------- ------
Total................................ 300,100 300,100 300,100 $3,300
======= ======= ======= ======
</TABLE>
The voting common stock and non-voting common stock of A-ABC have stated
values of $5 and $1 per share, respectively. The common stock of A-1 has a
stated value of $0.01 per share.
8. LEASES
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
A-ABC A-1 COMBINED
---------- ------- ----------
<S> <C> <C> <C>
1997........................................... $ 99,000 $27,000 $ 126,000
1998........................................... 99,000 27,000 126,000
1999........................................... 99,000 27,000 126,000
2000........................................... 99,000 11,250 110,250
2001........................................... 99,000 -- 99,000
Thereafter..................................... 717,750 -- 717,750
---------- ------- ----------
$1,212,750 $92,250 $1,305,000
========== ======= ==========
</TABLE>
Total rental expense for the year ended December 31, 1996 and the five
months ended May 31, 1997 was $136,200 and $58,200, respectively.
9. RELATED PARTY TRANSACTIONS
The Company leases the office building and warehouse from a shareholder of
A-ABC and A-1. The Company also pays management fees to a company owned by a
shareholder for administrative and operational services. The management
agreement is renewed annually.
F-91
<PAGE>
A-ABC APPLIANCE, INC. AND A-1 APPLIANCE AND AIR CONDITIONING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In May 1997, the Company sold land and buildings and improvements to a
shareholder for the recorded book value of $120,482. In addition, the Company
declared $342,584 of distributions to shareholders, which were not paid as of
May 31, 1997.
At December 31, 1996 and May 31, 1997, the Company had amounts due to
related parties of $315,474 and $342,584, respectively, and amounts due from
related parties of $23,174 and $145,070, respectively.
10. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) plan covering substantially all
employees. Contributions to this plan, determined annually, are at the
discretion of the Board of Directors. Authorized contributions for the year
ended December 31, 1996 and the five months ended May 31, 1997 amounted to
$20,258 and $9,942, respectively.
11. ADVERTISING
The Company expenses advertising costs as incurred. Total advertising
expense for the year ended December 31, 1996 and the five months ended May 31,
1997 amounted to $401,722 and $136,350, respectively, and is included in
selling, general and administrative expenses in the accompanying combined
statements of operations.
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position, results of operations or liquidity.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
long-term debt. The Company believes that the carrying value of these
instruments on the accompanying combined balance sheets approximates their
fair value.
14. SUBSEQUENT EVENT
Effective June 1, 1997, Group Maintenance America Corp. (GroupMAC) acquired
all of the outstanding shares of the Company for a combination of cash and
common stock of GroupMAC.
F-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 Co., Inc.:
We have audited the accompanying balance sheets of Central Carolina Air
Conditioning Co., Inc. (the Company) as of October 31, 1996 and June 30, 1997,
and the related statements of operations, shareholders' equity and cash flows
for the year ended October 31, 1996 and the eight months ended June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Central Carolina Air
Conditioning Co., Inc. as of October 31, 1996 and June 30, 1997, and the
results of its operations and its cash flows for the year ended October 31,
1996 and the eight months ended June 30, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 18, 1997
F-112
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 440,289 $ 457,132
Accounts receivable.................................... 627,783 867,913
Inventories............................................ 292,215 246,225
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 113,653 168,226
Due from related parties............................... 505,003 175,448
Prepaid expenses and other current assets.............. 240,089 219,149
---------- ----------
Total current assets.................................. 2,219,032 2,134,093
PROPERTY AND EQUIPMENT, net............................. 459,553 674,948
OTHER NONCURRENT ASSETS................................. 37,098 38,498
---------- ----------
Total assets.......................................... $2,715,683 $2,847,539
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-
term debt............................................. $ 64,283 $ 979
Accounts payable....................................... 322,848 274,887
Accrued expenses....................................... 261,300 232,751
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 48,399 39,131
Deferred service contract revenue...................... 755,047 762,821
---------- ----------
Total current liabilities............................. 1,451,877 1,310,569
DEFERRED SERVICE CONTRACT REVENUE....................... 211,397 204,304
DEFERRED COMPENSATION LIABILITY......................... 55,373 60,670
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--$10 par value; 2,000 shares authorized,
issued and outstanding................................ 20,000 20,000
Additional paid-in capital............................. 23,140 23,140
Retained earnings...................................... 953,896 1,228,856
---------- ----------
Total shareholders' equity............................ 997,036 1,271,996
---------- ----------
Total liabilities and shareholders' equity............ $2,715,683 $2,847,539
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-113
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30,
OCTOBER 31, ----------------------
1996 1996 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................... $8,161,356 $5,139,628 $5,463,051
COST OF SERVICES........................... 5,182,045 3,267,848 3,224,802
---------- ---------- ----------
Gross profit............................. 2,979,311 1,871,780 2,238,249
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 2,598,253 1,672,596 1,648,388
---------- ---------- ----------
Income from operations................... 381,058 199,184 589,861
OTHER INCOME (EXPENSE):
Interest expense.......................... (9,841) (6,073) (3,087)
Interest income........................... 30,219 17,611 28,472
Other..................................... (40,166) 13,487 11,233
---------- ---------- ----------
NET INCOME................................. $ 361,270 $ 224,209 $ 626,479
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, October 31, 1995.......... $20,000 $23,140 $ 973,595 $1,016,735
Net income........................ -- -- 361,270 361,270
Distributions to shareholders..... -- -- (380,969) (380,969)
------- ------- ---------- ----------
BALANCE, October 31, 1996.......... 20,000 23,140 953,896 997,036
Net income........................ -- -- 626,479 626,479
Distributions to shareholders..... -- -- (351,519) (351,519)
------- ------- ---------- ----------
BALANCE, June 30, 1997............. $20,000 $23,140 $1,228,856 $1,271,996
======= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30,
OCTOBER 31, ----------------------
1996 1996 1997
----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 361,270 $ 224,209 $ 626,479
Adjustments to reconcile net income to net
cash
provided by (used in) operating
activities:
Depreciation............................. 200,548 140,707 142,535
Gain on sales of property and equipment.. (13,811) (3,344) --
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable.................... (144,095) (243,215) (240,130)
Inventories............................ 6,516 62,058 45,990
Costs and estimated earnings in excess
of billings on uncompleted contracts.. (73,301) (52,611) (54,573)
Due from related parties............... (340,792) (481,044) 329,555
Prepaid expenses and other current
assets................................ (55,800) 91,214 20,940
Other noncurrent assets................ 1,750 1,050 (1,400)
Increase (decrease) in--
Accounts payable....................... 75,239 7,192 (47,961)
Accrued expenses....................... (82,481) (123,859) (28,549)
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 31,913 71,245 (9,268)
Deferred service contract revenue...... 17,670 (31,809) 681
Deferred compensation liability........ 7,945 5,297 5,297
---------- ---------- ---------
Net cash provided by (used in)
operating activities................. (7,429) (332,910) 789,596
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........ (244,128) (266,117) (357,930)
Proceeds from sales of property and
equipment................................. 25,615 3,344 --
---------- ---------- ---------
Net cash used in investing activities. (218,513) (262,773) (357,930)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short- and long-term debt.... 125,000 125,000 --
Payments of short- and long-term debt...... (120,203) (14,655) (63,304)
Distributions to shareholders.............. (380,969) (196,994) (351,519)
---------- ---------- ---------
Net cash used in financing activities. (376,172) (86,649) (414,823)
---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ (602,114) (682,332) 16,843
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 1,042,403 1,042,403 440,289
---------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of period.... $ 440,289 $ 360,071 $ 457,132
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-116
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Central Carolina Air Conditioning Co., Inc. (the Company) is primarily
engaged in the installation and servicing of heating and air conditioning
systems for residential and commercial customers in the Greensboro and Winston
Salem, North Carolina areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the eight months ended June 30, 1996
are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been
included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents. Cash payments for interest were $9,841 and $3,087 for the
year ended October 31, 1996 and the eight months ended June 30, 1997,
respectively.
Inventories
Inventories consist of parts and supplies used mainly in the service portion
of the Company's operation. The inventory is valued at the lower of cost or
market, with cost determined on a first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated life of the asset.
F-117
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company also offers an extended service
warranty on sales of air conditioning and heating units, for coverage up to
five years after installation. The Company generally warrants labor for 90
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.
Income Taxes
The shareholders of the Company have elected to be taxed for federal and
North Carolina tax purposes as an S Corporation whereby the shareholders'
respective equitable shares in the taxable income of the Company are
reportable on their individual tax returns. The Company makes distributions to
the shareholders' each year at least in amounts necessary to pay personal
income tax payable on the Company's taxable income.
New Accounting Pronouncement
Effective November 1, 1995, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepaid expenses and other current assets consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Prepaid expenses....................................... $ 96,620 $ 69,732
Cash value of life insurance........................... 119,331 130,801
Other current assets................................... 24,138 18,616
-------- --------
$240,089 $219,149
======== ========
</TABLE>
Cash value of life insurance represents the cash value of six life insurance
policies.
Accrued expenses consists of the following:
<TABLE>
<S> <C> <C>
Accrued payroll costs and benefits........................ $124,208 $175,831
Accrued bonus and profit sharing.......................... 95,195 --
Other accrued expenses.................................... 41,897 56,920
-------- --------
$261,300 $232,751
======== ========
</TABLE>
F-118
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Costs incurred......................................... $464,107 $526,315
Estimated earnings recognized.......................... 177,188 269,364
-------- --------
641,295 795,679
Less billings on contracts............................. 576,041 666,584
-------- --------
$ 65,254 $129,095
======== ========
</TABLE>
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $113,653 $168,226
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (48,399) (39,131)
-------- --------
$ 65,254 $129,095
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and equipment
are as follows:
<TABLE>
<CAPTION>
ESTIMATED OCTOBER 31, JUNE 30,
USEFUL LIVES 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Service and other vehicles........... 4-7 years $ 1,026,498 $ 1,320,858
Machinery and equipment.............. 5-10 years 203,362 206,399
Office equipment, fixtures and
fixtures............................ 5-10 years 373,146 392,231
Leasehold improvements............... -- 294,877 306,087
----------- -----------
1,897,883 2,225,575
Less accumulated depreciation........ (1,438,330) (1,550,627)
----------- -----------
$ 459,553 $ 674,948
=========== ===========
</TABLE>
F-119
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Revolving line of credit with a bank, with a maximum
amount of $200,000 through February 1, 1997; interest
accrues at prime (8.25% as of October 31, 1996) and
is payable monthly; unpaid principal due on demand... $50,000 $--
Note payable to bank, due in monthly installments of
$1,167, with interest of 8% per annum and secured
by vehicles; matures July 15, 1997................... 9,998 979
Note payable to bank, due in monthly installments of
$1,093, with interest of 7.25% per annum and secured
by vehicles; matures February 15, 1997............... 4,285 --
------- ----
$64,283 $979
======= ====
</TABLE>
The Company had a revolving line of credit with a bank to provide unsecured
borrowings of up to $200,000. Interest accrued at prime and was payable
monthly. This agreement matured in February 1997. Upon maturity, the Company
obtained another revolving line of credit to provide borrowings of up to
$300,000 with a loan maturity date of March 1, 1998. Other terms of the
agreement were unchanged.
7. LEASES
The Company leases its office building and warehouse from a shareholder
under a 20-year lease terminating in October 2016. The rent is $9,125 for the
first three years and increases by 2.5% at the beginning of the fourth,
seventh, tenth, thirteenth, sixteenth and nineteenth years.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of October 31, 1996
are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 109,500
1998.............................................................. 109,500
1999.............................................................. 109,500
2000.............................................................. 112,238
2001.............................................................. 112,238
Thereafter........................................................ 1,799,369
----------
$2,352,345
==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company leases its office building and warehouse from shareholders of
the Company. For the year ended October 31, 1996 and the eight months ended
June 30, 1997, the Company paid $119,526 and $81,741, respectively, related to
these leases. As of October 31, 1996 and June 30, 1997, the Company has
unsecured advances to various shareholders totaling $444,933 and $136,400,
respectively. In addition, the Company has a mortgage receivable from the
President and shareholder of $60,070 and $39,048 as of October 31, 1996 and
June 30, 1997, respectively. These amounts are included in the amounts due
from related parties in the accompanying balance sheets.
F-120
<PAGE>
CENTRAL CAROLINA AIR CONDITIONING CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFIT PLAN
The Company maintains a voluntary 401(k) plan (the Plan) covering its
qualified employees. Employees may choose to defer up to 10% of their
compensation during the Plan year, not to exceed Internal Revenue Service
limitations, by contributing to the Plan. The Company matches 100% of each
employee's contributions up to a maximum of 5% of the employee's gross
earnings. Contributions made by the Company of $18,902 and $10,938 were
charged to operations in the year ended October 31, 1996 and the eight months
ended June 30, 1997, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company may be involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
11. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
12. ACQUISITION OF COMPANY
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC will acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
F-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, Inc.:
We have audited the accompanying balance sheets of Sibley Services, Inc.
(the Company) as of October 31, 1996 and June 30, 1997, and the related
statements of operations, shareholders' equity and cash flows for the year
ended October 31, 1996 and the eight months ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sibley Services, Inc. as
of October 31, 1996 and June 30, 1997, and the results of its operations and
its cash flows for the year ended October 31, 1996 and the eight months ended
June 30, 1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 25, 1997
F-133
<PAGE>
SIBLEY SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 76,034 $ 40,710
Accounts receivable................................... 693,839 635,358
Inventories........................................... 89,649 126,146
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ 160,092 55,464
Due from related parties and employees................ 11,170 12,900
Prepaid expenses and other current assets............. 242,851 243,957
---------- ----------
Total current assets................................. 1,273,635 1,114,535
PROPERTY AND EQUIPMENT, net............................ 89,422 86,854
---------- ----------
Total assets......................................... $1,363,057 $1,201,389
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-
term debt............................................ $ 222,591 $ 307,253
Accounts payable...................................... 337,452 226,854
Accrued expenses...................................... 127,036 57,137
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 3,731 73,479
Deferred service contract revenue..................... 5,463 --
Deferred income taxes................................. 31,474 32,197
---------- ----------
Total current liabilities............................ 727,747 696,920
LONG-TERM DEBT, net of current maturities.............. 82,177 69,115
DEFERRED INCOME TAXES.................................. 9,899 16,668
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--no par value; 1,000 shares authorized;
534 shares issued
and outstanding...................................... 21,424 21,424
Retained earnings..................................... 626,728 502,180
Treasury stock, 138 shares at cost.................... (104,918) (104,918)
---------- ----------
Total shareholders' equity........................... 543,234 418,686
---------- ----------
Total liabilities and shareholders' equity......... $1,363,057 $1,201,389
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-134
<PAGE>
SIBLEY SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30,
OCTOBER 31, ----------------------
1996 1996 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................... $6,962,485 $4,945,490 $2,823,468
COST OF SERVICES........................... 5,334,694 3,792,960 2,111,619
---------- ---------- ----------
Gross profit............................. 1,627,791 1,152,530 711,849
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 1,497,773 955,427 846,902
---------- ---------- ----------
Income (loss) from operations............ 130,018 197,103 (135,053)
OTHER INCOME (EXPENSE):
Interest expense.......................... (31,160) (17,755) (15,182)
Other..................................... 15,516 13,547 4,404
---------- ---------- ----------
Income (loss) before income tax
provision............................... 114,374 192,895 (145,831)
INCOME TAX PROVISION....................... 42,030 70,885 (21,283)
---------- ---------- ----------
NET INCOME (LOSS).......................... $ 72,344 $ 122,010 $ (124,548)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-135
<PAGE>
SIBLEY SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY SHAREHOLDERS'
STOCK EARNINGS STOCK EQUITY
------- --------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, October 31, 1995........... $21,424 $ 554,384 $(104,918) $ 470,890
Net income........................ -- 72,344 -- 72,344
------- --------- --------- ---------
BALANCE, October 31, 1996........... 21,424 626,728 (104,918) 543,234
Net loss.......................... -- (124,548) -- (124,548)
------- --------- --------- ---------
BALANCE, June 30, 1997.............. $21,424 $ 502,180 $(104,918) $ 418,686
======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-136
<PAGE>
SIBLEY SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30,
OCTOBER 31, --------------------
1996 1996 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ 72,344 $ 122,010 $(124,548)
Adjustments to reconcile net income (loss)
to net cash
used in operating activities:
Depreciation and amortization............. 23,899 15,235 16,185
Gain on disposal of property and
equipment................................ (7,090) -- --
Deferred income taxes..................... 21,110 35,442 7,492
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable..................... (38,275) (618,597) 58,481
Inventories............................. (15,047) (54,979) (36,497)
Costs and estimated earnings in excess
of billings on uncompleted contracts... (82,416) (48,664) 104,628
Due from related parties and employees.. 7,551 (21,266) (1,730)
Unbilled job costs...................... 3,350 -- --
Prepaid expenses and other current
assets................................. (121,387) (52,617) (1,106)
Increase (decrease) in--
Accounts payable........................ 62,758 310,318 (110,598)
Accrued expenses........................ (18,964) (78,570) (69,899)
Billings in excess of costs and
estimated earnings on uncompleted
contracts.............................. (61,066) 83,948 69,748
Deferred service contract revenue....... (7,311) (22,771) (5,463)
Income taxes payable.................... (59,089) -- --
--------- --------- ---------
Net cash used in operating activities.. (219,633) (330,511) (93,307)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (20,802) (8,868) (13,617)
Proceeds from sales of property and
equipment.................................. 7,090 -- --
--------- --------- ---------
Net cash used in investing activities.. (13,712) (8,868) (13,617)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit............ 207,000 237,000 81,000
Payment on long-term note payable........... -- -- (9,400)
--------- --------- ---------
Net cash provided by financing
activities............................ 207,000 237,000 71,600
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.... (26,345) (102,379) (35,324)
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 102,379 102,379 76,034
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period..... $ 76,034 $ -- $ 40,710
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-137
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Sibley Services, Inc. (the Company) is primarily engaged in the installation
and servicing of heating and air conditioning systems for commercial and
industrial customers in Memphis, Tennessee and the surrounding area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the eight months ended June 30, 1996
are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been
included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest and taxes were $26,004 and
$130,791, respectively, for the year ended October 31, 1996. Cash payments for
interest and taxes were $10,589 and $9,500, respectively, for the eight months
ended June 30, 1997.
Inventories
Inventories consist primarily of purchased materials. The inventory is
valued at the lower of cost or market, with cost determined on a first-in,
first-out (FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated life of the asset.
F-138
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
New Accounting Pronouncement
Effective November 1, 1995, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepaid expenses and other current assets consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Cash value of life insurance........................... $128,976 $144,012
Prepaid expenses....................................... 64,213 50,713
Refundable income taxes................................ 49,662 42,123
Other.................................................. -- 7,109
-------- --------
$242,851 $243,957
======== ========
</TABLE>
Cash value of life insurance represents the cash value of five life
insurance policies. The Company is the owner and beneficiary of one policy
with a cash value of $21,417 at June 30, 1997 and a face value of $200,000.
There are four split-dollar policies with a cash value totaling $122,595 at
June 30, 1997. The Company also has a contingent receivable of $58,855 on the
four split-dollar policies at June 30, 1997. The contingent receivable is the
difference between the total premiums paid to date and the cash value. Per the
split-dollar agreement the Company will be reimbursed for 100% of the premiums
paid upon the death of the insured.
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Accrued payroll and related expenses.................... $ 94,670 $14,026
Other accrued expenses.................................. 32,366 43,111
-------- -------
$127,036 $57,137
======== =======
</TABLE>
F-139
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Costs incurred........................................ $222,130 $475,756
Estimated earnings recognized......................... 90,036 124,870
-------- --------
312,166 600,626
Less billings on contracts............................ 155,805 618,641
-------- --------
$156,361 $(18,015)
======== ========
</TABLE>
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $160,092 $ 55,464
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (3,731) (73,479)
-------- --------
$156,361 $(18,015)
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and equipment
are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL OCTOBER 31, JUNE 30,
LIVES 1996 1997
---------- ----------- ---------
<S> <C> <C> <C>
Service and other vehicles................. 4-7 years $ 81,742 $ 85,047
Machinery and equipment.................... 5-10 years 123,864 126,105
Office equipment, furniture and fixtures... 3-10 years 211,773 216,554
Leasehold improvements..................... -- 121,312 124,602
--------- ---------
538,691 552,308
Less accumulated depreciation.............. (449,269) (465,454)
--------- ---------
Property and equipment, net.............. $ 89,422 $ 86,854
========= =========
</TABLE>
6. SHORT- AND LONG-TERM DEBT
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Credit facility in the amount of $500,000 with a bank,
bearing interest at prime plus 1% (9.5% as of June
30, 1997),
secured by trade receivables and inventory........... $207,000 $288,000
Note payable to shareholder with original face amount
of $125,000,
noninterest-bearing, discounted at 4.81%, $481 due
weekly,
including interest................................... 97,768 88,368
-------- --------
Total short- and long-term debt..................... 304,768 376,368
Less short-term borrowings and current maturities..... (222,591) (307,253)
-------- --------
$ 82,177 $ 69,115
======== ========
</TABLE>
F-140
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has an available line of credit of $500,000 through July 31,
1997. Advances are due April 30, 1997 and accrue interest at prime plus 1%.
The line of credit is secured by accounts receivable and inventory and the
personal guarantees of certain shareholders. Outstanding on the line of credit
as of October 31, 1996 and as of June 30, 1997 was $207,000 and $288,000,
respectively. The line of credit was repaid in connection with the Company's
acquisition, see note 14.
The Company purchased 125 shares of its stock from a shareholder during the
fiscal year ending October 31, 1994. The purchase price was $125,000 payable
at $481 per week, beginning in 1997, for 260 weeks with no interest. The note
is unsecured and has been discounted using an interest rate of 4.81%. Interest
has been accrued through October 31, 1996, in the amount of $14,585.
The aggregate maturities of the short- and long-term debt as of October 31,
1996 are as follows:
<TABLE>
<S> <C>
1997................................................................ $222,591
1998................................................................ 19,552
1999................................................................ 20,513
2000................................................................ 21,521
2001................................................................ 20,591
--------
$304,768
========
</TABLE>
7. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Federal
Current.............................................. $15,961 $(20,000)
Deferred............................................. 17,813 6,620
State
Current.............................................. 4,959 (8,775)
Deferred............................................. 3,297 872
------- --------
$42,030 $(21,283)
======= ========
</TABLE>
Total income tax expense (benefit) differs from the amount computed by
applying the U.S. federal statutory income tax rate of 34% to income (loss)
before income tax provision as a result of the following:
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Tax provision (benefit) at statutory rate............. $ 38,887 $(49,583)
Increase (decrease) resulting from:
State income taxes, net of federal benefit.......... 5,449 (5,216)
Nondeductible expenses.............................. 7,897 4,798
Tax consequences of graduated rates................. (10,203) 28,718
-------- --------
$ 42,030 $(21,283)
======== ========
</TABLE>
F-141
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income tax liability are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<S> <C> <C>
Deferred income tax liabilities:
Uncompleted contracts.................................. $31,474 $32,197
Depreciation........................................... 9,899 16,668
------- -------
Total deferred income tax liability................... $41,373 $48,865
======= =======
</TABLE>
8. LEASES
Operating leases for certain facilities, service and other vehicles and
office equipment expire at various dates through 2000. Certain leases contain
renewal options. Approximate minimum future rental payments as of October 31,
1996 are as follows:
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
1997................................................................ $176,639
1998................................................................ 94,032
1999................................................................ 62,677
2000................................................................ 10,866
--------
$344,214
========
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company leased a vehicle, computer equipment, its office and warehouse
from Sibley, Inc. (see note 8). The owner of Sibley, Inc., is related to a
shareholder of Sibley Services, Inc. For the year ended October 31, 1996 and
the eight months ended June 30, 1997 the Company paid $42,490 and $22,816,
respectively, related to these leases.
The Company leased twenty-five vehicles and twenty-two vehicles as of
October 31, 1996 and June 30, 1997, respectively and computer equipment from
JDT Leasing Company (see note 8) which is 100% owned by a shareholder. For the
year ended October 31, 1996 and the eight months ended June 30, 1997 the
Company paid $129,332 and $94,995, respectively, related to these leases.
The Company was owed $5,733 and $10,389 by a shareholder at October 31, 1996
and June 30, 1997, respectively. This receivable represents advances to the
shareholder and is unsecured.
The Company also has a note payable to a former shareholder (see note 6).
10. EMPLOYEE BENEFIT PLANS
The Company has a cafeteria plan for its eligible employees. Benefits under
the plan include medical and dental insurance.
In 1996, the Company established a 401(k) plan for its qualified employees.
Eligibility requires one year of service and age 21 or over. Employees may
elect to defer up to 10% of their compensation. The Company has agreed to
match the employee contribution 100% up to 5% of compensation. Contributions
made by the Company of $53,646 and $36,733 were charged to operations in the
year ended October 31, 1996 and the eight months ended June 30, 1997,
respectively.
F-142
<PAGE>
SIBLEY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. SALES TO SIGNIFICANT CUSTOMER
Contract revenue billed to one customer amounted to $1,302,289 or 19% of
total sales for the year ended October 31, 1996. At October 31, 1996, amounts
due from this customer included in accounts receivables were $156,885.
12. COMMITMENTS AND CONTINGENCIES
The Company may be involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
and short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
14. SUBSEQUENT EVENT
Effective July 1, 1997 Group Maintenance America Corp. (GroupMAC) acquired
all of the outstanding shares of the Company for a combination of cash,
preferred stock and common stock of GroupMAC. All of the preferred shares
issued in connection with the acquisition of the business will be redeemed for
cash concurrent with the consummation of the initial public offering of the
common stock of GroupMAC.
F-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, Heating & Air Conditioning, Inc.:
We have audited the accompanying balance sheets of Willis Refrigeration,
Heating & Air Conditioning, Inc. (the Company) as of March 31, 1997 and June
30, 1997, and the related statements of operations, shareholders' equity and
cash flows for the year ended March 31, 1997 and the three months ended June
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Willis Refrigeration,
Heating & Air Conditioning, Inc. as of March 31, 1997 and June 30, 1997, and
the results of its operations and its cash flows for the year ended March 31,
1997 and the three months ended June 30, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 25, 1997
F-153
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 774,445 $ 788,191
Accounts receivable, net of allowance for doubtful
accounts
of $564,648 and $539,673, respectively................. 1,288,442 1,390,882
Inventories............................................. 190,276 194,272
Deferred income taxes................................... 240,441 229,950
Prepaid expenses........................................ 12,377 8,873
---------- ----------
Total current assets................................... 2,505,981 2,612,168
PROPERTY AND EQUIPMENT, net.............................. 513,888 512,485
MARKETABLE SECURITIES.................................... 263,175 278,850
OTHER NONCURRENT ASSETS.................................. 80,585 81,538
---------- ----------
Total assets........................................... $3,363,629 $3,485,041
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................................... $ 222,828 $ 220,731
Accounts payable........................................ 409,302 270,115
Accrued expenses........................................ 86,843 111,099
Deferred service contract revenue....................... 199,194 229,235
Income taxes payable.................................... 230,913 283,747
---------- ----------
Total current liabilities.............................. 1,149,080 1,114,927
DEFERRED INCOME TAXES.................................... 142,005 147,072
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--no par value, stated value of $10 per
share;
500 shares authorized; 405 shares issued and
outstanding............................................ 4,050 4,050
Retained earnings....................................... 1,918,330 2,059,767
Net unrealized gain on marketable securities............ 150,164 159,225
---------- ----------
Total shareholders' equity............................. 2,072,544 2,223,042
---------- ----------
Total liabilities and shareholders' equity............. $3,363,629 $3,485,041
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-154
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,
MARCH 31, ----------------------
1997 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................... $6,780,747 $1,643,275 $1,743,102
COST OF SERVICES........................... 5,033,377 1,318,762 1,257,766
---------- ---------- ----------
Gross profit............................. 1,747,370 324,513 485,336
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 1,205,393 369,048 275,694
---------- ---------- ----------
Income (loss) from operations............ 541,977 (44,535) 209,642
OTHER INCOME (EXPENSE):
Interest expense.......................... (25,379) (7,343) (4,864)
Interest income........................... 7,926 3,257 10,449
Other..................................... 48,464 9,655 6,353
---------- ---------- ----------
Income (loss) before income tax
provision............................... 572,988 (38,966) 221,580
INCOME TAX PROVISION....................... 237,962 -- 80,143
---------- ---------- ----------
NET INCOME (LOSS).......................... $ 335,026 $ (38,966) $ 141,437
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-155
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN ON TOTAL
COMMON RETAINED MARKETABLE SHAREHOLDERS'
STOCK EARNINGS SECURITIES EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1996............. $4,050 $1,583,304 $ 77,400 $1,664,754
Net income......................... -- 335,026 -- 335,026
Net unrealized gain on marketable
securities........................ -- -- 72,764 72,764
------ ---------- -------- ----------
BALANCE, March 31, 1997............. 4,050 1,918,330 150,164 2,072,544
Net income......................... -- 141,437 -- 141,437
Net unrealized gain on marketable
securities........................ -- -- 9,061 9,061
------ ---------- -------- ----------
BALANCE, June 30, 1997.............. $4,050 $2,059,767 $159,225 $2,223,042
====== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-156
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,
MARCH 31, ---------------------
1997 1996 1997
---------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ 335,026 $ (38,966) $ 141,437
Adjustments to reconcile net income (loss)
to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 82,328 22,419 22,591
Deferred income taxes..................... 80,900 -- 8,944
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable..................... (39,157) (332,559) (102,440)
Inventories............................. 21,111 -- (3,996)
Prepaid expenses........................ 41,737 (22,000) 3,504
Increase (decrease) in--
Accounts payable........................ (125,073) 111,473 (139,187)
Accrued expenses........................ (74,603) (48,077) 24,256
Deferred service contract revenue....... 16,154 25,242 30,041
Income taxes payable.................... 46,885 -- 52,834
--------- --------- ---------
Net cash provided by (used in)
operating activities.................. 385,308 (282,468) 37,984
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (34,821) (2,099) (21,188)
Increase in cash surrender value of life
insurance policy........................... (10,943) -- (953)
--------- --------- ---------
Net cash used in investing activities.. (45,764) (2,099) (22,141)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term borrowings........... (84,942) -- (2,097)
--------- --------- ---------
Net cash used in financing activities.. (84,942) -- (2,097)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 254,602 (284,567) 13,746
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 519,843 519,843 774,445
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period..... $ 774,445 $ 235,276 $ 788,191
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-157
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Willis Refrigeration, Heating & Air Conditioning, Inc. (the Company) is
primarily engaged in the installation and servicing of heating and air
conditioning systems for residential customers in Ohio and northern Kentucky.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the three months ended June 30, 1996
are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been
included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Use of Estimates
Management uses estimates and assumptions in preparing the financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from new construction sales are recognized on the
percentage of completion basis with seventy percent of the revenue recognized
at initial installation of new units and thirty percent recognized at the
final stage of installation when the residential building is nearing
completion. Material, equipment and labor costs are estimated for each job and
are recognized on the same percentage method.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents. Cash payments for interest were $25,379 and $2,131 for
the year ended March 31, 1997 and the three months ended June 30, 1997.
Inventories
Inventories consist primarily of parts and supplies used in both the service
and construction portions of the Company's operation. Inventory is stated at
the lower of cost or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.
F-158
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Upon retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Marketable Securities
The Company accounts for marketable securities in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. All of
the Company's marketable securities (all of which are equity securities) have
been classified as available for sale with unrealized gains or losses recorded
as a separate component of shareholders' equity. As of March 31, 1997 and June
30, 1997 the amortized cost of the marketable securities was $12,900.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 90
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or services.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
New Accounting Pronouncement
Effective April 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
F-159
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31, JUNE 30,
USEFUL LIVES 1997 1997
------------ ---------- ----------
<S> <C> <C> <C>
Service and other vehicles............. 3-5 years $ 505,103 $ 505,103
Office equipment, furniture and
fixtures.............................. 3-10 years 223,379 244,567
Buildings and improvements............. 18-31 years 453,267 453,267
Land................................... -- 106,500 106,500
---------- ----------
1,288,249 1,309,437
Less accumulated depreciation........ (774,361) (796,952)
---------- ----------
$ 513,888 $ 512,485
========== ==========
</TABLE>
4. OTHER NONCURRENT ASSETS
Other noncurrent assets includes the cash surrender value of a life
insurance policy for the vice president of the Company. The cash surrender
value of the policy is as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- --------
<S> <C> <C>
Cash surrender value.................................... $ 82,267 $ 83,220
Outstanding loan........................................ (18,682) (18,682)
-------- --------
Net cash surrender value.............................. $ 63,585 $ 64,538
======== ========
</TABLE>
5. SHORT-TERM BORROWINGS
Short-term borrowings consists of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- --------
<S> <C> <C>
Revolving line of credit of up to $700,000 payable to a
financial institution, bearing interest at 8.5%, due
upon demand, but in any event without
demand or notice on February 28, 1998................... $100,000 $100,000
Notes payable to the president of the Company, bearing
interest at 9%,
no scheduled repayment.................................. 122,828 120,731
-------- --------
Total short-term borrowings............................ $222,828 $220,731
======== ========
</TABLE>
6. INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
1997 1997
---------- ------------
<S> <C> <C>
Current.............................................. $157,062 $71,199
Deferred............................................. 80,900 8,944
-------- -------
Income tax provision............................... $237,962 $80,143
======== =======
</TABLE>
F-160
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Total income tax expense differed from the amount computed by applying the
U.S. federal statutory income tax rate of 34% to income before income tax
provision as a result of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
1997 1997
---------- ------------
<S> <C> <C>
Expense at the statutory rate........................ $194,816 $75,337
Increase (reduction) resulting from:
State income taxes................................. 45,839 12,289
Other.............................................. (2,693) (7,483)
-------- -------
$237,962 $80,143
======== =======
</TABLE>
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- --------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts......................... $226,249 $215,758
Warranty reserves....................................... 11,252 11,252
Vacation accrual........................................ 2,940 2,940
-------- --------
Total deferred income tax asset....................... 240,441 229,950
-------- --------
Deferred income tax liabilities:
Net unrealized gain on securities available for sale.... 105,115 111,729
Depreciation............................................ 36,890 35,343
-------- --------
Total deferred income tax liability................... 142,005 147,072
-------- --------
Net deferred income tax asset......................... $ 98,436 $ 82,878
======== ========
</TABLE>
Management believes that it is more likely than not that the Company will
realize the benefits of the net deferred income tax asset recorded at March
31, 1997 and June 30, 1997.
7. EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing plan (the Plan) covering its qualified
employees. The Company may make a contribution amount at any time to the Plan
to the extent authorized by the Board of Directors. Total expense related to
this Plan for the year ended March 31, 1997 and the three months ended June
30, 1997, was approximately $54,200 and $3,700, respectively.
8. SALES TO SIGNIFICANT CUSTOMER
During the year ended March 31, 1997 and the three months ended June 30,
1997 sales to one customer accounted for approximately 14% and 13% of the
Company's revenues.
9. EMPLOYMENT AGREEMENT
On January 13, 1992, the Company entered into an employment agreement with
the Company's Chairman of the Board of Directors whereby an annual salary
would be paid to the Chairman through December 31, 2011 and would continue to
be paid in the event of death, disability, or termination of employment. An
annual salary
F-161
<PAGE>
WILLIS REFRIGERATION, HEATING & AIR CONDITIONING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of $26,000 will be paid through August 31, 2006; $15,600 per annum will be
paid thereafter through December 31, 2011. The employment agreement will be
terminated upon the consummation of the proposed merger of the Company (see
note 12).
10. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
marketable securities (carried at fair value) and short-term borrowings. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
11. ACQUISITION OF COMPANY
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC would acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
F-162
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Yale, Inc.:
We have audited the accompanying balance sheets of Yale, Inc. as of
September 30, 1996 and June 30, 1997, and the related statements of
operations, shareholders' equity and cash flows for the year ended September
30, 1996 and the nine months ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Yale, Inc. as of September
30, 1996 and June 30, 1997, and the results of its operations and its cash
flows for the year ended September 30, 1996 and the nine months ended June 30,
1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
July 18, 1997
F-163
<PAGE>
YALE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 112,091 $ 93,872
Accounts receivable, net of allowance for doubtful
accounts of $5,000................................. 1,355,712 1,553,593
Inventories......................................... 80,563 89,466
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 127,177 295,298
Prepaid expenses.................................... 54,324 44,545
---------- ----------
Total current assets.............................. 1,729,867 2,076,774
PROPERTY AND EQUIPMENT, net........................... 438,665 694,157
---------- ----------
Total assets...................................... $2,168,532 $2,770,931
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of
long-term debt..................................... $ 120,233 $ 244,998
Accounts payable.................................... 529,545 763,695
Accrued expenses.................................... 217,847 219,303
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 93,306 19,401
---------- ----------
Total current liabilities......................... 960,931 1,247,397
LONG-TERM DEBT, net of current maturities............. 101,732 175,047
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--no par value, stated value of $1 per
share; 20,000 shares authorized; 1,000 shares
issued and outstanding............................. 1,000 1,000
Additional paid-in capital.......................... 100,767 100,767
Retained earnings................................... 1,004,102 1,246,720
---------- ----------
Total shareholders' equity........................ 1,105,869 1,348,487
---------- ----------
Total liabilities and shareholders' equity........ $2,168,532 $2,770,931
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-164
<PAGE>
YALE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, ----------------------
1996 1996 1997
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................. $10,065,130 $7,228,688 $7,362,875
COST OF SERVICES......................... 7,930,984 5,553,931 5,414,265
----------- ---------- ----------
Gross profit........................... 2,134,146 1,674,757 1,948,610
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 1,729,405 1,292,928 1,522,284
----------- ---------- ----------
Income from operations................. 404,741 381,829 426,326
OTHER INCOME (EXPENSE):
Interest expense....................... (29,578) (23,824) (24,350)
Other.................................. (49,791) (21,383) (9,358)
----------- ---------- ----------
NET INCOME............................... $ 325,372 $ 336,622 $ 392,618
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-165
<PAGE>
YALE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1995......... $1,000 $100,767 $ 803,730 $ 905,497
Net income........................ -- -- 325,372 325,372
Distributions to shareholders..... -- -- (125,000) (125,000)
------ -------- ---------- ----------
BALANCE, September 30, 1996......... 1,000 100,767 1,004,102 1,105,869
Net income........................ -- -- 392,618 392,618
Distributions to shareholders..... -- -- (150,000) (150,000)
------ -------- ---------- ----------
BALANCE, June 30, 1997.............. $1,000 $100,767 $1,246,720 $1,348,487
====== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-166
<PAGE>
YALE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, ---------------------
1996 1996 1997
------------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 325,372 $ 336,622 $ 392,618
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation........................... 127,448 92,059 141,438
Gain on sale of property and equipment. (660) (660) (11,159)
Changes in operating assets and
liabilities:
(Increase) decrease in--
Accounts receivable.................. 59,098 (149,234) (197,881)
Inventories.......................... 410 (178,651) (8,903)
Costs and estimated earnings in
excess of
billings on uncompleted contracts... (93,145) (51,801) (168,121)
Prepaid expenses..................... (25,136) (26,821) 9,779
Increase (decrease) in--
Accounts payable..................... 7,505 456,337 234,150
Accrued expenses..................... 58,688 (52,607) 1,456
Billings in excess of costs and
estimated
earnings on uncompleted contracts... 54,294 38,574 (73,905)
--------- --------- ---------
Net cash provided by operating
activities......................... 513,874 463,818 319,472
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (315,074) (315,074) (403,831)
Proceeds from sales of property and
equipment............................... 41,945 41,945 18,060
--------- --------- ---------
Net cash used in investing
activities......................... (273,129) (273,129) (385,771)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............. 233,400 233,400 319,000
Payments of long-term debt............... (253,784) (221,810) (120,920)
Distributions to shareholders............ (125,000) (125,000) (150,000)
--------- --------- ---------
Net cash provided by (used in)
financing activities........... (145,384) (113,410) 48,080
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 95,361 77,279 (18,219)
CASH AND CASH EQUIVALENTS, beginning of
period................................... 16,730 16,730 112,091
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.. $ 112,091 $ 94,009 $ 93,872
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-167
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Yale, Inc. (the Company) is primarily engaged in the installation and
servicing of heating and air conditioning systems for commercial and
industrial customers in the state of Minnesota.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the nine months ended June 30, 1996 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows
with respect to the interim financial statements, have been included. The
results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting year. Actual results could differ from those estimates.
Revenue Recognition
Revenues from work orders are recognized as services are performed. Revenues
on service and maintenance contracts are recognized over the life of the
contract. Revenues from construction contracts are recognized on a percentage
of completion basis using the cost-to-cost method. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and revenues and are recognized
in the period in which the revisions are determined.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents. Cash payments for interest were $37,791 and $24,350 for the
year ended September 30, 1996 and the nine months ended June 30, 1997,
respectively.
Inventories
Inventories consist of parts and supplies used in both the service and the
construction portions of the Company's operation. The inventory is valued at
the lower of cost or market, with cost determined on a first-in, first-out
(FIFO) basis.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Leasehold
improvements are amortized over the lesser of the remaining lease term or the
estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.
F-168
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Upon retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Warranty Costs
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 90
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.
Income Taxes
The shareholders of the Company have elected to be taxed for federal and
Minnesota tax purposes as an S Corporation whereby the shareholders'
respective equitable shares in the taxable income of the Company are
reportable on their individual tax returns. The Company has made distributions
to the shareholders each year at least in amounts necessary to pay personal
income taxes payable on the Company's taxable income.
New Accounting Pronouncement
Effective October 1, 1995, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect
on the financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
Accrued payroll costs and benefits.................... $209,324 $161,306
Other accrued expenses................................ 8,523 57,997
-------- --------
$217,847 $219,303
======== ========
</TABLE>
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
Costs incurred........................................ $1,162,529 $811,487
Estimated earnings recognized......................... 60,763 108,605
---------- --------
1,223,292 920,092
Less billings on contracts............................ 1,189,421 644,195
---------- --------
$ 33,871 $275,897
========== ========
</TABLE>
F-169
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $127,177 $295,298
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (93,306) (19,401)
-------- --------
$ 33,871 $275,897
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL SEPTEMBER 30, JUNE 30,
LIVES 1996 1997
---------- ------------- ----------
<S> <C> <C> <C>
Service and other vehicles............. 4-7 years $ 675,544 $ 845,186
Machinery and equipment................ 5-10 years 141,367 153,019
Office equipment, furniture and
fixtures.............................. 5-10 years 101,171 124,444
Leasehold improvements................. -- 52,386
--------- ----------
918,082 1,175,035
Less accumulated depreciation.......... (479,417) (480,878)
--------- ----------
$ 438,665 $ 694,157
========= ==========
</TABLE>
6. SHORT- AND LONG-TERM DEBT
The Company has an available line of credit of $450,000 that matures on
April 30, 1998. Advances issued are due on demand and accrue interest at 0.5%
above the prime rate. Also, the Company has an agreement to borrow up to
$350,000 of term debt secured by service and other vehicles and equipment. The
line of credit and equipment notes are secured by substantially all of the
Company's assets and the personal guarantees of certain shareholders. At June
30, 1997, the Company had $100,000 of outstanding borrowings on the line of
credit, and had approximately $320,000 of outstanding borrowings on the term
debt.
Short- and long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
Borrowings under line of credit agreement............. $ -- $100,000
Note payable to bank, due in monthly installments of
$1,230, plus interest at 0.5% over prime, through May
1997, secured by service and other vehicles.......... 9,735 --
Note payable to bank, due in monthly installments of
$2,944, plus interest at 0.5% over prime, through
August 1997, secured by service and other
vehicles............................................. 32,695 6,195
Note payable to bank, due in monthly installments of
$1,805, plus interest at 0.5% over prime, through
November 1998, secured by service and other vehicles. 46,948 30,703
Note payable to bank, due in monthly installments of
$1,014, plus interest at 0.5% over prime, through
October 1998, secured by service and other vehicles.. 25,346 16,220
Note payable to bank, due in monthly installments of
$1,584, plus interest at 0.5% over prime, through
December 1998, secured by service and other vehicles. 42,744 28,488
</TABLE>
F-170
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ---------
<S> <C> <C>
Note payable to bank, due in monthly installments of
$2,081, plus interest at 0.5% over prime, through
April 1999, secured by service and other vehicles.. 64,497 45,772
Note payable to bank, due in monthly installments of
$2,083, plus interest at 0.5% over prime, through
February 2000, secured by service and other
vehicles........................................... -- 66,667
Note payable to bank, due in monthly installments of
$3,000, plus interest at 0.5% over prime, through
December 2000, secured by service and other
vehicles........................................... -- 126,000
--------- ---------
Total short- and long-term debt................... 221,965 420,045
Less short-term borrowings and current maturities... (120,233) (244,998)
--------- ---------
$ 101,732 $ 175,047
========= =========
</TABLE>
The line of credit and the equipment notes contain certain restrictive
covenants relating to, among other items, minimum net income, minimum tangible
net worth, and debt to tangible net worth.
The aggregate maturities of the short- and long-term debt as of September
30, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................. $120,233
1998................................................................. 77,837
1999................................................................. 23,895
--------
$221,965
========
</TABLE>
7. LEASES
The Company operates out of facilities leased from a related entity under a
monthly operating lease requiring payments of $10,710 per month. The Company
sublets part of the building under an operating lease through February 1998.
Total rent expenses before sublease income for the year ended September 30,
1996 and the nine months ended June 30, 1997, were approximately $128,500 and
$96,400, respectively. Sublease income was approximately $39,000 and $29,250
for the year ended September 30, 1996 and the nine months ended June 30, 1997,
respectively. The Company has guaranteed the underlying mortgage
(approximately $405,000 as of September 30, 1996) for the facility.
8. RELATED PARTY TRANSACTIONS
During the year ended September 30, 1996 and the nine months ended June 30,
1997, the Company paid management fees to related parties totaling
approximately $110,100 and $60,075, respectively. In addition, as discussed in
note 7, the Company leases its operating facilities from a related entity.
9. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan covering all employees not covered by a
collective bargaining agreement. Eligible employees may contribute from 2 to
20% of their qualifying compensation to the plan, with the Company required to
match 50% of the employee's first 6% of contributions. The Company may make
additional contributions to the plan to the extent authorized by the Board of
Directors. Total expense related to this plan for the year ended September 30,
1996 and the nine months ended June 30, 1997, was approximately $30,100 and
$20,778, respectively.
F-171
<PAGE>
YALE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company makes contributions to union-administered benefit funds which
cover the majority of the Company's employees. For the year ended September
30, 1996 and the nine months ended June 30, 1997, the participation costs
charged to operations were approximately $592,400 and $511,720, respectively.
Governmental regulations impose certain requirements relative to multi-
employer plans. In the event of plan termination or employer withdrawal, an
employer may be liable for a portion of the plan's unfunded vested benefits,
if any. The Company has not received information from the plans'
administrators to determine its share of any unfunded vested benefits. The
Company does not anticipate withdrawal from the plans, nor is the Company
aware of any expected plan terminations.
10. SALES TO SIGNIFICANT CUSTOMER
During the year ended September 30, 1996 and the nine months ended June 30,
1997, sales to one customer accounted for approximately 18% and 26%,
respectively, of the Company's revenues.
11. COMMITMENTS AND CONTINGENCIES
Claims
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
Stock Transfer Agreement
The Company has a stock transfer agreement with the shareholders
(participants) covering all shares of common stock whereby the Company is
required to repurchase the shares of a participant in certain circumstances.
Additionally, the Company has an option to repurchase the common shares of a
participant in certain circumstances.
12. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
short- and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
13. ACQUISITION OF COMPANY
In May 1997, the Company signed a letter of intent with Group Maintenance
America Corp. (GroupMAC), whereby GroupMAC will acquire the Company in a
merger transaction for a combination of cash and common shares of GroupMAC
concurrent with the consummation of the initial public offering of the common
stock of GroupMAC, subject to certain conditions including the negotiation of
definitive agreements and approval by Directors of both companies.
F-172
<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 GROUP MAINTENANCE AMERICA CORP. 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.................................
Legal fees and expenses.........................................
Accounting fees and expenses....................................
Blue sky fees and expenses......................................
Transfer Agent's and Registrar's fees...........................
Miscellaneous...................................................
--------
TOTAL......................................................... $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article 2.02A of the TBCA provides, in relevant part, as follows:
Subject to the provisions of Section B and C of this Article, each
corporation shall have the power:
(16) to indemnify directors, officers, employees, and agents of the
corporation and to purchase and maintain liability insurance for those
persons.
Article IX of the Articles of Incorporation of the Company (therein referred
to as the "Corporation") provides as follows:
1. Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal in such
action, suit or proceeding, and any inquiry or investigation that would
lead to such action, suit or proceeding (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director or
officer of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to any employee benefit
plan (hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by
the TBCA, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all judgments, fines, penalties (including excise tax and
similar taxes), settlements, and reasonable expenses actually incurred by
such indemnitee in connection therewith. The right to indemnification
conferred in this Article shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the TBCA requires, an advancement
of expenses incurred by an indemnitee shall be made only upon delivery to
the Corporation of 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: 16,667 shares to Mr. Millinor; 15,333 shares to
Mr. Jachimiec; 13,333 shares to Mr. Rouse; 13,333 shares to Mr. Reiling; 4,667
shares to Mr. Goetze; 9,333 shares to Mr. Miller; 3,333 shares to James
Nelson; 10,000 shares to James Weaver; 10,000 shares to Rich Jeffrey; 3,333
shares to Barry Harbour; 800 shares to Diane Bandiga; and 400 shares to Cindy
Schmidt. Such options are exercisable on December 31, 1997, 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.
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 1, 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 1, 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 5
October 1, 1997
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Ladies and Gentlemen:
We have represented Group Maintenance America Corp. (the "Company") in
connection with its Registration Statement on Form S-1 (the "Registration
Statement"), relating to the offering of 7,500,000 shares (8,625,000 shares if
the over-allotment option granted to the underwriters is exercised in full) of
the Company's common stock, par value $0.001 per share (the "Common Stock").
In connection therewith, we have examined, among other things, the Articles of
Incorporation and the By-laws of the Company, each as amended to date, the
corporate proceedings taken to date with respect to the authorization, issuance
and sale of the Common Stock, and form of Underwriting Agreement to be executed
between the Company and the Underwriters to be named therein.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents, certificates and records submitted to us as
originals, the conformity to original documents, certificates and records of all
documents, certificates and records submitted to us as copies, and the
truthfulness of all statements of fact contained therein.
Based upon the foregoing and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Texas; and
2. The issuance of the Common Stock to be issued by the Company pursuant to
the offering has been duly authorized, and (subject to the Registration
Statement becoming effective and any applicable Blue Sky laws being
complied with) upon the issuance and delivery thereof in accordance with
the terms of the Underwriting Agreement and as set forth in the
Registration Statement, upon the receipt by the Company of the purchase
price thereof, the Common Stock will be legally issued, fully paid, and
nonassessable.
<PAGE>
Group Maintenance America Corp.
October 1, 1997
Page 2
The opinion set forth above is limited in all respects to the laws of the State
of Texas and the relevant law of the United States of America, and we render no
opinion with respect to the law of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus included in the Registration Statement. By giving
such consent we do not admit that we are experts with respect to any part of the
Registration Statement, including this exhibit, within the meaning of the term
"expert" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission issued thereunder.
Very truly yours,
/s/ Bracewell & Patterson, L.L.P.
Bracewell & Patterson, L.L.P.
/pd
<PAGE>
EXHIBIT 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.
April 30, 1997
================================================================================
Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE CLOSING............................................................... 1
1.1. The Closing Date.................................................. 1
1.2. Power of Attorney; Section 351 Plan............................... 2
1.2.1. Power of Attorney......................................... 2
1.2.2. Section 351 Plan.......................................... 3
1.3. Transfer and Exchange of Stock and Other Rights................... 3
1.3.1. Transfer and Exchange of Company Common Stock, Warrants
and SARs.......................................................... 3
1.3.2. Application of Per Stockholder Aggregate Consideration.... 4
1.3.3. Transfer of GMAC Outstanding Stock to Parent.............. 7
1.3.4. Deliveries at Closing; Subsequent Deliveries.............. 7
1.3.5. Certain Compensation......................................10
1.4. Exchange of Stock.................................................10
1.4.1. Closing...................................................10
1.4.2. Delivery of Company Common Stock..........................10
1.4.3. Assignments...............................................11
1.4.4. Payment In Full Satisfaction of All Rights................11
1.5. Determination of Per Share Amounts and Other Matters..............11
1.5.1. Determination of Final Per Share Amounts..................11
1.5.2. Other Definitions.........................................13
1.5.3. Statement of Closing Consideration........................15
1.5.4. Non-Prejudicial...........................................17
2. REPRESENTATIONS AND WARRANTIES
OF THE MAJORITY STOCKHOLDERS...........................................17
2.1. Representations and Warranties of the Majority Stockholders.......17
2.1.1. Organization, Etc.........................................17
2.1.2. Subsidiaries..............................................17
2.1.3. Capitalization of the Company and the Company Subsidiaries
..........................................................17
2.1.4. Authority.................................................19
2.1.5. Consents..................................................19
2.1.6. Title.....................................................19
2.1.7. Defaults..................................................20
2.1.8. Power of Attorney.........................................20
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
2.1.9. Proprietary Rights........................................20
2.1.10. Labor Matters.............................................21
2.1.11. Employee Benefits.........................................21
2.1.12. Maintenance...............................................23
2.1.13. Necessary Assets..........................................24
2.1.14. Certain Contracts.........................................24
2.1.15. Bond Requirements.........................................24
2.1.16. Other Disclosures.........................................25
2.1.17. Officers, Directors and Affiliates........................26
2.1.18. Investment Company........................................26
2.1.19. Financial Statements......................................26
2.1.20. Undisclosed Liabilities...................................27
2.1.21. Guaranties, Etc...........................................27
2.1.22. Taxes.....................................................28
2.1.23. Inventories and Receivables...............................28
2.1.24. Full Authority............................................28
2.1.25. Environmental Matters.....................................29
2.1.26. Legal Actions.............................................31
2.1.27. Specific Obligations......................................31
2.1.28. Information in ESOP Participant Disclosure Statement;
Information Statement.....................................31
2.1.29. No Material Adverse Change................................32
2.1.30. Disclosure................................................33
2.1.31. Condemnation..............................................34
2.1.32. Change in Laws............................................34
2.1.33. Company Material Adverse Effect...........................34
2.2. Several Representations and Warranties of the Stockholders........34
2.2.1. Stock Ownership, Etc......................................34
2.2.2. Authority.................................................34
2.2.3. Consents..................................................35
2.2.4. Defaults..................................................35
3. PARENT'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................36
3.1. Representations and Warranties....................................36
3.1.1. Organization..............................................36
3.1.2. Subsidiaries..............................................36
3.1.3. Capitalization of Parent..................................36
3.1.4. Authority.................................................37
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
3.1.5. Consents.................................................38
3.1.6. Title....................................................38
3.1.7. Defaults.................................................38
3.1.8. Power of Attorney........................................39
3.1.9. Proprietary Rights.......................................39
3.1.10. Labor Matters............................................39
3.1.11. Employee Benefits........................................39
3.1.12. Certain Contracts........................................41
3.1.13. Officers, Directors and Affiliates.......................41
3.1.14. Investment Company.......................................42
3.1.15. Financial Statements.....................................42
3.1.16. Undisclosed Liabilities..................................42
3.1.17. Guaranties, Etc..........................................42
3.1.18. Taxes....................................................43
3.1.19. Full Authority...........................................43
3.1.20. Environmental Matters....................................43
3.1.21. Legal Actions............................................44
3.1.22. Information in ESOP Participant Disclosure Statement;
Information Statement....................................44
3.1.23. No Material Adverse Change...............................45
3.1.24. Disclosure...............................................45
3.1.25. Parent Material Adverse Effect...........................45
4. CONDUCT PRIOR TO THE CLOSING AND CERTAIN OTHER MATTERS...................45
4.1. Company..........................................................45
4.1.1. Preservation of Business.................................45
4.1.2. Cooperation..............................................45
4.1.3. Insurance................................................46
4.1.4. Certain Notices..........................................46
4.1.5. Filings, Etc.............................................46
4.1.6. Compliance with Laws.....................................46
4.1.7. Encumbrances and Dispositions............................47
4.1.8. Negotiations.............................................47
4.1.9. Other Matters............................................47
4.1.10. Access...................................................50
4.1.11. Satisfaction of Conditions...............................50
4.1.12. Title Insurance..........................................50
4.1.13. Capital Budget...........................................51
4.2. Majority Stockholders............................................52
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
4.3. Release..........................................................52
4.4. Parent...........................................................52
4.4.1. Preservation of Business.................................52
4.4.2. Cooperation..............................................53
4.4.3. Certain Notices..........................................53
4.4.4. Filings, Etc.............................................53
4.4.5. Compliance with Laws.....................................53
4.4.6. Other Matters............................................53
4.4.7. Access...................................................54
4.4.8. Satisfaction of Conditions...............................55
4.5. Certain Other Actions and Documents..............................55
4.5.1. Key Employee and Manager Employment Agreements...........55
4.5.2. Releases of Certain Majority Stockholders................55
4.5.3. Voting Agreement.........................................55
4.5.4. Transfer Restrictions....................................56
4.5.5. Adoption of Shareholders Agreement.......................56
4.6. Certain Elections................................................56
4.6.1. Securities Acquisition Election..........................56
4.6.2. Transfer Transaction Election............................57
4.6.3. Other....................................................58
4.7. Indemnification of Officers and Directors of the Company.........58
4.8. Minimum IPO Proceeds.............................................58
5. EMPLOYEE BENEFITS.........................................................59
5.1. ESOP; Employee Offering..........................................59
5.1.1. Suspension of ESOP Withdrawals...........................59
5.1.2. Purchase of ESOP Stock...................................59
5.1.3. Amendment and Restatement of the ESOP....................59
5.1.4. ESOP Disclosure Statement................................59
5.1.5. Employee Offering Memorandum.............................60
5.2. Deferred Compensation Plans......................................60
5.2.1. No Additional Rights.....................................60
5.3. Future Option Plans..............................................60
5.4. Split-Dollar Insurance Policy....................................61
5.5. Employee Benefits Generally......................................61
6. SURVIVAL, INDEMNIFICATIONS................................................61
6.1. Survival.........................................................61
6.2. Indemnification..................................................62
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
6.2.1. Parent Indemnified Parties...............................62
6.2.2. Stockholder Indemnity....................................63
6.2.3. Parent Indemnity.........................................63
6.3. Limitations......................................................64
6.4. Notices..........................................................64
6.4.1. Indemnification Notice...................................64
6.4.2. Tax Proceeding Notices...................................65
6.5. Character of Indemnity Payments..................................67
7. CONDITIONS TO CLOSING.....................................................67
7.1. Parent...........................................................67
7.1.1. Representations, Warranties and Covenants of Stockholders
.........................................................67
7.1.2. Opinion..................................................67
7.1.3. No Casualty, Loss or Damage..............................68
7.1.4. Title Insurance..........................................68
7.1.5. Documents, Stock Certificates............................68
7.1.6. Consents.................................................68
7.1.7. Licenses, Etc............................................68
7.1.8. No Material Adverse Change...............................68
7.1.9. Financing................................................68
7.1.10. Discharge of Indebtedness, Releases, Etc.................69
7.1.11. Certain Corporate Actions................................69
7.1.12. ESOP and Amended and Restated Plan.......................69
7.1.13. Agreements and Actions under Articles 4 and 5............69
7.2. Conditions Precedent to Obligations of the Stockholders..........70
7.2.1. Representations, Warranties and Covenants of Parent......70
7.2.2. Legal Opinion............................................70
7.2.3. Documents................................................70
7.2.4. Consents.................................................70
7.2.5. No Material Adverse Change...............................70
7.2.6. Agreements and Actions Under Articles 4 and 5............71
7.2.7. Tax Opinion..............................................71
8. TERMINATION...............................................................71
8.1. Grounds for Termination..........................................71
8.1.1. Mutual Consent...........................................71
8.1.2. Optional.................................................71
8.1.3. Dispute..................................................72
</TABLE>
-vi-
<PAGE>
<TABLE>
<S> <C>
8.1.4. Legal Restraint..........................................72
8.2. Effect of Termination............................................72
9. MISCELLANEOUS.............................................................72
9.1. Notice...........................................................72
9.2. Further Documents................................................73
9.3. Assignability....................................................73
9.4. Exhibits and Schedules...........................................74
9.5. Entire Agreement.................................................74
9.6. Headings.........................................................75
9.7. CONTROLLING LAW AND JURISDICTION.................................75
9.8. Public Announcements.............................................75
9.9. Finder's Fees and Commissions....................................75
9.10. No Third Party Beneficiaries.....................................76
9.11. Amendments and Waivers...........................................76
9.12. No Employee Rights...............................................76
9.13. Non-Recourse.....................................................76
9.14. When Effective...................................................76
9.15. Takeover Statutes................................................76
9.16. Number and Gender of Words.......................................77
9.17. Invalid Provisions...............................................77
9.18. Multiple Counterparts............................................77
9.19. No Rule of Construction..........................................77
9.20. Preparation of Tax Returns for Pre-Closing Periods...............77
9.21. Amendment of Pre-Closing Tax Returns.............................78
</TABLE>
-vii-
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Adoption Agreement......................................................56
Aggregate Consideration................................................. 7
Aggregate Stock Interests............................................... 5
Agreement............................................................... 1
Amended and Restated Savings Plan.......................................59
Attorney-in-Fact........................................................ 2
Audit Notice............................................................65
Audited Financial Statements............................................27
Audited 1997 Financial Statements.......................................15
Closing.................................................................10
Closing Date............................................................ 1
Closing Per Share Cash Amount........................................... 7
Closing Per Share Common Stock Amount................................... 8
Closing Per Share Preferred Stock Amount................................ 8
Closing Per Stockholder Aggregate Consideration......................... 7
Code....................................................................10
Company................................................................. 1
Company Common Stock.................................................... 3
Company Contracts.......................................................24
Company Material Adverse Effect.........................................34
Company Plan Fiduciary..................................................22
Company Plans...........................................................21
Company Subsidiaries....................................................17
Controlled Group........................................................21
Deferred Compensation Plans.............................................60
Deferred Compensation Stock Interests................................... 4
Defined Expense Reductions..............................................13
Directly Held Company Common Stock...................................... 3
Disclosure Schedule.....................................................17
Division Vice Presidents Option......................................... 7
EBITDA..................................................................13
EBITDA Negative Adjustment..............................................11
EBITDA Positive Adjustment..............................................11
Election Notice.........................................................56
</TABLE>
-viii-
<PAGE>
<TABLE>
<S> <C>
Employee Offering Memorandum............................................60
Employment Agreements...................................................55
Environmental Claim.....................................................29
Environmental Liabilities...............................................30
Environmental Permit....................................................30
ERISA...................................................................21
ESOP....................................................................31
ESOP Participant Disclosure Statement...................................59
ESOP Stock Purchase Agreement...........................................59
Estimated Financial Statements..........................................27
Excise Tax..............................................................10
Final Outstanding Common Stock Number...................................13
Final Per Share Cash Amount.............................................12
Final Per Share Common Stock Amount.....................................12
Final Per Share Preferred Stock Amount..................................12
GAAP....................................................................13
Gross Up................................................................10
Hazardous Materials.....................................................30
Indemnified Party.......................................................64
Indemnifying Party......................................................64
Information Statement...................................................31
In-Service Distributions................................................59
IPO.....................................................................56
Long-Term Debt..........................................................13
Losses..................................................................62
Majority Stockholder Releases...........................................55
Majority Stockholders................................................... 1
Negative Adjustment Amount..............................................12
Negative Common Stock Number............................................14
Net After-Tax Income....................................................14
Net Stock Purchase Cost.................................................14
Net Working Capital.....................................................14
Net Worth...............................................................33
Net Working Capital Negative Adjustment.................................12
Net Working Capital Positive Adjustment.................................11
Neutral Accountants.....................................................58
Notice of Disagreement..................................................16
Notice of Dispute....................................................... 8
Notice of Objection.....................................................57
</TABLE>
-ix-
<PAGE>
<TABLE>
<S> <C>
Other Ownership Interests...............................................15
Other Stockholders...................................................... 1
Owner's Policies of Title Insurance.....................................51
Parent.................................................................. 1
Parent Acceptance Notice................................................57
Parent Common Stock..................................................... 4
Parent Common Stock Value............................................... 5
Parent Contracts........................................................41
Parent Controlled Group.................................................39
Parent Disclosure Schedule..............................................36
Parent Employee Stock Offering..........................................60
Parent Financial Statements.............................................42
Parent Indemnified Parties..............................................62
Parent Material Adverse Effect..........................................45
Parent Other Ownership Interests........................................36
Parent Plan Fiduciary...................................................40
Parent Plans............................................................40
Parent Preferred Stock.................................................. 4
Parent Preferred Stock Value............................................ 5
Parent Proprietary Rights...............................................39
Parent Rejection Notice.................................................57
Parent Subsidiaries.....................................................36
Pending Acquisition.....................................................37
Percentage Liability....................................................64
Permitted Assignee......................................................73
Permitted Exceptions....................................................51
Per Stockholder Aggregate Consideration................................. 4
Positive Adjustment Amount..............................................12
Power of Attorney....................................................... 2
Proceeding Notice.......................................................66
Proprietary Rights......................................................20
Receiving Stockholder...................................................66
Registration Rights Agreement...........................................56
Requirements of Environmental Law.......................................30
SARs.................................................................... 3
SAR Shares.............................................................. 3
SAR Value............................................................... 5
Second Election Notice..................................................57
Section 351 Plan........................................................ 3
</TABLE>
-x-
<PAGE>
<TABLE>
<S> <C>
Securities Acquisition Consideration...................................56
Securities Acquisition Transaction.....................................56
Settlement Notice......................................................65
Souders................................................................14
Souders Offering.......................................................14
Statement of Closing Consideration.....................................15
Statement of Final Per Share Amounts................................... 8
Stock Transfer Restriction Agreement...................................56
Stockholder............................................................ 2
Stockholders........................................................... 2
Stockholder Indemnified Parties........................................63
Surveys................................................................51
Survival Period........................................................61
Tax Notice.............................................................66
Tax Offset Bonus.......................................................10
Terminated Obligations.................................................69
Threshold..............................................................64
Title Commitments......................................................50
Title Insurance Property...............................................51
Transfer Transaction...................................................57
Unaudited Financial Statements.........................................27
Voting Agreement.......................................................55
Warrant Shares......................................................... 3
Warrant Value.......................................................... 5
Warrants............................................................... 3
</TABLE>
-xi-
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.2.2................................................... 3
Exhibit 1.3.1(a)................................................ 3
Exhibit 1.3.1(b)................................................ 4
Exhibit 1.3.4................................................... 9
Exhibit 1.4.2,..................................................10
Exhibit 1.5.2...................................................13
Exhibit 4.5.1...................................................55
Exhibit 4.5.3...................................................55
Exhibit 4.5.4(a)................................................56
Exhibit 4.5.4(b)................................................56
Exhibit 5.1.2...................................................59
Exhibit 7.1.2...................................................67
Exhibit 7.2.2...................................................70
</TABLE>
-xii-
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") is made this 30th
day of April, 1997, by and among GROUP MAINTENANCE AMERICA CORP., a Texas
corporation ("Parent"), and the holders of a majority of the outstanding common
stock, $.01 par value per share, of AIRTRON, INC., a Delaware corporation (the
"Company") listed on the signature pages hereto under the caption "Majority
Stockholders" ("Majority Stockholders") and certain other stockholders of the
Company listed on the signature pages hereto under the caption "Other
Stockholders" ("Other Stockholders").
WHEREAS, Parent, the Majority Stockholders and the Other Stockholders
desire to provide for the transfer by the Majority Stockholders and the Other
Stockholders to Parent of certain outstanding shares of capital stock, warrants
and stock appreciation rights of the Company in exchange for cash, common stock
and preferred stock of Parent on the terms and subject to the conditions
provided for herein; and
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as an exchange under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1. The Closing Date. For purposes of this Agreement, the term "Closing
----------------
Date" shall mean May 2, 1997; provided, however, that Parent and the Attorney-
in-Fact (as defined below) may, at any time, designate any earlier date as the
Closing Date if they mutually determine that each of the conditions set forth in
Article 7 will be satisfied (or waived) on or before such earlier date. In the
event that one or more of the conditions in Article 7 has not been satisfied or
waived on any date scheduled to be the Closing Date, this Agreement shall not
terminate (unless pursuant to the exercise by one of the parties of such party's
rights under Article 8) and the Closing Date shall be rescheduled to such date
as may be mutually agreed by Parent and the Attorney-in-Fact or, if no such date
is mutually agreed upon within two days after the previously scheduled Closing
Date, the earliest date specified in a written notice delivered by Parent or the
Attorney-in-Fact to the other which is at least three days after the delivery of
such notice. For accounting and financial reporting purposes, the
<PAGE>
effective date of the exchange contemplated hereby shall be the close of
business on April 30, 1997 unless otherwise agreed by Parent and the Attorney-
in-Fact.
1.2. Power of Attorney; Section 351 Plan.
-----------------------------------
1.2.1. Power of Attorney. Each Majority Stockholder and each Other
-----------------
Stockholder (collectively, the "Stockholders" and individually, a
"Stockholder"), for himself or itself and his or its heirs, legal
representatives, successors and assigns, and, if acting in a fiduciary capacity,
as such fiduciary, hereby nominates, constitutes and appoints JAMES D. JENNINGS
his or its true and lawful agent, proxy and attorney-in-fact (the "Attorney-in-
Fact") with full power of substitution and full discretionary power and
authority, without the consent of such Stockholder and for and on such
Stockholder's behalf and in such Stockholder's name, place and stead, to perform
and consummate the transactions contemplated by this Agreement, including,
without limitation, (i) to execute and deliver all documents and instruments
which may be or are to be executed and delivered by such Stockholder pursuant to
or as contemplated by this Agreement and the Stockholder certificates under
Section 7.1.1; (ii) to effect any amendment to this Agreement, any Exhibit
hereto, and any document or instrument referred to in clause (i) and to grant
any waivers and consents thereunder that, in each case, the Attorney-in-Fact, in
his sole discretion, deems appropriate; (iii) to give, receive, execute and
deliver all notices, requests, admissions and other communications on behalf of
such Stockholder pursuant to this Agreement; (iv) to receive and distribute
distributions under this Agreement; (v) to undertake the defense of or initiate
any dispute, claim, action, suit, proceeding or other matter arising out of or
related to this Agreement or any of the transactions contemplated hereby which
the Attorney-in-Fact, in his sole discretion, deems appropriate; (vi) to settle
any such dispute, claim, action, suit, proceeding or matter and execute and
deliver all releases, waivers or other instruments in connection therewith;
(vii) to pay expenses incurred or which may be incurred by or on behalf of such
Stockholder in connection with this Agreement; and (viii) to vote or execute
written consents with respect to such Stockholder's Company Common Stock (as
defined below). The rights and powers hereinabove granted to the Attorney-in-
Fact are herein sometimes referred to as the "Power of Attorney". Each
Stockholder agrees that the Power of Attorney shall be deemed to be coupled with
an interest and irrevocable. Each Stockholder ratifies and confirms all that the
Attorney-in-Fact may do on such Stockholder's behalf pursuant to this Agreement
and agrees to indemnify and hold harmless the Attorney-in-Fact from and against
all losses, damages or liabilities for any action taken on behalf of such
Stockholder in connection with this Agreement in good faith without gross
negligence or willful misconduct; provided, however, that the liability of each
Stockholder under this sentence shall be limited to the value of the Per
Stockholder Aggregate Consideration (as defined below) paid, payable or
distributable in respect of the Company Common Stock,
-2-
<PAGE>
Warrants (as defined below), SARs (as defined below) and Deferred Compensation
Stock Interests (as defined below) held by such Stockholder as of the Closing
Date, immediately prior to the Closing (as defined below). By executing this
Agreement, JAMES D. JENNINGS accepts appointment as Attorney-in-Fact and agrees
to act as such. In the event of the resignation, death or inability to act of
the Attorney-in-Fact prior to the Closing Date, a successor shall be named by
the Stockholders holding a majority of the Company Common Stock held by all
Stockholders, and in the event of the resignation, death or inability to act of
the Attorney-in-Fact on or after the Closing Date, a successor shall be named by
the Stockholders who held, immediately prior to the Closing Date, a majority of
the Company Common Stock held by all Stockholders. If such Stockholders fail or
refuse to appoint such successor within 30 days from the date of such
resignation, death or inability to act, Parent shall name one of the
Stockholders as such successor by written notice to the Stockholders; provided,
however, that with respect to the Attorney-in-Fact's powers as proxy to vote or
give consents with respect to Company Common Stock hereunder, the Attorney-in-
Fact may substitute another person or entity hereunder as proxy, and in the
event the Attorney-in-Fact fails or refuses to do so prior to his resignation,
death or inability to act, each Stockholder may designate a successor proxy to
vote such Stockholder's shares of Company Common Stock or give consents with
respect thereto. Each such successor shall have all power, authority, rights and
privileges hereby conferred upon the original Attorney-in-Fact, and the term
"Attorney-in-Fact" as used in this Agreement shall be deemed to include each
such successor.
1.2.2. Section 351 Plan. Prior to the Closing Date, Parent shall
----------------
adopt, and Parent and the Stockholders shall execute and deliver, a Section 351
Plan in the form of Exhibit 1.2.2 (the "Section 351 Plan").
1.3. Transfer and Exchange of Stock and Other Rights.
-----------------------------------------------
1.3.1. Transfer and Exchange of Company Common Stock, Warrants and
-----------------------------------------------------------
SARs. Each Stockholder owns and holds, beneficially and of record, the number of
- ----
shares of common stock, par value $.01 per share, of the Company ("Company
Common Stock") listed beside such Stockholder's name on Exhibit 1.3.1(a) under
the caption "Company Common Stock" (the "Directly Held Company Common Stock"),
and, to the extent so listed, warrants ("Warrants") to purchase the number of
shares of Company Common Stock listed beside such Stockholder's name on Exhibit
1.3.1(a) under the caption "Warrants" ("Warrant Shares"), stock appreciation
rights ("SARs") applicable to that number of shares of Company Common Stock (the
"SAR Shares") listed beside such Stockholder's name on Exhibit 1.3.1(a) under
the caption "SARs" and interests (the "Deferred Compensation Stock Interests")
in the number of shares of Company Common Stock held in the Company's
-3-
<PAGE>
Deferred Compensation Plans (as defined below) listed beside such Stockholder's
name on Exhibit 1.3.1(a) under the caption "Deferred Compensation Plan Stock
Interest." On the Closing Date, each Stockholder shall transfer to Parent all of
such Stockholder's Directly Held Company Common Stock, Warrants and SARs and the
trustee(s) of the Deferred Compensation Plans under which such Stockholder has
Deferred Compensation Stock Interests shall transfer all of the shares of
Company Common Stock in which such Stockholder has a Deferred Compensation Stock
Interest in exchange for the right to receive an aggregate consideration (the
"Per Stockholder Aggregate Consideration"), to be allocated as set forth in
Section 1.3.2, to be determined as follows: (i) for each share of Directly Held
Company Common Stock and Company Common Stock in which such Stockholder has a
Deferred Compensation Stock Interest (a) cash equal to the Final Per Share Cash
Amount (as defined below), (b) that number of shares of Preferred Stock of
Parent, $.001 par value, having the rights, privileges, designations, powers and
limitations described in the Certificate of Designation attached hereto as
Exhibit 1.3.1(b) ("Parent Preferred Stock") equal to the Final Per Share
Preferred Stock Amount (as defined below), and (c) that number of shares of
Common Stock of Parent, $.001 par value ("Parent Common Stock") equal to the
Final Per Share Common Stock Amount (as defined below), and (ii) for each
Warrant Share for which a Warrant held by such Stockholder is exercisable, (a)
cash equal to the Final Per Share Cash Amount, minus $1.00 for each such Warrant
Share, (b) that number of shares of Parent Preferred Stock equal to the Final
Per Share Preferred Stock Amount, and (c) that number of shares of Parent Common
Stock equal to the Final Per Share Common Stock Amount, and (iii) for each SAR
Share (a) cash equal to the Final Per Share Cash Amount, minus (1) in the case
of James D. Jennings, Richard M. Siefring and Dale H. Wilkerson, $13.50 for each
SAR Share, or (2) in the case of Timothy Johnston, Stephen B. Becker or James D.
Miller, $12.45 for each SAR Share, (b) that number of shares of Parent Preferred
Stock equal to the Final Per Share Preferred Stock Amount, and (c) that number
of shares of Parent Common Stock equal to the Final Per Share Common Stock
Amount. The number of shares of Parent Preferred Stock and Parent Common Stock
to which each Stockholder shall be entitled as each such Stockholder's Per
Stockholder Aggregate Consideration shall be rounded to the nearest whole share.
The Per Stockholder Aggregate Consideration shall be applied as follows:
1.3.2. Application of Per Stockholder Aggregate Consideration. The
------------------------------------------------------
Per Stockholder Aggregate Consideration payable with respect to a Stockholder's
Aggregate Stock Interests (as defined below), determined as set forth in Section
1.3.1, shall be allocated after the final determination of the Final Per Share
Cash Amount, the Final Per Share Preferred Stock Amount and the Final Per Share
Common Stock Amount as provided in Section 1.3.4 as follows in the priority set
forth in (ii)-(v) below:
-4-
<PAGE>
(i) For purposes hereof, the term "Warrant Value" shall
mean an amount equal to the number of Warrant Shares held by such Stockholder as
set forth on Exhibit 1.3.1(a) multiplied by the sum of (a) the Final Per Share
Cash Amount minus $1.00, plus (b) the Final Per Share Preferred Stock Amount
multiplied by $1.00, plus (c) the Final Per Share Common Stock Amount multiplied
by $2.76. For purposes hereof, the term "SAR Value" shall mean an amount equal
to the number of SAR Shares to which the SARs held by such Stockholder are
applicable as set forth on Exhibit 1.3.1(a) multiplied by the sum of (a) the
Final Per Share Cash Amount minus (1) in the case of James D. Jennings, Richard
M. Siefring and Dale H. Wilkerson, $13.50 for each SAR Share, or (2) in the case
of Timothy Johnston, Stephen B. Becker or James D. Miller, $12.45 for each SAR
Share, plus (b) the Final Per Share Preferred Stock Amount multiplied by $1.00,
plus (c) the Final Per Share Common Stock Amount multiplied by $2.76. For
purposes hereof, the term "Deferred Compensation Stock Value" shall mean an
amount equal to the number of shares of Company Common Stock in which a
Stockholder has a Deferred Compensation Stock Interest as set forth on Exhibit
1.3.1(a) multiplied by the sum of (a) the Final Per Share Cash Amount, plus (b)
the Final Per Share Preferred Stock Amount multiplied by $1.00, plus (c) the
Final Per Share Common Stock Amount multiplied by $2.76. For purposes hereof,
the term "Parent Preferred Stock Value" shall mean $1.00 per share of Parent
Preferred Stock, and the term "Parent Common Stock Value" shall mean $2.76 per
share of Parent Common Stock.
(ii) If a Stockholder transferred Warrants to Parent
pursuant to Section 1.3.1, the cash portion of the Per Stockholder Aggregate
Consideration for such Stockholder's Directly-Owned Common Stock, Warrants, SARs
and Deferred Compensation Stock Interests (collectively, the "Aggregate Stock
Interests") shall be allocated to such Warrants to reduce the Warrant Value to
zero, if such cash is sufficient in amount. If the cash portion of such Per
Stockholder Aggregate Consideration is less than the Warrant Value, such cash
shall be allocated to such Warrants and shall reduce the Warrant Value on a
dollar-for-dollar basis, and Parent Preferred Stock constituting part of such
Per Stockholder Aggregate Consideration shall, to the extent required to reduce
the Warrant Value to zero, be allocated to such Warrant and shall reduce the
Warrant Value on a dollar-for-dollar basis using the Parent Preferred Stock
Value for such purpose. If, after application of the Parent Preferred Stock
Value of all Parent Preferred Stock constituting a part of such Per Stockholder
Aggregate Consideration there remains any Warrant Value, the Parent Common Stock
constituting a part of such Per Stockholder Aggregate Consideration shall be
allocated to the extent required to reduce the remaining Warrant Value to zero,
using the Parent Common Stock Value for such purpose.
-5-
<PAGE>
(iii) If a Stockholder transferred SARs to Parent pursuant
to Section 1.3.1, the cash portion of the Per Stockholder Aggregate
Consideration for such Stockholder's Aggregate Stock Interests and not allocated
to such Stockholder's Warrants, if any, pursuant to clause (ii) above shall be
allocated to such SARs to reduce the SAR Value to zero, if such cash is
sufficient in amount. If such cash portion of the Per Stockholder Aggregate
Consideration is less than the SAR Value, such cash shall be allocated to such
SARs and shall reduce the SAR Value on a dollar-for-dollar basis, and Parent
Preferred Stock constituting part of such Per Stockholder Aggregate
Consideration and not allocated to such Stockholder's Warrants, if any, pursuant
to clause (ii) above shall be allocated to such SAR and shall reduce the SAR
Value on a dollar-for-dollar basis using the Parent Preferred Stock Value for
such purpose. If, after application of the Parent Preferred Stock Value of all
such Parent Preferred Stock constituting part of such Per Stockholder Aggregate
Consideration and not allocated to such Stockholder's Warrants, if any, pursuant
to clause (ii) above, there remains any SAR Value, the Parent Common Stock
constituting a part of such Per Stockholder Aggregate Consideration and not
allocated to such Stockholder's Warrants, if any, pursuant to clause (ii) above,
shall be allocated, to the extent required, to reduce the remaining SAR Value to
zero, using the Parent Common Stock Value for such purpose.
(iv) If a Stockholder's Deferred Compensation Stock
Interest was transferred to Parent pursuant to Section 1.3.1, the cash portion
of the Per Stockholder Aggregate Consideration for such Stockholder's Aggregate
Stock Interests and not allocated to such Stockholder's Warrants, if any,
pursuant to clause (ii) above, or to such Stockholder's SARS, if any, pursuant
to clause (iii) above shall be allocated to such Deferred Compensation Stock
Interests to reduce the Deferred Compensation Stock Value to zero, if such cash
is sufficient in amount. If such cash portion of the Per Stockholder Aggregate
Consideration is less than the Deferred Compensation Stock Value, such cash
shall be allocated to such Deferred Compensation Stock Interests and shall
reduce the Deferred Compensation Stock Value on a dollar-for-dollar basis, and
Parent Preferred Stock constituting a part of such Per Stockholder Aggregate
Consideration and not allocated to such Stockholder's Warrants, if any, pursuant
to clause (ii) above, or to such Stockholder's SARS, if any, pursuant to clause
(iii) above shall be allocated to such Deferred Compensation Stock Interest and
shall reduce the Deferred Compensation Stock Value on a dollar-for-dollar basis,
using the Parent Preferred Stock Value for such purpose. If, after application
of the Parent Preferred Stock Value of all such Parent Preferred Stock
constituting part of such Per Stockholder Aggregate
-6-
<PAGE>
Consideration and not allocated to such Stockholder's Warrants, if any, pursuant
to clause (ii) above, or to such Stockholder's SARS, if any, pursuant to clause
(iii) above there remains any Deferred Compensation Stock Value, the Parent
Common Stock constituting a part of such Per Stockholder Aggregate Consideration
and not allocated to such Stockholder's Warrants, if any, pursuant to clause
(ii) above, or to such Stockholder's SARs, if any, pursuant to clause (iii)
above shall be allocated to the extent required to reduce the remaining Deferred
Compensation Stock Value to zero, using the Parent Common Stock Value for such
purpose. The cash, Parent Preferred Stock, if any, and Parent Common Stock, if
any, allocated to a Stockholder's Deferred Compensation Stock Interest under
this clause (iv) shall be delivered to the appropriate trustee(s) of the
appropriate Deferred Compensation Plan(s).
(v) The remaining Per Stockholder Aggregate Consideration
shall be applied pro-rata to such Stockholder's Directly Held Company Common
Stock.
(vi) For purposes of this Agreement, the term "Aggregate
Consideration" shall mean the aggregate of the Per Stockholder Aggregate
Considerations deliverable to all Stockholders hereunder.
1.3.3. Transfer of GMAC Outstanding Stock to Parent. On or prior to
--------------------------------------------
the Closing Date, the holders of the outstanding capital stock of GroupMAC
Management Co. (formerly named Group Maintenance America Corp.), a Delaware
corporation, shall transfer their shares of common stock of GroupMAC Management
Co. to Parent in exchange for Parent Common Stock on a one-for-one basis
pursuant to the Section 351 Plan.
1.3.4. Deliveries at Closing; Subsequent Deliveries. The Parent
--------------------------------------------
Employee Stock Offering (as defined below) will be concluded after the Closing
Date. In this regard:
(i) At the Closing, Parent shall deliver to each
Stockholder such Stockholder's "Closing Per Stockholder Aggregate Consideration"
which shall be the Per Stockholder Aggregate Consideration (other than Parent
Preferred Stock which shall only be delivered after the determination of the
allocation of the Per Stockholder Aggregate Consideration as provided in Section
1.3.2) which would otherwise be deliverable to such Stockholder hereunder,
assuming, however, that (a) for the purpose of determining the Final Per Share
Cash Amount (including the Net Stock Purchase Cost, as defined below), no gross
proceeds have been received by Parent in the Parent Employee Stock Offering or
in the granting of options and the exercise of such options to purchase shares
of Parent Preferred Stock and Parent Common Stock pursuant to a Rule 701 Plan
adopted by Parent for certain of the Company's Division Vice Presidents (the
"Division Vice Presidents Option") (the resulting Final Per Share Cash Amount
being sometimes referred to herein as the "Closing Per Share Cash Amount"); (b)
for the purpose of determining the Final Per Share Preferred Stock Amount, all
shares of Parent Preferred Stock offered in the Parent Employee Stock Offering
and in the Division Vice Presidents Option have been sold (the resulting Final
Per
-7-
<PAGE>
Share Preferred Stock Amount being sometimes referred to herein as the "Closing
Per Share Preferred Stock Amount"); and (c) for the purpose of determining the
Final Per Share Common Stock Amount, all shares of Parent Common Stock offered
in the Parent Employee Stock Offering and in the Division Vice Presidents Option
have been sold (the resulting Final Per Share Common Stock Amount being
sometimes referred to herein as the "Closing Per Share Common Stock Amount").
(ii) No later than ten (10) business days after the
conclusion of the Parent Employee Stock Offering, Parent shall deliver to the
Attorney-in-Fact a statement showing the Net Stock Purchase Cost and the number
of shares of Parent Preferred Stock and Parent Common Stock, if any, issued in
the Parent Employee Stock Offering, and a calculation of the Final Per Share
Cash Amount, the Final Per Share Preferred Stock Amount and the Final Per Share
Common Stock Amount, after giving effect to the conclusion of the Parent
Employee Stock Offering, the issuance of Parent Preferred Stock and Parent
Common Stock, if any, pursuant thereto and the receipt by Parent of the gross
proceeds, if any, thereof (the "Statement of Final Per Share Amounts"). The
Statement of Final Per Share Amounts shall not contain any changes to the Final
Outstanding Common Stock Number, the EBITDA, the Defined Expense Reductions, the
Long-Term Debt or the Net Working Capital as finalized pursuant to Section
1.5.3.
(iii) After delivery to the Attorney-in-Fact of the
Statement of Final Per Share Amounts, the Attorney-in-Fact and his
representatives shall be afforded the opportunity to review and inspect all of
the financial records, work papers, schedules and other supporting papers
relating to the preparation of the Statement of Final Per Share Amounts, and to
consult with Parent and its representatives regarding the methods used in the
preparation of the Statement of Final Per Share Amounts.
(iv) The Final Per Share Cash Amount, the Final Per Share
Preferred Stock Amount and the Final Per Share Common Stock Amount as shown on
the Statement of Final Per Share Amounts shall be final, conclusive and binding
for purposes of this Agreement, unless the Attorney-in-Fact shall deliver to
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 the Final Outstanding
Common Stock Number, EBITDA, the Defined Expense Reductions, the Long-Term Debt
or the Net Working Capital unless any such item is changed pursuant to Section
1.5.3.
-8-
<PAGE>
(v) Parent and the Attorney-in-Fact 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 Parent and the Attorney-in-Fact
shall not reach such resolution within 40 days following receipt by Parent of a
Notice of Dispute, the dispute shall be referred to the Neutral Accountants (as
defined below), who shall resolve such dispute within 30 days after its
submission to them. Parent and the Attorney-in-Fact (if the dispute is resolved
by them or the Statement of Final Per Share Amounts otherwise becomes final
pursuant hereto without referral to the Neutral Accountants) or the Neutral
Accountants (if a dispute is resolved by them) shall set forth such resolution
in writing and such writing shall (1) include the Final Per Share Cash Amount,
the Final Per Share Preferred Stock Amount and the Final Per Share Common Stock
Amount, and (2) be final, conclusive and binding for purposes of this Agreement.
(vi) Within ten (10) business days following the final
determination of the Final Per Share Cash Amount, the Final Per Share Preferred
Stock Amount and the Final Per Share Common Stock Amount as provided in this
Section 1.3.4, Parent shall deliver to each Stockholder (1) the cash amount, if
any, by which the aggregate of the Final Per Share Cash Amounts payable to such
Stockholder, as finally determined pursuant hereto, exceeds the aggregate of the
Closing Per Share Cash Amounts paid to such Stockholder at the Closing; (2) the
number of shares of Parent Preferred Stock, if any, by which the aggregate of
the Final Per Share Preferred Stock Amounts deliverable to such Stockholder, as
finally determined pursuant hereto, exceeds the aggregate of the Closing Per
Share Preferred Stock Amounts delivered to such Stockholder at the Closing; and
(3) 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 Stockholder, as
finally determined pursuant hereto, exceeds the aggregate of the Closing Per
Share Common Stock Amounts delivered to such Stockholder at the Closing;
provided, however that if any such shares of Parent Preferred Stock or Parent
Common Stock would otherwise be allocable to a Stockholder's Warrants or SARs
pursuant to Section 1.3.2, Parent shall issue to such Stockholder, in lieu of
such shares of Parent Preferred Stock or Parent Common Stock, as the case may
be, warrants to purchase the same number of shares of Parent Preferred Stock or
Parent Common Stock, as the case may be, pursuant to warrants substantially in
the form of Exhibit 1.3.4 attached hereto, and the allocations in Section 1.3.2
shall be adjusted accordingly.
(vii) Parent and the Attorney-in-Fact shall each pay their
own costs incurred in connection with this Section 1.3.4, including the fees and
expenses of their respective attorneys and accountants, if any.
-9-
<PAGE>
1.3.5. Certain Compensation. The Parent shall cause the Company to
--------------------
pay to those Stockholders holding Warrants, SARs or Deferred Compensation Stock
the Grossed Up Tax Offset Bonus (as defined below) as the Company is obligated
to pursuant to a Company Compensation Officer resolution dated February 14,
1997. The Grossed Up Tax Offset Bonus shall be equal to the aggregate of (i) the
federal, state and local income and franchise tax benefit to the Parent
(determined on a consolidated basis) and/or the Company attributable solely to
the excess of the Per Stockholder Aggregate Consideration allocated to the
Warrant, the SARs and the Deferred Compensation Stock held by a Stockholder as
of the Closing Date over the $45.00 per share thereof as of February 28, 1996
(and for which accruals of deferred taxes have been made (the "Tax Offset
Bonus") plus (ii) the federal, state and local income and franchise tax benefit
to the Parent (determined on a consolidated basis) and/or the Company
attributable solely to the Tax Offset Bonus (the "Gross Up"). If the Grossed Up
Tax Offset Bonus would be subject (in whole or in part) to an excise tax
pursuant to Sections 280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (such tax hereinafter referred to as the "Excise Tax") with
respect to a Stockholder, then the Grossed Up Tax Offset Bonus shall be reduced
to the extent necessary so that no portion of the Tax Offset Bonus to that
Stockholder is subject to Excise Tax. A tax benefit shall be deemed to be
realized only to the extent that a deduction with respect to his Warrants, SARs,
Deferred Compensation Stock and the Tax Offset Bonus creates an offset for taxes
otherwise payable or a tax refund actually received. Parent shall cause the
Company to pay to such Stockholder the amount of the Tax Offset Bonus and the
Gross Up no later than 10 days after Parent or the Company has filed its federal
income tax return for the tax year in which the Parent or the Company realizes
the tax benefit (including by net operating loss carryback or carryover) or
receives the tax refund from the taxing authority (whichever is applicable)
giving rise to the Tax Offset Bonus and the Gross Up, as the case may be.
1.4. Exchange of Stock.
-----------------
1.4.1. Closing. Subject to the satisfaction or waiver of each of
-------
the conditions set forth in Article 7, on the Closing Date, a closing shall
occur (the "Closing") at the offices of Bracewell & Patterson, L.L.P., 2900
South Tower Pennzoil Place, Houston, Texas 77002 for the purpose of delivering
the documents described herein at the Closing.
1.4.2. Delivery of Company Common Stock. At the Closing, Stock
--------------------------------
Certificates evidencing all of the Company Common Stock, the Warrants and the
SARs held by the Stockholders will be surrendered to Parent together with
properly completed and executed letters of transmittal in substantially the form
attached hereto as Exhibit 1.4.2, with
-10-
<PAGE>
each signature thereon guaranteed by a commercial bank or notarized by a notary
public or similar official reasonably satisfactory to Parent.
1.4.3. Assignments. Except as provided in Article 5, assignment,
-----------
transfer or other disposition of record or beneficial ownership of any shares of
Company Common Stock, Warrants or SARs may not be made on or after the date
hereof.
1.4.4. Payment In Full Satisfaction of All Rights. The delivery of
------------------------------------------
the Per Stockholder Aggregate Consideration to the Stockholders in respect of
their shares of Company Common Stock, Warrants and SARs shall be deemed to be
payment in full satisfaction of all rights pertaining to the outstanding shares
of Company Common Stock, Warrants and SARs held by the Stockholders.
1.5. Determination of Per Share Amounts and Other Matters.
----------------------------------------------------
1.5.1. Determination of Final Per Share Amounts. To determine the
----------------------------------------
Final Per Share Amounts:
(i) The Final Outstanding Common Stock Number (as defined
below) shall be determined.
(ii) The EBITDA, the Defined Expense Reductions, the Long-
Term Debt, the Net Stock Purchase Cost and the Net Working Capital (as such
terms are defined below) shall be determined.
(iii) If EBITDA exceeds $XXX, such excess amount
shall be multiplied by XXX, and the resulting amount shall be the
"EBITDA Positive Adjustment" for purposes hereof. If $XXX exceeds
EBITDA, such excess amount shall be multiplied by XXX, and the
resulting amount shall be the "EBITDA Negative Adjustment" for purposes
hereof.
(iv) If the amount of consolidated current assets included
in Net Working Capital exceeds XXX times the amount of consolidated
current liabilities included in Net Working Capital by more than
$XXX, the excess shall be the "Net Working Capital Positive
Adjustment" for purposes hereof. If the amount of consolidated current
assets included in Net Working Capital does not exceed XXX times the
amount of consolidated current liabilities included in Net Working Capital
by more than $XXX, the amount which would be required to be added to
consolidated current assets in order to make the amount of consolidated
assets equal
-11-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
to the sum of (a) XXX times consolidated current liabilities plus (b)
$XXX, shall be the "Net Working Capital Negative Adjustment" for
purposes hereof.
(v) The sum of (a) the EBITDA Negative Adjustment, if any,
and (b) the Net Working Capital Negative Adjustment, if any, shall be
deducted from the sum of (x) the EBITDA Positive Adjustment, if any, and
(y) the Net Working Capital Positive Adjustment, if any. If the result is a
positive number, it shall be the "Positive Adjustment Amount" for purposes
hereof. If the result is a negative number, it shall be the "Negative
Adjustment Amount" for purposes hereof.
(vi) To determine the "Final Per Share Cash Amount" for
purposes hereof, (a) if there is a Positive Adjustment Amount, the amount
of the Net Stock Purchase Cost, if any, and the amount of Long-Term Debt,
if any, shall be deducted from $XXX and the remainder shall be
divided by the Final Outstanding Common Stock Number; or (b) if there is a
Negative Adjustment Amount, the sum of (1) the amount of the Net Stock
Purchase Cost, if any, plus (2) XXX% of the Negative Adjustment Amount
plus (3) the amount of Long-Term Debt shall be deducted from $XXX
and the remainder shall be divided by the Final Outstanding Common Stock
Number;
(vii) To determine the "Final Per Share Common Stock Amount"
(a) if there is a Positive Adjustment Amount, the sum of (1) the number of
shares of Parent Common Stock sold in the Parent Employee Stock Offering
plus (2) the number of shares of Parent Common Stock issued in the Souders
Offering (as defined below) plus (3) the number of shares of Parent Common
Stock in the Division Vice Presidents Option shall be deducted from
11,630,350, and the remainder shall be divided by the Final Outstanding
Common Stock Number; or (b) if there is a Negative Adjustment Amount, the
result obtained by deducting from 11,630,350, the sum of (1) the number of
shares of Parent Common Stock sold in the Parent Employee Stock Offering,
plus (2) the number of shares of Parent Common Stock issued in the Souders
Offering, plus (3) the number of shares of Parent Common Stock sold in the
Division Vice Presidents Option, plus (4) the Negative Common Stock Number
(as defined below), and shall be divided by the Final Outstanding Common
Stock Number; and
(viii) To determine "Final Per Share Preferred Stock Amount"
(a) if there is a Positive Adjustment Amount, (1) the number of shares of
Parent Preferred Stock sold in the Parent Employee Stock Offering plus the
number of shares of Parent Preferred Stock issued in the Souders Offering
plus the number of shares of
-12-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
Parent Preferred Stock sold in the Division Vice Presidents Option shall be
deducted from 12,423,883 and (2) there shall be added thereto a number
equal to the Positive Adjustment Amount, and the result shall be divided by
the Final Outstanding Common Stock Number; and (b) if there is a Negative
Adjustment Amount, the sum of (1) the number equal to the number of whole
dollars constituting XXX% of the Negative Adjustment Amount, plus (2) the
number of shares of Parent Preferred Stock sold in the Parent Employee
Stock Offering plus the number of shares of Parent Preferred Stock issued
in the Souders Offering plus the number of shares of Parent Preferred Stock
sold in the Division Vice Presidents Option shall be deducted from
12,423,883 and the result shall be divided by the Final Outstanding Common
Stock Number.
1.5.2. Other Definitions. The following terms shall have the
-----------------
following meanings for purposes of this Agreement:
(i) the term "Defined Expense Reductions" shall mean
the expense reductions described on Exhibit 1.5.2 attached hereto which
are documented to the reasonable satisfaction of Parent and its lenders;
(ii) the term "EBITDA" shall mean the sum of (a) Net
After-Tax Income (as defined below), plus (b) the amount of income and
franchise taxes deducted from Net After-Tax Income, plus (c) the amount of
depreciation and amortization deducted from Net After-Tax Income, plus (d)
the amount of interest expense deducted from Net After Tax Income, the
amounts in clauses (a) through (d) to be determined in accordance with U.S.
generally accepted accounting principles ("GAAP"), plus (e) the amount of
the Defined Expense Reductions;
(iii) the term "Final Outstanding Common Stock Number"
shall mean the number of outstanding shares of Company Common Stock issued
and outstanding, including shares of Company Common Stock held by the
Deferred Compensation Plans, and all Other Ownership Interests outstanding
immediately prior to the Closing, excluding the number of shares of Company
Common Stock held by Parent, any Parent Subsidiary, the Company or any
Company Subsidiary immediately prior to the Closing;
(iv) the term "Long-Term Debt" shall mean all long-
term liabilities of the Company and the Company Subsidiaries, on a
consolidated basis, as of February 28, 1997, including deferred taxes and
capitalized lease obligations, all as determined under GAAP, less the sum
of (i) $650,000, (ii) the amount of the
-13-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
reduction in the amount outstanding as of the Closing Date of that certain
note in favor of Mark G. Souders ("Souders") payable by the Company
attributable to the purchase by Souders of Parent Common Stock and Parent
Preferred Stock in that certain Offering of such stock to Souders (the
"Souders Offering"), and (iii) any long term liability accounts
attributable to Deferred Compensation Plans, Warrants and SARs;
(v) the term "Negative Common Stock Number" shall
mean the result obtained by dividing the number equal to the number of
whole dollars constituting 50% of the Negative Adjustment Amount by 2.76.
(vi) the term "Net After-Tax Income" shall mean the
consolidated net income (or loss) of the Company and the Company
Subsidiaries for the fiscal year ending February 28, 1997 after deduction
for income, franchise and other taxes and without giving effect to non-
recurring gains and losses, interest income or investment income,
determined in accordance with GAAP; provided, however, that the effects on
consolidated net income (or loss) of the Company and the Company
Subsidiaries from the transactions described in Sections 4.1.4, 4.1.7,
4.1.8, 4.1.9, 4.1.13, 5.1.3 and 5.2 shall be included in the calculation of
Net After-Tax Income as if such transactions had occurred prior to the
close of business on February 28, 1997;
(vii) the term "Net Stock Purchase Cost" shall mean an
amount equal to the excess, if any, of the gross amount paid by Parent to
the ESOP (as defined in Section 2.1.28, below) pursuant to the ESOP Stock
Purchase Agreement (as defined in Section 5.1.2, below) over the gross
proceeds actually received by Parent in the Parent Employee Stock Offering
(as defined in Section 5.1.5, below) and in the Division Vice Presidents
Option;
(viii) the term "Net Working Capital" shall mean the
consolidated current assets of the Company and the Company Subsidiaries
minus the consolidated current liabilities of the Company and the Company
Subsidiaries as of February 28, 1997, all as determined under GAAP;
provided, however, that (a) all expenses of the Company, the Company
Subsidiaries or any Stockholder incurred in connection with the
transactions contemplated hereby which are paid or are payable by the
Company or any Company Subsidiary shall be included in consolidated current
liabilities but shall not be deducted in determining EBITDA, and provided
further, that (b) the effects on the consolidated net working capital of
the Company and the Company Subsidiaries of the transactions described in
Sections 4.1.4, 4.1.7,
-14-
<PAGE>
4.1.8, 4.1.9, 4.1.13, 5.1.3 and 5.2 shall be included in the calculation of
Net Working Capital as if such transactions had occurred prior to the close
of business on February 28, 1997, and (c) the current liability accounts
attributable to the Deferred Compensation Plans, Warrants, SARs, year-end
operating bonuses and year-end special bonuses for the Majority
Stockholders and the current asset accounts relating thereto shall be
excluded from consolidated current assets and consolidated current
liabilities; and
(ix) the term "Other Ownership Interests" shall mean
any and all outstanding capital stock, convertible or exchangeable
securities, subscriptions, calls, options, warrants, rights or other
agreements or commitments of any character relating to the issuance or sale
of any shares of the capital stock of, or other equity or ownership
interest in, the Company, including, without limitation, the Warrants and
the SARs, and including the shares of Company Common Stock held by Parent,
any Parent Subsidiary or any Company Subsidiary immediately prior to the
Closing Date.
1.5.3. Statement of Closing Consideration.
----------------------------------
(i) As promptly as practicable, and in any event no later
than April 30, 1997, the Majority Stockholders shall cause to be prepared and
delivered to Parent the audited consolidated balance sheet, consolidated
statement of income and consolidated statement of cash flows of the Company and
the Company Subsidiaries as of and for the year ended February 28, 1997, with
the independent accountant's report thereon (the "Audited 1997 Financial
Statements"), together with a calculation, reviewed by such accountants, of the
Final Outstanding Common Stock Number, the Closing Per Share Cash Amount, the
Closing Per Share Preferred Stock Amount, the Closing Per Share Common Stock
Amount, and the Closing Per Stockholder Aggregate Consideration payable to each
Stockholder at Closing and the application thereof (the "Statement of Closing
Consideration").
(ii) After delivery to Parent of the Statement of Closing
Consideration, Parent and its 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 Closing
Consideration, and to consult with the Company and its representatives, and the
Company's independent certified public accountants, if necessary, regarding the
methods used in the preparation of the Statement of Closing Consideration.
-15-
<PAGE>
(iii) The Final Outstanding Common Stock Number, the Closing
Per Share Cash Amount, the Closing Per Share Preferred Stock Amount, the Closing
Per Share Common Stock Amount, and the Closing Per Stockholder Aggregate
Consideration payable to each Stockholder at Closing and the application thereof
as shown on the Statement of Closing Consideration shall be final, conclusive
and binding for purposes of this Agreement, unless Parent shall deliver to the
Attorney-in-Fact a written notice of disagreement ("Notice of Disagreement")
with any item or items in the Statement of Closing Consideration within 10
business days following receipt of the Statement of Closing Consideration,
specifying in reasonable detail the nature and extent of such disagreement.
(iv) Parent and the Attorney-in-Fact agree to negotiate in
good faith and use their best efforts to resolve any disagreement with respect
to the Final Outstanding Common Stock Number, the Closing Per Share Cash Amount,
the Closing Per Share Preferred Stock Amount, the Closing Per Share Common Stock
Amount, or the Closing Per Stockholder Aggregate Consideration payable at
Closing to each Stockholder or the application thereof, as set forth in the
Statement of Closing Consideration. Parent and the Attorney-in-Fact shall reach
such resolution within 40 days following receipt by the Attorney-in-Fact of a
Notice of Disagreement. In the event that such resolution is not reached within
the time prescribed in the previous sentence, Parent and the Attorney-in-Fact
shall have the right to terminate this Agreement pursuant to Section 8.1.3.
Parent and the Attorney-in-Fact shall set forth such resolution in writing and
such writing shall (a) include the Final Outstanding Common Stock Number, the
Closing Per Share Cash Amount, the Closing Per Share Preferred Stock Amount, the
Closing Per Share Common Stock Amount, and the Closing Per Stockholder Aggregate
Consideration payable to each Stockholder at Closing and the application
thereof, and (b) be final, conclusive and binding for purposes of this
Agreement.
(v) The Closing shall occur promptly following the final
determination of the Final Outstanding Common Stock Number, the Closing Per
Share Cash Amount, the Closing Per Share Preferred Stock Amount, the Closing Per
Share Common Stock Amount, and the Closing Per Stockholder Aggregate
Consideration payable to each Stockholder at Closing and the application
thereof, as provided in this Section 1.5.3, but in no event later than ten days
after such determination.
(vi) Parent and the Attorney-in-Fact shall each pay their
own costs incurred in connection with this Section 1.5.3, including the fees and
expenses of their respective attorneys and accountants, if any.
-16-
<PAGE>
1.5.4. Non-Prejudicial. The adjustments in this Section 1.5 shall
---------------
not prejudice the rights and remedies of the parties under Article 6.
2. REPRESENTATIONS AND WARRANTIES
OF THE MAJORITY STOCKHOLDERS
2.1. Representations and Warranties of the Majority Stockholders.
-----------------------------------------------------------
Simultaneously with the execution and delivery of this Agreement, the Majority
Stockholders are delivering to Parent a disclosure schedule (the "Disclosure
Schedule"). The Majority Stockholders, jointly and severally, hereby represent
and warrant to Parent that:
2.1.1. Organization, Etc. The Company is a corporation duly
------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified or licensed as a foreign corporation authorized
to do business in the states of Ohio, Florida, Kansas, Indiana, Texas, Kentucky,
and in all other states in which any of its assets or properties may be situated
or where the business of the Company is conducted except where the failure to
obtain such qualification or license will not have a Company Material Adverse
Effect (as defined below).
2.1.2. Subsidiaries. Except for the corporations (the "Company
------------
Subsidiaries") described in Section 2.1.2 of the Disclosure Schedule, the
Company does not and will not prior to the Closing Date own or hold of record or
beneficially, directly or indirectly, 50% or more of the outstanding capital
stock, voting interests, or ownership interests in any corporation, partnership,
joint venture or other entity. Each Company Subsidiary is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, as set forth in Section 2.1.2 of the Disclosure Schedule, and is
duly qualified or licensed as a foreign corporation authorized to do business in
each state 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 will not have a Company Material Adverse Effect.
2.1.3. Capitalization of the Company and the Company Subsidiaries.
----------------------------------------------------------
The total authorized capital stock of the Company is 3,000,000 shares of Company
Common Stock, of which 250,745.104 shares are issued and outstanding and of
which none are held in the treasury of the Company. The outstanding shares of
Company Common Stock have been duly and validly issued and are fully paid and
non-assessable. Except for the issued and outstanding Company Common Stock
described in the first sentence of this Section 2.1.3 and the Warrants
exercisable into 45,000 shares of Company Common Stock and the SARs (as defined
below) applicable to 33,768 shares of Company Common Stock, there are and will
-17-
<PAGE>
be immediately prior to the Closing Date no Other Ownership Interests
outstanding and no agreements of any kind to which the Company is a party or
otherwise bound relating to the issuance, sale or transfer of any capital stock
of the Company or any Other Ownership Interests. After giving effect to the
transactions described in Articles 4 and 5 to be completed prior to the Closing
Date, the Company will have, immediately prior to the Closing Date, 250,745.104
shares of Company Common Stock issued and outstanding and no shares of Company
Common Stock will be held in treasury and no Other Ownership Interests will be
outstanding except for the Warrants and the SARs. The Company has and will have
immediately prior to the Closing Date no liability, contingent or otherwise, nor
has any claim been asserted or threatened by, any person, including without
limitation any holder or former holder of shares, options, warrants, or other
equity or voting or ownership interests or other securities of the Company, in
connection with pre-emptive or contractual subscription rights or the offer,
sale, purchase, redemption, surrender or cancellation of any shares, options,
warrants or other equity or voting or ownership interests or securities of the
Company. Except as disclosed in Section 2.1.3 of the Disclosure Schedule, since
March 1, 1996, the Company has not repurchased or redeemed any of its
outstanding capital stock. The Company has afforded Parent full access to the
minute books and capital stock and similar records of the Company, which books
and records are true, complete and accurate. The names and addresses of the
holders of record of all of the outstanding shares of Company Common Stock, the
number of shares of Company Common Stock held of record by each of such holders,
and the names and addresses of the holders of the Warrants and the SARs and the
number of Warrants and SARs held by each of such holders are set forth in
Section 2.1.3 of the Disclosure Schedule.
The authorized, issued and outstanding shares of capital stock of each
Company Subsidiary is set forth in Section 2.1.3 of the Disclosure Schedule.
All outstanding shares of capital stock of each Company Subsidiary are held, of
record and beneficially, free and clear of all liens, encumbrances or claims
whatsoever, by the holders listed and in the amounts shown in Section 2.1.3 of
the Disclosure Schedule. All outstanding shares of capital stock of each Company
Subsidiary have been duly and validly issued and are fully paid and non-
assessable. Except as described in Section 2.1.3 of the Disclosure Schedule, no
Company Subsidiary has any outstanding capital stock or any outstanding
convertible or exchangeable securities, subscriptions, calls, options, warrants,
rights or other agreements or commitments of any kind relating to the issuance
or sale of any shares of capital stock of, or other equity or ownership interest
in, any Company Subsidiary. There are no agreements of any kind relating to the
issuance, sale or transfer of any capital stock of any Company Subsidiary,
except as disclosed in Section 2.1.3 of the Disclosure Schedule. No Company
Subsidiary has any liability, contingent or otherwise, nor has any claim been
asserted or threatened by, any person, including without limitation any holder
or former holder of shares,
-18-
<PAGE>
options, warrants, or other equity or voting or ownership interests or other
securities of any Company Subsidiary, in connection with pre-emptive or
contractual subscription rights or the offer, sale, purchase, redemption,
surrender or cancellation of any shares, options, warrants or other equity or
voting or ownership interests or securities of any Company Subsidiary. No
Company Subsidiary has repurchased or redeemed any of its outstanding capital
stock. The Company has afforded Parent full access to the minute books and
capital stock and similar records of the Company Subsidiaries, which books and
records are true, complete and accurate.
2.1.4. Authority. The Company has full right, power, legal
---------
capacity and authority to execute, deliver and perform all documents and
instruments referred to herein or contemplated hereby to be executed, delivered
and performed by the Company and to consummate the transactions contemplated
thereby. All documents and instruments referred to herein or contemplated hereby
to be executed and delivered by the Company, when duly executed and delivered by
the Company will constitute, legal, valid and binding obligations of the Company
enforceable against the Company 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).
2.1.5. Consents. Except as set forth in Section 2.1.5 of the
--------
Disclosure Schedule, 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 Stockholders of this
Agreement or the execution, delivery or performance by the Company or the
Stockholders of the other documents and instruments referred to herein or
contemplated hereby to be executed, delivered or performed by the Company or any
Stockholder.
2.1.6. Title. Except for the Permitted Exceptions (as defined
-----
below) and as disclosed in Section 2.1.6 of the Disclosure Schedule, the Company
and the Company Subsidiaries own outright, and have, and shall at the Closing
Date have, full legal and beneficial title to all of their respective assets
free and clear of all liens, pledges, mortgages, security interests, conditional
sales contracts and encumbrances, including good and market able title to all of
their respective real property interests, free and clear of any mortgages,
security agreements, liens or encumbrances. The Company or a Company Subsidiary
has fee simple title to those real property interests described in Section 2.1.6
of the Disclosure Schedule as owned in fee by the Company or such Company
Subsidiary, subject to the Permitted Exceptions and to those matters disclosed
in Section 2.1.6 of the Disclosure
-19-
<PAGE>
Schedule. The Company or a Company Subsidiary has leased, as lessee, the real
property and interests in real property described as leased by the Company or
such Company Subsidiary in Section 2.1.6 of the Disclosure Schedule. Section
2.1.6 of the Disclosure Schedule contains a summary description of all real
property and real property interests owned or leased as lessee by the Company or
any Company Subsidiary. The Company has made available to Parent true and
correct copies of all of the leases of real property to which the Company or any
Company Subsidiary is a party, including all amendments and other modifications
thereof.
2.1.7. Defaults. Except as set forth in Section 2.1.7 of the
--------
Disclosure Schedule, neither the Company nor any Company Subsidiary is in
default under, in breach of or in violation of, and the execution and delivery
of the documents and instruments referred to herein or contemplated hereby to be
executed and delivered by the Company and the consummation by the Company of the
transactions contemplated thereby and the performance by the Company of its
obligations thereunder will not constitute a violation of, conflict with, result
in a default under or cause the imposition upon the Company or any Company
Subsidiary of any additional adverse burden or condition under (i) any mortgage,
indenture, charter or bylaw provision, contract, agreement, lease, commitment or
other instrument of any kind to which the Company or any Company Subsidiary is a
party or by which the Company or any Company Subsidiary or any of their
respective properties or assets may be bound or affected or (ii) any law, rule
or regulation applicable to the Company or any Company Subsidiary or any court
injunction, order or decree, or any valid and enforceable order of any
governmental agency in effect having jurisdiction over the Company or any
Company Subsidiary, which default, breach, violation, conflict or imposition
described in this clause (ii) could adversely affect the ability of the
Stockholders to consummate the transactions contemplated hereby.
2.1.8. Power of Attorney. Except as set forth in Section 2.1.8 of
-----------------
the Disclosure Schedule, neither the Company nor any Company Subsidiary has
given to any person or party, and there is not currently existing, any power of
attorney of any type pertaining to the Company or any Company Subsidiary.
2.1.9. Proprietary Rights. To the best knowledge of the Company and
------------------
the Majority Stockholders, the Company and the Company Subsidiaries have full
and sufficient rights to use all trade names, brand names, trademarks, service
marks and logos and to use and practice all technology, proprietary information,
know-how or patented ideas, designs or inventions (collectively "Proprietary
Rights") necessary for the present operation of their businesses and the
marketing, distribution, sale and use (whether by the Company or any Company
Subsidiary or their direct or indirect customers) of the materials used and the
-20-
<PAGE>
products sold by the Company and the Company Subsidiaries. To the best knowledge
of the Company and the Majority Stockholders, none of the ownership, access to,
use or practice of the Proprietary Rights by the Company or any Company
Subsidiary infringe on the rights of any other party and all Proprietary Rights
are valid and enforceable. Section 2.1.9 of the Disclosure Schedule contains a
list and summary description of the Proprietary Rights and a description of all
license fees and royalties (or the basis of the calculation thereof) required to
be paid now or in the future by the Company or any Company Subsidiary for the
use and practice of the Proprietary Rights.
2.1.10. Labor Matters. The employees of the Company and the Company
-------------
Subsidiaries are not subject to any collective bargaining agreements or other
contracts with a labor union, contingent or otherwise, nor are any such
employees represented by any labor union. Except as described in Section 2.1.10
of the Disclosure Schedule, to the best knowledge of the Company and the
Majority Stockholders, there are no unfair labor practice charges or complaints
pending against the Company or any Company Subsidiary involving employees now or
previously employed by the Company or any Company Subsidiary. Since March 1,
1996 there have not been any labor disputes or written and filed grievances or
claims involving employees of the Company or any Company Subsidiary or to the
best knowledge of the Company and the Majority Stockholders, any union
organizational efforts involving employees of the Company or any Company
Subsidiary.
2.1.11. Employee Benefits. Section 2.1.11 of the Disclosure
-----------------
Schedule lists all of the "Company Plans" (as defined below). Except as
described in Section 2.1.11 of the Disclosure Schedule, neither the Company nor
any Company Subsidiary nor any other organization which is a member of a
controlled group of organizations within the meaning of Sections 414(b), (c),
(m) or (o), of the Code of which the Company or any Company Subsidiary is a
member (the "Controlled Group") has any obligation, contingent or otherwise,
covering any of their employees under any employment or consulting agreement or
under any executive or employee's compensation plan, agreement or arrangement
including, without limitation, any "employee welfare benefit plan" as defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), "employee pension benefit plan" as defined in Section 3(2) of ERISA
or any other pension, retirement, profit sharing, stock option, stock purchase,
bonus, fringe benefit, incentive, vacation, savings plan, health, welfare or
other employee or former employee benefit plan, program, policy or arrangement
(collectively referred to herein as "Company Plans"). No Company Plan is a
"defined benefit plan," as such term is defined in Section 3(35) of ERISA or a
"multi-employer plan" within the meaning of Section 3(37) of ERISA. Neither the
Company nor any Company Subsidiary nor any member of the Controlled Group
currently sponsors or maintains or has over the prior six (6) years maintained
or sponsored any
-21-
<PAGE>
"employee benefit plan" as defined in Section 3(3) of ERISA which is subject to
Title IV of ERISA. There is no voluntary employees' beneficiary association
which is implementing any Company Plan. Except as disclosed in Section 2.1.11 of
the Disclosure Schedule, to the best knowledge of the Company and the Majority
Stockholders, neither the Company nor any Company Subsidiary nor any fiduciary
now or previously acting pursuant to any Company Plan ("Company Plan Fiduciary")
has breached or otherwise failed to comply with any provision of any Company
Plan, and there are no written and filed claims (other than for benefits in the
ordinary course), grievances, audits, investigations or suits pending against
the Company, any Company Subsidiary or any Company Plan Fiduciary under any
Company Plan. The Company has delivered copies of the following to Parent: (i)
the most recent Internal Revenue Service determination letter and any
outstanding request for a determination letter for each Company Plan; (ii)
collective bargaining agreements or other such contracts relating to the
benefits under any Company Plan; and (iii) Forms S-8, if any, (including any
amendments thereto) for any Company Plan.
With respect to each Company Plan which is an "employee pension
benefit plan" (within the meaning of ERISA Section 3(2)): (i) each Company Plan
which is "qualified" within the meaning of Section 401(a) of the Code has
received a favorable determination letter as to its qualification under the
Code, and, to the best knowledge of the Company and the Majority Stockholders,
nothing has occurred (whether by action or failure to act) which would cause the
loss of such qualification; (ii) no member of the Controlled Group has, with
respect to any such Company Plan, engaged in a prohibited transaction, as such
term is defined in Code Section 4975 or ERISA Section 406, which would subject
the Company, any Company Subsidiary or any Company Plan Fiduciary to any tax,
penalties or other liabilities resulting from prohibited transactions under Code
Section 4975 or under ERISA Sections 409 and 502 (i); (iii) no event has
occurred and no condition exists at the date hereof that would subject the
Company or any Company Subsidiary to any taxes under Code Sections 4972, 4977 or
4979 or to a fine under ERISA Section 502(c); and (iv) each member of the
Controlled Group has complied with the reporting and disclosure requirements of
ERISA.
With respect to any Company Plan which is an "employee welfare benefit
plan" (within the meaning of ERISA Section 3(1)): (i) each Company Plan which is
intended to meet the requirements for tax-favored treatment under Subchapter B
of Chapter 1 of the Code meets such requirements; (ii) there is no disqualified
benefit (as such term is defined in the Code Section 4976(b)) which would
subject the Company or any Company Subsidiary, Parent or the Surviving
Corporation to any taxes under Code Section 4976(a); (iii) each Company Plan
which is a group health plan (as such term is defined in Code Section 162(i)(2))
complies and has complied with the applicable requirements of Code Sec-
-22-
<PAGE>
tion 4980B; (iv) all insurance premiums required to be paid thereunder as of the
Closing Date shall have been paid or accrued on the books of the Company as of
February 28, 1997; and (v) each member of the Controlled Group has complied with
the reporting and disclosure requirements of ERISA for reports and disclosures
required to be reported or disclosed prior to or as of the date hereof. Except
as described in Section 2.1.11 of the Disclosure Schedule, neither the Company
nor any Company Subsidiary nor the Controlled Group maintains any post-
retirement health and life insurance plans for employees and retirees. Except as
listed in Section 2.1.11 of the Disclosure Schedule or as provided in Articles 4
and 5 of this Agreement, neither the Company nor any Company Subsidiary has any
commitment, whether formal or informal and whether legally binding or not, to
create any additional Company Plan or to amend or modify any Company Plan, and
except as provided in Articles 4 and 5 of this Agreement, no benefits will
become payable under any Company Plan as a result of the consummation of the
transactions contemplated hereby. Except as disclosed in Section 2.1.11 of the
Disclosure Schedule, to the best knowledge of the Company and the Majority
Stockholders, each Company Plan may be terminated by its plan sponsor at any
time.
The transactions contemplated by this Agreement together with any
amounts paid or payable by the Company, any Company Subsidiary or any member of
the Controlled Group has not resulted in and will not result in payments to
"disqualified individuals" (as defined in Section 280G(c) of the Code) of the
Company, any Company Subsidiary or any member of the Controlled Group which,
individually or in the aggregate will constitute "excess parachute payments" (as
defined in Section 280G(b) of the Code) resulting in the imposition of the
excise tax under Section 4999 of the Code or the disallowance of deductions
under Section 280G of the Code. As of the Closing Date, except as otherwise
contemplated by Article 5 of this Agreement, the consummation of the
transactions contemplated hereby will not accelerate or increase any liability
under any Company Plan because of an acceleration or increase of any of the
rights or benefits to which employees may be entitled thereunder. Neither the
Company nor any Company Subsidiary has made or is obligated to make any
nondeductible contributions to any Company Plan.
2.1.12. Maintenance. Except as described in Section 2.1.12 of the
-----------
Disclosure Schedule, the operating assets and properties of the Company and the
Company Subsidiaries have been properly maintained and are in satisfactory
operating condition (except for ordinary wear and tear) which in the aggregate
will not have a Company Material Adverse Effect and are capable of being used in
the businesses conducted by the Company and the Company Subsidiaries without
present need for repair or replacement except in the ordinary course of
business.
-23-
<PAGE>
2.1.13. Necessary Assets. At the Closing Date, the Company and the
----------------
Company Subsidiaries will own or have adequate and sufficient rights to use all
of the assets and properties, real, personal, tangible and intangible, which are
used in or necessary for the operation of their respective businesses as going
concerns on a basis consistent with past operations.
2.1.14. Certain Contracts. Section 2.1.14 of the Disclosure
-----------------
Schedule contains a true and correct list of each contract, lease, undertaking,
commitment, mortgage, indenture, note, security agreement, license and other
agreement of the Company or any Company Subsidiary in effect at February 28,
1997 (i) involving the expenditure or receipt of more than $100,000 over the
term thereof, (ii) containing provisions calling for the sale or purchase of raw
materials, products or services at prices that vary from the market prices of
such raw materials, products or services generally prevailing in customary third
party markets, (iii) which include "take or pay," "meet or release," "most
favored nations" or similar pricing or delivery arrangements, (iv) between the
Company and any Company Subsidiary or among any Company Subsidiaries, (v)
requiring the Company or any Company Subsidiary to indemnify or hold harmless
any other person or entity (other than in the ordinary course of business), (vi)
evidencing any warranty obligation of the Company or any Company Subsidiary with
respect to goods, services or products sold or leased by any of them, other than
in the ordinary course of business, or (vii) imposing on the Company or any
Company Subsidiary any confidentiality, non-disclosure or non-compete obligation
or containing any acceleration or termination provisions effective upon a change
of control of the Company, or a merger of the Company into another entity. The
contracts, leases, undertakings, commitments, mortgages, indentures, notes,
security agreements, leases, licenses and other agreements of the nature
described in clauses (i) through (vii) are some times collectively referred to
herein as the "Company Contracts". Except as set forth in Section 2.1.14 of the
Disclosure Schedule, neither the Company nor any Company Subsidiary nor any
other party thereto is in default under any Company Contract, nor does any
event, circumstance or situation exist which, with the passage of time or notice
or both will constitute a default by the Company or any Company Subsidiary or
any other party under any Company Contract or any judgment, order or decree of
any court or any government agency or instrumentality under which any person,
firm, corporation or other entity is or may be entitled to assert any rights
against the Company or any Company Subsidiary or their respective assets,
properties, businesses, operations or products. The Company has made available
to Parent true and correct copies of all of the Company Contracts.
2.1.15. Bond Requirements. Section 2.1.15 of the Disclosure
-----------------
Schedule contains a true and complete list and description of all bonds,
deposits, financial assurance
-24-
<PAGE>
requirements and insurance coverage required to be submitted to regulatory
authorities or third parties for the continued ownership and operation of the
assets and properties of the Company and the Company Subsidiaries and for their
continued business operations.
2.1.16. Other Disclosures. The following documents and items
-----------------
pertaining to the Company and the Company Subsidiaries are included in Section
2116 of the Disclosure Schedule:
(i) Lists of the products of the Company and the Company
Subsidiaries, all product registrations used by the Company and the Company
Subsidiaries, and all material safety data sheets, toxicology studies and
environmental studies of the Company and the Company Subsidiaries;
(ii) A list containing the names, start dates and current annual
wage rates of all salaried and hourly regular full-time and part-time
employees of the Company and the Company Subsidiaries with salaries or
compensation of more than $50,000 per annum as of January 1, 1997, together
with a summary of the bonuses, additional compensation and other like
benefits, if any, paid or payable to such persons;
(iii) Legal descriptions of all real property owned in fee or
leased by the Company or any Company Subsidiary and a list of documents
reflecting any other real property interests owned of record or
beneficially or leased by the Company and the Company Subsidiaries;
(iv) A list of assets owned by the Company and the Company
Subsidiaries as of January 1, 1997 which have been capitalized and have an
unamortized value of $10,000 or more, including vehicles and rolling stock,
and a list of all leased equipment of the Company and the Company
Subsidiaries, including leased vehicles and rolling stock;
(v) A list of raw materials or other property located at any
property owned or leased as lessee by the Company or any Company Subsidiary
that has been consigned to the Company or any Company Subsidiary, or is
otherwise owned by a third party, and has a market value exceeding $5,000;
(vi) A list of each policy of insurance maintained by the Company
or any Company Subsidiary together with information on premiums, coverages,
insurers, expiration dates and deductibles;
-25-
<PAGE>
(vii) A list of each bank, brokerage firm, trust company or other
financial institution in which the Company or any Company Subsidiary has an
account and the identity of each such account, and each bank in which the
Company or any Company Subsidiary has a safe deposit box, together with the
names of all persons authorized to draw on any such account or have access
to any such safe deposit box; and
(viii) A list and summary description of, or copies of, all
governmental licenses and permits (including Environmental Permits (as
defined below)) of the Company and the Company Subsidiaries.
2.1.17. Officers, Directors and Affiliates. Section 2.1.17 of the
----------------------------------
Disclosure Schedule lists all directors and officers of the Company and the
Company Subsidiaries as of the date hereof and their respective dates of service
and describes all transactions, contracts and other arrangements between the
Company or any Company Subsidiary and any officer, director, stockholder or
affiliate of the Company or any Company Subsidiary which (i) occurred or became
effective after March 1, 1994, (ii) occurred, became effective or existed prior
to March 1, 1994 and were not fully performed and terminated as of March 1,
1994, or (iii) constitutes a liability or obligation (contingent or direct) due
or to become due by the Company or any Company Subsidiary to any officer,
director, stockholder, or affiliate of the Company or any Company Subsidiary, in
each case other than the customary employee compensation and employee benefits
and customary arrangements with respect to expense reimbursements.
2.1.18. Investment Company. The Company is not, and will not be
------------------
immediately prior to the Closing Date, 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.
2.1.19. Financial Statements. Except as described in Section 2.1.19
--------------------
of the Disclosure Schedule (i) the Audited Financial Statements (as defined
below) are true and correct in all material respects, and are fair presentations
of the consolidated financial position, results of operations and cash flows of
the Company and the Company Subsidiaries as of the dates and for the periods
indicated and to the best knowledge of the Company and Majority Stockholders,
have been prepared in accordance with GAAP, and (ii) the Unaudited Financial
Statements (as defined below) are true and correct in all material respects, and
are fair presentations of the consolidated financial position, results of
operations and cash flows of the Company and the Company Subsidiaries as of the
dates and for the periods indicated,
-26-
<PAGE>
subject, in the case of interim statements, to normal year-end audit
adjustments, none of which, singly or in the aggregate, will be material and to
the best knowledge of the Company and Majority Stockholders, have been prepared
in accordance with GAAP and in a manner consistent with the Audited Financial
Statements. The books and records of the Company and the Company Subsidiaries
have been kept in reasonable detail and accurately and fairly reflect the
transactions of the Company and the Company Subsidiaries. The financial
statements of the Company and the Company Subsidiaries which are as of and for
the year ended February 28, 1995 are sometimes referred to herein as the
"Audited Financial Statements" and the consolidated financial statements of the
Company and the Company Subsidiaries which are as of and for the year ended
February 29, 1996 and those which are as of and for the eleven months ended
January 31, 1997 are sometimes referred to herein as the "Unaudited Financial
Statements." The estimated consolidated balance sheet, consolidated statement of
income and consolidated statement of cash flows of the Company and the Company
Subsidiaries as of and for the year ending February 28, 1997 and which are
listed in Section 2.1.19 of the Disclosure Schedule are sometimes referred to
herein as the "Estimated Financial Statements". The Estimated Financial
Statements are based on reasonable assumptions. The actual consolidated
financial position, results of operations, cash flows and long-term debt of the
Company and the Company Subsidiaries as of and for the year ending February 28,
1997, will not vary in any material respect from those reflected in the
Estimated Financial Statements, except for the issues related to deferred
compensation raised by KPMG Peat Marwick L.L.P. prior to the execution of this
Agreement, and to the best knowledge of the Company and the Majority
Stockholders, have been prepared in accordance with GAAP.
2.1.20. Undisclosed Liabilities. Except as and to the extent
-----------------------
disclosed or reserved against in the Estimated Financial Statements, or as
disclosed in Section 2.1.20 of the Disclosure Schedule, and except for
liabilities incurred in the ordinary course of business and otherwise not in
contravention of this Agreement after February 28, 1997, neither the Company nor
any Company Subsidiary has, to the best knowledge of the Company and the
Majority Stockholders, any liabilities or obligations of any nature (whether
absolute, contingent or otherwise).
2.1.21. Guaranties, Etc. Except as disclosed in Sections 2.1.14 or
----------------
2.1.21 of the Disclosure Schedule, neither the Company nor any Company
Subsidiary has outstanding, (i) any guarantee (whether direct or indirect)
whereby the Company or any Company Subsidiary is or may become liable for any
indebtedness or obligation of any other person or entity, (ii) any capital or
operating lease obligations in excess of $20,000 per year, or (iii) any
investment in the securities, obligations or other ownership interests of, or
loans or
-27-
<PAGE>
advances to, any person or entity (other than nominal travel advances to
employees not exceeding $25,000 in the aggregate).
2.1.22. Taxes. The Company and the Company Subsidiaries have either
-----
accrued, discharged or caused to be discharged, as the same have become due, or
the Estimated 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 of the Company and the Company
Subsidiaries, their respective businesses or operations or the revenues or
income derived therefrom for all periods through February 28, 1997, and the
assessment of any additional taxes that by law should have been reported or paid
or in accordance with GAAP should have been accrued as of February 28, 1997, is
not expected. All quarterly deposits of estimated taxes required to be paid by
the Company and the Company Subsidiaries through the Closing Date will have been
paid on or before the Closing Date. All taxes of the Company and the Company
Subsidiaries for any period after February 28, 1997 through the date hereof have
been paid or properly accrued on the books of the Company and the Company
Subsidiaries, as appropriate. There shall be no breach of the representations
and warranties in this Section 2.1.22 in connection with actions or omissions of
the Company or the Company Subsidiaries or the expectations of the Majority
Stockholders with respect to state taxes to the extent such actions, omissions
or expectations will not have a Company Material Adverse Effect. For the
purposes of the preceding sentence only, Company Material Adverse Effect shall
be measured on a state-by-state level.
2.1.23. Inventories and Receivables. All inventories of finished
---------------------------
goods reflected in the financial statements of the Company and the Company
Subsidiaries are salable in the ordinary course of business in the customary
markets of the Company and the Company Subsidiaries, and all inventories of raw
materials and goods in process of the Company and the Company Subsidiaries are
of sufficient quality to produce such finished goods inventory so salable.
Subject to normal reserves, except as disclosed in Section 2.1.23 of the
Disclosure Schedule, the accounts and notes receivable of the Company and the
Company Subsidiaries are valid and, to the best knowledge of the Company and the
Majority Stockholders, subject to no counterclaim, set-off or other deduction.
Subject to normal reserves, except as described in Section 2.1.23 of the
Disclosure Schedule, all accounts and notes receivable of the Company and the
Company Subsidiaries will be collected in full within 120 days from the Closing
Date.
2.1.24. Full Authority. Except as disclosed in Section 2.1.24 of
--------------
the Disclosure Schedule, the Company and the Company Subsidiaries have full
power, authority and legal right and have all licenses, permits, qualifications,
and other documentation necessary to own and/or operate their respective
businesses, properties and assets and to
-28-
<PAGE>
carry on their respective businesses as being conducted on the date of this
Agreement, and such businesses are now being conducted and such assets and
properties are owned and/or are being operated in compliance with all applicable
laws and all ordinances, rules and regulations of any governmental department,
commission, board, bureau, agency or instrumentality of the United States, any
state or political subdivision thereof, or any foreign jurisdiction, and all
applicable court or administrative agency decrees, awards and orders, except
where the failure to comply will not have a Company Material Adverse Effect, and
there is no existing condition or state of facts which would give rise to a
violation thereof or a liability or default thereunder, except where a
violation, liability or default will not have a Company Material Adverse Effect.
2.1.25. Environmental Matters. Except as disclosed in Section
---------------------
2.1.25 of the Disclosure Schedule, (i) the Company and the Company Subsidiaries
have obtained and maintained in effect all Environmental Permits required with
respect to their respective properties, assets, businesses and operations and
such Environmental Permits are not subject to any appeals or further proceedings
or to any unsatisfied conditions, (ii) the Company and the Company Subsidiaries
and their respective properties, assets, businesses and operations have been and
are in compliance with all applicable Requirements of Environmental Law (as
defined below) and Environmental Permits, (iii) the Company and the Company
Subsidiaries and their respective properties, assets, businesses and operations
are not subject to any Environmental Claims, as defined below (direct or
contingent, and whether known or unknown) or Environmental Liabilities (as
defined below) arising from or based upon any act, omission, event, condition or
circumstance occurring or existing on or prior to the date hereof, including
without limitation, any such Environmental Claims or Environmental Liabilities
arising from the ownership or operation of assets, businesses or properties now
or previously owned or operated by the Company or any Company Subsidiary or
their respective predecessors, (iv) neither the Company nor any Company
Subsidiary has received any notice of any violation or alleged violation of any
Requirements of Environmental Law or Environmental Permit or any Environmental
Claim in connection with their respective now or previously owned or operated
assets, properties, businesses or operations, or, in each case, those of their
respective predecessors, and (v) there are no Hazardous Materials (as defined
below) on, in, above, around, adjacent to or under any of the properties,
assets, business or operations of the Company or any Company Subsidiary other
than those used in the ordinary course of business and within the Requirements
of Environmental Law.
For purposes hereof, the following terms shall have the following meanings:
"Environmental Claim" means any third party (including governmental
agencies, regulatory agencies and employees) action, lawsuit, claim, proceeding
(including claims or
-29-
<PAGE>
proceedings under the Occupational Safety and Health Act or similar laws
relating to safety of employees) which seeks to impose liability for (i) noise;
(ii) pollution, contamination or destruction of, or loss or injury to or any
adverse effect upon the air, surface water, ground water or land; (iii) solid,
gaseous or liquid waste generation, handling, treatment, storage, disposal or
transportation; (iv) exposure to hazardous or toxic substances; (v) the safety
or health of employees or (vi) the manufacture, processing, distribution in
commerce, use, or storage of chemical substances. An "Environmental Claim"
includes, but is not limited to, a common law action, as well as a proceeding to
issue, modify or terminate an Environmental Permit of the Company or any Company
Subsidiary, or to adopt or amend a regulation to the extent that such a
proceeding attempts to redress violations of such an Environmental Permit as
alleged by any federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board or authority.
"Environmental Liabilities" includes all costs arising from any
Environmental Claim or violation or alleged violation or circumstance or
condition which would give rise to a violation or liability under any
Environmental Permit or Requirement of Environmental Law under any theory of
recovery, at law or in equity, and whether based on negligence, strict liability
or otherwise, including but not limited to: remedial, removal, response,
abatement, investigative, monitoring, personal injury and damage to property,
and any other related costs, judgments, payments, expenses, losses, damages,
penalties, fines, liabilities and obligations, including reasonable attorney's
fees and court costs and reasonable remedial design and consulting fees.
"Environmental Permit" means any permit, license, registration,
certificate, order, consent, approval or other authorization required under any
applicable Requirements of Environmental Law.
"Hazardous Materials" means any pollutant, contaminant, flammable
explosives, radioactive materials, hazardous material, hazardous waste,
hazardous, extremely hazardous or toxic substances or related materials, and all
asbestos (friable or non-friable), petroleum derivatives, polychlorinated
biphenyls, flammable substances and materials regulated in connection with any
Requirements of Environmental Law.
"Requirements of Environmental Law" means all requirements imposed by any
law, rule, regulation, approval, decision, decree, ordinance, by-law having the
force of law or order of any federal, state or local executive, legislative,
judicial, regulatory or administrative agency, board or authority, which relate
to (i) noise; (ii) pollution or protection of the air, surface water, ground
water or land; (iii) solid, gaseous or liquid waste generation, treatment,
storage, use, processing, disposal or transportation; (iv) exposure to hazardous
or toxic
-30-
<PAGE>
substances; (v) the safety or health of employees or (vi) regulation of the
manufacture, processing, distribution in commerce, use, or storage of chemical
substances.
2.1.26. Legal Actions. Except as described in Section 2.1.26 of the
-------------
Disclosure Schedule, no legal action, suit, proceeding, grievance, arbitration,
investigation, audit or claim by or before any court, arbitration panel or
governmental agency (including, without limitation, an Environmental Permit
proceeding, Environmental Claim or proceeding respecting or arising under
Requirements of Environmental Law) is pending or, to the knowledge of the
Company, any Company Subsidiary or any Majority Stockholder, threatened which
involves or may involve the Company or any Company Subsidiary or their
respective predecessors or any of their respective now or previously owned or
operated assets, properties, operations or business or the purchase, sale,
transportation or processing of materials or products.
2.1.27. Specific Obligations. Neither the Company nor any Company
--------------------
Subsidiary has any indebtedness for borrowed money, obligations under or in
respect of letters of credit or obligations in the nature of earnouts or
contingent payments or indebtedness for the purchase of property (except trade
payables incurred in the ordinary course of business) other than as set forth in
Sections 2.1.14, 2.1.21 or 2.1.27 of the Disclosure Schedule. Except as
disclosed in Sections 2.1.14, 2.1.21 or 2.1.27 of the Disclosure Schedule, no
prepayment penalties, premiums, success fees or other similar payments are
payable in connection with the prepayment of any of the foregoing.
2.1.28. Information in ESOP Participant Disclosure Statement;
-----------------------------------------------------
Information Statement. None of the information supplied or to be supplied by
- ---------------------
the Company to the Airtron, Inc. Profit Sharing and Stock Ownership Plan (the
"ESOP") or to participants therein in connection with the transactions
contemplated hereby, including the ESOP Participant Disclosure Statement (as
defined below) will, at the time it is distributed or communicated to the ESOP
or the ESOP participants, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
None of the information supplied or to be supplied from time to time
in writing by the Company specifically for inclusion in the Employee Offering
Memorandum (as defined below) or the confidential information statement to be
distributed to the Stockholders in connection with the transactions contemplated
hereby (the "Information Statement") will, at the time it is distributed,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
-31-
<PAGE>
the statements therein, in light of the circumstances under which they are made,
not misleading.
Notwithstanding the foregoing, the Majority Stockholders make no
representation with respect to statements made in any of the foregoing documents
based on information supplied by Parent or any Parent Subsidiary in writing
specifically for inclusion therein.
2.1.29. No Material Adverse Change. Except as disclosed in Section
--------------------------
2.1.29 of the Disclosure Schedule, since December 31, 1996, the Company and the
Company Subsidiaries have conducted their respective businesses in the ordinary
and usual course and there has not been any change in the assets, business,
results of operations, financial condition, long-term debt, Net Worth (as
defined below), cash flows or prospects of the Company and the Company
Subsidiaries that has had or might have a Company Material Adverse Effect.
Except as disclosed in Section 2.1.29 of the Disclosure Schedule, the Company
and the Company Subsidiaries have:
(i) carried on their businesses in substantially the same manner
as heretofore conducted and not introduced any material new method of
management, operation or accounting, nor provided discounted services other
than in accordance with past practices;
(ii) maintained their properties, facilities, equipment and other
assets, including those held under leases, in good working order, condition
and repair, ordinary wear and tear excepted;
(iii) performed all of their obligations under all debt and lease
instruments and other agreements relating to or affecting their respective
businesses, assets, properties, equipment and rights, paid all vendors,
suppliers and other third parties (including mechanics and materialmen) as
and when their invoices have become due, and paid in full all payroll
obligations when due;
(iv) maintained their present debt and lease instruments (unless
the same have otherwise matured) and refrained from entering into new or
amended debt or lease instruments;
(v) kept in full force and effect their present insurance
policies or other comparable insurance coverage;
-32-
<PAGE>
(vi) used their best efforts to maintain and preserve their
business organizations intact, retain their present employees and maintain
their relationships with suppliers, customers and others having business
relations with them;
(vii) refrained from effecting any change in their capital
structure and refrained from incurring any expenditures outside the normal
course of business, including any capital expenditures in excess of
$25,000;
(viii) refrained from starting or acquiring any new business;
(ix) maintained their present salaries and commission levels for
all officers, directors, employees and agents, except for reasonable
increases (in line with the Company's past practices) following the
Company's regular annual employee review;
(x) refrained from declaring or paying any bonuses, fees,
extraordinary commissions or any other unusual distributions to the
stockholders of the Company or any director, management personnel, sales
agent, employee or other personnel of the Company or any Company
Subsidiary; and
(xi) not, other than in the ordinary course of business,
discounted any receivables or taken any action to accelerate payment of any
receivable prior to its due date.
For purposes of this Agreement, the term "Net Worth" shall mean the
consolidated assets less the consolidated liabilities of the Company and the
Company Subsidiaries as determined under GAAP; provided, however, that for
purposes of Section 718, the effects on the consolidated assets and consolidated
liabilities of the Company and the Company Subsidiaries of the transactions
described in Sections 4.1.4, 4.1.7, 4.1.8, 4.1.9, 4.1.13, 5.1.3 and 5.2 shall be
excluded in the calculation of Net Worth as if such transactions had not
occurred prior to the close of business on February 28, 1997.
2.1.30. Disclosure. To the best knowledge of the Company and the
----------
Majority Stockholders, no representation or warranty by the Majority
Stockholders in this Agreement and no statement contained in the Disclosure
Schedule or any certificate delivered by the Company or the Majority
Stockholders to Parent or any Parent Subsidiary pursuant to this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit 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.
-33-
<PAGE>
2.1.31. Condemnation. Neither the Company nor any Company Subsidiary
------------
has received any notice of any condemnation or contemplated condemnation
proceedings which might affect any real property or real property interests
owned or leased by the Company or any Company Subsidiary.
2.1.32. Change in Laws. The Company and the Majority Stockholders
--------------
have no information or knowledge of the existence of, or of any change
contemplated by, any applicable laws, ordinances, or restrictions (whether
public or private), or any judicial or administrative action or any action by
adjacent landowners or natural or artificial conditions upon any real property
or real property interests owned or leased by the Company or any Company
Subsidiary, which might prevent, limit, impede or render more costly the
Surviving Corporation's continued use of such properties.
2.1.33. Company Material Adverse Effect. The term "Company Material
-------------------------------
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, cash flows or
contingent liabilities of the Company and the Company Subsidiaries in an amount
of $50,000 or more.
2.2. Several Representations and Warranties of the Stockholders. Each
----------------------------------------------------------
Stockholder, severally and not jointly, represents and warrants to Parent as
follows:
2.2.1. Stock Ownership, Etc. Such Stockholder owns, beneficially
---------------------
and of record, with full power to vote, the number of shares of Company Common
Stock, Warrants and SARs listed beside such Stockholder's name on Exhibit
1.3.1(a) attached hereto, and such shares, Warrants and SARs are so held by such
Stockholder free and clear of all liens, encumbrances and claims whatsoever;
provided, however, that with respect to each Stockholder holding such shares as
a trustee or custodian, such shares are held for the benefit of the respective
beneficiaries of the applicable trust or custodial arrangements and are subject
to the terms thereof. The interest, if any, of such Stockholder in the Company
Common Stock held by the Deferred Compensation Plans for the benefit of such
Stockholder is accurately set forth in Exhibit 1.3.1(a).
2.2.2. Authority. Such Stockholder has full right, power, legal
---------
capacity and authority to, and with respect to each Stockholder holding Company
Common Stock in a fiduciary capacity, such Stockholder has full power and
authority under the terms of the applicable trust, custodial or other
arrangements to (i) execute, deliver and perform this Agreement (including,
without limitation, to grant the Power of Attorney by such Stockholder) and to
execute, deliver and perform all other documents and instruments referred to
herein or contemplated hereby to be executed, delivered and performed by such
-34-
<PAGE>
Stockholder, and (ii) consummate the transactions contemplated herein and
thereby. This Agreement (including the grant of the Power of Attorney by such
Stockholder) have been duly executed and delivered by such Stockholder and
constitutes, and all documents and instruments referred to herein or
contemplated hereby when duly executed and delivered by such Stockholder will
constitute, legal, valid and binding obligations of such Stockholder enforceable
against such Stockholder in accordance with their respective terms and
conditions, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
2.2.3. Consents. No approval, consent, order or action of or
--------
filing with any court, administrative agency, governmental authority or other
third party is required for the execution, delivery or performance by such
Stockholder of this Agreement (including, without limitation, the grant of the
Power of Attorney by such Stockholder) or the other documents referred to herein
or contemplated hereby to be executed, delivered or performed by such
Stockholder. With respect to each Stockholder holding shares of Company Common
Stock in a fiduciary capacity, no consent, approval or prior notice to the
beneficiaries of such arrangement is required, or if required, has been
obtained.
2.2.4. Defaults. Except as disclosed in Section 2.2.4 of the
--------
Disclosure Schedule, the execution and delivery of this Agreement by such
Stockholder and of the other documents, agreements and instruments referred to
herein or contemplated hereby to be executed and delivered by such Stockholder,
the consummation by such Stockholder of the transactions contemplated hereby and
thereby and the performance by such Stockholder of such Stockholder's
obligations hereunder and thereunder will not constitute a violation of,
conflict with, or result in a default or a breach of fiduciary duty under (i)
any mortgage, indenture, charter, bylaw provision, contract, agreement, lease,
commitment or other instrument of any kind to which such Stockholder is a party
or under which such Stockholder's properties or assets may be bound or
affected , or (ii) any applicable trust, custodial or other arrangement pursuant
to which such Stockholder acts as fiduciary or (iii) any law, rule or regulation
applicable to such Stockholder or any court injunction, order or decree, or any
valid or enforceable order of any governmental agency having jurisdiction over
such Stockholder, which violation, conflict or default could adversely affect
the ability of such Stockholder to consummate and perform the transactions
contemplated hereby.
-35-
<PAGE>
3. PARENT'S REPRESENTATIONS,
WARRANTIES AND COVENANTS
3.1. Representations and Warranties. Simultaneously with the execution and
------------------------------
delivery of this Agreement, Parent is delivering to the Attorney-in-Fact a
disclosure schedule (the "Parent Disclosure Schedule"). Parent hereby
represents and warrants to each of the Stockholders as follows:
3.1.1. Organization. Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas.
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. Subsidiaries. Except for the corporations described in
------------
Section 3.1.2 of the Parent Disclosure Schedule, and direct or indirect
subsidiary corporations of Parent formed after the date hereof and prior to the
Closing Date as may be disclosed in writing to the Attorney-in-Fact (the "Parent
Subsidiaries"), Parent does not and will not prior to the Closing Date own or
hold of record or beneficially, directly or indirectly, 50% or more of the
outstanding capital stock, voting interests, or ownership interests in any
corporation, partnership, joint venture or other entity. Each Parent Subsidiary
is or will be duly organized, validly existing and in good standing under the
laws of the state of its incorporation, and is prior to the Closing Date duly
qualified or licensed as a foreign corporation authorized to do business in each
state 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 will not have a Parent Material Adverse Effect.
3.1.3. Capitalization of Parent. The total authorized capital
------------------------
stock of Parent is 100,000,000 shares of Parent Common Stock, of which 4,028,363
shares are issued and outstanding, and 50,000,000 shares of preferred stock,
$.001 par value, none of which are issued or outstanding. The outstanding shares
of Parent Common Stock have been duly and validly issued and are fully paid and
non-assessable. Except for the agreements and instruments listed in Section
3.1.3 of the Parent Disclosure Schedule and except for securities which may be
issued in Pending Acquisitions (as defined below) there is and will be
immediately prior to the Closing Date no outstanding capital stock, convertible
or exchangeable securities, subscriptions, calls, options, warrants, rights or
other agreements or commitments of any character relating to the issuance or
sale of any shares of capital stock of, or other equity or ownership interest
in, Parent ("Parent Other Ownership Interests")
-36-
<PAGE>
outstanding and no agreements of any kind to which Parent is a party or
otherwise bound relating to the issuance, sale or transfer of any capital stock
of Parent or any Parent Other Ownership Interests. Parent has and will have
immediately prior to the Closing Date no liability, contingent or otherwise, nor
has any claim been asserted or threatened by, any person, including without
limitation any holder or former holder of shares, options, warrants, or other
equity or voting or ownership interests or other securities of Parent, in
connection with pre-emptive or contractual subscription rights or the offer,
sale, purchase, redemption, surrender or cancellation of any shares, options,
warrants or other equity or voting or ownership interests or securities of
Parent. As of the Closing Date, the shares of Parent Preferred Stock and Parent
Common Stock to be delivered to holders of Company Common Stock, Warrants and
SARs pursuant to this Agreement will be duly authorized and, upon delivery to
such holders pursuant to this Agreement, validly issued fully paid and
nonassessable. Parent has not repurchased or redeemed any of its outstanding
capital stock. Parent has afforded the Attorney-in-Fact and the Stockholders
full access to the minute books and capital stock and similar records of the
Parent, which books and records are true, complete and accurate. The names and
addresses of the holders of record of five percent or more of the outstanding
shares of Parent Common Stock, the number of shares of Parent Common Stock held
of record by each of such holders, and the names and addresses of the holders of
all Parent Other Ownership Interests other than Parent Common Stock and the type
and amount of Parent Other Ownership Interest held by each of such holders are
set forth in Section 3.1.3 of the Parent Disclosure Schedule. For purposes of
this Agreement, the term "Pending Acquisition" shall mean any acquisition by
Parent or any Parent Subsidiary of outstanding capital stock or assets of any
other person or entity as to which a letter agreement in principle or memorandum
of understanding has been entered into prior to the Closing Date, the material
terms of which acquisition (to the extent known by Parent) are disclosed to the
Attorney-in-Fact in writing by Parent prior to the Closing Date.
3.1.4. Authority. Parent has full right, power, legal capacity and
---------
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby and to consummate the
transactions contemplated herein and thereby. This Agreement has been duly
executed and delivered by Parent and constitutes, and all documents and
instruments referred to herein or contemplated hereby to be executed and
delivered by Parent, when executed and delivered by Parent will constitute,
legal, valid and binding obligations of 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).
-37-
<PAGE>
3.1.5. Consents. Except for the filings, if any, under applicable
--------
state securities or "blue sky" laws, 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 Parent of
this Agreement or the other documents and instruments referred to herein or
contemplated hereby to be executed, delivered or performed by Parent.
3.1.6. Title. Except as disclosed in Section 3.1.6 of the Parent
-----
Disclosure Schedule, Parent and the presently existing Parent Subsidiaries own
outright, and have full legal and beneficial title to all of their respective
assets free and clear of all liens, pledges, mortgages, security interests,
conditional sales contracts and encumbrances. As of the date hereof, Parent and
the existing Parent Subsidiaries own no real estate or interest in real estate
except for the leasehold interests described in Section 3.1.6 of the Parent
Disclosure Schedule. Section 3.1.6 of the Parent Disclosure Schedule contains a
description of all real property and real property interests leased as lessee by
Parent or any presently existing Parent Subsidiary.
3.1.7. Defaults. Neither Parent nor any existing Parent Subsidiary
--------
nor any Parent Subsidiary formed after the date hereof and prior to the Closing
Date is or will be prior to the Closing Date in default under, in breach of or
in violation of, and the execution, delivery and performance of this Agreement
and the other documents and instruments re ferred to herein or contemplated
hereby to be executed and delivered by Parent and the consummation by Parent of
the transactions contemplated hereby and thereby and the performance by Parent
of its obligations hereunder and thereunder will not constitute a violation of,
conflict with, or result in a default under or (except as contemplated by the
financing of the transactions contemplated hereby) cause the imposition upon
Parent or any Parent Subsidiary of any additional adverse burden or condition
under (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which Parent or
any Parent Subsidiary is a party or by which Parent or any Parent Subsidiary or
any of their respective properties or assets may be bound or affected or (ii)
any law, rule or regulation applicable to Parent or any Parent Subsidiary 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
Parent or any Parent Subsidiary, which default, breach, violation, conflict or
imposition described in this clause (ii) could adversely affect the ability of
Parent to consummate the transactions contemplated hereby.
-38-
<PAGE>
3.1.8. Power of Attorney. Except as set forth in Section 3.1.8 of
-----------------
the Disclosure Schedule, Parent has not given to any person or party, and there
is not currently existing, any power of attorney of any type pertaining to the
Parent.
3.1.9. Proprietary Rights. To the best knowledge of Parent, Parent
------------------
and the Parent Subsidiaries will have at the Closing Date full and sufficient
rights to use all trade names, brand names, trademarks, service marks and logos
and to use and practice all technology, proprietary information, know-how or
patented ideas, designs or inventions (collectively "Parent Proprietary
Rights") necessary for the operation of their businesses and the marketing,
distribution, sale and use (whether by Parent or any Parent Subsidiary or their
direct or indirect customers) of the materials used and the products sold by
Parent and the Parent Subsidiaries. To the best knowledge of Parent, none of the
ownership, access to, use or practice of the Parent Proprietary Rights by Parent
or any Parent Subsidiary infringe on the rights of any other party and all
Parent Proprietary Rights are valid and enforceable. Parent has provided the
Company and the Attorney-in-Fact access to the documentation respecting the
Parent Proprietary Rights.
3.1.10. Labor Matters. To the best knowledge of Parent, the
-------------
employees of Parent and the existing Parent Subsidiaries are not subject to any
collective bargaining agreements or other contracts with a labor union,
contingent or otherwise, nor are any such employees represented by any labor
union. To the best knowledge of Parent, there are no unfair labor practice
charges or complaints pending against Parent or any existing Parent Subsidiary
involving employees now or previously employed by Parent or any existing Parent
Subsidiary. Since November 1, 1996 there have not been any labor disputes or
written and filed grievances or claims involving employees of Parent or any
existing Parent Subsidiary or to the best knowledge of Parent, any union
organizational efforts involving employees of Parent or any existing Parent
Subsidiary.
3.1.11. Employee Benefits. Section 3.1.11 of the Parent Disclosure
-----------------
Schedule lists all of the "Parent Plans" (as defined below). Except as described
in Section 3.1.11 of the Parent Disclosure Schedule, to the best knowledge of
Parent, neither Parent nor any existing Parent Subsidiary nor any other
organization which is a member of a controlled group of organizations within the
meaning of Sections 414(b), (c), (m) or (o), of the Code of which Parent or any
existing Parent Subsidiary is a member (the "Parent Controlled Group") has any
obligation, contingent or otherwise, covering any of their employees under any
employment or consulting agreement or under any executive or employee's
compensation plan, agreement or arrangement including, without limitation, any
"employee welfare benefit plan" as defined in Section 3(1) of ERISA, or any
other pension, retirement, profit sharing, stock option, stock purchase, bonus,
savings plan, health, welfare
-39-
<PAGE>
or other employee or former employee benefit plan, program, policy or
arrangement (collectively referred to herein as "Parent Plans"). To the best
knowledge of Parent, neither Parent nor any Parent Subsidiary nor any members of
the Parent Controlled Group currently sponsors or maintains or has over the
prior six (6) years maintained or sponsored any "employee pension benefit plan"
as defined in Section 3(2) of ERISA. To the best knowledge of Parent, there is
no voluntary employees' beneficiary association which is implementing any Parent
Plan. Except as disclosed in Section 3.1.11 of the Parent Disclosure Schedule,
to the best knowledge of Parent, neither the Parent nor any existing Parent
Subsidiary nor any fiduciary now or previously acting pursuant to any Parent
Plan ("Parent Plan Fiduciary") has breached or otherwise failed to comply with
any provision of any Parent Plan, and there are no written and filed claims
(other than for benefits in the ordinary course) grievances, audits,
investigations or suits pending against Parent, any existing Parent Subsidiary
or any Parent Plan Fiduciary under any Parent Plan. Parent has delivered copies
of the following to the Company and the Attorney-in-Fact: (i) collective
bargaining agreements or other such contracts relating to the benefits under any
Parent Plan and (ii) Forms S-8, if any, (including any amendments thereto) for
any Parent Plan.
Except for the Amended and Restated Savings Plan (as defined below),
no Parent Plan is an "employee pension benefit plan" within the meaning of ERISA
Section 3(2).
To the best knowledge of Parent, with respect to any Parent Plan which
is an "employee welfare benefit plan" (within the meaning of ERISA Section
3(1)): (i) each Parent Plan which is intended to meet the requirements for tax-
favored treatment under Subchapter B of Chapter 1 of the Code meets such
requirements, (ii) there is no disqualified benefit (as such term is defined in
the Code Section 4976(b)) which would subject Parent or any Parent Subsidiary,
or the Surviving corporation to any taxes under Code Section 4976(a); (iii) each
Parent Plan which is a group health plan (as such term is defined in Code
Section 162(i)(2)) complies and has complied with the applicable requirements of
Code Section 4980B; and (iv) each member of the Parent Controlled Group has
complied with the reporting and disclosure requirements of ERISA for reports and
disclosures required to be reported or disclosed prior to or as of the date
hereof. Except as described in Section 3.1.11 of the Parent Disclosure
Schedule, to the best knowledge of Parent, neither the Parent nor any Parent
Subsidiary nor the Parent Controlled Group maintains any post-retirement health
and life insurance plans for employees and retirees. Except as listed in
Section 3.1.11 of the Parent Disclosure Schedule or as provided in Article 5 of
this Agreement, to the best knowledge of Parent, neither Parent nor any Parent
Subsidiary has any commitment, whether formal or informal and whether legally
binding or not, to create any additional parent Plan or to amend or modify any
Parent Plan, and except as provided in Article 5 of this
-40-
<PAGE>
Agreement, no benefits will become payable under any Parent Plan as a result of
the consummation of the transactions contemplated hereby. To the best knowledge
of Parent, neither Parent nor any Parent Subsidiary has made or is obligated to
make any nondeductible contribution to any Parent Plan.
3.1.12. Certain Contracts. Section 3.1.12 of the Parent Disclosure
-----------------
Schedules lists each contract, lease, undertaking, commitment, mortgage,
indenture, note, security agreement, license and other agreement of Parent or
any existing Parent Subsidiary in effect on the date hereof (i) involving the
expenditure or receipt of more than $100,000 over the term thereof, (ii)
containing provisions calling for the sale or purchase of raw materials,
products or services at prices that vary from the market prices of such raw
materials, products or services generally prevailing in customary third party
markets, (iii) which include "take or pay," "meet or release," "most favored
nations" or similar pricing or delivery arrangements, (iv) between Parent and
any Parent Subsidiary or among any Parent Subsidiaries, (v) requiring Parent or
any Parent Subsidiary to indemnify or hold harmless any other person or entity,
(vi) evidencing any warranty obligation of Parent or any Parent Subsidiary with
respect to goods, services or products sold or leased by any of them, other than
in the ordinary course of business, or (vii) imposing on Parent or any Parent
Subsidiary any confidentiality, non-disclosure or non-compete obligation (except
those to which such access is prohibited pursuant to the terms thereof). The
contracts, leases, undertakings, commitments, mortgages, indentures, notes,
security agreements, leases, licenses and other agreements of the nature
described in clauses (i) through (vii) are sometimes collectively referred to
herein as the "Parent Contracts." Except as set forth in Section 3.1.12 of
the Parent Disclosure Schedule, neither Parent nor any existing Parent
Subsidiary nor any other party thereto is in default under any Parent Contract,
nor does any event, circumstance or situation exist which, with the passage of
time or notice or both will constitute a default by Parent or any existing
Parent Subsidiary or any other party under any such Parent Contract or any
judgment, order or decree of any court or any government agency or
instrumentality under which any person, firm, corporation or other entity is or
may be entitled to assert any rights against Parent or any existing Parent
Subsidiary or their respective assets, properties, businesses, operations or
products.
3.1.13. Officers, Directors and Affiliates. Section 3.1.13 of the
----------------------------------
Parent Disclosure Schedule lists all directors and officers of Parent and the
existing Parent Subsidiaries as of the date hereof and their respective dates of
service and describes all trans actions, contracts and other arrangements
between Parent or any existing Parent Subsidiary and any officer, director,
stockholder or affiliate of Parent or any existing Parent Subsidiary which (i)
occurred or became effective after March 1, 1994, (ii) occurred, became
effective or existed prior to March 1, 1994 and were not fully performed and
terminated as of March 1,
-41-
<PAGE>
1994, or (iii) constitutes a liability or obligation (contingent or direct) due
or to become due by Parent or any existing Parent Subsidiary to any officer,
director, stockholder, or affiliate of Parent or any existing Parent Subsidiary,
in each case other than the customary employee compensation and employee
benefits and customary arrangements with respect to expense reimbursements.
3.1.14. Investment Company. Parent is not, and will not be
------------------
immediately prior to the Closing Date, 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.
3.1.15. Financial Statements. Except as described in Section 3.1.15
--------------------
of the Parent Disclosure Schedule, the financial statements ("Parent Financial
Statements") listed in Section 3.1.15 of the Parent Disclosure Schedule are true
and correct in all material respects, and are fair presentations of the
consolidated financial position, results of operations and cash flows of
Parent and the existing Parent Subsidiaries as of the dates and for the periods
indicated and to the best knowledge of Parent, have been prepared in accordance
with GAAP. The books and records of Parent and the existing Parent Subsidiaries
have been kept in reasonable detail and accurately and fairly reflect the
transactions of Parent and the existing Parent Subsidiaries.
3.1.16. Undisclosed Liabilities. Except as and to the extent
-----------------------
disclosed or reserved against in the Parent Financial Statements, or as
disclosed in Section 3.1.16 of the Parent Disclosure Schedule, and except for
liabilities incurred in the ordinary course of business and otherwise not in
contravention of this Agreement after February 28, 1997, and except for
liabilities incurred in connection with Pending Acquisitions, neither Parent nor
any existing Parent Subsidiary has, to the best knowledge of Parent, any
liabilities or obligations of any nature (whether absolute, contingent or
otherwise).
3.1.17. Guaranties, Etc. Except as disclosed in Sections 3.1.12 or
----------------
3.1.17 of the Parent Disclosure Schedule, and except with respect to Pending
Acquisitions, neither Parent nor any existing Parent Subsidiary has outstanding,
(i) any guarantee (whether direct or indirect) whereby Parent or any existing
Parent Subsidiary is or may become liable for any indebtedness or obligation of
any other person or entity, (ii) any capital or operating lease obligations in
excess of $20,000 per year, or (iii) any investment in the securities,
obligations or other ownership interests of, or loans or advances to, any person
or entity (other than nominal travel advances to employees not exceeding $25,000
in the aggregate).
-42-
<PAGE>
3.1.18. Taxes. 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 of Parent and the existing Parent Subsidiaries, their respective
businesses or operations or the revenues or income derived therefrom for all
periods through December 31, 1996, and the assessment of any additional taxes
that by law should have been reported or paid or in accordance with GAAP should
have been accrued as of December 31, 1996, is not expected. All quarterly
deposits of estimated taxes required to be paid by Parent and the Parent
Subsidiaries through the Closing Date will have been paid on or before the
Closing Date. All other taxes of Parent and the Parent Subsidiaries for any
period after December 31, 1996 through the date hereof have been paid or
properly accrued on the books of Parent and the Parent Subsidiaries, as
appropriate.
3.1.19. Full Authority. Except as disclosed in Section 3.1.19 of
--------------
the Parent Disclosure Schedule, Parent and the Parent Subsidiaries will have, at
the Closing Date, full power, authority and legal right and have all licenses,
permits, qualifications, and other documentation necessary to own and/or
operate their respective businesses, properties and assets and to carry on their
respective businesses and at the Closing Date such businesses will be conducted
and such assets and properties will be owned and/or operated in compliance with
all applicable laws and all ordinances, rules and regulations of any
governmental department, commission, board, bureau, agency or instrumentality of
the United States, any state or political subdivision thereof, or any foreign
jurisdiction, and all applicable court or administrative agency decrees, awards
and orders, except where the failure to comply will not have a Parent Material
Adverse Effect, and there will be no then existing condition or state of facts
which would give rise to a violation thereof or a liability or default
thereunder, except where a violation, liability or default will not have a
Parent Material Adverse Effect.
3.1.20. Environmental Matters. Except as disclosed in Section
---------------------
3.1.20 of the Parent Disclosure Schedule, as of the date hereof, (i) Parent and
the Parent Subsidiaries have obtained and maintained in effect all Environmental
Permits required with respect to their respective properties, assets, businesses
and operations, and such Environmental Permits are not subject to any appeals or
further proceedings or to any unsatisfied conditions, (ii) Parent and the Parent
Subsidiaries and their respective properties, assets, businesses and operations
are in compliance with all applicable Requirements of Environmental Law and
Environmental Permits, (iii) Parent and the Parent Subsidiaries and their
respective properties, assets, businesses and operations are not subject to any
Environmental Claims (direct or contingent, and whether known or unknown) or
Environmental Liabilities arising from or based upon any act, omission, event,
condition or circumstance occurring or existing
-43-
<PAGE>
on or prior to the date hereof, including without limitation, any such
Environmental Claims or Environmental Liabilities arising from or based upon the
ownership or operation of assets, businesses or properties now or previously
owned or operated by Parent or any Parent Subsidiary or their respective
predecessors, (iv) Parent has not received any notice of any violation or
alleged violation of any Requirements of Environmental Law or Environmental
Permit or any Environmental Claim in connection with its now or previously owned
or operated assets, properties, businesses or operations, or, in each case,
those of its predecessors, and (v) there are no Hazardous Materials on, in,
above, around, adjacent to ro under any of the properties, assets, business or
operations of Parent or any Parent Subsidiary other than those used in the
ordinary course of business and within the Requirements of Environmental Law.
3.1.21. Legal Actions. No legal action, suit, proceeding,
-------------
grievance, arbitration, investigation, audit or claim by or before any court,
arbitration panel or governmental agency (including, without limitation, an
Environmental Permit proceeding, Environmental Claim or proceeding respecting or
arising under Requirements of Environmental Law) is pending or, to the knowledge
of Parent, threatened which involves or may involve Parent or any existing
Parent Subsidiary or their respective predecessors or any of their respective
now or previously owned or operated assets, properties, operations or business
or the purchase, sale, transportation or processing of materials or products.
3.1.22. Information in ESOP Participant Disclosure Statement;
-----------------------------------------------------
Information Statement. None of the information supplied by Parent from time to
- ---------------------
time in writing specifically for the inclusion in the ESOP Participant
Disclosure Statement will, at the time it is distributed to the ESOP or the ESOP
participants, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading.
None of the information supplied by Parent from time to time in
writing specifically for inclusion in the Information Statement will, at the
date the Information Statement is distributed to the holders of Company Common
Stock, Warrants or SARs contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading.
The Employee Offering Memorandum will not, at the time it is
distributed to employees of the Company and the Company Subsidiaries, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary
-44-
<PAGE>
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
Notwithstanding the foregoing, Parent makes no representation with
respect to statements made in any of the foregoing documents based on
information supplied by the Company in writing specifically for inclusion
therein.
3.1.23. No Material Adverse Change. Except as disclosed in Section
--------------------------
3.1.23 of the Parent Disclosure Schedule, since February 28, 1997, Parent and
the existing Parent Subsidiaries have conducted their respective businesses in
the ordinary and usual course and there has not been any change in the assets,
business, results of operations, financial condition, long-term debt, cash flows
or prospects of Parent and the existing Parent Subsidiaries that has had or
might have a Parent Material Adverse Effect.
3.1.24. Disclosure. To the best knowledge of Parent, no
----------
representation or warranty by Parent in this Agreement and no statement
contained in the Parent Disclosure Schedule or any certificate delivered by
Parent to the Attorney-in-Fact pursuant to this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit 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.
3.1.25. 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, cash flows or
contingent liabilities of Parent and the Parent Subsidiaries in an amount of
$50,000 or more.
4. CONDUCT PRIOR TO THE CLOSING AND CERTAIN OTHER MATTERS
4.1 Company. The Majority Stockholders further agree with Parent that:
-------
4.1.1. Preservation of Business. From the date hereof to the
------------------------
Closing Date, the Company and the Company Subsidiaries shall use their
reasonable efforts to maintain and preserve their business organizations intact,
retain their present employees, maintain their relationships with suppliers,
customers and others having business relations with them, and preserve the good
will of all persons dealing with the Company and the Company Subsidiaries.
4.1.2. Cooperation. From the date hereof to the Closing Date, each
-----------
Majority Stockholder, the Company and the Company Subsidiaries will cooperate
fully with
-45-
<PAGE>
Parent as to arrangements for the consummation of the transactions contemplated
hereby in an orderly fashion.
4.1.3. Insurance. From the date hereof to the Closing Date, the
---------
Company and the Company Subsidiaries will maintain in full force and effect all
of their insurance now in effect (or other comparable insurance coverage)
covering their respective assets, operations and employees, and not default
(except where such default will not have a Company Material Adverse Effect or
have an adverse effect on the insurance coverage or insurance costs of the
Company or any Company Subsidiary) with respect to any provision of, and give
all notices and present all claims under, all insurance policies in a due and
timely fashion.
4.1.4. Certain Notices. From the date hereof to the Closing Date,
---------------
the Attorney-in-Fact will promptly notify Parent of the receipt by him, the
Company, any Company Subsidiary or any Majority Stockholder of any notice or
claim, written or oral, of (i) default or breach by the Company or any Company
Subsidiary under, or of any termination (other than at end of the stated term
thereof) or cancellation, or threat of termination (other than at end of the
stated term thereof) or cancellation, of any Company Contract, (ii) any loss of,
damage to or disposition of, any of the properties, assets or the products of
the Company or any Company Subsidiary of a value of $10,000 or more, singly or
in the aggregate (other than the sale or use of inventories in the ordinary
course of business), (iii) any claim or litigation, threatened or instituted, or
any other adverse event or occurrence involving or affecting the Company or any
Company Subsidiary or any of their respective assets, properties, operations,
businesses or employees, and (iv) any proposal made by any third party received
by the Company or any Company Subsidiary or of which any Majority Stockholder
obtains knowledge in respect of any sale or other disposition, direct or
indirect, of the assets (other than the sale or use of inventories in the
ordinary course of business), businesses or outstanding capital stock or other
ownership or voting interests of the Company or any Company Subsidiary.
4.1.5. Filings, Etc. From the date hereof to the Closing Date,
-------------
each Majority Stockholder, the Company and the Company Subsidiaries will make
all filings which are required to be made by them to lawfully consummate the
transactions contemplated hereby.
4.1.6. Compliance with Laws. From the date hereof to the Closing
--------------------
Date, the Company and the Company Subsidiaries will comply with and cause to be
complied with all applicable laws, rules, regulations and orders of all federal,
state and local governments or governmental agencies affecting or relating to
the Company or any Company Subsidiary
-46-
<PAGE>
or their respective assets, properties, operations, businesses or employees
except where the failure to comply will not have a Company Material Adverse
Effect.
4.1.7. Encumbrances and Dispositions. Without the prior written
-----------------------------
consent of Parent, except to the extent disclosed in Section 4.1.7 of the
Disclosure Schedule, from the date hereof to Closing Date neither the Company
nor any Company Subsidiary shall sell, dispose of, distribute, encumber or enter
into any agreement or arrangement for the sale, disposition, distribution or
encumbrance of any of its assets or properties (other than the sale or use of
inventories in the ordinary course of business) or enter into any transaction,
the effect of which would be to materially diminish the amount or value of the
properties, assets or operations of the Company or any Company Subsidiary or
otherwise adversely affect its business.
4.1.8. Negotiations. From the date hereof to the Closing Date,
------------
except to the extent disclosed in Section 4.1.8 of the Disclosure Schedule,
neither the Company nor any Company Subsidiary nor any Stockholder shall,
directly or indirectly, offer to sell or dispose of, negotiate to sell, or
dispose of, have discussions with third parties with respect to the sale or
disposition of or sell any of the assets or properties of the Company or any
Company Subsidiary to or with any third party (other than the sale or use of
inventories in the ordinary course of business).
4.1.9. Other Matters. From the date hereof to the Closing Date,
-------------
unless otherwise agreed to by Parent, disclosed in Section 4.1.9 of the
Disclosure Schedule or expressly provided in Articles 4 and 5:
(i) there shall not be any declaration, setting aside or payment
of any dividend or any other distribution in respect of, or any purchase or
redemption by the Company or any Company Subsidiary of, any capital stock,
Other Ownership Interest or other voting interest of the Company or any
Company Subsidiary and neither the Stockholders nor any other holder of
capital stock of the Company or any Company Subsidiary shall otherwise
receive any bonuses, fees, extraordinary commissions or distributions of
property or assets of the Company or any Company Subsidiary from the
Company or any Company Subsidiary (except for normal compensation to
Stockholders who are employees) and the annual dividend for the fiscal year
ending February 28, 1997 of $.04 per share, paid January 31, 1997.
(ii) the Company and the Company Subsidiaries shall maintain
their present compensation and commission levels for all officers,
directors, employees and agents except for reasonable increases consistent
with past practice which are
-47-
<PAGE>
made after the Company's regular annual employee review and the aggregate
impact of which will be reviewed with Parent; and neither the Company nor
any Company Subsidiary will grant or commit to grant any bonus, fees,
extraordinary commissions or other distributions to any director, officer,
agent or employee; provided that the Company may pay or accrue year-end
bonuses to management employees to the extent such bonuses are either paid
or accrued as current liabilities on the consolidated balance sheet of the
Company and the Company Subsidiaries as of February 28, 1997;
(iii) neither the Company nor any Company Subsidiary will make any
change in any accounting principle, classification, policy or practice;
(iv) there shall not be any amendment to the certificates of
incorporation or bylaws or other governing instruments of the Company or
any Company Subsidiary or any change in the capital structure of the
Company or any Company Subsidiary;
(v) there shall not be any merger or consolidation by the
Company or any Company Subsidiary with or into, or the acquisition by the
Company or any Company Subsidiary of all or substantially all of the
assets, capital stock or business of, any person, corporation, partnership,
association or other business organization or division of any thereof, or
the entry by the Company or any Company Subsidiary into any new line of
business;
(vi) the Company and the Company Subsidiaries shall maintain
their present debt and lease agreements and instruments (except those that
expire on their stated maturity or lease termination dates) and shall not
enter into any amendments thereto or new debt or lease agreements or
instruments, and there shall not be any increase by the Company or any
Company Subsidiary of any indebtedness for borrowed money or the issue
and/or sale by the Company or any Company Subsidiary of any debt securities
or letters of credit or any payments by the Company or any Company
Subsidiary of any indebtedness or interest thereon or other amounts (other
than regularly scheduled principal and interest payments and payments of
principal, interest and fees under revolving lines of credit);
(vii) the businesses of the Company and the Company Subsidiaries
will be conducted and operated (including the management of working
capital) only in the ordinary course consistent with past practice and
neither the Company nor any Company Subsidiary shall introduce any new
method of management or operation,
-48-
<PAGE>
provide any discounted services or products, discount any receivables or
take any action to accelerate payment of any receivable prior to its due
date, except in accordance with past practices;
(viii) the Company and the Company Subsidiaries shall properly
maintain their respective operating assets, properties, facilities and
equipment, including those held under leases in good working order and
operating condition (except for ordinary wear and tear);
(ix) without the prior written consent of Parent, neither the
Company nor any Company Subsidiary will, other than in the ordinary course
of business, enter into any contract, lease, undertaking, commitment,
mortgage, indenture, note, security agreement, license or other agreement
(a) involving the receipt or expenditure of more than $10,000 over the term
thereof (b) containing provisions calling for the sale or purchase of raw
materials, product or service at prices that vary from the market prices of
such raw materials, products or services generally prevailing in customary
third party markets, (c) which include "take or pay", "meet or release",
"most favored nations" or similar pricing or delivery arrangements, (d)
between the Company and any Company Subsidiary or among any Company
Subsidiaries, (e) with any officer, director, stockholder or affiliate of
the Company or any Company Subsidiary, (f) requiring the Company or an
Company Subsidiary to indemnify or hold harmless any other person or
entity, (g) evidencing any warranty obligation of the Company or any
Company Subsidiary with respect to goods, services or products sold or
leased by any of them (other than warranties giving in the normal course of
business containing substantially the same terms as those presently in
effect), or (h) imposing on the Company or any Company Subsidiary any
confidentiality, non-disclosure or non-compete obligation;
(x) the Company and the Company Subsidiaries will perform all of
their obligations under all Company Contracts and all other debt and lease
agreements or instruments to which any of them are or become parties, will
pay all payables and invoices from vendors, suppliers and other third
parties (including mechanics and materialmen) as and when the same become
due and pay in full all payroll obligations when due; and
(xi) the Company and the Company Subsidiaries will refrain from
incurring any expenditures outside the normal course of business and will
not make any capital expenditure in excess of $10,000 without the prior
written consent of Parent.
-49-
<PAGE>
4.1.10. Access. From the date of this Agreement until the Closing,
------
the Company will cooperate fully in permitting Parent and Parent's lenders,
underwriters and placement agents and their respective representatives,
advisers, consultants, appraisers, auditors, engineers and other experts to make
a full investigation of the properties, operations and financial condition of
the Company and the Company Subsidiaries; and afford Parent and Parent's
lenders, underwriters and placement agents and their respective representatives,
advisers, consultants, appraisers, auditors, engineers and other experts
reasonable access to the offices, buildings, real properties, machinery and
equipment, inventory and supplies, records, files, books of account, tax
returns, agreements and commitments and personnel of the Company and the Company
Subsidiaries. Without limitation of the foregoing, the Company shall provide
Parent with such reasonably available financial information (and schedules with
respect thereto) with respect to the Company or any Company Subsidiary as Parent
may reasonably request and will cooperate with and assist representatives of
Parent in the preparation of such financial information (and any opinions or
reports with respect thereto) with respect to the Company or any Company
Subsidiary as Parent may reasonably request. Notwithstanding the above, Parent,
Subsidiary and their respective lenders, underwriters and placement agents and
their respective representatives, advisors, consultants, appraisers, engineers
and other experts shall incur no liability with respect to control, operation or
management (or alleged control, operation or management) of the Company or any
Company Subsidiary as a result of the covenants in this Section 4.1.
4.1.11. Satisfaction of Conditions. Prior to the Closing Date, the
--------------------------
Majority Stockholders shall (i) use their reasonable efforts to obtain or cause
the Company and the Company Subsidiaries to obtain, as soon as possible, all
governmental approvals required to be obtained by the Company and the Company
Subsidiaries and make, as soon as possible, all filings with any governmental
authority required on the part of the Company and the Company Subsidiaries to
consummate the transactions contemplated hereby, (ii) use their reasonable
efforts to obtain, or cause the Company and the Company Subsidiaries to obtain,
as soon as possible, all other consents to and approvals required to be obtained
by the Company and the Company Subsidiaries to consummate the transactions
contemplated hereby, and (iii) otherwise use their reasonable efforts to satisfy
or cause to be satisfied the conditions set forth in Section 71 to the extent
that such satisfaction is within their control; provided, however, that this
Section 4111 shall not be construed to limit the rights of the Attorney-in-Fact
to terminate this Agreement as provided in Section 8.1.
4.1.12. Title Insurance. The Majority Stockholders shall cause the
---------------
Company to obtain and deliver to Parent, as soon as practicable, and in any
event at least 21 days prior to the Closing Date, commitments for title
insurance ("Title Commitments") issued by title insurance company(ies)
reasonably acceptable to Parent with respect to the
-50-
<PAGE>
real property and real property interests described in Section 4.1.12 of the
Disclosure Schedule ("Title Insurance Property"), surveys of the Title Insurance
Property reasonably acceptable to Parent (the "Surveys") and duplicate sets of
legible copies of title exception documents with respect to any exception set
forth in the commitments. The Title Commitments shall set forth the state of
title to the Title Insurance Property together with all exceptions or conditions
to such title, including, but not limited to, all easements, restrictions,
rights-of-way, covenants, reservations and all other encumbrances affecting the
Title Insurance Property which would appear in an Owner's Policy of Title
Insurance (as defined below), if issued. The Title Commitments shall contain the
express commitment of the title underwriter to issue the Owner's Policies of
Title Insurance to the Company with the standard printed exceptions endorsed or
deleted in accordance with this Section 4.1.12. The Surveys shall be prepared in
accordance with the minimum detailed requirements for land title surveys jointly
adopted by ALTA and ACSM and currently in effect. Parent shall have the right to
approve such Surveys, including the boundaries and configuration of the
properties shown thereon. It is understood and agreed that the exact size,
location and legal description of the Title Insurance Property are to be
provided by the Surveys and, upon completion and approval of the Surveys, the
metes and bounds descriptions contained thereon shall be incorporated herein by
reference as the legal descriptions of the Title Insurance Property for all
purposes. At the Closing, the Majority Stockholders shall cause the Company to
deliver to Parent title insurance policies ("Owner's Policies of Title
Insurance") with respect to the Title Insurance Property, in an amount
reasonably acceptable to Parent, issued by such title insurance company(ies),
subject to those easements, reservations, restrictions, covenants, conditions
and other matters therein specified to the extent that the same do not, in the
reasonable judgment of Parent, render title unmarketable or adversely affect the
operation, value, use or enjoyment of the Title Insurance Property affected
thereby ("Permitted Exceptions"). The Owner's Policies of Title Insurance may be
subject to the Permitted Exceptions but shall contain no additional exceptions
other than the standard preprinted exceptions reasonably acceptable to Parent;
provided that (i) the standard preprinted exception, if any, for restrictive
covenants shall be deleted, except for Permitted Exceptions, (ii) the standard
preprinted survey exception, if any, shall be revised to read "Shortages in
area" only, (iii) there shall be no exception as to easements, or claims of
easements, not shown by the public records, nor any exception as to parties in
possession, and (iv) the exception as to the lien for taxes will be limited to
the year in which Closing occurs. The term "Permitted Exceptions" as used herein
with respect to any property other than real property and real property
interests shall mean a minor defect in title which does not adversely affect the
operation, value, use or enjoyment of such property.
4.1.13. Capital Budget. Section 4113 of the Disclosure Schedule
--------------
contains the budgeted capital expenditures of the Company and the Company
Subsidiaries from
-51-
<PAGE>
February 28, 1997 through May 31, 1997. Unless otherwise consented to by Parent,
from the date hereof to the Closing Date, the Company and the Company
Subsidiaries will make capital expenditures in accordance with such budget and
shall not make any additional capital expenditure.
4.2. Majority Stockholders. Each Majority Stockholder, severally and not
---------------------
jointly, further represents and warrants to Parent and covenants and agrees with
Parent that from the date hereof through the Closing Date, such Majority
Stockholder shall not, directly or indirectly, offer to sell or dispose of,
negotiate to sell, or dispose of, have discussions with third parties with
respect to the sale or disposition of or sell the assets or properties of the
Company or any Company Subsidiary to or with any third party (other than the
sale or use of inventories in the ordinary course of business).
4.3. Release. As of the Closing Date, each Stockholder does hereby (i)
-------
release, acquit and forever discharge the Company and the Company Subsidiaries
from any and all liabilities, obligations, claims, demands, actions or causes of
action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Closing Date, including,
without limitation, any claim for indemnity or contribution from the Company or
any Company Subsidiary in connection with the obligations or liabilities of the
Stockholders hereunder except, in each case (a) claims for indemnity under the
indemnification provisions described in Sections 4.6 and 6.2.3, (b) as to any
Stockholder who is an employee of the Company or any Company Subsidiary, salary
and benefits payable to such Stockholder as an employee in the ordinary course
of business; and (c) obligations of the Company for deferred compensation as
reflected in the Unaudited Financial Statements and the related payments to the
Majority Stockholders reflected in Section 1.3.5; (ii) waive all breaches,
defaults or violations of any agreement applicable to the Company Common Stock,
the Warrants or the SARs and agree that any and all such agreements are
terminated as of the Closing Date; and (iii) waive any and all pre-emptive 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 pre-emptive or other rights.
4.4. Parent. Parent further agrees with the Majority Stockholders that:
------
4.4.1. Preservation of Business. From the date hereof to the
------------------------
Closing Date, Parent and the existing Parent Subsidiaries shall use their
reasonable efforts to maintain and preserve their business organizations intact,
retain their present employees, maintain their relationships with suppliers,
customers and others having business relations with them, and preserve the good
will of all persons dealing with Parent and the existing Parent Subsidiaries.
-52-
<PAGE>
4.4.2. Cooperation. From the date hereof to the Closing Date,
-----------
Parent and the existing Parent Subsidiaries will cooperate fully with the
Majority Stockholders as to arrangements for the consummation of the
transactions contemplated hereby in an orderly fashion.
4.4.3. Certain Notices. From the date hereof to the Closing Date,
---------------
Parent will promptly notify the Attorney-in-Fact of the receipt by it or any
existing Parent Subsidiary of any notice or claim, written or oral, of (i)
default or breach by Parent or any existing Parent Subsidiary under, or of any
termination (other than at end of the stated term thereof) or cancellation, or
threat of termination (other than at end of the stated term thereof) or
cancellation, of any Parent Contract, (ii) any loss of, damage to or disposition
of, any of the properties, assets or the products of Parent or any existing
Parent Subsidiary of $10,000 or more, singly or in the aggregate (other than the
sale or use of inventories in the ordinary course of business), and (iii) any
claim or litigation, threatened or instituted, or any other adverse event or
occurrence involving or affecting Parent or any existing Parent Subsidiary or
any of their respective assets, properties, operations, businesses or employees.
4.4.4. Filings, Etc. From the date hereof to the Closing Date,
-------------
Parent and the existing Parent Subsidiaries will make all filings which are
required to be made by them to lawfully consummate the transactions contemplated
hereby.
4.4.5. Compliance with Laws. From the date hereof to the Closing
--------------------
Date, Parent and the existing Parent Subsidiaries will comply with and cause to
be complied with all applicable laws, rules, regulations and orders of all
federal, state and local governments or governmental agencies affecting or
relating to Parent or any existing Parent Subsidiary or their respective assets,
properties, operations, businesses or employees except where the failure to
comply will not have a Parent Material Adverse Effect.
4.4.6. Other Matters. From the date hereof to the Closing Date,
-------------
unless otherwise agreed to by the Attorney-in-Fact, disclosed in Section 4.3.6
of the Parent Disclosure Schedule, contemplated by any Pending Acquisition or
expressly provided in Article 5:
(i) there shall not be any declaration, setting aside or payment
of any dividend or any other distribution in respect of, or any purchase or
redemption by Parent or any Parent Subsidiary of, any capital stock, other
ownership interest or other voting interest of Parent or any Parent
Subsidiary and no holder of capital stock of Parent or any Parent
Subsidiary shall otherwise receive any assets of Parent or any
-53-
<PAGE>
Parent Subsidiary from Parent or any Parent Subsidiary (other than normal
compensation to holders of capital stock who are employees);
(ii) there shall not be any amendment to the articles of
incorporation or bylaws or other governing instruments of Parent or the
existing Parent Subsidiaries, or any change in the capital structure of the
Parent or any existing Parent Subsidiary;
(iii) the businesses of Parent and the existing Parent
Subsidiaries will be conducted and operated (including the management of
working capital) only in the ordinary course consistent with past practice;
(iv) Parent and the existing Parent Subsidiaries shall properly
maintain their respective operating assets, properties, facilities and
equipment, including those held under leases, in good working order and
operating condition (except for ordinary wear and tear);
(v) Parent and the existing Parent Subsidiaries will perform all
of their obligations under all Parent Contracts and all other debt and
lease agreements or instruments to which any of them are or become parties,
will pay all payables and invoices from vendors and suppliers as and when
the same become due and pay in full all payroll obligations when due.
4.4.7. Access. From the date of this Agreement until the Closing,
------
Parent will cooperate fully in permitting the Attorney-in-Fact and the
Stockholders and their respective representatives, advisers, consultants,
appraisers, auditors, engineers and other experts to make a full investigation
of the properties, operations and financial condition of Parent and the existing
Parent Subsidiaries; and afford the Attorney-in-Fact and the Stockholders and
their respective representatives, advisers, consultants, appraisers, auditors,
engineers and other experts reasonable access to the offices, buildings, real
properties, machinery and equipment, inventory and supplies, records, files,
books of account, tax returns, agreements and commitments and personnel of
Parent and the existing Parent Subsidiaries, including (to the extent permitted
under applicable confidentiality agreements), Parent's due diligence files with
respect to Pending Acquisitions. Without limitation of the foregoing, Parent
shall provide the Attorney-in-Fact and the Stockholders with such reasonably
available financial information (and schedules with respect thereto) with
respect to Parent or any existing Parent Subsidiary as they may reasonably
request. Notwithstanding the above, the Attorney-in-Fact, the Stockholders and
their respective representatives, advisors, consultants, appraisers, engineers
and other experts shall incur no liability with
-54-
<PAGE>
respect to control, operation or management (or alleged control, operation or
management) of Parent or any existing Parent Subsidiary as a result of the
covenants in this Section 4.4.
4.4.8. Satisfaction of Conditions. Prior to the Closing Date,
--------------------------
Parent shall (i) use its reasonable efforts to obtain, as soon as possible, all
governmental approvals required to be obtained by Parent and the Parent
Subsidiaries and make, as soon as possible, all filings with any governmental
authority required on the part of Parent and the Parent Subsidiaries to
consummate the transactions contemplated hereby, (ii) use its reasonable efforts
to obtain, as soon as possible, all other consents to and approvals required to
be obtained by Parent and the Parent Subsidiaries to consummate the transactions
contemplated hereby, and (iii) otherwise use its reasonable efforts to satisfy
the conditions set forth in Section 7.2 to the extent that such satisfaction is
within its control; provided, however, that this Section 4.4.8 shall not be
construed to limit the rights of Parent to terminate this Agreement as provided
in Section 8.1.
4.5. Certain Other Actions and Documents. Parent and the Majority
-----------------------------------
Stockholders further agree as follows:
4.5.1. Key Employee and Manager Employment Agreements. On the
----------------------------------------------
Closing Date, the Majority Stockholders agree to cause the employees of the
Company listed in Section 4.5.1 of the Disclosure Schedule and the Company to
execute and deliver employment agreements, in substantially the form attached
hereto as Exhibit 4.5.1 (appropriately completed in accordance with the
confidential letter dated the date hereof from Parent to the Attorney-in-Fact)
(the "Employment Agreements").
4.5.2. Releases of Certain Majority Stockholders. At or prior to
-----------------------------------------
the Closing, Parent shall cause any Majority Stockholder who has personally
guaranteed any of the indebtedness of the Company described in Section 4.5.2 of
the Disclosure Schedule to be released from any liability under any such
guaranty (the "Majority Stockholder Releases").
4.5.3. Voting Agreement. At or prior to the Closing, Parent shall
----------------
cause its shareholders named therein to execute and deliver a Voting Agreement
in substantially the form attached hereto as Exhibit 4.5.3 ("Voting
Agreement") pursuant to which the Majority Stockholders will be entitled to
designate two members of the Board of Directors of Parent until the IPO (as
defined below). The Majority Stockholders agree to execute and deliver the
Voting Agreement at or prior to the Closing.
-55-
<PAGE>
4.5.4. Transfer Restrictions. The Stockholders and Parent agree to
---------------------
execute and deliver at the Closing a Stock Transfer Restriction Agreement in
substantially the form attached hereto as Exhibit 4.5.4(a) ("Stock Transfer
Restriction Agreement") and a Registration Rights Agreement in substantially the
form attached hereto as Exhibit 4.5.4(b) ("Registration Rights Agreement").
4.5.5. Adoption of Shareholders Agreement. At the Closing, the
----------------------------------
Stockholders shall execute and deliver to Parent an adoption agreement (the
"Adoption Agreement") pursuant to which such Stockholders agree to be bound by
the Shareholders Agreement among Parent and its then existing shareholders, as
amended, a copy of which has been delivered to the Stockholders.
4.5.6. Information Statement. As soon as practicable, the Company
---------------------
and Parent shall distribute to each Stockholder the Information Statement.
4.6. Certain Elections. In the event that Parent has not effected an
-----------------
underwritten public offering of Parent Common Stock (other than any offering
pursuant to any registration statement (i) relating to any capital stock of
Parent or options, warrants or other rights to acquire any such capital stock
issued or to be issued primarily to directors, officers or employees of Parent,
(ii) relating to any employee benefit plan or interest therein, (iii) relating
principally to any preferred stock or debt securities of Parent, or (iv) filed
pursuant to Rule 145 under the Securities Act of 1933, as amended, or any
successor or similar provision) resulting in net cash proceeds to Parent of at
least $20,000,000 (the "IPO") on or before December 31, 1998:
4.6.1 Securities Acquisition Election. The Attorney-in-Fact may
-------------------------------
elect, by written notice to Parent delivered on or before January 31, 1999 (the
"Election Notice") to call upon Parent to acquire, for the cash amount equal
to the sum of (i) the value of the shares of Parent Common Stock and Parent
Preferred Stock issued in the Souders Offering and in the Division Vice
Presidents Option and (ii) the Aggregate Consideration less the cash component
thereof, plus simple interest on such sum at the rate of 8% per annum from the
Closing Date to the date of the closing of such acquisition (the "Securities
Acquisition Consideration") (i) all of the shares of Parent Preferred Stock and
Parent Common Stock issued by Parent pursuant to this Agreement and (ii) all of
the Parent Preferred Stock and Parent Common Stock issued by Parent in the (a)
Parent Employee Stock Offering pursuant to Article 5, (b) the Souders Offering
and (c) the Division Vice Presidents Option ("Securities Acquisition
Transaction"). In the event that Parent determines not to agree to acquire such
shares and in the Securities Acquisition Transaction, Parent shall, within 90
days of receipt of the Election Notice, give written notice to the Attorney-in-
Fact ("Parent
-56-
<PAGE>
Rejection Notice") that it has so determined not to agree to acquire such
shares. In the event Parent determines to agree to acquire such shares in the
Securities Acquisition Transaction, Parent shall, within 90 days of receipt of
the Election Notice, give written notice to the Attorney-in-Fact ("Parent
Acceptance Notice") that it agrees to acquire such shares. The Parent Acceptance
Notice shall also specify the date, time and place of the closing of the
Securities Acquisition Transaction; provided that such closing shall be held not
more than 60 days after delivery of the Parent Acceptance Notice. At such
closing, the Attorney-in-Fact shall deliver or cause to be delivered to Parent
or its designee stock certificates evidencing the Parent Preferred Stock and the
Parent Common Stock duly endorsed and in proper form for transfer on the stock
records of Parent with customary written warranties of good title, authority to
transfer and absence of liens or other exceptions to title hereto, and Parent or
its designee shall deliver or cause to be delivered to the Attorney-in-Fact the
Securities Acquisition Consideration and a letter containing customary
representations and warranties evidencing compliance with applicable securities
laws. If the Parent Acceptance Notice is not delivered to the Attorney-in-Fact
within 90 days of Parent's receipt of the Election Notice, Parent will
conclusively be deemed to have delivered a Parent Rejection Notice to the
Attorney-in-Fact on the 90th day after Parent's receipt of the Election Notice.
Upon delivery or deemed delivery of the Parent Rejection Notice, neither the
Attorney-in-Fact nor any holder of Parent Common Stock, or Parent Preferred
Stock shall have any rights to request Parent to acquire any of same pursuant to
this Section 461.
4.6.2. Transfer Transaction Election. Within 20 days after the
-----------------------------
delivery or deemed delivery of the Parent Rejection Notice, the Attorney-in-Fact
may, by written notice to Parent delivered within such 20 day period, (the
"Second Election Notice") require Parent to transfer the stock or assets of the
Company to the designees named in the Second Election Notice in a transaction
(the "Transfer Transaction") structured to (a) relieve Parent and its
affiliates of any liability on the then remaining indebtedness attributable to
the financing of the transactions contemplated hereby (including the matters
referred to in Articles 4 and 5), (b) take into account any capital Parent
invested in/or withdrew from the Company (other than for debt service on the
foregoing) from the Closing Date to the closing of the Transfer Transaction, and
(c) relieve Parent from or otherwise satisfy any income tax consequences to
Parent from the Transfer Transaction. The terms of the Transfer Transaction will
be such that Parent will receive no economic benefit or detriment therefrom. The
Second Election Notice will contain the addresses of the designees named therein
and all of the proposed terms (including the consideration payable to Parent or
the Company) of the Transfer Transaction. The proposed terms of the Transfer
Transaction contained in the Second Election Notice shall be final, conclusive
and binding for purposes of this Agreement unless Parent shall deliver to the
Attorney-in-Fact a written notice of disagreement ("Notice of Objection") with
any such proposed terms within 20 business days following receipt of the
-57-
<PAGE>
Second Election Notice, specifying in reasonable detail the nature and extent of
such disagreement. If within 10 business days following receipt by the Attorney-
in-Fact of a Notice of Objection Parent and Attorney-in-Fact are unable to
resolve any disagreement with respect to the proposed terms of the Transfer
Transaction as set forth in the Second Election Notice, the disagreement shall
be submitted for resolution to Ernst & Young (the "Neutral Accountants"), who
shall resolve the issues in dispute, and giving effect to such resolution,
determine the final terms of the Transfer Transaction. The Neutral Accountants
shall act as an arbitrator to determine and resolve only those issues in
dispute. The Neutral Accountants' resolution shall (i) be made within 30 days of
the submission of the dispute to them, (ii) be in accordance with this
Agreement, (iii) be set forth in a written statement delivered to Parent and the
Attorney-in-Fact, (iv) set forth the final terms of the Transfer Transaction,
and (v) be final, conclusive and binding for purposes of this Agreement.
4.6.3. Other. Parent will cooperate fully with the
-----
Attorney-in-Fact in obtaining any consent required from Parent's lenders to
effect a Securities Acquisition Transaction or a Transfer Transaction as
contemplated hereby. On the closing of a Transfer Transaction, all
noncompetition agreements between Parent and any employee of the Company who
does not continue employment with Parent or its affiliates will be terminated.
At the closing of a Securities Acquisition Transaction or a Transfer
Transaction, the parties will enter into mutual releases under which the parties
release all claims against each other which have arisen or could arise based on
events, acts or omissions occurring or existing prior to such closing.
4.7. Indemnification of Officers and Directors of the Company. Parent
--------------------------------------------------------
agrees that the Company shall maintain in effect for at least five (5) years
from the Closing Date the indemnification provisions in the certificate of
incorporation of the Company as presently in effect to the extent such
indemnification provisions would apply to acts or omissions of the present
officers and directors of the Company taken or made in connection with the
approval of the transactions contemplated hereby. Prior to Closing, Parent
shall arrange for and purchase director and officer liability insurance coverage
for the Majority Stockholders with coverage terms and provisions reasonably
satisfactory to the Majority Stockholders.
4.8. Minimum IPO Proceeds. Parent agrees that it will not effect the IPO
--------------------
if the gross selling price to the public thereunder is less than $2.76 per share
(adjusted for stock splits, reverse stock splits and stock dividends) without
the prior written consent of the Attorney-in-Fact.
-58-
<PAGE>
5. EMPLOYEE BENEFITS
The Majority Stockholders and Parent further agree as follows:
5.1. ESOP; Employee Offering.
-----------------------
5.1.1 Suspension of ESOP Withdrawals. Within five (5) days after
------------------------------
the date hereof, the Company and its appropriate committee(s) shall suspend any
further "In-Service Distributions" (as described in the ESOP) from any and all
Company Stock Accounts (as defined in the ESOP) and such suspension of
distributions may only be reinstated if the transaction contemplated hereby does
not close.
5.1.2. Purchase of ESOP Stock. As soon as practicable after the
----------------------
date hereof, the Company and its appropriate committee(s) shall take all actions
necessary to authorize the ESOP to sell to Parent, immediately prior to or at
the Closing Date, the Company Common Stock held by the ESOP, pursuant to a Stock
Purchase Agreement in substantially the form attached hereto as Exhibit 5.1.2
(the "ESOP Stock Purchase Agreement"), to authorize the ESOP to be amended and
restated to create the Amended and Restated Savings Plan (as defined below)
simultaneously with or immediately after the Closing Date and to allow, permit
and assist Parent to distribute any and all information, election forms and
notices to the participants of the ESOP to effect the amendment and restatement
of the ESOP to create the Amended and Restated Savings Plan, as described
herein.
5.1.3. Amendment and Restatement of the ESOP. As soon as
-------------------------------------
practicable after the date hereof, and prior to the Closing Date, Parent and the
Company shall amend and restate the ESOP to remove all provisions related to an
employee stock ownership plan and to create a retirement plan pursuant to Code
Section 401(k) for employees of the Company, containing an obligation by the
Parent to make contributions in the amount of $220,000 per year through the year
2007 and in form reasonably acceptable to the Attorney-in-Fact ("Amended and
Restated Savings Plan") pursuant to which all of the accounts in the ESOP will
be amended and restated in the Amended and Restated Savings Plan and under which
participants may elect to direct the Amended and Restated Savings Plan to invest
a portion of such participant's account in the Amended and Restated Savings Plan
in Parent Common Stock and Parent Preferred Stock, subject to the limitations
set forth therein.
5.1.4. ESOP Disclosure Statement. As soon as practicable after the
-------------------------
date hereof and prior to the Closing Date, the Company shall prepare a
disclosure statement ("ESOP Participant Disclosure Statement") to be delivered
to certain ESOP participants in
-59-
<PAGE>
form reasonably acceptable to Parent, describing the rights of such participants
with respect to the ESOP and the Amended and Restated Savings Plan.
5.1.5. Employee Offering Memorandum. As soon as practicable after
----------------------------
the date hereof and prior to the Closing Date, Parent shall prepare an offering
memorandum ("Employee Offering Memorandum") to be delivered to certain ESOP
participants pursuant to which Parent shall offer (the "Parent Employee Stock
Offering") to each such participant who remains an employee of the Company after
the Closing Date the opportunity to elect to have such participant's Amended and
Restated Savings Plan account acquire, for cash, units consisting of shares of
Parent Common Stock and Parent Preferred Stock.
5.2. Deferred Compensation Plans. The Parent and the Majority Stockholders
---------------------------
agree that effective on or before February 28, 1997, the terms of all of the
nonqualified deferred compensation plans sponsored by the Company (collectively,
the "Deferred Compensation Plans") have been amended as described in Section
5.2 of the Disclosure Schedule.
5.2.1 No Additional Rights. Nothing in the Deferred Compensation
--------------------
Plans, as amended, shall be construed to grant to the participants in the
Deferred Compensation Plans any rights other than those of general creditors of
the Company and its successors. The participants' rights to benefit payments
under the Deferred Compensation Plans shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment or garnishment by the creditors of the participants. The individual
and collective rights of the participants under the Trusts and Deferred
Compensation Plans are now and shall remain purely contractual, are limited to
those of a general unsecured creditor of the Company (or its successors) and the
Deferred Compensation Plans constitute mere unsecured promises by the Company or
its successor to make payments in the future.
5.3. Future Option Plans. Parent intends to implement, after the IPO, one
-------------------
or more incentive stock option plans which will permit participation by
designated employees, the terms of which will be determined by a committee of
the Board of Directors of Parent, a majority of which will not be employed by
Parent or any Parent Subsidiary and will not be former owners, employees or
affiliates of entities acquired by Parent. It is Parent's intention that
participation in such plan by former employees of the Company who are then
employees of Parent or any Parent Subsidiary will be on a basis substantially
the same as such employees holding similar positions with Parent or a Parent
Subsidiary who were formerly employed by other entities acquired by Parent.
-60-
<PAGE>
5.4. Split-Dollar Insurance Policy. The cash value or death benefits of
-----------------------------
that certain split-dollar insurance policy number 35 57804 issued by The
Guardian Life Insurance Company of America on the life of James D. Jennings are
and shall continue to be held in the Deferred Compensation Plan of the Company
maintained for the benefit of James D. Jennings.
5.5. Employee Benefits Generally. Parent shall, for at least six months
---------------------------
after the Closing Date, maintain employee benefits for employees of the Company
and the Company Subsidiaries which are generally comparable as a whole to the
benefits provided by the Company as of the Closing Date.
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 the Closing to the extent provided herein. The
representations and warranties of the Stockholders herein and in the documents
and instruments to be delivered by the Stockholders or the Company as
contemplated hereby, other than those in Sections 2.1.3, 2.1.4, 2.2.1 and 2.2.2,
shall survive for a period of thirty-six (36) months after Closing and the
representations and warranties of the Stockholders contained in Sections 2.1.3,
2.1.4, 2.2.1 and 2.2.2 shall survive for the maximum period permitted by
applicable law. The representations and warranties of Parent herein and in the
documents and instruments to be delivered by Parent as contemplated hereby,
other than those in Sections 3.1.3 and 3.1.4 shall survive for a period of
thirty-six (36) months after Closing and the representations and warranties of
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 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.
-61-
<PAGE>
6.2. Indemnification.
---------------
6.2.1. Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 6.1 and 6.3, each Majority Stockholder shall indemnify, save and hold
harmless Parent, the Company, the Company Subsidiaries and their Permitted
Assignees (as defined below) and 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, claims, deficiencies, penalties, interest, expenses, fines,
assessments, charges and costs, including reasonable attorneys' fees and court
costs (calculated after taking into consideration the net tax benefits actually
realized by Parent or the Company from such items to the extent deductible,
depreciable or amortizable; provided, however, that if any indemnification
payment to be received by a Parent Indemnified Party will result in a tax burden
to such Parent Indemnified Party, such tax burden shall be netted against the
tax benefit realized by such Parent Indemnified Party) (collectively "Losses")
arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of the Company, or the failure by
the Company to perform, any obligation of the Company contained in the
documents or instruments executed and delivered by the Company in
connection with the transactions contemplated hereby;
(ii) any inaccuracy in or breach of any representation or warranty
contained in Section 2.1 or in the documents or instruments executed and
delivered by the Company in connection with the transactions contemplated
hereby;
(iii) indemnification payments required to be made and made by the
Company or any Company Subsidiary to their respective 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 Date, except as otherwise provided in Section 4.7; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing Date and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company or any Company Subsidiary
and not (a) disclosed in the Disclosure Schedule or (b) disclosed in the
Estimated Financial Statements.
-62-
<PAGE>
Any indemnification obligation of the Majority Stockholders may be satisfied, at
their option, by the payment of the Losses (i) in cash or immediately available
funds or (ii) 50% in cash or immediately available funds and 50% by delivery of
shares of Parent Common Stock, the number of which shall be computed on the
basis of the Parent Common Stock Value (subject to appropriate adjustments for
stock splits, dividends, combinations and the like).
6.2.2. Stockholder Indemnity. Subject to the provisions of Sections
---------------------
61 and 63, each Stockholder, severally and not jointly, hereby agrees to
indemnify, save and hold harmless the Parent Indemnified Parties from and
against any and all Losses arising from or as a consequence of (i) any
inaccuracy in or breach of any representation and warranty of such Stockholder
in Section 2.2 or in any document or instrument executed and delivered by such
Stockholder in connection with the transactions contemplated hereby and (ii) the
breach of any covenant of such Stockholder or the failure by such Stockholder to
perform any of such Stockholder's obligations contained herein or in any
document or instrument executed and delivered by such Stockholder in connection
with the transactions contemplated hereby.
6.2.3. Parent Indemnity. Subject to the provisions of Sections 6.1
----------------
and 6.3, Parent hereby agrees, from and after the Closing Date, to indemnify,
save and hold harmless each Stockholder and his or its heirs legal
representatives, successors and assigns (the "Stockholder Indemnified
Parties") from and against all Losses arising from, out of or in any manner
connected with or based on:
(i) any breach of any covenant of Parent or the failure by Parent
to perform any obligation of Parent contained herein or in the documents or
instruments required to be executed and delivered by Parent in connection
with the transactions contemplated hereby;
(ii) any inaccuracy in or breach of any representation or warranty
of Parent contained herein or in the documents or instruments executed and
delivered by Parent in connection with the transactions contemplated
hereby; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the Closing Date and
involving or relating to the assets, properties, businesses or operations
of the Company or any Company Subsidiary; provided, however, that clause
(iii) shall not apply to any Losses to the extent that such Losses result
from
-63-
<PAGE>
a Stockholder's acts or omissions after the Closing Date as an officer,
director and/or employee of Parent, the Company and/or any Company
Subsidiary.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Sections 6.2.1
and 6.2.2.
6.3. Limitations. No claim under Section 6.2.1 or Section 6.2.3 may be
-----------
made until the aggregate of all Losses for which claims for indemnification
under such Section exceeds $400,000 (the "Threshold"), but all Losses in
excess of the amount of the Threshold may be recovered under such Section once
the Threshold has been exceeded. The aggregate liability of the Majority
Stockholders under Section 6.2.1 shall not exceed $40,000,000. The aggregate
liability of Parent under Section 6.2.3 shall not exceed $40,000,000. Among the
Majority Stockholders, the liability of each Majority Stockholder for
indemnification for Losses under Section 6.2.1 shall not exceed the percentage
of such Losses reflected on the signature pages hereto under the caption
"Maximum Percentage Liability" ("Percentage Liability"); provided, however,
that, with respect to the Majority Stockholders' obligations to Parent under
Section 6.2.1, if any, such obligations shall be joint and several; and provided
further that in no event shall any Majority Stockholder be liable under Section
6.2.1 for an amount in excess of the sum of $40,000,000 multiplied by such
Majority Stockholder's Percentage Liability.
6.4. Notices.
-------
6.4.1. Indemnification Notice. The party (the "Indemnified Party")
----------------------
which may be entitled to indemnity hereunder shall give prompt notice to the
party obligated to give indemnity hereunder (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought hereunder. Any failure on the part of
any Indemnified Party to give the notice described in this Section 6.4.1 shall
relieve the Indemnifying Party of its obligations under this Article 6 only to
the extent that such Indemnifying Party has been prejudiced by the lack of
timely and adequate notice. Parent or the Company 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
(a) the Indemnifying Party shall at all times have the right, at its option, to
participate fully therein, and (b) if the Parent or the Company does not proceed
diligently to defend the third-party claim, suit action or proceeding within ten
(10) days after receipt of notice of such third-party claim, suit, action or
proceeding, the Indemnifying Party shall have the right, but not the obligation,
to undertake the defense of any such third-party claim, suit, action or
proceeding. The Indemnifying Party shall not be required to indemnify the
Indemnified Party with respect to
-64-
<PAGE>
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 ten (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 any Company Subsidiary and the settlement is commercially
reasonable under the circumstances; and provided further, that if the
Indemnifying Party gives ten (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 ten (10)
days after delivery of the Settlement Notice to the Indemnified Party, and such
settlement otherwise complies with the provisions of this Section 6.4.1, the
Indemnifying Party shall not be liable for Losses arising from such third-party
suit, action, proceeding or investigation in excess of the amount proposed in
such settlement offer. Notwithstanding the foregoing, no Indemnifying Party will
consent to the entry of any judgment or enter into any settlement without the
consent of the Indemnified Party, if such judgment or settlement imposes any
obligation or liability upon the Indemnified Party other than the execution,
delivery or approval thereof and customary releases of claims with respect to
the subject matter thereof. 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 which are pertinent to the
defense. The parties agree that 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.
6.4.2. Tax Proceeding Notices.
----------------------
(i) Returns for Periods Prior to the Closing Date. In the event
---------------------------------------------
that Parent or the Company receives notice (the "Audit Notice") of any
examination, claim, adjustment or other proceeding with respect to any
federal, state, local or foreign income and other tax returns of the
Company for periods prior to the Closing Date (the "Audit"), Parent shall
notify the Attorney-in-Fact in writing thereof no later than the earlier of
(a) 30 days after receipt by the Parent or the Company of the Audit Notice
or (b) ten days prior to the deadline for responding to the Audit Notice.
The Majority Stockholders, through the Attorney-in-Fact and their duly
appointed
-65-
<PAGE>
representatives, shall have the sole right to handle, manage, negotiate,
resolve, settle or contest the Audit; provided, however, that the Majority
Stockholders shall not settle, compromise or abandon, without Parent's
prior written consent, any such Audit which, when offset by the then
present value of any tax benefits available to the Company or Parent by
reason of such settlement (taking into account as and when Parent
reasonably believes such tax benefits could be utilized to reduce the tax
liability of Parent or the Company), would adversely affect the tax
liability of Parent or the Company in any period to any extent (including,
but not limited to, the imposition of income tax deficiencies, the
reduction of asset basis or cost adjustments, the lengthening of any
amortization or depreciation deductions, or the reduction of loss or
carryforwards). Such consent shall not be unreasonably withheld and shall
not be necessary to the extent the Majority Stockholders have indemnified
Parent against the effects of any such settlement. The parties shall
cooperate with each other and with their respective affiliates, and will
consult with each other and will execute any and all documents necessary to
contest or settle the matter. Parent shall be entitled to participate in
all proceedings with respect thereto at its own expense.
(ii) Returns Including Tax Offset Bonus and Gross Up. In the event
-----------------------------------------------
Parent or the Company receives notice (the "Proceeding Notice") of any
examination, claim, adjustment, or other proceeding with respect to the tax
benefit realized by Parent or the Company with respect to the Warrants,
SARs or Deferred Compensation Stock or the Tax Offset Bonus as provided in
Section 1.3.5, Parent shall notify the Attorney-in-Fact in writing thereof
(the "Tax Notice") no later than the earlier of (a) 30 days after the
receipt by Parent or the Company of the Proceeding Notice or (b) ten days
prior to the deadline for responding to the Proceeding Notice. Each
Stockholder (a "Receiving Stockholder") who received a Tax Offset Bonus
and/or Gross Up shall be responsible for the payment of any taxes (but not
in excess of the amount of Grossed Up Tax Offset Bonus received by such
Receiving Stockholder), penalties and interest assessed against Parent or
the Company as a result of any examination, claim, adjustment, or other
proceeding the result of which reduces the federal, state and local income
and franchise tax benefits realized by Parent with respect to the Receiving
Stockholder's Warrants, SARs, Deferred Compensation Stock or Tax Offset
Bonus and shall make such payment directly to Parent within 30 days after
such assessment. The Receiving Stockholders shall be entitled at their
expense to control the contest of such examination, claim, adjustment, or
other
-66-
<PAGE>
proceeding, as it relates to the federal, state and local income and
franchise tax benefits realized by Parent or the Company with respect to
the Warrants, SARs or Deferred Compensation Stock or Tax Offset Bonus
provided the Attorney-in-Fact notifies Parent in writing that the Receiving
Stockholders desire to do so no later than the earlier of (i) 30 days after
receipt of the Tax Notice or (ii) five days prior to the deadline for
responding to the Proceeding Notice and provided further that the Receiving
Stockholders shall not settle any such examination, claim, adjustment or
other proceeding without the written consent of Parent, which consent shall
not be unreasonably withheld.
6.5. Character of Indemnity Payments. The parties agree that all
-------------------------------
indemnity payments made under this Section 6 shall constitute an adjustment to
the consideration received in the exchange.
7. CONDITIONS TO CLOSING
7.1. Parent. The obligations of Parent to consummate the transactions
------
contemplated by this Agreement shall be subject to satisfaction or waiver by
Parent at the Closing of all of the following conditions:
7.1.1. Representations, Warranties and Covenants of Stockholders. The
---------------------------------------------------------
Stockholders shall have complied with all of their agreements and covenants
contained herein to be performed at or prior to the Closing Date and all of the
representations and warranties of the Stockholders contained herein be accurate
and as of the Closing Date, with the same effect as though such representations
and warranties had been made at and as of the Closing Date and Parent shall have
received a certificate executed by each Stockholder to the effect that the
representations and warranties of such Stockholder contained herein are accurate
at and as of the Closing Date with the same effect as though such
representations and warranties had been made at and as of the Closing Date.
7.1.2. Opinion. Coolidge, Wall, Womsley & Lombard Co., L.P.A. shall
-------
have provided a written opinion dated the Closing Date covering the matters set
forth in 2 Exhibit 7.1.2. In rendering such opinion, counsel may rely to the
extent deemed appropriate on the certificates of officers or employees of the
Company and public officials as to matters of fact and authenticity of documents
and on opinions of counsel in other states as to questions under the laws of
such states, and such other opinions as are reasonably acceptable to Parent.
-67-
<PAGE>
7.1.3. No Casualty, Loss or Damage. No casualty, loss or damage
---------------------------
shall have occurred on or prior to the Closing Date to any of the properties or
assets of the Company or any Company Subsidiary.
7.1.4. Title Insurance. Parent shall have received the Title
---------------
Commitments and the Owner's Policies of Title Insurance, Surveys and title
exception documents required under Section 4.1.12.
7.1.5. Documents, Stock Certificates. All documents, certificates,
-----------------------------
opinions, instruments and agreements required to be executed and delivered by
the Company or any Company Subsidiary or their respective officers or directors
or the Stockholders at the Closing as contemplated hereby or as may be
reasonably requested by Parent shall have been duly executed and delivered by
the Company, the Company Subsidiaries, or their respective officers or directors
or the Stockholders and shall have been received by Parent. Stock Certificates
representing all of the outstanding Company Common Stock, and all Warrants and
SARs owned by the Stockholders and properly completed letters of transmittal
shall have been received by Parent.
7.1.6. Consents. All consents and approvals of third parties or any
--------
regulatory body or authority, whether required contractually or by applicable
federal, state or local law, or otherwise necessary for the execution, delivery
and performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby shall have been received by Parent.
7.1.7. Licenses, Etc. The Company and the Company Subsidiaries shall
-------------
have obtained all such licenses and permits as are legally required for the
continued operation of their businesses after the Closing, except such licenses
and permits, the absence of which will not have a Company Material Adverse
Effect.
7.1.8. No Material Adverse Change. Since December 31, 1996, there
--------------------------
shall not have been any event that in the reasonable judgment of Parent
adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company or any Company
Subsidiary; and Parent shall be reasonably satisfied that the Net Worth as of
February 28, 1997 was at least $6,358,372.
7.1.9. Financing. 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 Closing Per Share Cash Amounts and the ongoing
financing needs of the Company and the Company Subsidiaries, and such financing
shall be available.
-68-
<PAGE>
7.1.10. Discharge of Indebtedness, Releases, Etc. The indebtedness
----------------------------------------
of the Company and the Company Subsidiaries referred to in Sections 2.1.14,
2.1.21 and 2.1.27, ("Terminated Obligations") shall have been paid in full or
refinanced on terms acceptable to Parent, and all holders of any such Terminated
Obligations shall have delivered to Parent, in form reasonably satisfactory to
the Parent and the lenders to Parent, such customary releases, termination
statements, consents, approvals or other documents or instruments re quired, in
the judgment of Parent, to release and terminate all liens, security interests,
claims, or rights of such holders against the Company or Parent or any of their
respective assets in connection therewith.
7.1.11. Certain Corporate Actions. All necessary directors and
-------------------------
stockholders resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
7.1.12. ESOP and Amended and Restated Plan. Parent shall have
----------------------------------
purchased all shares of Company Common Stock held by the ESOP and the ESOP shall
have been amended and restated to create the Amended and Restated Savings Plan.
7.1.13. Agreements and Actions under Articles 4 and 5. All other
---------------------------------------------
agreements required to be executed and delivered under Articles 4 and 5 prior to
the Closing, including the Employment Agreements, the Manager Employment
Agreements, the Majority Stockholder Releases, the Voting Agreement, the Stock
Transfer Restriction Agreement, the Registration Rights Agreement, the Adoption
Agreements and the amendments to the Deferred Compensation Plans shall have been
executed and delivered by the parties thereto other than Parent and all actions
required to be taken by parties other than Parent under Articles 4 and 5 prior
to the Closing shall have been duly and validly taken. The Parent Employee
Stock Offering shall have been completed and Parent shall have received the
proceeds thereof.
The consummation of the Closing shall not be deemed to be a waiver by
Parent of any of its rights or remedies against the Stockholders hereunder for
any breach of warranty, covenant or agreement by the Stockholders herein,
irrespective of any knowledge of or investigation made by or on behalf of
Parent; provided, however, that if the Attorney-in-Fact shall disclose in
writing to Parent prior to the Closing Date a specified breach of a specifically
identified representation, warranty, covenant or agreement of the Stockholder
herein by the Stockholder, and requests a waiver thereof by Parent, and Parent,
in its sole discretion, determines to waive any such specifically identified
breach in writing prior to the Closing Date, Parent, for itself and for each
Parent Indemnified Party shall be deemed to have waived their respective rights
and remedies hereunder for, and the Stockholders shall
-69-
<PAGE>
have no liability with respect to, any such specifically identified breach, to
the extent so identified by the Attorney-in-Fact and so waived by Parent.
7.2. Conditions Precedent to Obligations of the Stockholders. The
-------------------------------------------------------
obligations of the Stockholders to consummate the transactions contemplated by
this Agreement shall be subject to satisfaction or waiver by the Attorney-in-
Fact at or prior to the Closing of all of the following conditions:
7.2.1. Representations, Warranties and Covenants of Parent. Parent
---------------------------------------------------
shall have complied with all of its agreements and covenants contained herein to
be performed at or prior to the Closing Date, and all of the representations and
warranties of the Parent contained herein shall be accurate at and as of the
Closing Date with the same effect as though such representations and warranties
had been made at and as of the Closing Date, and the Attorney-in-Fact shall have
received certificates to such effect executed by the president or a vice
president and the treasurer of Parent.
7.2.2. Legal Opinion. The Attorney-in-Fact shall have received a
-------------
written opinion from Bracewell & Patterson, L.L.P., dated the Closing Date
covering the matters set forth in 2 Exhibit 7.2.2. In rendering such opinion,
counsel may rely to the extent deemed appropriate on the certificates of
officers or employees of Parent and of public officials as to matters of fact
and authenticity of documents and on opinions of counsel in other states as to
questions under the law of such states.
7.2.3. Documents. All documents, certificates, opinions,
---------
instruments and agreements required to be executed and delivered by Parent at
the Closing as contemplated hereby or as reasonably requested by the Attorney-
in-Fact shall have been duly executed and delivered by the Parent and shall have
been received by the Attorney-in-Fact.
7.2.4. Consents. All consents and approvals of third parties or any
--------
regulatory body or authority, whether required contractually or by applicable
federal, state or local law, or otherwise necessary for the execution, delivery
and performance of this Agreement by the Parent and the consummation by Parent
of the transactions contemplated hereby shall have been received by the
Attorney-in-Fact or shall have been waived by Attorney-in-Fact.
7.2.5. No Material Adverse Change. Since February 28, 1997, there
--------------------------
shall not have been any event that in the reasonable judgment of the Attorney-
in-Fact adversely affects the properties, assets, financial condition, results
of operations, cash flows, businesses or prospects of Parent.
-70-
<PAGE>
7.2.6. Agreements and Actions Under Articles 4 and 5. All other
---------------------------------------------
agreements required to be executed and delivered under Articles 4 and 5 prior to
the Closing, including the Employment Agreements, the Majority Stockholder
Release, the Voting Agreement, the Stock Transfer Restriction Agreement, the
Registration Rights Agreement, the Adoption Agreements, and the amendments to
the Deferred Compensation Plans shall have been executed and delivered by the
parties thereto other than the Company and the Stockholders and all actions
required to be taken by parties other than the Company and the Stockholders
under Articles 4 and 5 prior to the Closing shall have been duly and validly
taken. The Parent Employee Stock Offering shall have been completed and Parent
shall have received the proceeds thereof.
The consummation of the Closing shall not be deemed to be a waiver by the
Stockholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by Parent irrespective of any knowledge
of or investigation with respect thereto made by or on behalf of any
Stockholder; provided, however, that if Parent shall disclose in writing to the
Attorney-in-Fact prior to the Closing a specified breach of a specifically
identified representation, warranty, covenant or agreement of Parent contained
herein by Parent, and requests a waiver thereof by the Attorney-in-Fact and the
Attorney-in-Fact, in his sole discretion, determines to waive any such
specifically identified breach in writing prior to the Closing, the Stockholders
shall be deemed to have waived their rights and remedies hereunder for, and
Parent shall have no liability or obligation to the Stockholders with respect
to, any such specifically identified breach, to the extent so identified by
Parent and waived by the Attorney-in-Fact.
7.2.7. Tax Opinion. The Stockholders shall have received an opinion
-----------
from KPMG Peat Marwick LLP to the effect that, for federal income tax purposes,
the transaction described in this Agreement will constitute an exchange under
Section 351 of the Code.
8. TERMINATION
8.1. Grounds for Termination. This Agreement may be terminated at any
-----------------------
time prior to the Closing Date:
8.1.1. Mutual Consent. By the written agreement of the Attorney-in-
--------------
Fact and Parent; or
8.1.2. Optional. By the Attorney-in-Fact or by Parent, by notice to
--------
the other, if the Closing shall have failed to occur by 5:00 p.m. Houston, Texas
time on July 1, 1997; or
-71-
<PAGE>
8.1.3. Dispute. By the Attorney-in-Fact or by Parent by notice to
-------
the other, if any disagreement with respect to the Statement of Final
Consideration is not resolved as set forth and within the time prescribed in
Section 1.5.3(iv).
8.1.4. Legal Restraint. By the Attorney-in-Fact or by Parent, by
---------------
notice to the other, if on the date scheduled for Closing any proceeding or
action shall have been filed seeking to restrain, enjoin or otherwise prevent
the consummation of this Agreement or the transactions contemplated hereby or
any order shall have been entered restraining or prohibiting consummation of the
transactions contemplated hereby.
8.2. Effect of Termination. If this Agreement is terminated as permitted
---------------------
under Section 8.1, 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.
9. MISCELLANEOUS
9.1. 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 Stockholders:
c/o Mr. James D. Jennings, Attorney-in-Fact
Airtron, Inc.
7813 N. Dixie Drive
Dayton, Ohio 45414
Telecopy: (937) 898-7166
With a copy to:
Mr. Richard A. Schwartz
Coolidge, Wall, Womsley & Lombard
33 West First Street, Suite 600
Dayton, Ohio 45402
Telecopy: (937) 223-6705
-72-
<PAGE>
To Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
To the Company:
Airtron, Inc.
7813 N. Dixie Drive
Dayton, Ohio 45414
Attn: President
Telecopy: (937) 898-7166
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 9.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
9.2. Further Documents. The Stockholders shall, at any time and from time
-----------------
to time after the Closing, upon request by 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 Stockholders hereunder.
9.3. Assignability. Neither the Company nor any Stockholder shall assign
-------------
this Agreement in whole or in part without the prior written consent of Parent,
except by the operation of law. Upon notice to the Majority Stockholders (which
may be delivered to the Attorney-in-Fact), Parent and the Subsidiary and any
Permitted Assignee may assign this Agreement to any Permitted Assignee.
"Permitted Assignee" as used herein and shall include (i) any financial
institution (or its affiliates) providing financing (or refinancing) to
-73-
<PAGE>
Parent, the Company or any other direct or indirect wholly-owned subsidiary of
Parent; (ii) after the Closing Date, any person or entity, (iii) prior to the
Closing Date, any person or entity with the prior written consent of the
Attorney-in-Fact, which consent shall not be unreasonably withheld, and (iv)
after the Closing Date, any other person or entity that is a transferee or
assignee from any entity described in clause (i) as a result of any foreclosure,
sale or deed in lieu of foreclosure, deed or similar conveyance relating to the
exercise of rights under a security instrument. The warranties, representations,
obligations, agreements and indemnities (in Section 6 and elsewhere herein) and
the other documents contemplated hereby will inure to the benefit of the
Permitted Assignees to the extent they inure to the benefit of Parent herein.
Parent shall remain liable hereunder notwithstanding any assignment hereof by
it, unless otherwise consented to by the Attorney-in-Fact, which consent shall
not be unreasonably withheld. Any assignment made or attempted in violation of
this Section 9.3 shall be void and of no effect. This Agreement shall be binding
on the Stockholders, Parent, and their respective heirs, legal representatives,
successors and permitted assigns, provided, however, that this Agreement shall
not be binding upon the financial institutions, affiliates, purchasers or
grantees described in clauses (i), and (iv) of the third sentence of this
Section 9.3, but any such financial institutions, affiliates, purchasers or
grantees shall take this Agreement subject to all of the rights of the Attorney-
in-Fact and the Stockholders and the obligations of the Parent under this
Agreement. Notwithstanding the foregoing, no assignment by Parent, or by the
Company following the Closing Date, shall in any way increase any liability or
obligation of any Stockholder under this Agreement.
9.4. Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement and all amendments thereto
from the time of agreement thereto, are and shall be incorporated herein and
made a part hereof.
9.5. 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
either 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
-74-
<PAGE>
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.
9.6. Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
9.7. CONTROLLING LAW AND JURISDICTION. 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 DELAWARE.
9.8. Public Announcements. No press release, public announcement,
--------------------
confirmation or other information regarding this Agreement or the contents
hereof shall be made by any party without the prior consultation of the Company,
the Attorney-in-Fact, and Parent, except as may be necessary in the opinion of
counsel of any party to meet the requirements or regulations of any applicable
law, governmental unit or agency or stock exchange on which the securities of
such party may be listed. Notwithstanding the foregoing, the Company may make
appropriate disclosures of the general nature of the transaction contemplated
hereby to its employees, vendors and customers to protect the Company's good
will and to facilitate the Closing, and Parent may disclose pertinent
information regarding the transaction contemplated hereby to its existing and
prospective investors, lenders or investment bankers or financial advisors for
the purposes of obtaining financing (including a contemplated IPO). Parent may
also make appropriate disclosures of the general nature of the transaction
contemplated hereby and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in its efforts to attract
additional acquisitions for Parent. Parent and the Company shall jointly approve
the contents of any press releases, written employee presentations or other
materials of potentially wide distribution that disclose or refer to the
transaction contemplated hereby, except for such press releases or other
communications required by law.
9.9. Finder's Fees and Commissions. Parent agrees to pay all costs and
-----------------------------
expenses resulting from any agreement, arrangement or understanding made or
alleged to have been made by Parent or any of its affiliates with any third
party for brokerage or finder's fees or other commissions in connection with
this Agreement, the documents and instruments referred to herein, or the
transactions contemplated hereby or thereby. The Majority Stockholders agree to
pay all costs and expenses resulting from any agreement, arrangement or
understanding made or alleged to have been made by any Majority Stockholder, the
Company or any of their respective affiliates with any third party for brokerage
or finder's
-75-
<PAGE>
fees or commissions in connection with this Agreement, the documents and
instruments referred to herein or the transactions contemplated hereby or
thereby; provided that the Company may agree to pay such costs or expenses to
the extent that such costs and expenses are included as a current liabilities
for purposes of determining Net Working Capital.
9.10. No Third Party Beneficiaries. Except as set forth in Article 6 and
----------------------------
Section 9.3, no person or entity not a party to this Agreement shall have rights
under this Agreement as a third party beneficiary or otherwise.
9.11. Amendments and Waivers. This Agreement may be amended by Parent and
----------------------
the Attorney-in-Fact to the extent permitted by applicable law. All amendments
to this Agreement must be by an instrument in writing signed on behalf of Parent
and the Attorney-in-Fact. Any term or provision of this Agreement may be waived
in writing at any time by the party which is entitled to the benefits thereof.
9.12. No Employee Rights. Nothing herein expressed or implied shall
------------------
confer upon any employee of the Company or any Company Subsidiary, 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.
9.13. 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 Parent, the Company or any
Stockholder in this Agreement shall be had against any incorporator, organizer,
promoter, stockholder (other than Parent), officer, director, employee or
representative as such (other than the Stockholders as set forth herein), past,
present or future, of Parent or of any successor corporation, whether by virtue
of any constitution, statute or rule of law, or by enforcement of any assessment
or penalty or otherwise; it being expressly understood that all such liability
is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Agreement.
9.14. When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of (i) one or more counterparts of this Agreement by
Parent and each of the Stockholders.
9.15. Takeover Statutes. If any "fair price," "moratorium," "control
-----------------
share acquisition" or other form of anti-takeover statute or regulation shall
become applicable to
-76-
<PAGE>
the transactions contemplated hereby, Parent and the Company and their
respective members of their Boards of Directors shall grant such approvals and
take such actions as are necessary so that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated herein.
9.16. 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.
9.17. 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.
Notwithstanding anything to the contrary contained herein, if any condition
precedent to Parent's obligations hereunder is held to be illegal, invalid or
unenforceable under present or future laws, then Parent, at Parent's sole
option, may terminate this Agreement by written notice delivered to the Company
and, thereafter, the parties hereto shall have no further obligations or
liabilities hereunder, one to the other.
9.18. 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.
9.19. 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.
9.20. Preparation of Tax Returns for Pre-Closing Periods. The Majority
--------------------------------------------------
Stockholders shall be responsible for preparing all tax returns due after the
Closing Date relating to periods ending before the Closing Date, at the
Company's expense.
-77-
<PAGE>
9.21. Amendment of Pre-Closing Tax Returns. The Parent shall not cause
------------------------------------
the Company to, nor shall the Company, without the prior written consent of the
Majority Stockholders, amend any federal or state income tax return of the
Company relating to a period ending before the Closing Date.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
GROUP MAINTENANCE AMERICA CORP.
By:_______________________________
Name:_____________________________
Title:____________________________
-78-
<PAGE>
Majority Stockholders
<TABLE>
<CAPTION>
Number of
Shares
of Company
Common Stock Number of Shares
Number of Shares of Issuable on of Company
Company Common Exercise of Common Stock Maximum
Stock Held of Record Company Applicable to Percentage
Name and Beneficially Warrants Company SARs Liability
---- ---------------- -------- ------------ ---------
<S> <C> <C> <C> <C>
___________________ 21,870 15,000 4,128 24.2645%
James D. Jennings
___________________ 36,073 15,000 4,128 25.1103%
Richard M. Siefring
___________________ 4,746 15,000 4,128 18.8498%
Dale H. Wilkerson
___________________ 15,022 0 7,128 11.6457%
James D. Miller
___________________ 10,196 0 7,128 11.7014%
Stephen B. Becker
___________________ 1,523 0 7,128 8.4283%
Timothy Johnston
</TABLE>
-79-
<PAGE>
Stockholders
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of Company
of Company Common Stock Number of Shares
Common Stock Issuable on Exercise of Company Common
Held of Record of Company Stock Applicable to
Name and Beneficially Warrants Company SARs
---- ---------------- -------- ------------
<S> <C> <C> <C>
___________________________ 900 0 0
Dennis W. Clark
___________________________ 1,000 0 0
William Duecker
___________________________ 3,945 0 0
Michelle Conklin
___________________________ 3,433 0 0
James D. Jennings, Jr.
___________________________ 15,000 0 0
Mary Wilkerson
___________________________ 100 0 0
___________________________
Dale H. Wilkerson and
Mary Wilkerson, JTWROS
___________________________ 425 0 0
___________________________
Stephen B. Becker and
Avis Becker, JTWROS
</TABLE>
-80-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of Company
of Company Common Stock Number of Shares
Common Stock Issuable on Exercise of Company Common
Held of Record of Company Stock Applicable to
Name and Beneficially Warrants Company SARs
---- ---------------- -------- ------------
<S> <C> <C> <C>
By:_____________________________ 86,865 0 0
Merrill Lynch Trust Company
as Trustee for: Airtron, Inc.
Incentive Compensation Trust,
Airtron, Inc. Deferred Com-
pensation Trust, and Airtron,
Inc. 1995 Supplemental
Retirement Trust "A"
Name:___________________________
Title:__________________________
</TABLE>
-81-
<PAGE>
EXHIBIT 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.
June 20, 1997
================================================================================
Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE CLOSING............................................................................................. 1
1.1. The Closing Date................................................................................. 1
1.2. Adjustment for Accounts Receivable............................................................... 1
1.3. Additional Contingent Purchase Price Consideration............................................... 2
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS...................................................... 2
2.1. Exhibit 2........................................................................................ 2
2.2. Stock Ownership.................................................................................. 2
2.3. Authority........................................................................................ 2
2.4. Consents......................................................................................... 2
3. REPRESENTATIONS AND WARRANTIES OF PARENT................................................................ 3
3.1. Representations and Warranties................................................................... 3
3.1.1. Organization............................................................................. 3
3.1.2. Capitalization of Parent................................................................. 3
3.1.3. Authority................................................................................ 3
3.1.4. Consents................................................................................. 3
3.1.5. Defaults................................................................................. 4
3.1.6. Investment Company....................................................................... 4
3.1.7. Financial Statements..................................................................... 4
3.1.8. Taxes.................................................................................... 4
3.1.9. Full Authority........................................................................... 4
3.1.10. Access.................................................................................. 5
3.1.11. Disclosure.............................................................................. 5
3.1.12. Parent Material Adverse Effect.......................................................... 5
4. CERTAIN OTHER ACTIONS, COVENANTS, DOCUMENTS AND DEFINITIONS............................................. 5
4.1. Transfer Restrictions............................................................................ 5
4.2. Adoption of Shareholders Agreement............................................................... 5
4.3. Key Employee Employment Agreements............................................................... 5
4.4. Covenant Not to Compete.......................................................................... 6
4.5. Certain Election................................................................................. 6
4.5.1. Securities Sale Election.................................................................. 7
4.5.2. Rescission Election....................................................................... 7
4.5.3. Other..................................................................................... 8
4.6. Additional Elections............................................................................. 8
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
4.6.1. Securities Acquisition Election......................................................... 8
4.6.2. Transfer Transaction Election........................................................... 9
4.6.3. Other................................................................................... 10
4.7. Release......................................................................................... 10
4.8. Release of the Stockholders..................................................................... 10
4.9. Definitions..................................................................................... 11
4.10. Employee Options................................................................................ 11
4.11. Other Closing Documents......................................................................... 11
5. SURVIVAL, INDEMNIFICATIONS............................................................................. 12
5.1. Survival........................................................................................ 12
5.2. Indemnification................................................................................. 12
5.2.1. Parent Indemnified Parties.............................................................. 12
5.2.2. Parent Indemnity........................................................................ 13
5.3. Limitations..................................................................................... 13
5.4. Notice.......................................................................................... 14
6. MISCELLANEOUS.......................................................................................... 15
6.1. Notice.......................................................................................... 15
6.2. Further Documents............................................................................... 15
6.3. Assignability................................................................................... 15
6.4. Exhibits and Schedules.......................................................................... 16
6.5. Sections and Articles........................................................................... 16
6.6. Entire Agreement................................................................................ 16
6.7. Headings........................................................................................ 16
6.8. CONTROLLING LAW AND JURISDICTION................................................................ 16
6.9. Public Announcements............................................................................ 16
6.10. No Third Party Beneficiaries.................................................................... 17
6.11. Amendments and Waivers.......................................................................... 17
6.12. No Employee Rights.............................................................................. 17
6.13. Non-Recourse.................................................................................... 17
6.14. When Effective.................................................................................. 17
6.15. Takeover Statutes............................................................................... 18
6.16. Number and Gender of Words...................................................................... 18
6.17. Invalid Provisions.............................................................................. 18
6.18. Multiple Counterparts........................................................................... 18
6.19. No Rule of Construction......................................................................... 18
6.20. Expenses........................................................................................ 18
</TABLE>
-iii-
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") is made this 20th
day of June, 1997, among GROUP MAINTENANCE AMERICA CORP., a Texas corporation (1
"Parent") and the holders (the "Stockholders") of all of the outstanding capital
stock of K & N Plumbing, Heating and Air Conditioning, Inc., a Texas corporation
(the "Company").
WHEREAS, Parent and the Stockholders desire to provide for the transfer by
the Stockholders to Parent of the outstanding shares of capital stock of the
Company in exchange for cash, common stock and preferred stock of Parent and the
additional contingent purchase price consideration, if any;
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as an exchange under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder;
WHEREAS, Parent has adopted and Parent and the Stockholders have executed
and delivered a Section 351 Plan;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1. The Closing Date. For purposes of this Agreement, the term "Closing
----------------
Date" shall mean the date hereof. On the Closing Date, as soon as practicable
after the execution of this Agreement, a Closing (the "Closing") shall occur.
At the Closing, the Stockholders shall deliver to Parent the Stockholders' stock
certificates evidencing all of the Stockholders' shares of common stock, $1.00
par value, of the Company ("Company Common Stock") and a completed letter of
transmittal, and Parent shall deliver to the Stockholders $1,568,000 in cash
(the "Cash Consideration"), certificates evidencing 1,568,000 shares of Series D
Preferred Stock, $.001 par value, of Parent ("Parent Preferred Stock") and
certificates evidencing 1,007,778 shares of common stock, $.001 par value, of
Parent ("Parent Common Stock"). The portion of such Cash Consideration and
shares of Parent Common Stock and Parent Preferred Stock to be delivered to each
Stockholder is set forth on Exhibit 1.1 attached hereto. One hundred thousand
dollars ($100,000) of the Cash Consideration shall be allocated as consideration
for the covenant not to compete set forth in Section 4.4.
1.2. Adjustment for Accounts Receivable. In the event any accounts
----------------------------------
receivable of the Company outstanding as of March 31, 1997, are not collected in
full, net of any reserves for bad
<PAGE>
debts, by September 30, 1997, the Stockholders shall, upon written notice by
Parent, purchase, without recourse (together with any liens securing the payment
of same), in cash from the Company, within 10 days after receipt of such notice,
such uncollected accounts receivable specified in such notice for the unpaid
balance thereof.
1.3. Additional Contingent Purchase Price Consideration. In the event that
--------------------------------------------------
the EBITDA (as defined below) of the Company for the fifteen months ended June
30, 1998 exceeds $XXX, the Stockholders shall be entitled to receive from
Parent, on or before September 30, 1998, additional purchase price consideration
of a value equal to XXX times such excess amount and the portion of such
additional purchase price consideration shall be delivered to each Stockholder
as set forth on Exhibit 1.1 attached hereto. Such consideration shall be
payable in cash.
2. REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
Each Stockholder, jointly and severally, hereby represents and warrants to
Parent as follows:
2.1. Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2. Stock Ownership. Each Stockholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside such Stockholders name on Exhibit 1.1 and such shares are so held by such
Stockholder free and clear of all liens, encumbrances and claims whatsoever.
2.3. Authority. Each Stockholder 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 Stockholder (each a "Stockholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by each
Stockholder and constitutes, and each Stockholder Related Document, when duly
executed and delivered by each Stockholder who is a party thereto will
constitute, legal, valid and binding obligations of such Stockholder enforceable
against such Stockholder 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 Stockholders of this
Agreement or any Stockholder Related
-2-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
Document. The execution, delivery and performance by each Stockholder of this
Agreement and the Stockholder Related Documents do not violate any mortgage,
indenture, contract, agreement, lease or commitment or other instrument of any
kind to which such Stockholder is a party or by which such Stockholder or such
Stockholder's assets or properties may be bound or affected or any law, rule or
regulation applicable to such Stockholder or any court injunction, order or
decree or any valid and enforceable order of any governmental agency in effect
as of the date hereof having jurisdiction over such Stockholder.
3. REPRESENTATIONS AND WARRANTIES OF PARENT
3.1. Representations and Warranties. Parent hereby represents and warrants
------------------------------
to the Stockholders as follows:
3.1.1. Organization. Parent is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Texas. 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 Parent. The total authorized capital stock
------------------------
of Parent is 100,000,000 shares of Parent Common Stock, of which 16,359,446
shares are issued and outstanding and none of which are held in the treasury of
Parent, 50,000,000 shares of Parent preferred stock, $.001 par value, of which
45,137 shares of Series A Parent Preferred Stock are issued and outstanding. The
outstanding shares of Parent Common Stock and Parent preferred stock have been
duly and validly issued and are fully paid and non-assessable.
3.1.3. Authority. Parent has full right, power, legal capacity and
---------
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby and to consummate the
transactions contemplated herein and thereby (the "Parent Related Documents").
This Agreement has been duly executed and delivered by Parent and constitutes,
and all Parent Related Documents, when executed and delivered by Parent will
constitute, legal, valid and binding obligations of Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4. Consents. No approval, consent, order or action of or filing
--------
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by Parent of this
Agreement or the Parent Related Documents or the consummation by Parent of the
transactions contemplated hereby.
-3-
<PAGE>
3.1.5. Defaults. Parent is not in default under or in violation of,
--------
and the execution, delivery and performance of this Agreement and Parent Related
Documents and the consummation by 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 Parent is a party or by
which Parent or any of its properties or assets may be bound or affected or (ii)
any law, rule or regulation applicable to Parent or any court injunction, order
or decree, or any valid and enforceable order of any govern mental agency in
effect as of the date hereof having jurisdiction over Parent, which default or
violation could adversely affect the ability of Parent to consummate the
transactions contemplated hereby or will have a Parent Material Adverse Effect.
3.1.6. Investment Company. 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. Parent has provided certain financial
--------------------
statements to the Stockholders ("Parent Financial Statements") and such Parent
Financial Statements have been prepared in accordance with GAAP, are true and
correct in all material respects, and are fair presentations of the consolidated
financial position, results of operations and cash flows of Parent and its then
existing consolidated subsidiaries as of the dates and for the periods
indicated. The books and records of Parent have been kept in reasonable detail
and accurately and fairly reflect the transactions of Parent.
3.1.8. Taxes. 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 Parent for the period ended December 31, 1996.
3.1.9. Full Authority. Parent has full power, authority and legal
--------------
right and has 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,
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
-4-
<PAGE>
existing condition or state of facts which would give rise to a violation
thereof or a liability or default thereunder, except where a violation,
liability or default will not have a Parent Material Adverse Effect.
3.1.10. Access. Parent has cooperated fully in permitting the
------
Stockholders and their representatives to make a full investigation of the
properties, operations and financial condition of Parent; and afforded the
Stockholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11. Disclosure. No representation or warranty by Parent in this
----------
Agreement no statement contained any certificate delivered by Parent to the
Stockholders 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 Parent and its consolidated
subsidiaries, taken as a whole in an amount of $50,000 or more.
4. CERTAIN OTHER ACTIONS, COVENANTS, DOCUMENTS AND DEFINITIONS
Parent and the Stockholders agree as follows:
4.1. Transfer Restrictions. Contemporaneously herewith, the Stockholders
---------------------
and Parent are executing and delivering a Stock Transfer Restriction Agreement
and a Registration Rights Agreement.
4.2. Adoption of Shareholders Agreement. Contemporaneously herewith, the
----------------------------------
Stockholders are executing and delivering to Parent an adoption agreement
pursuant to which the Stockholders agree to be bound by the Shareholders
Agreement among Parent and its existing shareholders, as amended, a copy of
which has been delivered to the Stockholders.
4.3. Key Employee Employment Agreements. Contemporaneously herewith, the
----------------------------------
Company and certain key employees of the Company are executing and delivering
employment agreements.
-5-
<PAGE>
4.4. Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Stockholders in this Section are a
material inducement to Parent to enter into and perform this Agreement, each
Stockholder agrees that, for the period from the date hereof to the date which
is five (5) years after the date hereof, such Stockholder 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, 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, officer, director, trustee,
manager, employee, agent, associate or consultant engage in any business which
involves indoor air quality, heating, ventilation and air conditioning, plumbing
or electrical contracting services within a 100 mile radius of each of Dallas,
Texas, Austin, Texas and Las Vegas, Nevada.
(ii) Each Stockholder agrees that the limitations set forth herein
on such Stockholder's rights to compete with Parent and its affiliates as set
forth in clause (i) are reasonable and necessary for the protection of Parent
and its affiliates. In this regard, each Stockholder specifically agrees that
the limitations as to period of time and geographic area, as well as all other
restrictions on such Stockholder's activities specified herein, are reasonable
and necessary for the protection of Parent and its affiliates. Each Stockholder
also agrees that, in the event that the provisions of this Section should ever
be deemed to exceed the scope of business, time or geographic limitations
permitted by applicable law, such provisions shall be and are hereby reformed to
the maximum scope of business, time or geographic limitations permitted by
applicable law.
(iii) Each Stockholder agrees that the remedy at law for any
breach by such Stockholder of this Section 4.4 will be inadequate and that
Parent shall be entitled to injunctive relief.
4.5. Certain Election. In the event that (i) Parent has not effected an
----------------
underwritten public offering of Parent Common Stock (other than any offering
pursuant to any registration statement (a) relating to any capital stock of
Parent or options, warrants or other rights to acquire any such capital stock
issued or to be issued primarily to directors, officers or employees of Parent,
or any of its subsidiaries (b) relating to any employee benefit plan or interest
therein, (c) relating principally to any preferred stock or debt securities of
Parent, or (d) filed pursuant to Rule 145 under the Securities Act of 1933, as
amended, or any successor or similar provision) resulting, in net cash proceeds
to Parent of at least $20,000,000 (the "IPO") on or before October 31, 1997,
and (ii) the shares of Parent Common Stock sold in such IPO are not listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc:
-6-
<PAGE>
4.5.1. Securities Sale Election. The Stockholders jointly may elect,
------------------------
by written notice to Parent delivered on or before November 5, 1997 (the "First
1 Election Notice") to call upon Parent to acquire, for the cash amount of
$8,232,000 (the "Securities Sale Consideration") all of the shares of Parent
Preferred Stock and Parent Common Stock issued by Parent to the Stockholders
pursuant to this Agreement and all of the Stockholders' rights hereunder to
acquire additional shares of capital stock of Parent ("Rights") and all Employee
Options (as defined below) and all shares of capital stock of Parent issued
pursuant to the exercise of Employee Options (the "Option Shares") ("Securities
Sale Transaction"). In the event that Parent determines not to agree to commit
to acquire such shares, Rights, Employee Options and Option Shares on or before
December 31, 1997 in the Securities Sale Transaction, Parent shall, on or before
November 10, 1997, give written notice to the Stockholders ("Parent Rejection
Notice") that it has so determined not to agree to acquire such shares, Rights,
Employee Options and Option Shares. In the event Parent determines to agree to
acquire such shares, Rights, Employee Options and Option Shares in the
Securities Sale Transaction, Parent shall, on or before November 10, 1997, give
written notice to the Stockholders ("Parent Acceptance Notice") that it agrees
to acquire such shares, Rights, Employee Options and Option Shares. The Parent
Acceptance Notice shall also specify the date, time and place of the closing of
the Securities Sale Transaction; provided that such closing shall be held on or
before December 31, 1997. At such closing, the Stockholders shall deliver or
cause to be delivered to Parent or its designee stock certificates evidencing
the Parent Preferred Stock and the Parent Common Stock and the Option Shares
duly endorsed and in proper form for transfer on the stock records of the
Company with customary written warranties of good title, authority to transfer
and absence of liens or other exceptions to title hereto, and a release of all
of the Rights and all Employee Options and Parent or its designee shall deliver
or cause to be delivered to the Stockholders the Securities Sale Consideration
and a letter containing customary representations and warranties evidencing
compliance with applicable securities laws. If the Parent Acceptance Notice is
not delivered to the Stockholders on or before November 10, 1997, Parent will
conclusively be deemed to have delivered a Parent Rejection Notice to the
Stockholders on November 10, 1997. Upon delivery or deemed delivery of the
Parent Rejection Notice, the Stockholders shall have no right to require Parent
to acquire any of Parent Common Stock, Parent Preferred Stock, Rights, Employee
Options or Option Shares pursuant to this Section 4.5.1.
4.5.2. Rescission Election. Within 20 days after the delivery or
-------------------
deemed delivery of the Parent Rejection Notice, the Stockholders may, by written
notice to Parent delivered within such 20 day period (the "Second Election
Notice"), require Parent to transfer the Company Common Stock acquired by it
pursuant hereto to the designees named in the Second Election Notice in a
transaction (the "Rescission Transaction") structured to (i) relieve Parent and
its affiliates of any liability on the then remaining indebtedness attributable
to the financing of the transactions contemplated hereby, (ii) take into account
any capital Parent invested in/or withdrew from the Company (other than for debt
service on the foregoing) from the date hereof to the closing of the Rescission
Transaction, (iii) relieve Parent from or otherwise satisfy any income tax
consequences
-7-
<PAGE>
to Parent from the Rescission Transaction, and (iv) transfer to Parent all
capital stock of Parent issued to the Stockholders pursuant hereto, all Rights
and all Employee Options and Option Shares. The terms of the Rescission
Transaction will be such that Parent and the Stockholders will receive no
unreasonable benefit or detriment therefrom. The Second Election Notice will
contain the addresses of the designee named therein and all of the proposed
terms of the Rescission Transaction. The proposed terms of the Rescission
Transaction contained in the Second Election Notice shall be final, conclusive
and binding for purposes of this Agreement unless Parent shall deliver to the
Stockholders a written notice of disagreement ("Notice of Objection") with any
such proposed terms within 20 business days following receipt of the Second
Election Notice, specifying in reasonable detail the nature and extent of such
disagreement. If within 10 business days following receipt by the Stockholders
of a Notice of Objection, Parent and the Stockholders are unable to resolve any
disagreement with respect to the proposed terms of the Rescission Transaction as
set forth in the Second Election Notice, the disagreement shall be submitted for
resolution to Parent's firm of independent certified public accountants (the
"Accountants"), who shall resolve the issues in dispute, and giving effect to
such resolution, determine the final terms of the Rescission Transaction. The
Accountants shall determine and resolve only those issues in dispute. The
Accountants' resolution shall (a) be made within 30 days of the submission of
the dispute to them, (b) be in accordance with this Agreement, (c) be set forth
in a written statement delivered to Parent and the Stockholders, (d) set forth
the final terms of the Rescission Transaction, and (e) be final, conclusive and
binding for purposes of this Agreement.
4.5.3. Other. Parent will cooperate fully with the Stockholders in
-----
obtaining any consent required from Parent's lenders to effect a Securities Sale
Transaction or a Rescission Transaction as contemplated hereby. On the closing
of a Rescission Transaction, all noncompetition agreements between Parent and
any employee of the Company who does not continue employment with Parent or its
affiliates will be terminated. At the closing of a Securities Sale Transaction
or a Rescission Transaction, the parties will enter into mutual releases under
which the parties release all claims against each other which have arisen or
could arise based on events, acts or omissions occurring or existing prior to
such closing.
4.6. Additional Elections. In the event Parent has not effected an IPO on
--------------------
or before December 31, 1998, and if neither of the two elections provided in
Section 4.5 have been exercised by the Stockholders:
4.6.1. Securities Acquisition Election. The Stockholders jointly may
-------------------------------
elect, by written notice to Parent delivered on or before January 31, 1999 (the
"Third 1 Election Notice"), to call upon Parent to acquire, for the cash amount
of $8,232,000 plus simple interest thereon at the rate of 8% per annum from the
date hereof to the date of the closing of such acquisition (the "Securities
Acquisition Consideration") all of the shares of Parent Preferred Stock and
Parent Common Stock issued by Parent to the Stockholders pursuant to this
Agreement and all Rights and all Employee
-8-
<PAGE>
Options and all Option Shares ("Securities Acquisition Transaction"). In the
event that Parent determines not to agree to acquire such shares, Rights, and
Employee Options and Option Shares in the Securities Acquisition Transaction,
Parent shall, within 90 days of receipt of the Third Election Notice, give
written notice to the Stockholders ("Parent Second Rejection Notice") that it
has so determined not to agree to acquire such shares, Rights, Employee Options
and Option Shares. In the event Parent determines to agree to acquire such
shares, Rights, Employee Options and Option Shares in the Securities Acquisition
Transaction, Parent shall, within 90 days of receipt of the Third Election
Notice, give written notice to the Stockholders ("Parent Second Acceptance
Notice") that it agrees to acquire such shares, Rights, Employee Options and
Option Shares. The Parent Second Acceptance Notice shall also specify the date,
time and place of the closing of the Securities Acquisition Transaction;
provided that such closing shall be held not more than 60 days after delivery of
the Parent Second Acceptance Notice. At such closing, the Stockholders shall
deliver or cause to be delivered to Parent or its designee stock certificates
evidencing the Parent Preferred Stock and the Parent Common Stock and Option
Shares duly endorsed and in proper form for transfer on the stock records of the
Company with customary written warranties of good title, authority to transfer
and absence of liens or other exceptions to title hereto and a release of all of
the Stockholder's Rights and all Employee Options, and Parent or its designee
shall deliver or cause to be delivered to the Stockholders the Securities
Acquisition Consideration and a letter containing customary representations and
warranties evidencing compliance with applicable securities laws. If the Parent
Second Acceptance Notice is not delivered to the Stockholders within 90 days of
Parent's receipt of the Third Election Notice, Parent will conclusively be
deemed to have delivered a Parent Second Rejection Notice to the Stockholders on
the 90th day after Parent's receipt of the Third Election Notice. Upon delivery
or deemed delivery of the Parent Rejection Notice, the Stockholders shall have
no right to request Parent to acquire any shares of Parent Common Stock, Parent
Preferred Stock, Rights, Employee Options or Option Shares pursuant to this
Section 4.6.1.
4.6.2. Transfer Transaction Election. Within 20 days after the
-----------------------------
delivery or deemed delivery of the Parent Second Rejection Notice, the
Stockholders may, by written notice to Parent delivered within such 20 day
period (the "Fourth Election Notice") require Parent to transfer the stock or
assets of the Company to the designees named in the Third Election Notice in a
transaction (the " Transfer Transaction") structured to (i) relieve Parent and
its affiliates of any liability on the then remaining indebtedness attributable
to the financing of the transactions contemplated hereby (ii) take into account
any capital Parent invested in/or withdrew from the Company (other than for debt
service on the foregoing) from the date hereof to the closing of the Transfer
Transaction, and (iii) relieve Parent from or otherwise satisfy any income tax
consequences to Parent from the Transfer Transaction. The terms of the Transfer
Transaction will be such that Parent will receive no economic benefit or
detriment therefrom. The Fourth Election Notice will contain the addresses of
the designee named therein and all of the proposed terms (including the
consideration payable to Parent or the Company) of the Transfer Transaction. The
proposed terms of the Transfer Transaction contained in the Fourth Election
Notice shall be final, conclusive and binding for purposes of this
-9-
<PAGE>
Agreement unless Parent shall deliver to the Stockholders a written notice of
disagreement ("Second Notice of Objection") with any such proposed terms
within 20 business days following receipt of the Second Election Notice,
specifying in reasonable detail the nature and extent of such disagreement. If
within 10 business days following receipt by the Stockholders of a Second Notice
of Objection, Parent and the Stockholders are unable to resolve any disagreement
with respect to the proposed terms of the Transfer Transaction as set forth in
the Fourth Election Notice, the disagreement shall be submitted for resolution
to the Accountants, who shall resolve the issues in dispute, and giving effect
to such resolution, determine the final terms of the Transfer Transaction. The
Accountants shall determine and resolve only those issues in dispute. The
Accountants' resolution shall (a) be made within 30 days of the submission of
the dispute to them, (b) be in accordance with this Agreement, (c) be set forth
in a written statement delivered to Parent and the Stockholders, (d) set forth
the final terms of the Transfer Transaction, and (e) be final, conclusive and
binding for purposes of this Agreement.
4.6.3. Other. Parent will cooperate fully with the Stockholders in
-----
obtaining any consent required from Parent's lenders to effect a Securities
Acquisition Transaction or a Transfer Transaction as contemplated hereby. On
the closing of a Transfer Transaction, all noncompetition agreements between
Parent and any employee of the Company who does not continue employment with
Parent or its affiliates will be terminated. At the closing of a Securities
Acquisition Transaction or a Transfer Transaction, the parties will enter into
mutual releases under which the parties release all claims against each other
which have arisen or could arise based on events, acts or omissions occurring or
existing prior to such closing.
4.7. Release. The Stockholder do hereby (i) release, acquit and forever
-------
discharge the Company from any and all liabilities, obligations, claims,
demands, actions or causes of action arising from or relating to any event,
occurrence, act, omission or condition occurring or existing on or prior to the
Closing Date, including, without limitation, any claim for indemnity or
contribution from the Company in connection with the obligations or liabilities
of the Stockholders hereunder, except for salary and benefits payable to a
Stockholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Closing Date; and (iii) waive any and all pre-emptive 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 pre-emptive or other rights.
4.8. Release of the Stockholders. Contemporaneously herewith Parent is
---------------------------
causing each Stockholder to be released from any liability under his or her
personal guaranties of the indebtedness of the Company described in Section 4.7
of the Disclosure Schedule (as defined in Exhibit 2).
-10-
<PAGE>
4.9. Definitions. For purposes of this Agreement: (a) the term "Long-Term
-----------
Debt" shall mean all long-term liabilities of the Company as of the Closing
Date, including deferred taxes and capitalized lease obligations, all as
determined in accordance with U.S. generally accepted accounting principles
consistently applied ("GAAP"); (b) the term "Current Assets" shall mean the
current assets of the Company as of the Closing Date, as determined in
accordance with GAAP; (c) the term "Current Liabilities" shall mean the current
liabilities of the Company as of the Closing Date, as determined in accordance
with GAAP; provided, however, that all expenses of the Company or the
Stockholders (other than the audit fee paid by the Company to KPMG Peat Marwick)
incurred in connection with the transactions contemplated hereby which are
payable by the Company shall be included in Current Liabilities; (d) the term
"EBITDA" shall mean the sum of (1) Net After-Tax Income (as defined below), plus
(2) the amount of income and franchise taxes deducted from Net After-Tax Income,
plus (3) the amount of depreciation and amortization deducted from Net After-Tax
Income, plus (4) the amount of interest expense deducted from Net After-Tax
Income (the amounts in clauses (1) through (4) to the determined in accordance
with GAAP); and (e) the term "Net After-Tax Income" shall mean the net income
(or loss) of the Company for the period in question after deduction for income,
franchise and other taxes and without giving effect to non-recurring gains and
losses, interest income or investment income, determined in accordance with
GAAP.
4.10. Employee Options. Contemporaneously herewith, the existing Company
----------------
options for 150 shares of Company Common Stock will be exchanged for Parent
options to purchase an aggregate of 150,000 shares of Parent Common Stock
(collectively, the "Employee Options"), pursuant to terms of the K&N Plumbing,
Heating and Air Conditioning, Inc. Stock Option Plan and the Nonqualified Stock
Option Agreement (collectively, the "Option Agreements"), each attached hereto
as Exhibit 4.10. Upon the Closing, Parent shall assume all of the rights,
interests and obligations of the Company under the Option Agreements.
4.11. Other Closing Documents. Contemporaneously herewith:
-----------------------
(i) The Stockholders are delivering to Parent an opinion of legal
counsel satisfactory to Parent; and
(ii) Parent is delivering to the Stockholders (a) an opinion of legal
counsel satisfactory to the Stockholders, and (b) certified resolutions of the
Board of Directors of Parent in form satisfactory to the Stockholders.
-11-
<PAGE>
5. SURVIVAL, INDEMNIFICATIONS
5.1. Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Stockholders herein and of the
Stockholders and the Company in the Stockholder Related Documents and the
Company Related Documents (as defined in Exhibit 2) other than those of the
Stockholders in Sections 2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2
shall survive for a period of thirty-six (36) months after the date hereof and
the representations and warranties of the Stockholders 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
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 thirty-six (36) months after the
date hereof and the representations and warranties of 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 5.1 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 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.
5.2. Indemnification.
---------------
5.2.1. Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 5.1 and 5.3 hereof, the Stockholders, jointly and severally, shall
indemnify, save and hold harmless Parent, the Company and any of their assignees
(including lenders) and all of their respective officers, directors, employees,
representatives, agents, advisors and consultants and all of their respective
heirs, legal representatives, successors and assigns (collectively the "Parent
Indemnified Parties") from and against any and all damages, liabilities, losses,
claims, deficiencies, penalties, interest, expenses, fines, assessments, charges
and costs, including reasonable attorneys' fees and court costs (collectively "
Losses") arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of any Stockholder or the Company or
the failure by any Stockholder or the Company to perform any obligation of
such Stockholder or the Company contained herein or in any Company Related
Document or Stockholder Related Document;
-12-
<PAGE>
(ii) any inaccuracy in or breach of any representation or warranty of
any Stockholder contained herein or in any Stockholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained in any Company Related Document;
(iv) indemnification payments made by the Company to its present or
former officers, directors, employees, agents, consultants, advisors or
representatives in respect of actions taken or omitted to be taken prior to
the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing and involving or
related to the assets, properties, business or operations now or previously
owned or operated by the Company and not (a) disclosed in the Disclosure
Schedule or (b) disclosed in the Company Financial Statements (as defined
in Exhibit 2).
5.2.2. Parent Indemnity. Subject to the provisions of Sections 5.1 and
----------------
5.3, Parent shall indemnify, save and hold harmless the Stockholders and the
Stockholders' 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 Parent or the failure by Parent to
perform any obligation of Parent contained herein or in the Parent Related
Documents;
(ii) any inaccuracy in or breach of any representation or warranty of
Parent contained herein or in the Parent Related Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the date hereof and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that clause (iii) shall not apply to any
Losses to the extent that such Losses result from the Stockholder's acts or
omissions after the date hereof as an officer, director and/or employee of
Parent or the Company and/or any other affiliate of Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 5.2.1.
5.3. Limitations. The aggregate liability of the Stockholders under
------------
Sections 5.2.1 shall not exceed $9,800,000. The aggregate liability of Parent
under Section 5.2.2 shall not exceed $9,800,000.
-13-
<PAGE>
5.4. Notice. The party (the "Indemnified Party") which may be entitled
------
to indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim,
or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 5.4 shall relieve the
Indemnifying Party of its obligations under this Article 5 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice. 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 Stockholders
shall at all times have the right, at his or her 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 ten (10) days after receipt of
notice of such third-party claim, suit, action or proceeding, the Stockholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding. 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 ten (10) days' prior written notice to the
Indemnifying Party if such third-party suit, action, proceeding or investigation
is then unreasonably interfering with the business or operations of the Company
and the settlement is commercially reasonable under the circumstances; and
provided further, that if the Indemnifying Party gives ten (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 ten (10) days after delivery of the Settlement Notice to
the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 5.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof. 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
which are pertinent to the defense. The parties agree that 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.
-14-
<PAGE>
6. MISCELLANEOUS
6.1. 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 Stockholders:
Andrew Jeffrey Kelly
c/o Clay Roark
Dunn & Roark, P.C.
4025 Woodland Park Blvd., Suite 285
Arlington, Texas 76015
Telecopy: (817) 459-0003
To Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 6.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
6.2. Further Documents. The Stockholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by 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 Stockholders hereunder.
6.3. Assignability. No Stockholder shall assign this Agreement in whole or
-------------
in part without the prior written consent of Parent, except by the operation of
law. Parent may assign its
-15-
<PAGE>
rights under this Agreement, the Company Related Documents and the Stockholder
Related Documents without the consent of the Stockholders.
6.4. 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.
6.5. Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections and Articles referred to herein are, respectively, sections and
articles of this Agreement and all Exhibits and Schedules referred to herein
are, respectively, exhibits, and schedules constituting a part of the Disclosure
Schedule.
6.6. 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.
6.7. Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
6.8. CONTROLLING LAW AND JURISDICTION. 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.
6.9. Public Announcements. No press release, public announcement,
--------------------
confirmation or other information regarding this Agreement or the contents
hereof shall be made by any party or the Company without the prior consultation
of the Stockholders and Parent, except as may be necessary in the opinion of
counsel of any party to meet the requirements or regulations of any applicable
law, governmental unit or agency or stock exchange on which the securities of
such party may be listed.
-16-
<PAGE>
Notwithstanding the foregoing, the Company may make appropriate disclosures of
the general nature of the transaction contemplated hereby to its employees,
vendors and customers to protect the Company's good will and to facilitate the
consummation of the transactions contemplated hereby, and Parent may disclose
pertinent information regarding the transaction contemplated hereby to its
existing and prospective investors, lenders or investment bankers or financial
advisors for the purposes of obtaining financing (including a contemplated IPO).
Parent may also make appropriate disclosures of the general nature of the
transaction contemplated hereby and the identity, nature and scope of the
Company's operations to prospective acquisition candidates in its efforts to
attract additional acquisitions for Parent. Parent and the Stockholders shall
jointly approve the contents of any press releases, written employee
presentations or other materials of potentially wide distribution that disclose
or refer to the transaction contemplated hereby, except for such press releases
or other communications required by law.
6.10. No Third Party Beneficiaries. Except as set forth in Article 5, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
6.11. Amendments and Waivers. This Agreement may be amended by Parent and
----------------------
the Stockholders; provided that all amendments to this Agreement must be by an
instrument in writing signed on behalf of Parent and by the Stockholders. Any
term or provision of this Agreement may be waived in writing at any time by the
party which is entitled to the benefits thereof.
6.12. 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.
6.13. 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 Parent in this Agreement shall be
had against any incorporator, organizer, promoter, stockholder, officer,
director, employee or representative as such (other than the Stockholders as set
forth herein), past, present or future, of Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
6.14. When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by Parent
and the Stockholders.
-17-
<PAGE>
6.15. Takeover Statutes. If any "fair price", "moratorium", "control share
------------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, Parent and the Company and
their respective members of their Boards of Directors shall grant such approvals
and take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated herein.
6.16. 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.
6.17. 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.
6.18. 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.
6.19. 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.
6.20. Expenses. Each of the parties shall bear all of their own expenses
--------
in connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the accounting and auditing fees
and expenses of KPMG Peat Marwick shall be borne by Parent.
-18-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
GROUP MAINTENANCE AMERICA CORP.
By:______________________________________
Name:____________________________________
Title:___________________________________
By:______________________________________
Name: Andrew Jeffrey Kelly
THE KELLY FAMILY IRREVOCABLE TRUST
By:______________________________________
Name:____________________________________
Title:___________________________________
-19-
<PAGE>
EXHIBIT 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.
JUNE 21, 1997
Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
Page
1. THE CLOSING............................................................. 1
1.1. The Closing Date............................................... 1
1.2. Post-Closing Adjustment........................................ 2
1.3. The Earn-Out................................................... 2
1.4. IPO Price Adjustment........................................... 3
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER....................... 4
2.1. Exhibit 2...................................................... 4
2.2. Stock Ownership................................................ 4
2.3. Authority...................................................... 4
2.4. Consents....................................................... 4
3. REPRESENTATIONS AND WARRANTIES OF PARENT................................ 5
3.1. Representations and Warranties.................................. 5
3.1.1. Organization........................................... 5
3.1.2. Capitalization of Parent............................... 5
3.1.3. Authority.............................................. 5
3.1.4. Consents............................................... 5
3.1.5. Defaults............................................... 6
3.1.6. Investment Company..................................... 6
3.1.7. Financial Statements................................... 6
3.1.8. Taxes.................................................. 6
3.1.9. Full Authority......................................... 6
3.1.10. Access................................................. 7
3.1.11. Disclosure............................................. 7
3.1.12. Parent Material Adverse Effect......................... 7
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS........................... 7
4.1. Transfer Restrictions.......................................... 7
4.2. Adoption of Shareholders Agreement............................. 7
4.3. Employment Agreement........................................... 7
4.4. Lease.......................................................... 8
4.5. Covenant Not to Compete........................................ 8
4.6. Release........................................................ 8
4.7. Release of the Shareholders.................................... 9
4.8. Elimination of Expense......................................... 9
4.9. Note Repayments................................................ 9
4.10. Other Closing Documents........................................ 9
5. SURVIVAL, INDEMNIFICATIONS............................................... 9
5.1. Survival....................................................... 9
i
<PAGE>
5.2. Indemnification............................................... 10
5.2.1. Parent Indemnified Parties............................ 10
5.2.2. Parent Indemnity...................................... 11
5.3. Limitations................................................... 11
5.4. Notice........................................................ 11
6. MISCELLANEOUS........................................................... 12
6.1. Notice........................................................ 12
6.2. Further Documents............................................. 13
6.3. Assignability................................................. 13
6.4. Exhibits and Schedules........................................ 13
6.5. Sections and Articles......................................... 14
6.6. Entire Agreement.............................................. 14
6.7. Headings...................................................... 14
6.8. CONTROLLING LAW AND JURISDICTION.............................. 14
6.9. Public Announcements.......................................... 14
6.10. No Third Party Beneficiaries.................................. 15
6.11. Amendments and Waivers........................................ 15
6.12. No Employee Rights............................................ 15
6.13. Non-Recourse.................................................. 15
6.14. When Effective................................................ 15
6.15. Takeover Statutes............................................. 15
6.16. Number and Gender of Words.................................... 16
6.17. Invalid Provisions............................................ 16
6.18. Multiple Counterparts......................................... 16
6.19. No Rule of Construction....................................... 16
6.20. Expenses...................................................... 16
EXHIBITS:
EXHIBIT 1.1 - Holders of Company Common Stock
EXHIBIT 2 - Certain Representations and Warranties of the Shareholders
EXHIBIT 4.8 - Permanent Elimination or Reduction of Certain Expenses
ii
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") is made this
21st day of June, 1997, between GROUP MAINTENANCE AMERICA CORP., a Texas
corporation ("Parent") and the undersigned holders (the "Shareholders") of all
of the outstanding capital stock of COSTNER BROTHERS, INC., a South Carolina
corporation (the "Company").
WHEREAS, Parent and the Shareholders desire to provide for the transfer by
the Shareholders to Parent of the outstanding shares of capital stock of the
Company in exchange for cash, common stock and preferred stock of Parent;
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as an exchange under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder;
WHEREAS, Parent has adopted and Parent and the Shareholders have executed
and delivered a Section 351 Plan;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1 The Closing Date. For purposes of this Agreement, the term "Closing
Date" shall mean the date hereof. On the Closing Date, as soon as practicable
after the execution of this Agreement, a Closing (the "Closing") shall occur.
At the Closing, the Shareholders shall deliver to Parent the Shareholders' stock
certificates evidencing all shares of common stock, $1.00 par value, of the
Company ("Company Common Stock") and a completed letter of transmittal, and
Parent shall deliver to the Shareholders, allocated in proportion to their
respective holdings of Company Common Stock as set forth on Exhibit 1.1 to this
Agreement, $451,161 in cash (the "Closing Cash Consideration"), certificates
evidencing 100,000 shares of Series C Preferred Stock, $.001 par value, of
Parent with a liquidation preference of $1.00 per share ("Parent Preferred
Stock") and certificates evidencing 131,072 shares (the "Initial Shares") of
common stock, $.001 par value, of Parent ("Parent Common Stock"). The Closing
Cash Consideration is subject to post-closing adjustment as provided below. One
hundred thousand dollars ($100,000) of the Cash Consideration shall be allocated
as consideration for the covenant not to compete set forth in Section 4.5 and
shall be allocated to the Shareholders in the percentages indicated on Exhibit
1.1.
1
<PAGE>
1.2 Post-Closing Adjustment.
(i) As promptly as practicable, and in any event no later than ninety
(90) days after the date hereof, Parent shall cause to be prepared and delivered
to the Shareholders a statement (the "Statement") showing (a) a calculation,
based on the books and records of the Companies as of the Closing Date, of the
Long-Term Debt (as defined below), the Current Assets (as defined below) and the
Current Liabilities (as defined below), and (b) the Final Cash Consideration
(determined as set forth below).
(ii) The Closing Cash Consideration has been determined by agreement of
Parent and the Shareholders as being an acceptable estimate of 90% of the Final
Cash Consideration payable to the Shareholders hereunder. To arrive at the
Final Cash Consideration, there shall be deducted from $XXX (a) the amount,
if any, by which Long-Term Debt as shown on the Statement exceeds $137,656 (or
such higher amount for which the Parent has given its prior written approval)
and (b) the amount, if any, by which XXX times Current Liabilities exceeds
Current Assets. The resulting amount shall be the Final Cash Consideration.
(iii) If the Final Cash Consideration as shown on the Statement exceeds
the Closing Cash Consideration, Parent will pay to the Shareholders (in the
percentages shown on Exhibit 1.1) the amount of the excess in cash within 10
days after the date of delivery of the Statement to the Shareholders. If the
Closing Cash Consideration exceeds the Final Cash Consideration, as shown on the
Statement, the Shareholders will pay to Parent the amount of the excess in cash
within 10 days after the date of delivery of the Statement to the Shareholder.
(iv) For purposes of the Agreement (a) the term "Long-Term Debt" shall
mean all long-term liabilities of the Companies as of the Closing Date,
including deferred taxes and capitalized lease obligations, all as determined in
accordance with U.S. generally accepted accounting principles consistently
applied ("GAAP"); (b) the term "Current Assets" shall mean the current assets of
the Company as of the Closing Date, as determined in accordance with GAAP; and
(c) the term "Current Liabilities" shall mean the current liabilities of the
Company as of the Closing Date, as determined in accordance with GAAP; provided,
however, that all expenses of the Company or the Shareholders (other than the
audit fee to be paid by the Company to KPMG Peat Marwick) incurred in connection
with the transactions contemplated hereby which are payable by the Company shall
be accrued as of such date and included in Current Liabilities. Accounts
receivable on the books of the Company at the Closing Date that remain
uncollected on the date of the Statement and which are over 60 days past due, if
so identified by Parent, shall not be included in Current Assets and such
accounts receivable so identified shall be assigned to the Shareholders without
recourse.
1.3 The Earn-Out. On or before April 30, 1998, Parent shall cause to be
prepared and delivered to Shareholders a statement (the "1997 Statement") based
on the financial statements of the Company for the years ended December 31, 1997
and December 31, 1996, prepared in accordance with GAAP, and showing the
calculation of the amount of the
2
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
Company's EBITDA (defined below) for each such year. Parent shall pay to the
Shareholders as additional purchase consideration hereunder (the "Earn-Out"), up
to a maximum amount of $XXX, the product of XXX multiplied by the excess of
1997 EBITDA over 1996 EBITDA, provided the amount of such excess is a positive
number. Within thirty days following delivery of the 1997 Statement, Buyer shall
deliver payment of the Earn-Out, if any, to Shareholders, allocated among the
Shareholders in proportion to their respective holdings of Company Common Stock
on the Closing Date as set forth in Exhibit 1.1, as follows: (i) 44.0% of the
amount of the Earn-Out shall be payable in cash and (ii) the remainder of the
Earn-Out (56.0%) shall be payable through delivery of Parent Common Stock with a
Stock Value (as hereinafter defined) equal to 56% of the amount of the Earn-Out;
provided that if the Parent Common Stock is not then admitted to trading on any
national securities exchange or quoted on the National Association of Securities
Dealers Inc., National Market System or any similar system then in use ("NASDAQ
NMS") or otherwise traded in the over-the-counter market, the Earn-Out shall be
payable entirely in cash. For purposes of this Agreement "Stock Value" of Parent
Common Stock means the average daily closing sales price (or if no closing price
is reported, the average of the daily closing bid and asked prices) during the
10 consecutive trading days ending on and including the date that is three
trading days immediately preceding the Earn-Out payment date, of a share of
Parent Common Stock on the principal United States securities exchange
registered under the Exchange Act on which such stock is listed, or, if such
stock is not listed on any such exchange, on the NASDAQ NMS or any similar
system then in use, or if no such quotations are available, in the over-the-
counter market where such stock is publicly traded, or if such stock is not
publicly traded. The term "EBITDA" shall mean the sum of (a) Net After-Tax
Income (as defined below), plus (b) the amount of income and franchise taxes
deducted from Net After-Tax Income, plus (c) the amount of depreciation and
amortization deducted from Net After-Tax Income, plus (d) the amount of interest
expense deducted from Net After-Tax Income, the amounts in clauses (a) through
(d) to be determined in accordance with GAAP. The term "Net After-Tax Income"
shall mean the consolidated net income (or loss) of the Company after deduction
for income, franchise and other taxes and without giving effect to non-recurring
gains and losses, interest income or investment income, determined in accordance
with GAAP.
1.4 IPO Price Adjustment. Within thirty days following Parent's IPO
(defined below), Parent shall cause to be prepared and delivered to Shareholders
a statement (the "IPO Statement") reporting the price paid by the public for
shares of Parent Common Stock in the IPO (the "IPO Price"), calculating the
quotient resulting from dividing $917,506 by the IPO Price, allocating such
quotient to the Shareholders in the percentages indicated on Exhibit 1.1, and
rounding up to the nearest whole number the amount so allocated to each
Shareholder. Each whole number so calculated shall represent the number of
shares of Parent Common Stock to which the respective Shareholder is entitled as
a result of this Agreement (the sum of such whole numbers is the number of
"Final Shares" of Parent Common Stock). In the event that the number of Final
Shares exceeds the number of Initial Shares, Parent will promptly issue the
number of shares of Parent Common Stock equivalent to such difference to the
Shareholders allocated in accordance with the IPO Statement. In the event that
the number of Initial Shares exceeds the number of Final Shares, the
Shareholders will promptly
3
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
assign, transfer and deliver to the Parent the number of shares of Parent Common
Stock equivalent to such difference. The term "IPO" means any underwritten
public offering of Parent Common Stock (other than any offering pursuant to any
registration statement (i) relating to any capital stock of Parent or options,
warrants or other rights to acquire any such capital stock issued or to be
issued primarily to directors, officers or employees of 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 Parent,
or (iv) filed pursuant to Rule 145 under the Securities Act of 1933, as amended,
or any successor or similar provision) resulting in net cash proceeds to Parent
of at least $20,000,000.
2. REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
The Shareholders, jointly and severally, hereby represent and warrant to
Parent as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
correct.
2.2 Stock Ownership. Each Shareholder owns, beneficially and of record,
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibit 1.1 and such shares are so held by the
Shareholders free and clear of all liens, encumbrances and claims whatsoever.
2.3 Authority. Each Shareholder has full right, power, legal capacity and
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Shareholders (each a "Shareholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by each Shareholder
and constitutes, and each Shareholder Related Document, when duly executed and
delivered by each Shareholder who is a party thereto will constitute, legal,
valid and binding obligations of such Shareholder enforceable against such
Shareholder in accordance with their respective terms and conditions, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholders of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by each Shareholder of this Agreement and the Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which such Shareholder is a party
or by which such Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to such
4
<PAGE>
Shareholder or any court injunction, order or decree or any valid and
enforceable order of any governmental agency in effect as of the date hereof
having jurisdiction over such Shareholder.
3. REPRESENTATIONS AND WARRANTIES OF PARENT
3.1. Representations and Warranties. Parent hereby represents and warrants
to the Shareholders as follows:
3.1.1. Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. 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 Parent. As of June 18, 1997, the total
authorized capital stock of Parent is 100,000,000 shares of Parent Common Stock,
of which 16,424,446 shares are issued and outstanding and of which 0 shares are
held in the treasury of Parent, 50,000,000 shares of Preferred Stock, $.001 par
value, divided into 15,000,000 shares of Series A Preferred Stock, of which
45,137 shares are issued and outstanding, 678,920 shares of Series B Preferred
Stock, of which 0 shares are issued and outstanding, 130,000 shares of Series C
Preferred Stock, of which 0 shares are issued and outstanding, 1,800,000 shares
of Series D Preferred Stock, of which 0 shares are issued and outstanding, and
600,000 shares of Series E Preferred Stock, of which 0 shares are issued and
outstanding. The outstanding shares of Parent Common Stock and Parent Series A
Preferred Stock have been duly and validly issued and are fully paid and non-
assessable.
3.1.3. Authority. Parent has full right, power, legal capacity and
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby and to consummate the
transactions contemplated herein and thereby (the "Parent Related Documents").
This Agreement has been duly executed and delivered by Parent and constitutes,
and all Parent Related Documents, when executed and delivered by Parent will
constitute, legal, valid and binding obligations of 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).
3.14. 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 Parent of this
Agreement or the Parent Related Documents or the consummation by Parent of the
transactions contemplated hereby.
3.1.5. Defaults. Parent is not in default under or in violation of,
and the execution, delivery and performance of this Agreement and Parent Related
Documents and the consummation by Parent of the transactions contemplated hereby
and thereby will not
5
<PAGE>
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 Parent is a party or by which Parent or any of
its properties or assets may be bound or affected or (ii) any law, rule or
regulation applicable to 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 Parent, which default or violation could
adversely affect the ability of Parent to consummate the transactions
contemplated hereby or will have a Parent Material Adverse Effect.
3.1.6 Investment Company. 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. Parent has provided certain financial
statements to the Shareholders ("Parent Financial Statements") and such Parent
Financial Statements have been prepared in accordance with GAAP, are true and
correct in all material respects, and are fair presentations of the consolidated
financial position, results of operations and cash flows of Parent and its then
existing consolidated subsidiaries as of the dates and for the periods
indicated. The books and records of Parent have been kept in reasonable detail
and accurately and fairly reflect the transactions of Parent.
3.1.8. Taxes. 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 Parent for the period ended December 31, 1996.
3.1.9. Full Authority. Parent has full power, authority and legal
right and has 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,
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 which would give
rise to a violation thereof or a liability or default thereunder, except where a
violation, liability or default will not have a Parent Material Adverse Effect.
3.1.10. Access. Parent has cooperated fully in permitting the
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of Parent; and afforded the
Shareholders and their
6
<PAGE>
representatives reasonable access to the offices, buildings, real properties,
machinery and equipment, inventory and supplies, records, files, books of
account, tax returns, agreements and commitments and personnel of Parent.
3.1.11. Disclosure. No representation or warranty by Parent in this
Agreement no statement contained any certificate delivered by 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 Parent and its consolidated
subsidiaries, taken as a whole in an amount of $50,000 or more.
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS
Parent and the Shareholders agree as follows:
4.1 Transfer Restrictions. Contemporaneously herewith, the Shareholders
and Parent are executing and delivering a Stock Transfer Restriction Agreement
and a Registration Rights Agreement.
4.2 Adoption of Shareholders Agreement. Contemporaneously herewith, the
Shareholders are executing and delivering to Parent an adoption agreement
pursuant to which the Shareholders agree to be bound by the Shareholders
Agreement dated October 24, 1996 among Parent and its existing shareholders, as
amended, a copy of which has been delivered to the Shareholders.
4.3 Employment Agreement. Contemporaneously herewith, the Company and
each Shareholder is executing and delivering an employment agreement.
4.4 Lease. Contemporaneously herewith, Jack Nelson Development Company,
as owner of the property located at 3175 Lesslie Highway, Rock Hill, South
Carolina and R&D Development Company, as owner of the property located at 105
Neely's Creek Road, Rock Hill, South Carolina, will each execute and deliver a
triple net lease agreement with the Company.
4.5 Covenant Not to Compete.
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to Parent to enter into and perform this Agreement, each
Shareholder agrees that for the period (the "Noncompetition Period") from the
date hereof to the later to occur of (a) the date which is five (5) years after
the Closing Date or (b) the date which is one (1) year following any
7
<PAGE>
termination of such Shareholder's employment by the Company, such Shareholder
will not represent, engage in, carry on, or have a financial interest in,
directly or indirectly, individually, as a member of a partnership or limited
liability company, equity owner, shareholder (other than as a shareholder of
less than one percent (1%) of the issued and outstanding stock of a publicly-
held company whose gross assets exceed one hundred million dollars), investor,
officer, director, trustee, manager, employee, agent, associate or consultant
engage in any business which involves indoor air quality, heating, ventilation
and air conditioning, plumbing or electrical contracting services within a 100
mile radius of Rock Hill, South Carolina; provided, however that if either
Shareholder's employment by the Company after the Closing Date is terminated by
the Company without cause, then the Noncompetition Period applicable to such
Shareholder shall be six months from and after the date of such termination.
(ii) Each Shareholder agrees that the limitations set forth herein on
such Shareholder's rights to compete with Parent and its affiliates as set forth
in clause (i) are reasonable and necessary for the protection of Parent and its
affiliates. In this regard, each Shareholder specifically agrees that the
limitations as to period of time and geographic area, as well as all other
restrictions on the Shareholder's activities specified herein, are reasonable
and necessary for the protection of Parent and its affiliates. Each Shareholder
agrees that, in the event that the provisions of this Section should ever be
deemed to exceed the scope of business, time or geographic limitations permitted
by applicable law, such provisions shall be and are hereby reformed to the
maximum scope of business, time or geographic limitations permitted by
applicable law.
(iii) Each Shareholder agrees that the remedy at law for any breach
by such Shareholder of this Section 4.5 will be inadequate and that Parent shall
be entitled to injunctive relief.
4.6 Release. The Shareholders do hereby (i) release, acquit and forever
discharge the Company from any and all liabilities, obligations, claims,
demands, actions or causes of action arising from or relating to any event,
occurrence, act, omission or condition occurring or existing on or prior to the
Closing Date, including, without limitation, any claim for indemnity or
contribution from the Company in connection with the obligations or liabilities
of the Shareholders hereunder, except for salary and benefits payable to a
Shareholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Closing Date; and (iii) waive any and all preemptive or other rights to acquire
any shares of capital stock of the Company and release any and all claims
arising in connection with any prior default, violation or failure to comply
with or satisfy any such preemptive or other rights.
4.7 Release of the Shareholders. Within 30 days after the date hereof,
Parent will cause the Shareholders to be released from any liability under his
personal guaranties of the indebtedness of the Company described in Section 4.7
of the Disclosure Schedule (as defined in Exhibit 2); provided that the
indebtedness so guaranteed does not exceed $137,656.
8
<PAGE>
4.8 Elimination of Expense. On or prior to the date hereof, Shareholders
will produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described on Exhibit 4.8 hereto have been eliminated
as expenses of the Company as of and following the Closing Date.
4.9 Note Repayments. On or prior to the date hereof, Shareholders will
produce evidence to the satisfaction of the Parent and its lenders that (i) the
receivable from Jack Nelson Development Company in the amount of $37,002 as of
December 31, 1996, has been collected in full and (ii) the promissory note
payable by the Company to Shareholders in the outstanding principal amount of
$15,889 as of December 31, 1996 has been paid in full.
4.10 Other Closing Documents. Contemporaneously herewith:
(i) The Shareholders are delivering to Parent an opinion of legal
counsel satisfactory to Parent; and
(ii) Parent is delivering to the Shareholders (a) an opinion of legal
counsel satisfactory to the Shareholder, and (b) certified resolutions of the
Board of Directors of Parent in form satisfactory to the Shareholder.
5. SURVIVAL, INDEMNIFICATIONS
5.1 Survival. The representations and warranties set forth in this
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders herein and of the
Shareholders and the Company in the Shareholder Related Documents and the
Company Related Documents (as defined in Exhibit 2) other than those of the
Shareholders in Sections 2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2
shall survive for a period of thirty-six (36) months after the date hereof and
the representations and warranties of the Shareholders 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
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 thirty-six (36) months after the
date hereof and the representations and warranties of 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 5.1 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 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.
9
<PAGE>
5.2 Indemnification.
5.2.1. Parent Indemnified Parties. Subject to the provisions of
Sections 5.1 and 5.3 hereof, the Shareholders, jointly and severally, shall
indemnify, save and hold harmless Parent, the Company and any of their assignees
(including lenders) and all of their respective officers, directors, employees,
representatives, agents, advisors and consultants and all of their respective
heirs, legal representatives, successors and assigns (collectively the "Parent
Indemnified Parties") from and against any and all damages, liabilities, losses,
claims, deficiencies, penalties, interest, expenses, fines, assessments, charges
and costs, including reasonable attorneys' fees and court costs (collectively
"Losses") arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of any Shareholder or the Company or
the failure by the Shareholders or the Company to perform any obligation of
any Shareholder or the Company contained herein or in any Company Related
Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty
of any Shareholder contained herein or in any Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained in any Company Related Document;
(iv) indemnification payments made by the Company to its present or
former officers, directors, employees, agents, consultants, advisors or
representatives in respect of actions taken or omitted to be taken prior to
the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing and involving or
related to the assets, properties, business or operations now or previously
owned or operated by the Company and not (a) disclosed in the Disclosure
Schedule or (b) disclosed in the Company Financial Statements (as defined
in Exhibit 2).
5.2.2. Parent Indemnity. Subject to the provisions of Sections 5.1
and 5.3, 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 Parent or the failure by Parent
to perform any obligation of Parent contained herein or in the Parent
Related Documents;
10
<PAGE>
(ii) any inaccuracy in or breach of any representation or warranty
of Parent contained herein or in the Parent Related Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the date hereof and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that clause (iii) shall not apply to any
Losses to the extent that such Losses result from any Shareholder's acts or
omissions after the date hereof as an officer, director and/or employee of
Parent or the Company and/or any other affiliate of Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 5.2.1.
5.3. Limitations. The aggregate liability of the Shareholders under
Sections 5.2.1 shall not exceed $1,518,796. The aggregate liability of Parent
under Section 5.2.2 shall not exceed $1,518,796.
5.4. Notice. The party (the "Indemnified Party") which may be entitled
to indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim,
or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 5.4 shall relieve the
Indemnifying Party of its obligations under this Article 5 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice. 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 ten (10) days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding. 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 ten (10) days' prior written
notice to the Indemnifying Party if such third-party suit, action, proceeding or
investigation is then unreasonably interfering with the business or operations
of the Company and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives ten
(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 ten (10) days after delivery of the
Settlement Notice to the Indemnified Party, and such settlement otherwise
complies with the provisions
11
<PAGE>
of this Section 5.4, the Indemnifying Party shall not be liable for Losses
arising from such third-party suit, action, proceeding or investigation in
excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof. 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
which are pertinent to the defense. The parties agree that 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. MISCELLANEOUS
6.1. Notice. Any notice, delivery or communication required or permitted
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Shareholders:
Mr. J. Donald Costner
Mr. Roger Costner
c/o Costner Brothers, Inc.
3175 Lesslie Highway
Rock Hill, South Carolina 29730
Telecopy: 803-329-0434
To Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been given
as of the date actually received.
12
<PAGE>
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 6.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
6.2. Further Documents. The Shareholders shall, at any time and from time
to time after the date hereof, upon request by 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.
6.3. Assignability. No Shareholder shall assign this Agreement in whole or
in part without the prior written consent of Parent, except by the operation of
law. Parent may assign its rights under this Agreement, the Company Related
Documents and the Shareholder Related Documents without the consent of either
Shareholder.
6.4. 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.
6.5. Sections and Articles. Unless the context otherwise requires, all
Sections and Articles referred to herein are, respectively, sections and
articles of this Agreement and all Exhibits and Schedules referred to herein
are, respectively, exhibits, and schedules constituting a part of the Disclosure
Schedule.
6.6. 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.
13
<PAGE>
6.7. Headings. Headings as to the contents of particular articles and
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
6.8. CONTROLLING LAW AND JURISDICTION. 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.
6.9. Public Announcements. No press release, public announcement,
confirmation or other information regarding this Agreement or the contents
hereof shall be made by any party or the Company without the prior consultation
of the Shareholders and Parent, except as may be necessary in the opinion of
counsel of any party to meet the requirements or regulations of any applicable
law, governmental unit or agency or stock exchange on which the securities of
such party may be listed. Notwithstanding the foregoing, the Company may make
appropriate disclosures of the general nature of the transaction contemplated
hereby to its employees, vendors and customers to protect the Company's good
will and to facilitate the consummation of the transactions contemplated hereby,
and Parent may disclose pertinent information regarding the transaction
contemplated hereby to its existing and prospective investors, lenders or
investment bankers or financial advisors for the purposes of obtaining financing
(including a contemplated IPO). Parent may also make appropriate disclosures of
the general nature of the transaction contemplated hereby and the identity,
nature and scope of the Company's operations to prospective acquisition
candidates in its efforts to attract additional acquisitions for Parent. Parent
and the Shareholders shall jointly approve the contents of any press releases,
written employee presentations or other materials of potentially wide
distribution that disclose or refer to the transaction contemplated hereby,
except for such press releases or other communications required by law.
6.10. No Third Party Beneficiaries. Except as set forth in Article 5, no
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
6.11. Amendments and Waivers. This Agreement may be amended by Parent and
the Shareholders; provided that all amendments to this Agreement must be by an
instrument in writing signed on behalf of Parent and by the Shareholders. Any
term or provision of this Agreement may be waived in writing at any time by the
party which is entitled to the benefits thereof.
6.12. 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.
14
<PAGE>
6.13. 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 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 Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
6.14. When Effective. This Agreement shall become effective only upon the
execution and delivery of one or more counterparts of this Agreement by each of
Parent and the Shareholders.
6.15. Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, Parent and the Company and
their respective members of their Boards of Directors shall grant such approvals
and take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated herein.
6.16. 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.
6.17. 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.
6.18. 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.
6.19. 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
15
<PAGE>
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.
6.20. Expenses. Each of the parties shall bear all of their own expenses
in connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company shall pay the costs
of any financial advisor, broker or finder engaged by the Shareholders and the
accounting and auditing fees and expenses of KPMG Peat Marwick; and provided
further that all fees, costs and expenses incurred or payable by the Company
(other than such accounting and auditing fees and expenses) in connection with
the negotiation and closing of this Agreement and the transactions contemplated
hereby and the costs of any such financial advisor, broker or finder shall be
included in Current Liabilities.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA
CORP.
By: /s/Chester J. Jachimiec
-----------------------
Chester J. Jachimiec
Executive Vice President
SHAREHOLDERS:
/s/J. Donald Costner
--------------------------------
J. Donald Costner (Individually)
/s/Roger Costner
--------------------------------
Roger Costner (Individually)
16
<PAGE>
EXHIBIT 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.
June 24, 1997
================================================================================
Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE CLOSING................................................................................... 1
1.1. The Closing Date................................................................. 1
1.2. Post-Closing Adjustment.......................................................... 2
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS........................................... 3
2.1. Exhibit 2........................................................................ 3
2.2. Stock Ownership.................................................................. 3
2.3. Authority........................................................................ 3
2.4. Consents......................................................................... 3
3. REPRESENTATIONS AND WARRANTIES OF PARENT...................................................... 4
3.1. Representations and Warranties................................................... 4
3.1.1. Organization............................................................ 4
3.1.2. Capitalization of Parent................................................ 4
3.1.3. Authority............................................................... 4
3.1.4. Consents................................................................ 4
3.1.5. Defaults................................................................ 4
3.1.6. Investment Company...................................................... 5
3.1.7. Financial Statements.................................................... 5
3.1.8. Taxes................................................................... 5
3.1.9. Full Authority.......................................................... 5
3.1.10. Access.................................................................. 6
3.1.11. Disclosure.............................................................. 6
3.1.12. Parent Preferred Stock.................................................. 6
3.1.13. Parent Material Adverse Effect.......................................... 6
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS................................................ 6
4.1. Transfer Restrictions............................................................ 6
4.2. Adoption of Shareholders Agreement............................................... 6
4.3. Stockholder Employment Agreements................................................ 6
4.4. Covenant Not to Compete.......................................................... 7
4.5. Certain Elections................................................................ 7
4.5.1. Securities Acquisition Election......................................... 8
4.5.2. Transfer Transaction Election........................................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.5.3. Other.................................................................... 9
4.6. Release.......................................................................... 9
4.7. Releases of Stockholders......................................................... 10
4.8. Leases........................................................................... 10
4.9. Certain Employment and Consulting Arrangements................................... 10
4.10. Other Closing Documents.......................................................... 10
5. SURVIVAL, INDEMNIFICATIONS..................................................................... 10
5.1. Survival......................................................................... 10
5.2. Indemnification.................................................................. 11
5.2.1. Parent Indemnified Parties............................................... 11
5.2.2. Parent Indemnity......................................................... 12
5.3. Limitations...................................................................... 12
5.4. Notice........................................................................... 12
6. MISCELLANEOUS.................................................................................. 14
6.1. Notice........................................................................... 14
6.2. Further Documents................................................................ 14
6.3. Assignability.................................................................... 14
6.4. Exhibits and Schedules........................................................... 15
6.5. Sections and Articles............................................................ 15
6.6. Entire Agreement................................................................. 15
6.7. Headings......................................................................... 15
6.8. CONTROLLING LAW AND JURISDICTION................................................. 15
6.9. Public Announcements............................................................. 15
6.10. No Third Party Beneficiaries..................................................... 16
6.11. Amendments and Waivers........................................................... 16
6.12. No Employee Rights............................................................... 16
6.13. Non-Recourse..................................................................... 16
6.14. When Effective................................................................... 17
6.15. Takeover Statutes................................................................ 17
6.16. Number and Gender of Words....................................................... 17
6.17. Invalid Provisions............................................................... 17
6.18. Multiple Counterparts............................................................ 17
6.19. No Rule of Construction.......................................................... 17
6.20. Expenses......................................................................... 17
</TABLE>
-ii-
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this Agreement") is made this 24th day
of June, 1997, among GROUP MAINTENANCE AMERICA CORP., a Texas corporation
("Parent") and the holders (the "Stockholders") of all of the outstanding
capital stock of Hallmark Air Conditioning, Inc., a Texas corporation
("Hallmark"). Jerry Albert Air Conditioning, Inc., a Texas corporation ("JAAC"),
is a wholly-owned subsidiary of Hallmark. Hallmark is sometimes referred to
herein as the "Company." Hallmark and JAAC are sometimes referred to herein
collectively as the "Companies."
WHEREAS, Parent and the Stockholders desire to provide for the transfer by
the Stockholders to Parent of the outstanding shares of capital stock of the
Company in exchange for cash, preferred stock and common stock of Parent;
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as an exchange under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder;
WHEREAS, Parent has adopted and Parent and the Stockholders have executed
and delivered a Section 351 Plan;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1. The Closing Date. For purposes of this Agreement, the term "Closing
----------------
Date" shall mean the date hereof. On the Closing Date, as soon as practicable
after the execution of this Agreement, a Closing (the "Closing") shall occur.
At the Closing, the Stockholders shall deliver to Parent the Stockholders' stock
certificates evidencing all of the Stockholders' shares of common stock, $100
par value, of the Hallmark ("Hallmark Common Stock") and completed letters of
transmittal, and Parent shall deliver to the Stockholders $2,015,572 in cash
(the "Closing Cash Consideration"), certificates evidencing 580,000 shares of
preferred stock, $.001 par value, of Parent ("Parent Preferred Stock") and
certificates evidencing 264,218 shares (the "Closing Number of Parent Common
Shares") of common stock, $.001 par value, of Parent ("Parent Common Stock").
The portion of such Closing Cash Consideration, shares of Parent Preferred Stock
and shares of Parent Common Stock to be delivered to each Stockholder is set
forth on Exhibit 1.1 attached hereto.
<PAGE>
The Closing Cash Consideration is subject to post-closing adjustment as provided
below. One hundred thousand dollars ($100,000) of the Final Cash Consideration
(as defined below) shall be allocated as consideration for the covenant not to
compete set forth in Section 4.4 and shall be allocated to the Stockholders in
the percentages shown on Exhibit 1.1.
1.2. Post-Closing Adjustment.
-----------------------
(i) As promptly as practicable, and in any event no later than ninety
(90) days after the date hereof, Parent shall cause to be prepared and delivered
to the Stockholders a statement (the "Statement") showing (a) a calculation,
based on the books and records of the Companies as of the Closing Date, of the
Long-Term Debt (as defined below), the Current Assets (as defined below) and the
Current Liabilities (as defined below) and (b) the Final Cash Consideration
(determined as set forth below).
(ii) The Closing Cash Consideration has been determined by agreement of
Parent and the Stockholders as being an acceptable estimate of 90% of the Final
Cash Consideration payable to the Stockholders hereunder. To arrive at the
Final Cash Consideration, there shall be deducted from $XXX (a) the amount, if
any, by which Long-Term Debt as shown on the Statement exceeds $XXX and (b) the
amount, if any, by which the positive difference of the sum of (1) Current
Assets minus (2) XXX times Current Liabilities is less than $XXX. The resulting
amount shall be the Final Cash Consideration.
(iii) If the Final Cash Consideration as shown on the Statement exceeds
the Closing Cash Consideration, Parent will pay to the Stockholders (in the
percentages shown on Exhibit 1.1) the amount of the excess in cash within 10
days after the date of delivery of the Statement to the Stockholders. If the
Closing Cash Consideration exceeds the Final Cash Consideration, as shown on the
Statement, the Stockholders will pay to Parent the amount of the excess in cash
within 10 days after the date of delivery of the Statement to the Stockholders.
(iv) For purposes of the Agreement (a) the term "Long-Term Debt" shall
mean all long-term liabilities of the Companies as of the Closing Date,
including deferred taxes and capitalized lease obligations, all as determined in
accordance with U.S. generally accepted accounting principles consistently
applied ("GAAP"); (b) the term "Current Assets" shall mean the consolidated
current assets of the Companies as of the Closing Date, as determined in
accordance with GAAP; and (c) the term "Current Liabilities" shall mean the
consolidated current liabilities of the Companies as of the Closing Date, as
determined in accordance with GAAP; provided, however, that all expenses of the
Companies or the Stockholders (other than the audit fee paid by the Companies to
KPMG Peat Marwick) incurred in connection with the transactions contemplated
hereby which are payable by the Companies shall be accrued as of such date and
included in Current Liabilities. Accounts
-2-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
receivable on the books of the Companies at the Closing Date that remain
uncollected on the date of the Statement and which are over 60 days old shall,
if so identified by Parent, not be included in Current Assets and such accounts
receivable so identified shall be assigned to the Stockholders without recourse,
net of any reserve for bad debt attributable to such accounts receivable;
provided, however, that any such accounts receivable attributable to Metro-Media
shall not be so assigned.
2. REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
The Stockholders, jointly and severally, hereby represent and warrant to
Parent as follows:
2.1. Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2. Stock Ownership. Each Stockholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Hallmark Common Stock set forth
beside such Stockholder's name on Exhibit 1.1 and such shares are so held by
such Stockholder free and clear of all liens, encumbrances and claims
whatsoever.
2.3. Authority. Each Stockholder 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 Stockholder (each a "Stockholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by each
Stockholder and constitutes, and each Stockholder Related Document, when duly
executed and delivered by each Stockholder who is a party thereto will
constitute, legal, valid and binding obligations of such Stockholder enforceable
against such Stockholder 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 Stockholders of this
Agreement or any Stockholder Related Document. The execution, delivery and
performance by each Stockholder of this Agreement and the Stockholder Related
Documents to which such Stockholder is a party do not violate any mortgage,
indenture, contract, agreement, lease or commitment or other instrument of any
kind to which such Stockholder is a party or by which such Stockholder or such
Stockholder's assets or properties may be bound or affected or any law, rule or
regulation applicable to such Stockholder
-3-
<PAGE>
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
such Stockholder.
3. REPRESENTATIONS AND WARRANTIES OF PARENT
3.1. Representations and Warranties. Parent hereby represents and warrants
------------------------------
to the Stockholders as follows:
3.1.1. Organization. Parent is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Texas. 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 Parent. The total authorized capital stock
------------------------
of Parent is 100,000,000 shares of Parent Common Stock, of which 16,359,446
shares are issued and outstanding and none of which are held in the treasury of
Parent, 50,000,000 shares of Parent preferred stock, $.001 par value, of which
45,137 shares of Series A Parent Preferred Stock are issued and outstanding. The
outstanding shares of Parent Common Stock and Parent preferred stock have been
duly and validly issued and are fully paid and non-assessable.
3.1.3. Authority. Parent has full right, power, legal capacity and
---------
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby and to consummate the
transactions contemplated herein and thereby (the "Parent Related Documents").
This Agreement has been duly executed and delivered by Parent and constitutes,
and all Parent Related Documents, when executed and delivered by Parent will
constitute, legal, valid and binding obligations of Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4. Consents. No approval, consent, order or action of or filing
--------
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by Parent of this
Agreement or the Parent Related Documents or the consummation by Parent of the
transactions contemplated hereby.
3.1.5. Defaults. Parent is not in default under or in violation of,
and the execution, delivery and performance of this Agreement and Parent Related
Documents and the consummation by Parent of the transactions contemplated hereby
and thereby will not result in a default under or
-4-
<PAGE>
in violation of (i) any mortgage, indenture, charter or bylaw provision,
contract, agreement, lease, commitment or other instrument of any kind to which
Parent is a party or by which Parent or any of its properties or assets may be
bound or affected or (ii) any law, rule or regulation applicable to Parent or
any court injunction, order or decree, or any valid and enforceable order of any
govern mental agency in effect as of the date hereof having jurisdiction over
Parent, which default or violation could adversely affect the ability of Parent
to consummate the transactions contemplated hereby or will have a Parent
Material Adverse Effect.
3.1.6. Investment Company. 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. Parent has provided certain financial
--------------------
statements to the Stockholders ("Parent Financial Statements") and such Parent
Financial Statements have been prepared in accordance with GAAP, are true and
correct in all material respects, and are fair presentations of the consolidated
financial position, results of operations and cash flows of Parent and its then
existing consolidated subsidiaries as of the dates and for the periods
indicated. The books and records of Parent have been kept in reasonable detail
and accurately and fairly reflect the transactions of Parent.
3.1.8. Taxes. 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 Parent for the period ended December 31, 1996.
3.1.9. Full Authority. Parent has full power, authority and legal
--------------
right and has 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,
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 which would give
rise to a violation thereof or a liability or default
-5-
<PAGE>
thereunder, except where a violation, liability or default will not have a
Parent Material Adverse Effect.
3.1.10. Access. Parent has cooperated fully in permitting the
------
Stockholders and their representatives to make a full investigation of the
properties, operations and financial condition of Parent; and afforded the
Stockholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11. Disclosure. No representation or warranty by Parent in this
----------
Agreement no statement contained any certificate delivered by Parent to the
Stockholders 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 Preferred Stock. No preferred stock issued by Parent
----------------------
prior to the IPO (as defined below) shall be senior to the Parent Preferred
Stock.
3.1.13. Parent Material Adverse Effect. The term "1 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 Parent and its consolidated
subsidiaries, taken as a whole in an amount of $50,000 or more.
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS
Parent and the Stockholders agree as follows:
4.1. Transfer Restrictions. Contemporaneously herewith, the Stockholders
---------------------
and Parent are executing and delivering a Stock Transfer Restriction Agreement
and a Registration Rights Agreement.
4.2. Adoption of Shareholders Agreement. Contemporaneously herewith, the
----------------------------------
Stockholders are executing and delivering to Parent an adoption agreement
pursuant to which the Stockholders agree to be bound by the Shareholders
Agreement among Parent and its existing shareholders, as amended, a copy of
which has been delivered to the Stockholders.
4.3. Stockholder Employment Agreements. Contemporaneously herewith, the
---------------------------------
Company and the Stockholders are executing and delivering employment agreements.
-6-
<PAGE>
4.4. Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Stockholders in this Section are a
material inducement to Parent to enter into and perform this Agreement, each
Stockholder agrees that, for the period from the date hereof to the last to
occur of the date which is (a) five (5) years after the date hereof or (b) the
date which is one (1) year following termination of such Stockholder's
employment with the Company, such Stockholder 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,
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, officer, director, trustee,
manager, employee, agent, associate or consultant engage in any business which
involves indoor air quality, heating, ventilation and air conditioning, plumbing
or electrical contracting within a 100 mile radius of either Houston, Texas or
San Antonio, Texas; provided, however, that if a Stockholder has entered into an
Employment Agreement with Parent and such Stockholder is terminated without
Cause under such agreement (as such term is defined in such agreement), the non-
compete period described above applicable to such Stockholder shall be for the
period from the date hereof to the last to occur of the date which is (a) three
(3) years after the date hereof or (b) the date which is one (1) year following
termination of such Stockholder's employment with the Company.
(ii) Each Stockholder agrees that the limitations set forth herein
on such Stockholder's rights to compete with Parent and its affiliates as set
forth in clause (i) are reasonable and necessary for the protection of Parent
and its affiliates. In this regard, each Stockholder specifically agrees that
the limitations as to period of time and geographic area, as well as all other
restrictions on such Stockholder's activities specified herein, are reasonable
and necessary for the protection of Parent and its affiliates. Each Stockholder
agrees that, in the event that the provisions of this Section should ever be
deemed to exceed the scope of business, time or geographic limitations permitted
by applicable law, such provisions shall be and are hereby reformed to the
maximum scope of business, time or geographic limitations permitted by
applicable law.
(iii) Each Stockholder agrees that the remedy at law for any
breach by such Stockholder of this Section 4.4 will be inadequate and that
Parent shall be entitled to injunctive relief.
4.5. Certain Elections. In the event that Parent has not effected an
-----------------
underwritten public offering of Parent Common Stock (other than any offering
pursuant to any registration statement (i) relating to any capital stock of
Parent or options, warrants or other rights to acquire any such capital stock
issued or to be issued primarily to directors, officers or employees of Parent,
or any of
-7-
<PAGE>
its subsidiaries (ii) relating to any employee benefit plan or interest therein,
(iii) relating principally to any preferred stock or debt securities of Parent,
or (iv) filed pursuant to Rule 145 under the Securities Act of 1933, as amended,
or any successor or similar provision) resulting in net cash proceeds to Parent
of at least $20,000,000 (the "IPO") on or before December 31, 1998:
4.5.1. Securities Acquisition Election. The Stockholders acting as a
-------------------------------
group may elect, by written notice to Parent delivered on or before January 31,
1999 (the "Election Notice") to call upon Parent to acquire, for the cash
amount of $2,244,576 plus simple interest thereon at the rate of 8% per annum
from the date hereof to the date of the closing of such acquisition (the
"Securities Acquisition Consideration") all of the shares of Parent Common Stock
and Parent Preferred Stock issued by Parent to the Stockholders pursuant to this
Agreement (the "Securities Acquisition Transaction"). In the event that Parent
determines not to agree to acquire such shares in the Securities Acquisition
Transaction, Parent shall, within 90 days of receipt of the Election Notice,
give written notice to the Stockholders ("Parent Rejection Notice") that it has
so determined not to agree to acquire such shares. In the event Parent
determines to agree to acquire such shares in the Securities Acquisition
Transaction, Parent shall, within 90 days of receipt of the Election Notice,
give written notice to the Stockholders ("Parent Acceptance Notice") that it
agrees to acquire such shares. The Parent Acceptance Notice shall also specify
the date, time and place of the closing of the Securities Acquisition
Transaction; provided that such closing shall be held not more than 60 days
after delivery of the Parent Acceptance Notice. At such closing, the
Stockholders shall deliver or cause to be delivered to Parent or its designee
stock certificates evidencing the Parent Common Stock and Parent Preferred Stock
duly endorsed and in proper form for transfer on the stock records of the
Companies with customary written warranties of good title, authority to transfer
and absence of liens or other exceptions to title hereto, and Parent or its
designee shall deliver or cause to be delivered to the Stockholders the
Securities Acquisition Consideration and a letter containing customary
representations and warranties evidencing compliance with applicable securities
laws. If the Parent Acceptance Notice is not delivered to the Stockholders
within 90 days of Parent's receipt of the Election Notice, Parent will
conclusively be deemed to have delivered a Parent Rejection Notice to the
Stockholders on the 90th day after Parent's receipt of the Election Notice. Upon
delivery or deemed delivery of the Parent Rejection Notice, the Stockholders
shall have no right to request Parent to acquire any Parent Common Stock or
Parent Preferred Stock pursuant to this Section 4.5.1.
4.5.2. Transfer Transaction Election. Within 20 days after the
-----------------------------
delivery or deemed delivery of the Parent Rejection Notice, the Stockholders
(acting as a group) may, by written notice to Parent delivered within such 20
day period, (the "Second Election Notice") require Parent to transfer the
stock or assets of the Companies to the designees named in the Second Election
Notice in a transaction (the "Transfer Transaction") structured to (i) relieve
Parent and its affiliates of any liability on the then remaining indebtedness
attributable to the financing of the transaction
-8-
<PAGE>
contemplated hereby; provided, however, that professional fees or related costs
for underwriting, legal, accounting, tax, financial, insurance or consulting
services shall not be included in calculating any liability contemplated by this
clause (i), (ii) take into account any capital Parent invested in/or withdrew
from the Companies (other than for debt service on the foregoing) from the date
hereof to the closing of the Transfer Transaction, and (iii) relieve Parent from
or otherwise satisfy any income tax consequences to Parent from the Transfer
Transaction. The terms of the Transfer Transaction will be such that Parent will
receive no economic benefit or detriment therefrom. The Second Election Notice
will contain the addresses of the designee named therein and all of the proposed
terms (including the consideration payable to Parent or the Companies) of the
Transfer Transaction. The proposed terms of the Transfer Transaction contained
in the Second Election Notice shall be final, conclusive and binding for
purposes of this Agreement unless Parent shall deliver to the Stockholders a
written notice of disagreement ("Notice of Objection") with any such proposed
terms within 20 business days following receipt of the Second Election Notice,
specifying in reasonable detail the nature and extent of such disagreement. If
within 10 business days following receipt by the Stockholders of a Notice of
Objection, Parent and the Stockholders are unable to resolve any disagreement
with respect to the proposed terms of the Transfer Transaction as set forth in
the Second Election Notice, the disagreement shall be submitted for resolution
to Ernst & Young (the "Accountants"), who shall resolve the issues in dispute,
and giving effect to such resolution, determine the final terms of the Transfer
Transaction. The Accountants shall act as an arbitrator to determine and resolve
only those issues in dispute. The Accountants' resolution shall (a) be made
within 30 days of the submission of the dispute to them, (b) be in accordance
with this Agreement, (c) be set forth in a written statement delivered to Parent
and the Stockholders, (d) set forth the final terms of the Transfer Transaction,
and (e) be final, conclusive and binding for purposes of this Agreement.
4.5.3. Other. Parent will cooperate fully with the Stockholders in
-----
obtaining any consent required from Parent's lenders to effect a Securities
Acquisition Transaction or a Transfer Transaction as contemplated hereby. On
the closing of a Transfer Transaction, all noncompetition agreements between
Parent and any employee of either Company who does not continue employment with
Parent or its affiliates will be terminated. At the closing of a Securities
Acquisition Transaction or a Transfer Transaction, the parties will enter into
mutual releases under which the parties release all claims against each other
which have arisen or could arise based on events, acts or omissions occurring or
existing prior to such closing.
4.6. Release. The Stockholders do hereby (i) release, acquit and forever
-------
discharge the Companies from any and all liabilities, obligations, claims,
demands, actions or causes of action arising from or relating to any event,
occurrence, act, omission or condition occurring or existing on or prior to the
Closing Date, including, without limitation, any claim for indemnity or
contribution from either Company in connection with the obligations or
liabilities of the Stockholders hereunder,
-9-
<PAGE>
except for salary and benefits payable to a Stockholder as an employee in the
ordinary course of business; (ii) waive all breaches, defaults or violations of
any agreement applicable to the Hallmark Common Stock and the JAAC Common Stock
and agree that any and all such agreements are terminated as of the Closing
Date; and (iii) waive any and all pre-emptive or other rights to acquire any
shares of capital stock of either Company and release any and all claims arising
in connection with any prior default, violation or failure to comply with or
satisfy any such pre-emptive or other rights.
4.7. Releases of Stockholders. Within 30 days after the date hereof,
------------------------
Parent shall cause the Stockholders to be released from any liability under
their personal guaranties of the indebtedness of the Companies described in
Section 4.7 of the Disclosure Schedule (as defined in Exhibit 2).
4.8. Leases. Contemporaneously herewith, (i) Hallmark, as lessee and the
------
St. Cyr Family Trust as owner of the property located at 4517 Southerland Road,
Houston, Texas are entering into a lease of such property and (ii) Hallmark, as
lessee, and Jerry Albert, as owner of the property located at 2027 Sable Lane,
San Antonio, Texas are entering into a lease of such property.
4.9. Certain Employment and Consulting Arrangements. Contemporaneously
----------------------------------------------
herewith, Hallmark and each of Paul Taylor and Roland H. St. Cyr are entering
into agreements relating to consulting services and certain benefits, and
Hallmark and Carol Thompson and Hallmark and Greg Luber are entering into
employment agreements.
4.10.Other Closing Documents. Contemporaneously herewith:
-----------------------
(i) The Stockholders are delivering to Parent an opinion of legal
counsel satisfactory to Parent; and
(ii) Parent is delivering to the Stockholders (a) an opinion of legal
counsel satisfactory to the Stockholders, and (b) certified resolutions of the
Board of Directors of Parent in form satisfactory to the Stockholders.
5. SURVIVAL, INDEMNIFICATIONS
5.1. Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Stockholders herein and of the
Stockholders and the Company in the Stockholder Related Documents and the
Company Related Documents (as defined in Exhibit 2) other than those of the
Stockholders in Sections 2.2, 2.3, 2.4,
-10-
<PAGE>
and in Sections 2 and 3 of Exhibit 2 shall survive for a period of thirty-six
(36) months after the date hereof and the representations and warranties of the
Stockholders 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 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 thirty-six (36) months after the date hereof and the representations
and warranties of 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 5.1 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 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.
5.2. Indemnification.
---------------
5.2.1. Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 5.1 and 5.3 hereof, the Stockholders, severally and not jointly, shall
indemnify, save and hold harmless Parent, the Companies 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, claims, deficiencies, penalties, interest, expenses, fines,
assessments, charges and costs, including reasonable attorneys' fees and court
costs (collectively "Losses") arising from, out of or in any manner connected
with or based on:
(i) the breach of any covenant of such Stockholder or the
failure by such Stockholder to perform any obligation of such
Stockholder contained herein or in any Stockholder Related
Document;
(ii) any inaccuracy in or breach of any representation or
warranty of such Stockholder contained herein or in any
Stockholder Related Document;
(iii) indemnification payments (pursuant to a written
agreement, articles of incorporation or bylaws predating this
Agreement) made by Hallmark or JAAC to their present or former
officers, directors, employees, agents, consultants, advisors
-11-
<PAGE>
or representatives in respect of actions taken or omitted to be
taken prior to the Closing; and
(iv) any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time on or before the
Closing and involving or related to the assets, properties,
business or operations now or previously owned or operated by
either Company and (a) not disclosed in the Disclosure Schedule
or (b) not disclosed in the Company Financial Statements (as
defined in Exhibit 2).
5.2.2. Parent Indemnity. Subject to the provisions of Sections 5.1
----------------
and 5.3, Parent shall indemnify, save and hold harmless the Stockholders and the
Stockholders' heirs, legal representatives, successors and assigns from and
against any damages, liabilities, losses, claims, deficiencies, penalties,
interest, expenses, fines, assessments, charges and costs including reasonable
attorneys' fees and court costs (collectively, "Losses") arising from, out of or
in any manner connected with or based on:
(i) any breach of any covenant of Parent or the failure by Parent
to perform any obligation of Parent contained herein or in the Parent
Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty
of Parent contained herein or in the Parent Related Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the date hereof and
involving or relating to the assets, properties, businesses or operations
of the Companies; provided, however, that clause (iii) shall not apply to
any Losses to the extent that such Losses result from the Stockholder's
acts or omissions after the date hereof as an officer, director and/or
employee of Parent or either Company and/or any other affiliate of Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 5.2.1.
5.3. Limitations. The aggregate liability of the Stockholders under
------------
Sections 5.2.1 shall not exceed $4,484,100. The aggregate liability of Parent
under Section 5.2.2 shall not exceed $4,484,100. The liability of each of the
Stockholders shall be limited to their proportionate share of $4,484,100, based
on percentage ownership set forth on Exhibit 1.1.
5.4. Notice. The party (the "Indemnified Party") which may be entitled
------
to indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the
-12-
<PAGE>
"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 5.4 shall relieve the Indemnifying Party of its
obligations under this Article 5 only to the extent that such Indemnifying Party
has been prejudiced by the lack of timely and adequate notice. 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 Stockholders 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 ten (10) days after receipt of notice of such third-party claim, suit,
action or proceeding, the Stockholders shall have the right, but not the
obligation, to undertake the defense of any such third-party claim, suit, action
or proceeding. 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
ten (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 either Company and the settlement is
commercially reasonable under the circumstances; and provided further, that if
the Indemnifying Party gives ten (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 ten
(10) days after delivery of the Settlement Notice to the Indemnified Party, and
such settlement otherwise complies with the provisions of this Section 5.4, the
Indemnifying Party shall not be liable for Losses arising from such third-party
suit, action, proceeding or investigation in excess of the amount proposed in
such settlement offer. Notwithstanding the foregoing, no Indemnifying Party will
consent to the entry of any judgment or enter into any settlement without the
consent of the Indemnified Party, if such judgment or settlement imposes any
obligation or liability upon the Indemnified Party other than the execution,
delivery or approval thereof and customary releases of claims with respect to
the subject matter thereof. 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 which are pertinent to the
defense. The parties agree that 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.
-13-
<PAGE>
6. MISCELLANEOUS
6.1. 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 Stockholders:
Mr. Kenneth Taylor
c/o Hallmark Air Conditioning, Inc.
4517 Southerland
Houston, Texas 77092
Telecopy: (713) 939-8871
To Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 6.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
6.2. Further Documents. The Stockholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by 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 Stockholders hereunder.
6.3. Assignability. No Stockholder shall assign this Agreement in whole or
-------------
in part without the prior written consent of Parent, except by the operation of
law. Parent may assign its
-14-
<PAGE>
rights under this Agreement, the Company Related Documents and the Stockholder
Related Documents without the consent of either Stockholder.
6.4. 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.
6.5. Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections and Articles referred to herein are, respectively, sections and
articles of this Agreement and all Exhibits and Schedules referred to herein
are, respectively, exhibits, and schedules constituting a part of the Disclosure
Schedule.
6.6. 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.
6.7. Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
6.8. CONTROLLING LAW AND JURISDICTION. 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.
6.9. Public Announcements. No press release, public announcement,
--------------------
confirmation or other information regarding this Agreement or the contents
hereof shall be made by any party or either Company without the prior
consultation of the Stockholders and Parent, except as may be necessary in the
opinion of counsel of any party to meet the requirements or regulations of any
-15-
<PAGE>
applicable law, governmental unit or agency or stock exchange on which the
securities of such party may be listed. Notwithstanding the foregoing, either
Company may make appropriate disclosures of the general nature of the
transaction contemplated hereby to its employees, vendors and customers to
protect such Company's good will and to facilitate the consummation of the
transactions contemplated hereby, and Parent may disclose pertinent information
regarding the transaction contemplated hereby to its existing and prospective
investors, lenders or investment bankers or financial advisors for the purposes
of obtaining financing (including a contemplated IPO). Parent may also make
appropriate disclosures of the general nature of the transaction contemplated
hereby and the identity, nature and scope of the operations of the Companies to
prospective acquisition candidates in its efforts to attract additional
acquisitions for Parent. Parent and the Stockholders shall jointly approve the
contents of any press releases, written employee presentations or other
materials of potentially wide distribution that disclose or refer to the
transaction contemplated hereby, except for such press releases or other
communications required by law.
6.10. No Third Party Beneficiaries. Except as set forth in Article 5, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
6.11. Amendments and Waivers. This Agreement may be amended by Parent and
----------------------
the Stockholders; provided that all amendments to this Agreement must be by an
instrument in writing signed on behalf of Parent and by the Stockholders. Any
term or provision of this Agreement may be waived in writing at any time by the
party which is entitled to the benefits thereof.
6.12. No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of either 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.
6.1. 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 Parent in this Agreement shall be
had against any incorporator, organizer, promoter, stockholder, officer,
director, employee or representative as such (other than the Stockholders as set
forth herein), past, present or future, of 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 (except in the case of
fraud on the part of any such person); it being expressly understood that all
such liability is hereby expressly waived and released as a condition of, and as
a consideration for, the execution of this Agreement; provided, however, that
this Section 6.13 shall not otherwise release Parent from any
-16-
<PAGE>
obligation under this Agreement or waive any rights that the Stockholders may
have with respect to Parent or its successors and assigns.
6.14. When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by Parent
and the Stockholders.
6.15. Takeover Statutes. If any "fair price", "moratorium", "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, Parent and the Companies 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.
6.16. 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.
6.17. 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.
6.18. 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.
6.19. 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.
6.20. 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
-17-
<PAGE>
that the Companies may pay the costs of any financial advisor, broker or finder
engaged by the Stockholders and the accounting and auditing fees and expenses of
KPMG Peat Marwick (not to exceed $20,000); and provided further that all fees,
costs and expenses incurred or payable by either Company (other than such
accounting and auditing fees and expenses) in connection with the negotiation
and closing of this Agreement and the transactions contemplated hereby and the
costs of any such financial advisor, broker or finder shall be included in
Current Liabilities.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
GROUP MAINTENANCE AMERICA CORP.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
________________________________________
Kenneth Taylor
________________________________________
Daniel Weber
________________________________________
Paul Taylor
St. Cyr Family Trust
By:_________________________________________
Name:_______________________________________
Title:______________________________________
-18-
<PAGE>
EXHIBIT 10.7
AGREEMENT AND PLAN OF MERGER
AMONG
GROUP MAINTENANCE AMERICA CORP.
JARL ACQUISITION CORP.
AND
AA JARL, INC.
AND
JAMES WILLBURN
MARCH 17, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 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
ARTICLE 2
CONVERSION OF STOCK;EXCHANGE OF CERTIFICATES............................... 2
2.1 Conversion of Stock............................................ 2
(a) Merger Sub Capital Stock.................................. 2
(b) Cancellation of the Company Treasury Stock................ 3
(c) Merger Consideration...................................... 3
2.2 Exchange of Certificates....................................... 3
(a) Exchange Agent............................................ 3
(b) No Fractional Shares...................................... 4
ARTICLE 3
CONSIDERATION ADJUSTMENTS.................................................. 4
3.1 Adjustments to Merger Consideration............................ 4
(a) Debt Adjustment........................................... 4
(b) Working Capital Adjustment................................ 4
(c) Make Whole Adjustment..................................... 5
3.2 Shareholder Options............................................ 5
ARTICLE 4
REPRESENTATIONS AND WARRANTIES............................................. 6
4.1 Representations and Warranties by Shareholder.................. 6
(a) Qualification............................................. 7
(b) Authority Relative to Agreement........................... 7
(c) Non-Contravention......................................... 7
(d) Approvals................................................. 7
(e) Ownership of Company Common Stock......................... 7
(f) Restricted Securities..................................... 8
-i-
<PAGE>
4.2 Representations and Warranties of Shareholder and the Company... 8
(a) Organization and Qualification, etc........................ 9
(b) Capital Stock.............................................. 9
(c) Subsidiaries, etc.......................................... 9
(d) Authority Relative to Agreement............................ 9
(e) Non-Contravention.......................................... 10
(f) Approvals.................................................. 10
(g) Financial Statements....................................... 10
(h) Absence of Certain Changes or Events....................... 11
(i) Undisclosed Liabilities.................................... 12
(j) Permits and Legal Compliance............................... 12
(k) Title to Properties; Absence of Liens and
Encumbrances, etc......................................... 12
(l) Software................................................... 13
(m) List of Properties, Contracts and Other Data............... 13
(n) Litigation................................................. 14
(o) Labor or Employee Controversies............................ 14
(p) Patent, Trademark, etc. Claims............................. 15
(q) Use of Real Property....................................... 15
(r) Accounts Receivable........................................ 15
(s) Insurance.................................................. 15
(t) Employee Benefits.......................................... 16
(u) Tax Matters................................................ 16
(v) Brokers.................................................... 17
(w) Tax-Free Reorganization.................................... 17
4.3 Representations and Warranties by the Parent.................... 18
(a) Organization and Qualification, etc........................ 18
(b) Capital Stock.............................................. 19
(c) Subsidiaries, etc.......................................... 19
(d) Authority Relative to Agreement............................ 19
(e) Non-Contravention.......................................... 19
(f) Approvals.................................................. 19
(g) Litigation................................................. 20
(h) Brokers.................................................... 20
(i) Tax-Free Reorganization.................................... 20
4.4 Representations and Warranties Concerning the Merger Sub........ 21
(a) Organization and Standing.................................. 21
(b) Capital Structure.......................................... 21
(c) Authority.................................................. 21
-ii-
<PAGE>
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS......................................... 21
5.1 Conduct of Business............................................. 21
5.2 Access to Information by The Parent............................. 22
5.3 Amendment to Schedules.......................................... 23
5.4 Noncompetition.................................................. 23
5.5 Confidentiality................................................. 24
5.6 Exclusivity..................................................... 24
5.7 Release of Shareholder Guarantees............................... 25
5.8 Tax-Free Reorganization......................................... 25
ARTICLE 6
CONDITIONS PRECEDENT........................................................ 25
6.1 Conditions Precedent to the Obligations of the
Parent and the Merger Sub...................................... 25
(a) Accuracy of Representations and Warranties................. 25
(b) Performance of Covenants................................... 25
(c) Legal Actions or Proceedings............................... 25
(d) Approvals.................................................. 26
(e) Shareholders Agreement..................................... 26
(f) Employment Agreement....................................... 26
(g) Lease Agreement............................................ 26
(h) Registration Rights Agreement.............................. 26
(i) Tax Indemnification Agreement.............................. 26
(j) Elimination of Certain Expenses............................ 26
(k) Lender Approval............................................ 26
(l) Opinion of Counsel for the Company and Shareholder......... 26
(m) Resignations of Directors and Officers..................... 27
(n) All Proceedings to be Satisfactory......................... 27
6.2 Conditions Precedent to the Obligations of Shareholder
and the Company................................................ 27
(a) Accuracy of Representations and Warranties................. 27
(b) Performance of Covenants................................... 27
(c) Approvals.................................................. 27
(d) Release from Guarantee..................................... 27
(e) Lease Agreement............................................ 27
(f) Registration Rights Agreement.............................. 27
(g) All Proceedings to be Satisfactory......................... 28
(h) Opinion of Counsel for The Parent.......................... 28
(i) Legal Actions or Proceedings............................... 28
-iii-
<PAGE>
ARTICLE 7
SURVIVAL OF REPRESENTATIONS INDEMNIFICATION................................. 28
7.1 Survival of Representations and Warranties...................... 28
7.2 Indemnification by Shareholder.................................. 28
7.3 Indemnification by the Surviving Corporation and the Parent..... 28
7.4 Notice.......................................................... 29
ARTICLE 8
STOCK TRANSFER RESTRICTIONS................................................. 29
8.1 Compliance with Securities Laws................................. 29
8.2 Restrictions on Transfer........................................ 29
8.3 Other Agreements................................................ 30
8.4 Tax-Free Requirements........................................... 30
ARTICLE 9
FURTHER ASSURANCES.......................................................... 31
9.1 Further Assurances.............................................. 31
9.2 Books and Records............................................... 31
ARTICLE 10
MISCELLANEOUS............................................................... 31
10.1 Termination..................................................... 31
10.2 Effect of Termination........................................... 32
10.3 Expenses, etc................................................... 32
10.4 Execution in Counterparts....................................... 32
10.5 Notices......................................................... 32
10.6 Waivers......................................................... 33
10.7 Amendments, Supplements, etc.................................... 33
10.8 Entire Agreement................................................ 34
10.9 Choice of Forum; Consent to Jurisdiction........................ 34
10.10 Binding Effect, Benefits........................................ 34
10.11 Assignability................................................... 34
10.12 Public Announcements............................................ 34
10.13 Invalid Provisions.............................................. 34
10.14 Consent of Spouse............................................... 35
COMPANY DISCLOSURE SCHEDULE
PARENT DISCLOSURE SCHEDULE
-iv-
<PAGE>
EXHIBIT A
(to the Agreement and Plan of Merger)
SUBORDINATED PROMISSORY NOTE
EXHIBIT B
(to Agreement and Plan of Merger)
EMPLOYMENT AGREEMENT
EXHIBIT C
(to Agreement and Plan of Merger)
LEASE
EXHIBIT D
(to Agreement and Plan of Merger)
REGISTRATION RIGHTS AGREEMENT
EXHIBIT E
(to the Agreement and Plan of Merger)
TAX INDEMNIFICATION AGREEMENT
EXHIBIT F
(to the Agreement and Plan of Merger)
EXPENSES OF THE COMPANY
EXHIBIT G
(to Agreement and Plan of Merger)
OPINION OF COUNSEL FOR THE COMPANY AND SHAREHOLDER
EXHIBIT H
(to the Agreement and Plan of Merger)
OPINION OF COUNSEL FOR THE PARENT
-v-
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
March 17, 1997, by and among Group Maintenance America Corp., a Texas
corporation (the "Parent"), JARL Acquisition Corp., a Texas corporation ("Merger
Sub"), AA JARL, Inc., a Texas corporation (the "Company"), and James Willburn
together with Mary Ellen Willburn, his spouse, an individual resident of Texas
and sole shareholder of the Company (the "Shareholder").
WHEREAS, the respective Boards of Directors of the Parent, the Merger Sub
and the Company, and the Parent, acting as the sole shareholder of the Merger
Sub, and the Shareholder, acting as the sole shareholder of the Company, have
approved the merger of the Company with and into the Merger Sub (the "Merger"),
pursuant and subject to this Agreement and the applicable statutes of the State
of Texas whereby each issued and outstanding share of Common Stock, $1.00 par
value per share of the Company ("Company Common Stock") will be converted into
the right to receive Common Stock, $.001 par value per share of the Parent
("Parent Common Stock"), and the Cash Consideration (as defined below), all as
provided herein;
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:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions hereof, and in
accordance with the Texas Business Corporation Act ("TBCA") upon the Effective
Time (as defined in Section 1.2), the Company shall be merged with and into the
Merger Sub. Merger Sub, as the surviving entity following the Merger is
sometimes referred to in this Agreement as the "Surviving Corporation."
1.2 EFFECTIVE TIME OF THE MERGER. In accordance with the requirements of
applicable law, appropriate Articles of Merger under the TBCA shall be prepared,
executed and submitted for filing with the Secretary of State of the State of
Texas. The date of such filing is referred to in this Agreement as the
"Effective Time".
1.3 CLOSING. The closing of the Merger ("Closing") will take place at
10:00 a.m. at the executive offices of the Parent in Houston, Texas on a date to
be specified by the parties, which date shall be the first business day of the
calendar month following the month in which the Parent closes its acquisition
transaction with Airtron, Inc. (or as soon as practicable thereafter), but in no
event later than July 1, 1997 ("Closing Date"). The parties may agree in
writing on another date, time or place for the Closing.
<PAGE>
1.4 EFFECTS OF THE MERGER.
(a) At the Effective Time, (i) the Company shall merge with and into
the Merger Sub and as a result thereof, the separate existence of the Company
shall cease; (ii) the Articles of Incorporation of the Merger Sub, as amended to
date, 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 the Merger Sub shall be amended to provide that the name of the
Surviving Corporation shall be changed to "AA JARL, Inc.", (iii) the Bylaws of
the 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 the
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.
(b) As and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public as
well as of a private nature previously belonging to the Company and Merger Sub;
and all property (real, personal and mixed), and all debts due on whatever
account, including subscriptions to shares, and all other choses in action, and
all and every other interest of or belonging to or due to each of the Company
and Merger Sub shall be transferred to, and vested in, the Surviving Corporation
without further act or deed; and all such property, rights and privileges,
powers and franchises and all and every other interest shall be thereafter the
property of the Surviving Corporation as they were of the Company and Merger
Sub; and the title to any real estate, or interest therein, whether by deed or
otherwise, shall not revert or be in any way impaired by reason of the Merger.
The Surviving Corporation shall be responsible and liable for all the
liabilities and obligations of the Company and Merger Sub and any claim
existing, or action or proceeding pending, by or against the Company or Merger
Sub may be prosecuted against the Surviving Corporation. Neither the rights of
creditors nor any liens upon the property of the Company or Merger Sub shall be
impaired by the Merger, and all debts, liabilities and duties of each of the
Company and Merger Sub shall attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it, all in accordance with Section 5.01, et
seq., of the TBCA and the terms of this Agreement.
ARTICLE 2
CONVERSION OF STOCK;
EXCHANGE OF CERTIFICATES
2.1 CONVERSION OF STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or capital stock of the Merger Sub:
(a) Merger Sub Capital Stock. Each share of capital stock of the
Merger Sub issued and outstanding at the Effective Time, shall remain
outstanding and shall be unchanged after the Merger and shall thereafter
constitute all of the issued and outstanding capital stock of the Surviving
Corporation.
JARL Merger Agreement/Page 2
<PAGE>
(b) Cancellation of the Company Treasury Stock. All shares of the
Company Common Stock that are owned by the Company as treasury stock shall be
canceled and retired and shall cease to exist and no stock of the Parent or
other consideration shall be delivered in exchange therefor.
(c) Merger Consideration. Subject to the adjustments described in
Article 3 hereof, each share of Company Common Stock (other than shares to be
canceled in accordance with Section 2.1(b)) shall be converted into the right to
receive (i) 3.1746 validly issued, fully paid and nonassessable shares of Parent
Common Stock; and (ii) $10.00 in cash (the "Cash Consideration") (such shares of
Parent Common Stock and Cash Consideration being sometimes referred to herein
collectively as the "Merger Consideration"); provided, however, that if between
the date of this Agreement and the Effective Time, the outstanding shares of
Parent Common Stock shall have been changed into a different number of shares or
a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split-up, combination, or exchange of shares
or the like, the conversion formula in this Section 2.1(c) shall be
correspondingly revised to provide for the proportionate amount of Parent Common
Stock or any other interests into which the Parent Common Stock may have
changed.
2.2 EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. On the Effective Date, the Parent shall deposit
the aggregate amount of Merger Consideration required to be exchanged in
accordance with the terms of this Article 2 with the Secretary or Assistant
Secretary of the Parent (the "Exchange Agent") and Shareholder shall surrender
each and every outstanding certificate which prior thereto represented shares of
Company Common Stock, together with duly and properly executed stock powers, to
the Exchange Agent, and Shareholder shall be entitled upon such surrender to
receive in exchange therefor the Merger Consideration into which such shares so
surrendered shall have been converted pursuant to this Agreement, subject to
adjustment as provided in Section 3.1 below. Adoption of this Agreement by
Shareholder and the Parent shall constitute ratification of the appointment of
such Exchange Agent. After the Effective Time and until the outstanding
certificates formerly representing shares of the Company Common Stock are so
surrendered, each outstanding certificate which, prior to the Effective Time,
represented the Company Common Stock shall be deemed for all corporate purposes
(except the payment of dividends) to evidence ownership of the Merger
Consideration into which the shares of the Company Common Stock represented
thereby prior to such Effective Time shall have been converted. Until
certificates representing shares of Company Common Stock have been surrendered,
no dividend payable to holders of record of the Parent Common Stock shall be
paid to the holders of such outstanding stock certificates of the Company in
respect thereof. Upon surrender of such outstanding certificates, however,
there shall be paid to the holders of the certificate for the Parent Common
Stock issued in exchange therefor the amount of dividends, if any, which
theretofore became payable with respect to such full shares of the Parent Common
Stock, but which have not theretofore been paid on such stock. No interest
shall be payable with respect to the payment of any dividends. Notwithstanding
any of the foregoing, the parties agree that Exchange Agent shall not be
individually responsible or liable in any manner whatsoever for anything which
he may do or refrain from doing in connection herewith, and that in the event
Exchange Agent becomes involved in any litigation, claim a controversy in
connection with his actions under this Agreement,
JARL Merger Agreement/Page 3
<PAGE>
Shareholder agrees to indemnify, defend and save Exchange Agent from all losses,
costs, damages, expenses and attorneys' fees suffered or incurred by Exchange
Agent as a result thereof.
(b) No Fractional Shares. Fractional shares of the Parent Common
Stock will not be issued in exchange for the Company Common Stock. Upon
delivery of certificates representing Company Common Stock together with duly
and properly executed stock powers to the Exchange Agent on or after the
Effective Time, Exchange Agent will deliver the Merger Consideration, including
the Parent Common Stock, to Shareholder, provided that in lieu of any fractional
share, Exchange Agent shall deliver a cash amount equivalent to the amount
obtained by multiplying such fraction by $6.30. (The shares of Parent Common
Stock delivered to Shareholder as part of the Merger Consideration are sometimes
referred to hereinafter as the "Initial Shares.") No interest shall be payable
with respect to payment of such cash distribution.
ARTICLE 3
CONSIDERATION ADJUSTMENTS
3.1 ADJUSTMENTS TO MERGER CONSIDERATION. The Merger Consideration into
which the Company Common Stock shall be converted is subject to the adjustments
described in this Section 3.1:
(a) Debt Adjustment. As provided in Section 5.7 below, within 90 days
after the Closing Date, the Parent shall cause the Surviving Corporation to pay
off or otherwise retire all of the Company's indebtedness which is secured by
the personal guarantee of Shareholder as of the Effective Time up to a maximum
of $39,000. To the extent that such indebtedness exceeds $39,000, the Cash
Consideration payable to Shareholder shall be reduced by the amount of such
excess indebtedness (the "Debt Adjustment"), the Parent shall deliver a cash
payment to the holder of such indebtedness in the amount of the Debt Adjustment,
and upon surrender of certificates representing shares of the Company's Common
Stock by Shareholder as provided in Section 2.2 above, the Cash Consideration
payable to Shareholder shall be reduced by the amount of the Debt Adjustment, if
any, and, if the Working Capital Adjustment has been determined pursuant to
Section 3.1(b) below at the time such certificates are surrendered, the Cash
Consideration shall be increased or decreased, as applicable, by the amount of
such Working Capital Adjustment.
(b) Working Capital Adjustment. Ninety days after the Closing Date
(the "Calculation Date"), the value of the Company's "Net Working Capital" (as
defined below) as of the last day of the calendar month prior to the Closing
Date shall be calculated. If the value of the Company's Net Working Capital is
more than or less than One Hundred Three Thousand and 00/100 Dollars ($103,000)
as of the last day of the calendar month prior to the Closing Date, then the
Cash Consideration into which the Company Common Stock is to be converted shall
be increased or decreased accordingly, dollar for dollar (the "Working Capital
Adjustment"). For purposes of the Working Capital Adjustment, "Net Working
Capital" shall mean the Company's current assets minus current liabilities as
determined in accordance with the Company's past practices; provided, however,
that the Company's current assets shall not include the Company' accounts
receivable that remain unpaid as of the Calculation Date (the "Excluded
Accounts"). In consideration of the foregoing,
JARL Merger Agreement/Page 4
<PAGE>
Shareholder, in his sole discretion, shall have the right to acquire any
Excluded Accounts from the Surviving Corporation incident to the Working Capital
Adjustment. If the amount of the Working Capital Adjustment has been determined
at the time Shareholder surrenders certificates representing the Company's
Common Stock in exchange for the Merger Consideration as provided in Section 2.2
above, the Cash Consideration shall be increased or decreased, as applicable, by
the amount of the Working Capital Adjustment (and shall also be reduced by the
amount of the Debt Adjustment, if any). If the amount of the Working Capital
Adjustment has not been determined at the time such certificates are
surrendered, the Cash Consideration shall be paid to Shareholder without such
Working Capital Adjustment; provided that if the Working Capital Adjustment
reduces the Cash Consideration, Shareholder shall pay such adjustment to the
Parent via wire transfer within three (3) days after the Working Capital
Adjustment is finally determined, and if the Working Capital Adjustment
increases the Cash Consideration, the Parent shall pay such adjustment to
Shareholder via wire transfer within three (3) business days after the Working
Capital Adjustment is finally determined. No interest will be payable in respect
of the Working Capital Adjustment.
(c) Make Whole Adjustment. Subject to the provisions of Section 3.2
below, if on the second anniversary of the Closing Date ("Measurement Date"),
the average of the per share closing price of the Parent Common Stock for the
ten trading days prior to such date (the "Measurement Price") does not exceed
$6.30 per share (as adjusted for all stock splits, stock dividends,
recapitalization and reorganizations effected after the Closing) (the "Stated
Price"), then Shareholder shall have the right, with respect to each Initial
Share then held by Shareholder, to receive an amount equal to the difference
between the Stated Price and the Measurement Price multiplied by the number of
Initial Shares then held by Shareholder, and reduced by an amount equivalent to
the aggregate amount of the excess, if any, of the proceeds received by
Shareholder from all prior sales of any Initial Shares over the Stated Price
thereof (the "Make Whole Adjustment"). The Make Whole Adjustment shall be paid
within 45 days of the Measurement Date and, at the election of the Parent in its
sole and absolute discretion, shall be payable in any of the following forms:
(x) cash, (y) Parent's subordinated promissory note payable within 180 days of
the date of issuance in the form attached hereto as Exhibit A, or (z) by
delivery of a number of shares of the Parent Common Stock with a value not less
than the amount of Make Whole Adjustment based upon the Measurement Price of
such Parent Common Stock.
(d) Notwithstanding anything in this Article 3 to the contrary, in the
event that any of the adjustments required in this Article 3 would jeopardize
the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code, the parties agree to reallocate the Merger
Consideration payable to Shareholder such that the portion allocated to Parent
Common Stock and the portion allocated to Cash Consideration satisfy the
requirements for a tax-deferred reorganization pursuant to such Code section,
and the parties agree to amend the provisions of this Article 3 as necessary to
cause the Merger to comply with the provisions of Section 368(a).
3.2 SHAREHOLDER OPTIONS. Notwithstanding anything in this Agreement to
the contrary, in the event the Parent Common Stock is not publicly traded by
December 31, 1998:
(a) For the period of 30 days immediately following December 31, 1998,
Shareholder shall have the right, subject to Section 3.2(b), to require the
Parent to repurchase ("Put
JARL Merger Agreement/Page 5
<PAGE>
Option") all of the Parent Common Stock originally issued pursuant to this
Agreement and held by Shareholder for a purchase price consisting of $200,000
cash plus an amount equal to an 8% fixed rate of return on such amount
calculated from the Effective Time, by providing the Parent written notice of
his intention to exercise the Put Option ("Option Notice"). In the event that
Shareholder fails to provide the Option Notice during such 30 day period, the
Put Option shall expire unexercised. In the event that Shareholder has timely
exercised the Put Option and the Parent is either unable or unwilling to make
such cash payment within 60 days following its receipt of the Option Notice, the
Parent shall notify Shareholder and the Put Option will terminate.
(b) If Shareholder exercises the Put Option and the Parent is either
unable or unwilling to make the required cash payment within 60 days as provided
in Section 3.2(a) above, then for a period of 10 days following receipt of
notice from Parent regarding termination of the Put Option, or, if Parent is
unable to make the required cash payment and Parent does not provide such
notice, for a period of 10 days immediately following such 60 day period,
Shareholder shall have the right ("Rescission Option") to require the Parent to
sell all of the common stock of the Surviving Corporation back to Shareholder
for a purchase price consisting of the sum of (a) $100,000 cash (or such higher
cash amount as described herein) plus an amount equal to an 8% fixed rate of
return on such amount calculated from the Effective Time, plus (b) the net
amount of cash contributed to the Surviving Corporation by Parent (whether as a
contribution of capital, for the purchase of capital stock, or in the form of
loans) reduced by the net amount of cash dividends and distributions from the
Surviving Corporation to the Parent since the Effective Time (but not including
payments made for goods and services provided by Parent at prices comparable to
those available from third parties), plus (c) the surrender of all of the shares
of the Parent Common Stock issued to Shareholder pursuant to this Agreement and
still held by Shareholder at that time. If, at the time Shareholder exercises
the Rescission Option, Shareholder holds less than the number of shares of
Parent Common Stock issued to Shareholder incident to the Merger, the cash
portion of the purchase price shall be increased by the amount equal to $6.30
multiplied by the number of shares of Parent Common Stock which Shareholder has
sold or otherwise disposed of since the Effective Time. The principal amount of
outstanding loans from the Parent to the Surviving Corporation will be converted
to equity capital immediately prior to such sale. In lieu of making the cash
payment described above, if any, Shareholder, at his option, may elect to assume
a like amount of debt from the Parent's primary lender, or, if such assumption
is not agreed to by such lender, execute and deliver a promissory note payable
to the Parent for such amount and payable in one year at a fixed rate of
interest equal to the Prime Rate as of the date of its issuance. In lieu of
payment for capital consisting of motor vehicles for which ownership is
evidenced by a certificate of title issued by any state and that were added to
the Surviving Corporation after the Effective Time, Shareholder may elect to
return such motor vehicles to the Parent.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES BY SHAREHOLDER. Shareholder represents
and warrants to the Parent and the Merger Sub that the statements contained in
this Section 4.1 are correct and complete as of the date of this Agreement and
will be correct and complete as of the
JARL Merger Agreement/Page 6
<PAGE>
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4.1).
(a) Qualification. Shareholder is an individual competent to own his
properties and assets and carry on his business and affairs as currently
conducted.
(b) Authority Relative to Agreement. Shareholder has the power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated on the part of Shareholder hereby. No
proceedings on the part of Shareholder are necessary to authorize the
execution and delivery of this Agreement by Shareholder or the consummation
by Shareholder of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Shareholder and is a valid and binding
agreement of Shareholder, enforceable against Shareholder in accordance
with its terms.
(c) Non-Contravention. The execution and delivery of this Agreement
by Shareholder do not, and the consummation by Shareholder of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, or
acceleration of any obligation or to the loss of a material benefit under,
or result in the creation or imposition of any material lien, charge,
pledge, security interest or other encumbrance upon any of the property or
assets of Shareholder pursuant to any provision of, any mortgage, lien,
lease, agreement, license, instrument, law, ordinance, regulation, order,
arbitration award, judgment or decree to which Shareholder is a party or by
which any of his assets is bound and do not and will not violate or
conflict with any other restriction of any kind or character to which
Shareholder is subject or by which any of his assets may be bound.
(d) Approvals. No consent, authorization, order or approval of, or
filing or registration with, any governmental commission, board or other
regulatory body or any other person is required for or in connection with
the execution and delivery of this Agreement and the consummation by
Shareholder of the transactions contemplated hereby.
(e) Ownership of Company Common Stock. Shareholder is, and as of the
Closing Date will be, the lawful owner of all of the outstanding shares of
Company Common Stock free and clear of all liens, claims, encumbrances and
rights of others of any nature whatsoever, with full power to vote all such
shares on any matter that may properly come before shareholders of the
Company, and Shareholder may exercise such voting power on any matter,
including the Merger, without violation of the rights of any person. The
Company has no rights, warrants or options outstanding with respect to its
capital stock, and the Company has no obligation to issue voting or
nonvoting equity securities to any person as of the date hereof, at any
time on or prior to the Merger, or as a result thereof or in connection
therewith except as provided in this Agreement.
JARL Merger Agreement/Page 7
<PAGE>
(f) Restricted Securities.
(1) The shares of Parent Common Stock which Shareholder will
acquire as a part of the Merger Consideration have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
and are being acquired for Shareholder's own account, for investment
and not with a view to the distribution thereof.
(2) Shareholder has the knowledge and experience in financial and
business matters to enable him to evaluate the merits and risks of
approving this Agreement and the transactions contemplated herein and
acquiring shares of Parent Common Stock.
(3) Shareholder is able to bear the economic risks of his
investment in the Parent Common Stock, including the risk of a
complete loss of the value of the Parent Common Stock.
(4) Shareholder has been represented by legal counsel in this
transaction and Shareholder and his representatives, including such
counsel, have been given the opportunity to ask questions of, and
receive answers from, the officers of the Parent concerning the terms
of the transactions contemplated hereby and the affairs and the
business and financial condition of the Parent.
(5) Shareholder and his representatives have been given such
access to all documents, books and additional information which they
have requested regarding the Parent.
(6) Shareholder has conducted such investigations by himself and
through his representatives in making a decision to approve this
Agreement and the transactions contemplated herein as he has deemed
necessary and advisable.
(7) Shareholder agrees that the Parent Common Stock issued to
Shareholder may not be disposed of except in accordance with the
requirements of the Securities Act, any applicable state securities
laws and other provisions of this Agreement, and only in a manner
which would not cause the transactions contemplated by this Agreement
to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code.
4.2 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER AND THE COMPANY. The
Shareholder and the Company, jointly and severally, represent and warrant to the
Parent and the Merger Sub that the statements contained in this Section 4.2 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
4.2), except as set forth in the disclosure schedule delivered by the
Shareholder and the Company to the Parent and the Merger Sub on the date hereof
and initialed by the parties hereto (the "Company
JARL Merger Agreement/Page 8
<PAGE>
Disclosure Schedule"). Nothing in the Company Disclosure Schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Company Disclosure Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the mere existence of the document or
other item itself). The Company Disclosure Schedule will be arranged in sections
and paragraphs corresponding to the lettered and numbered sections and
paragraphs contained in this Section 4.2.
(a) Organization and Qualification, etc. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, has the corporate power and authority and all
licenses, permits and authorizations necessary to own all of its properties
and assets and to carry on its business as it is now being conducted, and
is duly qualified to do business and is in good standing in each
jurisdiction as set forth in Schedule 4.2(a) of the Company Disclosure
Schedule where, to the reasonable belief of Shareholder and the Company,
such qualification is appropriate. The copies of the Company's Articles of
Incorporation and Bylaws, as amended to date, which have been delivered to
the Parent are complete and correct, and such instruments, as so amended,
are in full force and effect at the date hereof.
(b) Capital Stock. The entire authorized capital stock of the
Company consists of 100,000 shares of Company Common Stock of which as of
the date hereof 10,000 shares of Company Common Stock are validly issued
and outstanding, fully paid and nonassessable, all of which are held of
record by Shareholder, and no shares of Company Common Stock are in the
treasury of the Company. As of the date hereof, the Company has no
commitments to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving
any person any right to subscribe for or acquire from the Company, any
shares of its capital stock and no securities or obligations evidencing any
such rights are outstanding.
(c) Subsidiaries, etc. The Company does not own of record or
beneficially, directly or indirectly, (1) any shares of outstanding capital
stock or securities convertible into capital stock of any other corporation
or (2) any participating interest in any partnership, joint venture or
other non-corporate business enterprise.
(d) Authority Relative to Agreement. The Company has the corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated on the part of the Company hereby. The
execution and delivery by the Company of this Agreement and the
consummation by the Company of the transactions contemplated on its part
hereby have been duly authorized by its Board of Directors and the
Shareholder in his capacity as the sole shareholder of the capital stock of
the Company. No other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed
JARL Merger Agreement/Page 9
<PAGE>
and delivered by the Company and, is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
(e) Non-Contravention. The execution and delivery of this Agreement
by the Company do not and the consummation by the Company of the
transactions contemplated hereby will not (1) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, government agency, or court
to which the Company or any of its assets is subject or (2) violate any
provision of the Articles of Incorporation or Bylaws of the Company, or (3)
violate or result in, with the giving of notice or the lapse of time or
both, the violation of any provision of, or result in the acceleration of
or entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, or result in the creation or
imposition of any lien, charge, pledge, security interest or other
encumbrance upon any of the property of the Company pursuant to any
provision of any mortgage, lien, lease, contract, agreement, license, or
instrument to which the Company is a party or by which any of its assets is
bound. The execution and delivery of this Agreement by the Company do not
and will not violate or conflict with any other restriction of any kind or
character to which the Company is subject or by which any of its assets may
be bound, and the same does not and will not constitute an event permitting
termination of any such mortgage, lien, lease, agreement, license or
instrument to which the Company is a party or by which any of its assets is
bound, except as such enforcement is subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws relating
to or affecting creditors' rights.
(f) Approvals. No consent, authorization, order or approval of, or
filing or registration with, any governmental commission, board or other
regulatory body or any other person is required for the execution and
delivery of this Agreement or the consummation by the Company of the
transactions contemplated hereby, except for the filing of the Articles of
Merger with the Secretary of State of the State of Texas and except for
those approvals set forth in Schedule 4.2(f) of the Company Disclosure
Schedule.
(g) Financial Statements. Shareholder has previously furnished the
Parent with true and complete copies of the reviewed balance sheets of the
Company as of February 28, 1996 and the related reviewed statements of
income, retained earnings and cash flow for the year ended February 28,
1996 prepared by Mayes Fuller And Associates, P.C., the independent
accountants of the Company. Such financial statements have been prepared
in accordance with the past practices of the Company and present fairly the
financial position and results of operations of the Company as of and for
the respective periods then ended. Shareholder has also previously
furnished the Parent with true and complete copies of certain financial
statements and information of the Company as of July 31, 1996, and a copy
of the balance sheet of the Company as of October 31, 1996 and the related
statement of income for the eight months then ended. Such financial
statements have been prepared in accordance with the past practices of the
Company and present fairly the financial position and results of operations
of the Company as of and for the time periods indicated. Collectively, the
financial statements described in this Section 4.2(g) are the "Company
Financial Statements."
JARL Merger Agreement/Page 10
<PAGE>
(h) Absence of Certain Changes or Events. Since October 31, 1996,
the Company has not:
(1) incurred any obligation or liability (fixed or contingent),
except normal trade or business obligations incurred in the ordinary
course of business;
(2) discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed or contingent),
other than in the ordinary course of business;
(3) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of its assets or properties (other
than Permitted Exceptions);
(4) transferred, leased or otherwise disposed of any of its
assets or properties or acquired any assets or properties, except in
any case in the ordinary course of business;
(5) canceled or compromised any debt or claim, except in the
ordinary course of business;
(6) waived or released, under any contract, rights of the
Company having value to the Company, except in any case in the
ordinary course of business;
(7) transferred or granted any rights under any concessions,
leases, licenses, agreements, patents, inventions, trademarks, trade
names, service marks or copyrights or with respect to any know-how,
except in the ordinary course of business;
(8) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any
employment contract with any officer or employee or made any loan to,
or entered into any material transaction of any other nature with, any
officer or employee of the Company;
(9) entered into any transaction, contract or commitment, except
those listed, or which pursuant to the terms hereof are not required
to be listed, on the Company Disclosure Schedule to this Agreement,
this Agreement and the transactions contemplated hereby, and those
entered into in the ordinary course of business;
(10) declared, paid or made any provision for payment of any
dividends or other distribution in respect of shares of the Company's
Common Stock, or acquired or made any provision for acquiring any
shares of the Company's Common Stock;
(11) declared, paid or made provisions for any other payment to
Shareholder or any other affiliate of Shareholder or the Company,
except in the ordinary course of business;
JARL Merger Agreement/Page 11
<PAGE>
(12) suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance) which affects in
any material respect its ability to conduct its business; or
(13) suffered any material adverse change.
"Permitted Exceptions" shall mean (i) mechanic's, materialman's,
warehouseman's and carrier's liens and purchase money security interests
arising in the ordinary course of business, a true and correct list of
which is set forth on Schedule 4.2(h) of the Company Disclosure Schedule;
(ii) liens for taxes and assessments not yet payable; (iii) liens for
taxes, assessments and charges and other claims, the validity of which the
Company or Shareholder are contesting in good faith, a true and correct
list of which is set forth on Schedule 4.2(h); and (iv) imperfections of
title, liens, security interests, claims and other charges and encumbrances
the existence of which would not have in the aggregate a material adverse
effect.
(i) Undisclosed Liabilities. The Company has no liabilities (and
there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the
Company giving rise to any liability), except for (i) liabilities set forth
on the face of the Company Financial Statements (rather than in any notes
thereto) and (ii) liabilities which have arisen after October 31, 1996 in
the ordinary course of business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law).
(j) Permits and Legal Compliance. The Company has all permits,
licenses, orders, and approvals of all governmental authorities material to
the conduct of the Company's business, a true and correct list of which is
set forth in Schedule 4.2(j) of the Company Disclosure Schedule. All such
permits, licenses, orders and approvals are in full force and effect, and
no suspension or cancellation of any of them is pending or threatened.
None of such permits, licenses, orders or approvals, and no application for
any of such permits, licenses, orders or approvals, will be adversely
affected by the consummation of the transactions contemplated by this
Agreement. The Company has complied with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against the Company alleging any failure so to
comply.
(k) Title to Properties; Absence of Liens and Encumbrances, etc. The
Company has good and marketable title to all of the real, tangible personal
and mixed properties and assets owned by it and used in its business, free
and clear of any liens, charges, pledges, security interests or other
encumbrances (other than Permitted Exceptions), except as reflected in
the Company Financial Statements. The Company's intangible properties and
assets (other than any intangible properties and assets described in
Section 4.2(l) and Section 4.2(p), which sections contain the Company's and
Shareholder's representations and warranties with respect to such
intangible properties and assets) are free and clear of any liens, charges,
JARL Merger Agreement/Page 12
<PAGE>
pledges, security interests or other encumbrances (other than Permitted
Exceptions), except as reflected in the Company Financial Statements.
(l) Software. Schedule 4.2(l) of the Company Disclosure Schedule
contains a list or description by type of all operating and applications
computer programs and data bases ("Software") which the Company uses or has
available for use and plans to use, and such Software constitutes all the
Software which is necessary to operate the business of the Company as
currently conducted. All such Software is owned outright by the Company
except as indicated on Schedule 4.2(l). As to any Software which Schedule
4.2(l) indicates is not owned by the Company, the Company has the right to
use the same pursuant to valid leases or licenses therefor. None of the
Software used by or available to the Company, and no use thereof, infringes
upon or violates any patent, copyright, trade secret or other proprietary
right of anyone else and no claim with respect to any such infringement or
violation is threatened.
(m) List of Properties, Contracts and Other Data. Schedule 4.2(m) of
the Company Disclosure Schedule contains a list setting forth with respect
to the Company as of the date hereof the following:
(1) all real properties owned in fee simple by the Company;
(2) all leases of real or personal property to which the Company
is a party, either as lessee or lessor with a brief description of the
property to which each such lease relates, except such leases of
personal property as require payment during their remaining life
aggregating less than $1,000 or are terminable by the Company within
three months without payment of a premium or penalty;
(3) (i) all patents, trademarks and trade names, trademark and
trade name registrations, servicemark registrations, copyrights and
copyright registrations, unexpired as of the date hereof, all
applications pending on such date for patents or for trademark, trade
name, service mark or copyright registrations, all other proprietary
rights owned or held by the Company and reasonably necessary to, or
used by the Company primarily in connection with, its business and
(ii) all licenses granted by or to the Company and all other
agreements to which the Company is a party which relate, in whole or
in part, to any items of the foregoing categories, other than any such
license or other agreement requiring payments during its remaining
life aggregating less than $1,000 or terminable by the Company within
three months without payment of a premium or penalty;
(4) all collective bargaining agreements, employment and
consulting agreements (other than consulting agreements terminable by
the Company within 60 days without payment of a premium or a penalty),
executive compensation plans, bonus plans, deferred compensation
agreements, employee pension plans or retirement plans, employee
profit sharing plans, employee stock purchase and stock
JARL Merger Agreement/Page 13
<PAGE>
option plans, group life insurance, hospitalization insurance or other
plans or arrangements providing for benefits to employees of the
Company;
(5) all contracts and commitments (including, without
limitation, mortgages, indentures and loan agreements) to which the
Company is a party, or to which it or any of its assets or properties
are subject and which are not specifically referred to elsewhere in
this Section 4.2, provided that there need not be listed in the
Company Disclosure Schedule of this Agreement (unless required
pursuant to the preceding subsections of this Section 4.2(m)) any
contract or commitment incurred in the ordinary course of business
which requires payments to or by the Company during its remaining life
aggregating less than $1,000 or which is terminable by the Company
within three months without payment of a premium or penalty; and
(6) the current annual compensation of all employees of the
Company (by position or by department) as of a recent date.
True and complete copies of all documents and descriptions complete in
all material respects of all oral agreements or commitments (if any)
referred to in this Section 4.2(m) have been provided to the Parent or its
counsel. Neither the Company nor Shareholder has been notified in writing
of any claim that any contract listed in Schedule 4.2(m) of the Company
Disclosure Schedule is not valid and enforceable in accordance with its
terms for the periods stated therein, or that there is under any such
contract any existing material default or event of default or event which
with notice or lapse of time or both would constitute such a default.
(n) Litigation. Except as provided on Schedule 4.2(n) of the Company
Disclosure Schedule, there are no actions, suits or proceedings with
respect to the business of the Company pending against the Company at law
or in equity, or before or by any federal, state, municipal, foreign or
other governmental department, commission, board, bureau, agency or
instrumentality, nor are there any such actions, suits or proceedings with
respect to the Business of the Company threatened against the Company.
(o) Labor or Employee Controversies.
(1) There are no controversies between the Company and any
employees or any unresolved labor union grievances or unfair labor
practice or labor arbitration proceedings pending or threatened,
related to the Company and there are not any organizational efforts
presently being made or threatened in an organized fashion involving
any of the Company's employees.
(2) Neither Shareholder nor the Company has received notice of
any claim that he or it has not complied with any laws relating to the
employment of labor, including any provisions thereof relating to
wages, hours, collective bargaining, the payment of social security
and similar taxes, equal employment opportunity, employment
discrimination, harassment and employment safety, or that he or it is
JARL Merger Agreement/Page 14
<PAGE>
liable for any arrears of wages or any taxes or penalties for failure
to comply with any of the foregoing.
(p) Patent, Trademark, etc. Claims. No person has made or threatened
to make any claims that the operation of the Company is in violation or
infringement of any patent, patent license, trade name, trademark, service
mark, brandmark, brand name, copyright, know-how or other proprietary or
trade rights of any third party; and neither Shareholder nor the Company
knows of any non-frivolous basis for any such claims.
(q) Use of Real Property. Neither Shareholder nor the Company has
received notice of violation of any applicable zoning or building
regulation, ordinance or other law, order, regulation or requirement
relating to the operations of the Company or any notice of default under
any material lease, contract, commitment, license or permit, relating to
the use and operation of the owned or leased real property listed in the
Company Disclosure Schedules and there is no such violation or default.
Neither Shareholder nor the Company has received notice that any plant,
facility or other building which is owned or covered by a lease set forth
in the Company Disclosure Schedule does not substantially conform in all
material respects with all applicable ordinances, codes, regulations and
requirements, and neither Shareholder nor the Company has received notice
that any law or regulation presently in effect or condition precludes or
restricts continuation of the present use of such properties. There are no
pending or, to the knowledge of Shareholder or the Company, threatened
condemnation proceedings, lawsuits or administrative actions relating to
the owned or leased real property listed in the Company Disclosure
Schedules, nor are there any other matters (including street or utility
construction projects) known to Shareholder or the Company that would
adversely affect access to such property or the current use, occupancy or
value thereof.
(r) Accounts Receivable. The accounts receivable reflected on the
balance sheet of the Company as of October 31, 1996, and all accounts
receivable arising between October 31, 1996 and the date hereof, arose from
bona fide transactions in the ordinary course of business; the services
involved have been provided to the account obligor and no further services
are required to be provided in order to complete the sales and to entitle
the Company or its assignees to collect the accounts receivable in full
without set-off or defense. No such account has been assigned or pledged
to any other person, firm or corporation.
(s) Insurance. Schedule 4.2(s) of the Company Disclosure Schedule
sets forth a complete and correct list of all insurance policies obtained
and maintained by the Company or Shareholder in connection with the
business of the Company, covering the Company's real property, motor
vehicles and employees, including general liability, property and workers'
compensation insurance. Such insurance policies are in full force and
effect, and all premiums due on such policies have been paid. The Company
and its businesses have been insured under such policies, or substantially
similar policies at all times during the five year period ending on the
date of this Agreement. The insureds under each such policy have complied
in all material respects with the provisions of all such policies. Schedule
4.2(s) lists and briefly describes any claims made by the Company or
Shareholder under such policies within the past
JARL Merger Agreement/Page 15
<PAGE>
five years. The Company and Shareholder have made available to the Parent
complete and correct copies of all such policies, together with all riders
and amendments thereto.
(t) Employee Benefits.
(1) The Company has complied and currently is in compliance,
both as to form and operation, in all material respects with the
applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and the Internal Revenue Codes of 1954
and/or 1986, as amended, respectively (for purposes of this Section
4.2(t) only, the "Code"), with respect to each "employee benefit plan"
as defined under Section 3(3) of ERISA. Each employee benefit plan of
the Company ("Plan") is described in Schedule 4.2(t) of the Company
Disclosure Schedule, and a copy of each Plan is attached thereto.
(2) The Company has never maintained, adopted or established,
contributed or been required to contribute to, or otherwise
participated or been required to participate in, a "multiemployer
plan" (as defined in Section 3(37) of ERISA). No amount is due as
owing from the Company on account of a "multiemployer plan" (as
defined in Section 3(37) of ERISA) or on account of any withdrawal
therefrom.
(3) The Company has not incurred any liability with respect to a
Plan including, without limitation, under ERISA (including, without
limitation, Title I or Title IV of ERISA thereof other than liability
for premiums due to the Pension Benefit Guaranty Corporation
("PBGC")), the Code or other applicable law, which has not been
satisfied in full, and no event has occurred, and there exists no
condition or set of circumstances which could result in the imposition
of any liability with respect to a Plan, including, without
limitation, under ERISA (including, without limitation, Title I or
Title IV of ERISA), the Code or other applicable law with respect to
the Plan.
(4) The Company has no outstanding commitments to provide or to
cause to be provided any severance or other postemployment benefit,
salary continuation, termination, disability, death, retirement,
health or medical benefit or similar benefit to any person (including,
without limitation, any former or current employee) that has not been
reflected in the Company Financial Statements or is not included in
any Plan disclosed in Schedule 4.1(t) of the Company Disclosure
Schedule to this Agreement.
(u) Tax Matters.
(1) All federal, state, local and foreign tax returns required
to be filed by the Company prior to the date hereof have been filed on
a timely basis with the appropriate governmental authorities in all
jurisdictions in which such tax returns are required to be filed, and
all such returns are true and correct. All federal, state, local and
foreign income, franchise, sales, use, property, and all other taxes,
fees, assessments, or other governmental charges (including
withholding taxes), and all interest and penalties thereon (all of the
foregoing collectively, "Taxes") due from or
JARL Merger Agreement/Page 16
<PAGE>
properly accruable by the Company have been fully and timely paid or,
in the cases of Taxes for which payment is not yet required, properly
and fully accrued for on the Company Financial Statements or in
Schedule 4.2(u) of the Company Disclosure Schedule with respect to all
taxable periods ending on or prior to the date hereof and interim
periods through the date hereof. The Company will not after the
Effective Time, owe, or be liable directly or indirectly, to any other
person or entity for Taxes imposed on the Company, except for accruals
fully reflected on the Company Financial Statements. The Company has
not waived any statute of limitations in respect of Taxes or agreed to
any extension of time with respect to a Tax assessment or deficiency.
The Company is not currently the subject of any audit, examination or
any similar investigation by any governmental authority. Schedule
4.2(u) of the Company Disclosure Schedule sets forth all audits
examinations or similar investigations of the Company by any
governmental authority since January 1, 1991.
(2) Neither Shareholder nor the Company is a party to any
agreement, contract or arrangement that would, by reason of the
consummation of any of the transactions contemplated by this
Agreement, individually or in the aggregate, result in the payment of
any "excess parachute payment" within the meaning of Section 280G of
the Code. None of the assets of the Company is required to be treated
as being owned by any other person pursuant to the "safe harbor"
leasing provisions of Section 168 of the Internal Revenue Code of
1954, as in effect prior to the repeal of said leasing provisions.
(v) Brokers. Other than Fred S. Zeidman, all negotiations relative
to this Agreement and the transactions contemplated hereby have been
carried out by Shareholder and the Company directly with the Parent and the
Merger Sub, without the intervention of any other person on behalf of
Shareholder or the Company in such manner as to give rise to any valid
claim by any other person against Shareholder or the Company for a finder's
fee, brokerage commissions, or similar payment.
(w) Tax-Free Reorganization. With respect to the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the
Code:
(1) There is no plan or intention on the part of Shareholder to
sell, exchange or otherwise dispose of a number of shares of Parent
Common Stock received in the Merger which would reduce Shareholder's
ownership of such Parent Common Stock to a number of shares having a
value, as of the Closing Date, of less than fifty percent of the value
of all of the formerly outstanding stock of the Company as of the same
date.
(2) Immediately following the Merger, the Surviving Corporation
will hold at least 90 percent of the fair market value of the
Company's net assets and at least 70% of the fair market value of the
Company's gross assets.
JARL Merger Agreement/Page 17
<PAGE>
(3) The liabilities of the Company assumed by the Surviving
Corporation and the liabilities to which the assets of the Company are
subject were incurred in the Company's ordinary course of business.
(4) The Company and Shareholder will each pay their respective
expenses, if any, incurred in connection with the Merger, and neither
the Company nor Shareholder will pay any Parent or Merger Sub expenses
incurred in connection with the Merger.
(5) At the time of the Merger, the Company will not have any
outstanding warrants, options, convertible securities, or any other
right pursuant to which any person could acquire stock in the Company
that, if exercised or converted, would affect Parent's retention of
control of the Surviving Corporation.
(6) The Company is not an investment Company within the meaning
of Section 368(a)(2)(F) of the Code.
(7) On the Closing Date, the fair market value of the assets of
the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which its assets are subject.
(8) The Company is not under the jurisdiction of a court in a
case under Title 11 of the United States Code, or a receivership,
foreclosure, or similar proceeding in a federal or state court.
4.3 REPRESENTATIONS AND WARRANTIES BY THE PARENT. The Parent represents
and warrants to the Shareholder and the Company that the statements contained in
this Section 4.3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4.3), except as set forth in the disclosure schedule
delivered by the Parent to the Shareholder and the Company on the date hereof
and initialed by the parties hereto (the "Parent Disclosure Schedule"). The
Parent Disclosure Schedule will be arranged in sections and paragraphs
corresponding to the lettered and numbered sections and paragraphs contained in
this Section 4.3.
(a) Organization and Qualification, etc. The Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas, has corporate power and authority to own all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business and is in good standing in
each jurisdiction as set forth in Schedule 4.3(a) of the Parent Disclosure
Schedule where, to the reasonable belief of Shareholder and the Parent,
such qualification is appropriate. The copies of the Parent's Articles of
Incorporation and Bylaws, as amended to date, which have been delivered to
Shareholder are complete and correct, and such instruments, as so amended,
are in full force and effect at the date hereof.
JARL Merger Agreement/Page 18
<PAGE>
(b) Capital Stock. The entire authorized capital stock of the Parent
consists of 100,000,000 shares of Parent Common Stock of which as of the
date hereof 3,028,000 shares of Parent Common Stock are validly issued and
outstanding, fully paid and nonassessable.
(c) Subsidiaries, etc. Other than the Merger Sub, the Parent does
not own of record or beneficially, directly or indirectly, (1) any shares
of outstanding capital stock or securities convertible into capital stock
of any other corporation or (2) any participating interest in any
partnership, joint venture or other non-corporate business enterprise.
(d) Authority Relative to Agreement. The Parent has the corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated on the part of the Parent hereby. The
execution and delivery by the Parent of this Agreement and the consummation
by the Parent of the transactions contemplated on its part hereby have been
duly authorized by its Board of Directors. No other corporate proceedings
on the part of the Parent are necessary to authorize the execution and
delivery of this Agreement by the Parent or the consummation by the Parent
of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Parent and is enforceable against the Parent
in accordance with its terms.
(e) Non-Contravention. The execution and delivery of this Agreement
by the Parent do not and the consummation by the Parent of the transactions
contemplated hereby will not (1) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling change, or
other restriction of any government, government agency, or court to which
the Parent is subject to, or (2) violate any provision of the Articles of
Incorporation or Bylaws of the Parent, or (3) violate or result in, with
the giving of notice or the lapse of time or both, the violation of any
provision of, or result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both)
any obligation under, or result in the creation or imposition of any lien,
charge, pledge, security interest or other encumbrance upon any of the
property of the Parent pursuant to any provision of any mortgage, lien,
lease, agreement, contract, license, or instrument to which the Parent is a
party or by which any of its assets is bound. The execution and delivery
of this Agreement by the Parent do not and will not violate or conflict
with any other restriction of any kind or character to which the Parent is
subject or by which any of its assets may be bound, and the same does not
and will not constitute an event permitting termination of any such
mortgage, lien, lease, agreement, license or instrument to which the Parent
is a party or by which any of its assets is bound, except as such
enforcement is subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws relating to or affecting
creditors' rights.
(f) Approvals. Except as set forth in Schedule 4.3(f) of the Parent
Disclosure Schedule, no consent, authorization, order or approval of, or
filing or registration with, any governmental commission, board or other
regulatory body or any other person is required for the execution and
delivery of this Agreement and the consummation by the Parent of the
transactions contemplated hereby, except for the filing of the Articles of
Merger with the Secretary of State of the State of Texas.
JARL Merger Agreement/Page 19
<PAGE>
(g) Litigation. There are no actions, claims, proceedings or
governmental investigations pending against the Parent or any of its assets
or properties at law or in equity, before or by any federal, state, or
municipal court, agency or other governmental entity, or by any other
person, which, individually or in the aggregate, could reasonably be
expected (1) to have a material adverse effect on the financial condition
or results of operations of the Parent or (2) to prevent the consummation
of the transactions contemplated hereby.
(h) Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Parent
directly with Shareholder and the Company, without the intervention of any
person on behalf of the Parent in such manner as to give rise to any valid
claim by any person against the Parent for a finder's fee, brokerage
commission, or similar payment.
(i) Tax-Free Reorganization. With respect to the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the
Code:
(1) 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.
(2) 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.
(3) Following the Merger, the Surviving Corporation will
continue the Company's historic business or use a significant portion
of his historic business assets in a business.
(4) If the Merger is effected, the Parent and the Merger Sub
will each pay their respective expenses, if any, incurred in
connection with the Merger.
(5) The Parent Common Stock that will be exchanged in the Merger
is voting stock within the meaning of Section 368(c) of the Code.
(6) At the time of the Merger, 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
JARL Merger Agreement/Page 20
<PAGE>
exercised or converted, would affect Parent's acquisition or retention
of control of the Surviving Corporation.
(7) The Parent and the Merger Sub are not investment companies
as defined in Section 368(a)(2)(F) of the Code.
(8) None of the Parent Common Stock received by Shareholder as a
part of the Merger Consideration will be separate consideration for,
or allocable to, any employment agreement.
(9) Neither the Parent nor the 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.
4.4 REPRESENTATIONS AND WARRANTIES CONCERNING THE MERGER SUB. The Parent
and the Merger Sub, jointly and severally, represent and warrant to, and agree
with, Shareholder and the Company as follows:
(a) Organization and Standing. The Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Texas.
(b) Capital Structure. The authorized capital stock of the 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,
claims and encumbrances.
(c) Authority. The Merger Sub has the requisite power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by the 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 the Merger Sub are necessary
to authorize this Agreement and the transaction contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Merger
Sub and (assuming the due authorization, execution and delivery hereof by
the Company) constitutes a valid and binding obligation of the Merger Sub
enforceable against the Merger Sub in accordance with its terms.
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 CONDUCT OF BUSINESS. During the period from the date hereof to the
Closing Date, except as otherwise contemplated by this Agreement, Shareholder
shall cause the Company to, and the Company shall, conduct its operations
according to its ordinary and usual course of business,
JARL Merger Agreement/Page 21
<PAGE>
subject to the foregoing, to preserve substantially intact its business
organization, keep available the services of its officers and employees, and
maintain its present relationships with licensors, suppliers, distributors,
customers and others having significant business relationships with it.
Representatives of the Company will confer with representatives of the Parent to
keep it informed with respect to the general status of the on-going operations
of the Business of the Company. Without limiting the generality of the
foregoing, Shareholder will cause the Company to:
(a) carry on the business in substantially the same manner as
heretofore carried on and not introduce any material new method of
management, operation or accounting, nor provide discounted services;
(b) maintain its properties, facilities, equipment and other assets,
including those held under leases, in good working order, condition and
repair, ordinary wear and tear excepted;
(c) perform all of its material obligations under all debt and lease
instruments and other agreements relating to or affecting its business,
assets, properties, equipment and rights, and pay all vendors and suppliers
as and when their bills are due;
(d) maintain its present debt and lease instruments (unless same are
otherwise mature) and refrain from entering into new or amended debt or
lease instruments without prior written notification to the Parent;
(e) keep in full force and effect its present insurance policies or
other comparable insurance coverage;
(f) use its best efforts to maintain and preserve its business
organization intact, retain its present employees and maintain its
relationship with suppliers, customers and other having business relations
with the Company;
(g) refrain from effecting any change in the capital structure of the
Company; refrain from incurring any expenditures outside the normal course
of business, including any capital expenditures in excess of $5,000,
without prior written notification to the Parent;
(h) refrain from starting or acquiring any new businesses without the
prior written consent of the Parent;
(i) maintain its present salaries and commission levels for all
officers, directors, employees or agents;
(j) refrain from declaring or paying any bonuses, fees, extraordinary
commissions or any other unusual distributions to Shareholder, directors,
management, sales agents, employees or other personnel without prior
written notification to the Parent.
5.2 ACCESS TO INFORMATION BY THE PARENT. The Parent may prior to the
Closing have access to the business and properties of the Company and
information concerning its financial and
JARL Merger Agreement/Page 22
<PAGE>
legal condition as the Parent deems necessary or advisable in connection with
the consummation of the transactions contemplated hereby, provided that such
access shall not interfere with normal operations of the Company. Shareholder
and the Company agree to permit the Parent and its authorized representatives,
or cause them to be permitted to have, after the date hereof and until the
Closing Date, full access to the premises, books and records of the Company
during normal business hours, and the officers of the Company will furnish the
Parent with such financial and operating data and other information with respect
to the Business and properties of the Company as the Parent shall from time to
time reasonably request. No investigation by the Parent heretofore or hereafter
made shall affect the representations and warranties of Shareholder and the
Company, and each such representation and warranty shall survive any such
investigation.
5.3 AMENDMENT TO SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until Closing to supplement or
amend promptly the Disclosure Schedules with respect to any matter that would
have been or would be required to be set forth or described in the Disclosure
Schedules in order to not materially breach any representation, warranty or
covenant of such party contained herein; provided that no amendment or
supplement to a Disclosure Schedule that constitutes or reflects, individually
or in the aggregate, a material adverse change to the Company's business or
assets may be made unless the Parent is informed of the material nature of such
change in writing and consents to such amendment or supplement, and no amendment
or supplement to a Disclosure Schedule that constitutes or reflects a material
adverse change to the Parent's assets or business may be made unless the Company
and Shareholder are informed of the material nature of such change in writing
and consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Section 6.1 and Section 6.2 have been fulfilled, the
Disclosure Schedules hereto shall be deemed to be the Disclosure Schedules as
amended or supplemented pursuant to this Section 5.3. In the event that the
Company or Shareholder seeks to amend or supplement a Disclosure Schedule
pursuant to this Section 5.3 and the Parent does not consent to such amendment
or supplement, or the Parent seeks to amend or supplement a Disclosure Schedule
pursuant to this Section 5.3 and Company or Shareholder does not consent, this
Agreement shall be deemed terminated by mutual written consent as set forth in
Section 10.1 hereof.
5.4 NONCOMPETITION.
(a) During the period commencing on the Closing Date and ending on the
fifth anniversary of the Closing Date, Shareholder agrees that, within a
50-mile radius of Houston, Texas, he shall not, without the prior consent
of the Parent directly or indirectly own, manage, operate, join, control,
finance, participate or otherwise engage in the ownership, management,
operation, control or financing of, or be connected as an officer,
director, employee, principal, agent, representative, consultant, investor,
owner, partner, shareholder (except as a holder of less than 1% of the
issued and outstanding voting stock of a corporation listed on a national
exchange or qualified to be traded on the NASDAQ National Market System),
member, manager joint venturer or otherwise permit his name to be used by
or in connection with, or lease, sell, or permit to use any real property
or interest therein owned by him, any business that the Parent (or any its
affiliates) conducts as of the Effective
JARL Merger Agreement/Page 23
<PAGE>
Time including, without limitation, any aspect of the plumbing and sewer
cleaning, heating, ventilation and air conditioning, electrical, or indoor
air quality products or service businesses, other than as an employee of
the Parent or a subsidiary of the Parent within the United States.
(b) Shareholder agrees that the limitations set forth in this Section
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the
business of the Surviving Corporation and the Parent. In the event that
any such territorial or time limitation is deemed to be unreasonable by a
court of competent jurisdiction, Shareholder agrees to the reduction of the
territorial or time limitation to the area or period which such court shall
have deemed reasonable.
5.5 CONFIDENTIALITY. Until the closing of the transactions contemplated
herein, all Confidential Information, as hereinafter defined, acquired by the
Parent with respect to the Company, shall be (a) maintained in strict
confidence, (b) used only for the purpose of and in connection with evaluating
or financing the transactions contemplated herein, and (c) disclosed only to
employees and duly authorized agents and representatives of the Parent who have
been informed of the obligations of the Parent under this Section or any other
agreement with respect to such Confidential Information, have a need to know the
information in connection with consummating the transactions contemplated
herein, agree to keep such information confidential, and agree to be bound by
the terms hereof to the same extent as if they were parties hereto. The Parent
shall be responsible for any breach of this Section by any of its
representatives and agrees to take all reasonable measures to restrain its
representatives from prohibited or unauthorized disclosure of the Confidential
Information. For the purpose of this Agreement, the term "Confidential
Information" shall mean all information acquired by the Parent from the Company
or its representatives pursuant to Section 5.2 hereof or otherwise with respect
to its operations or Business, other than information generally available to the
public other than as a result of disclosure by the Parent or its representatives
in violation of this Section and information which becomes available to the
Parent on a nonconfidential basis from a source other than the Company or its
representatives, provided that such source is not known by the Parent to be
bound by a confidentiality agreement, or other obligation of secrecy to the
Company or another party. If the transactions contemplated herein are not
consummated, all Confidential Information in written or printed or other
tangible form (whether copies or originals) shall be returned to the Company,
and all documents, memoranda, notes and other writings whatsoever prepared by
the Parent or its representatives based on the Confidential Information shall
continue to be held in strict confidence hereunder.
5.6 EXCLUSIVITY. After the signing of this Agreement until May 31, 1997,
Shareholder shall not (i) solicit, initiate, or encourage the submission of any
proposal or offer from any person or entity relating to the acquisition of any
capital stock or other voting securities, or any substantial portion of the
assets of the Company (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any negotiations or
discussions regarding, furnishing any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person or entity in favor of such acquisition structured as a merger,
consolidation, or share exchange. Shareholder will (and shall cause the Company
to) promptly notify the Parent if any person or entity makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
JARL Merger Agreement/Page 24
<PAGE>
5.7 RELEASE OF SHAREHOLDER GUARANTEES. Within 90 days after the Closing
Date, the Parent will use its best efforts to obtain the release of Shareholder
from any and all personal guarantees previously given by Shareholder to secure
the Company's long-term debt obligations. In the event that the Parent is
unable to obtain such releases from the Company's lenders, the Parent shall
cause the Surviving Corporation to pay off or otherwise retire all of the
Company's indebtedness secured by the personal guarantee of the Shareholder, up
to a maximum of $39,000. To the extent that the pay off amounts necessary to
cause the release of Shareholder's guarantees exceed $39,000, Shareholder agrees
that such excess amounts shall be an adjustment to the Cash Consideration as
provided in Section 3.1 above.
5.8 TAX-FREE REORGANIZATION. During the period from the date of this
Agreement to the Effective Time, unless the other parties shall otherwise agree
in writing, none of the Shareholder, the Parent, the Merger Sub or the Company
shall knowingly take or fail to take any action, which action or failure to act
would jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARENT AND THE MERGER
SUB. The obligations of the Parent and the Merger Sub to effect the Merger
under this Agreement are subject to the satisfaction in all material respects of
each of the following conditions, unless waived by the Parent and the Merger Sub
in writing:
(a) Accuracy of Representations and Warranties. Except for such
changes as are permitted pursuant to Section 5.3 of this Agreement, the
representations and warranties of Shareholder and the Company contained in
this Agreement, in the Company Disclosure Schedule of 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 Shareholder and the Company shall
each have delivered to the Parent and the Merger Sub a certificate to that
effect.
(b) Performance of Covenants. Shareholder and the Company shall have
performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date (except where the
failure to so perform or comply would not have an adverse effect on the
Parent or the Merger Sub or prevent either of them from consummating the
transactions contemplated hereby), and Shareholder and the Company shall
each have delivered to the Parent and the Merger Sub a certificate to that
effect.
(c) Legal Actions or Proceedings. No legal action or proceeding
shall have been instituted after the date hereof against the Company, or
against the Parent arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (1)
JARL Merger Agreement/Page 25
<PAGE>
to restrain, prohibit or invalidate the consummation of the transactions
contemplated by this Agreement, (2) to have a material adverse effect on
the Company or (3) to have a material adverse effect on the results of
operations or financial condition of the Parent and its subsidiaries, taken
as a whole, after giving effect to the consummation of the transactions
contemplated by this Agreement; and Shareholder and the Company shall each
have delivered to the Parent and the Merger Sub a certificate to that
effect.
(d) Approvals. The Company and Shareholder shall have procured all
of the consents, approvals and waivers specified in Section 4.2(f), and
Shareholder and the Company shall each have delivered to the Parent and the
Merger Sub a certificate to that effect.
(e) Shareholders Agreement. Shareholder shall execute and deliver a
counterpart of that certain Shareholders Agreement dated as of October 24,
1996 among the Parent and its shareholders (the "Shareholders Agreement").
(f) Employment Agreement. Shareholder shall execute and deliver an
employment agreement with the Surviving Corporation in substantially the
form set forth in Exhibit B attached hereto (the "Employment Agreement").
(g) Lease Agreement. Shareholder and the Company shall execute and
deliver a lease in substantially the form set forth in Exhibit C attached
hereto (the "Lease Agreement").
(h) Registration Rights Agreement. Shareholder and the Company
shall execute and deliver a Registration Rights Agreement in substantially
the form set forth in Exhibit D attached hereto or in such other form as
the parties may mutually agree (the "Registration Rights Agreement").
(l) Tax Indemnification Agreement. Shareholder and the Parent shall
execute and deliver a Tax Identification Agreement in substantially the
form set forth in Exhibit E attached hereto (the "Tax Indemnification
Agreement").
(j) Elimination of Certain Expenses. Shareholder shall produce
evidence to the satisfaction of the Parent that the expenses of the Company
as described on Exhibit E attached hereto have been or will be eliminated
as expenses of the Company at the Effective Time.
(k) Lender Approval. Parent shall have obtained the consent or
approval of Texas Commerce Bank, N.A., the primary lending institution of
the Parent with respect to the transactions contemplated by this Agreement.
(l) Opinion of Counsel for the Company and Shareholder. The Parent
shall have received the favorable opinion of Cohen & Small dated the
Effective Time, substantially in the form and to the effect set forth in
Exhibit G hereto.
JARL Merger Agreement/Page 26
<PAGE>
(m) Resignations of Directors and Officers. The Parent shall have
received the resignations of all the directors and officers of the Company.
(n) All Proceedings to be Satisfactory. All actions to be taken by
Shareholder and the Company in connection with the consummation of the
transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby shall be satisfactory in form and substance to the
Parent and the Merger Sub and their counsel.
6.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SHAREHOLDER AND THE
COMPANY. The obligations of Shareholder and the Company under this Agreement
are subject to the satisfaction in all material respects or waiver by
Shareholder prior to or on the Closing Date of each of the following conditions:
(a) Accuracy of Representations and Warranties. Except for such
changes as are permitted pursuant to Section 5.3 of this Agreement, the
representations and warranties of the Parent and Merger Sub contained in
this Agreement or in any closing certificate or document delivered to
Shareholder or the Company pursuant hereto shall be true and correct on and
as of the Closing Date as though made at and as of that date other than
such representations and warranties as are specifically made as of another
date, and the Parent and Merger Sub shall have delivered to Shareholder and
the Company a certificate to that effect.
(b) 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 the Closing Date (except where the failure to
so perform or comply would not have a material adverse effect on
Shareholder and the Company or prevent it from consummating the
transactions contemplated hereby), and the Parent and Merger Sub shall have
delivered to Shareholder and the Company a certificate to such effect.
(c) Approvals. The Parent shall have procured all of the consents,
approvals and waivers specified in Section 4.3(f), and Parent shall deliver
to Shareholder and the Company a certificate to that effect.
(d) Release from Guarantee. The Parent shall have taken affirmative
steps to cause the release of Shareholder from any and all personal
guarantees of the Company's indebtedness within 90 days after the Closing
Date in accordance with Section 5.7 above.
(e) Lease Agreement. Shareholder and the Surviving Corporation
shall have executed and delivered the Lease Agreement in substantially the
form set forth in Exhibit C attached hereto.
(f) Registration Rights Agreement. Shareholder and the Parent shall
have executed and delivered the Registration Rights Agreement in
substantially the form set forth in Exhibit D attached hereto or such other
form as the parties mutually agree.
JARL Merger Agreement/Page 27
<PAGE>
(g) All Proceedings to be Satisfactory. Shareholder and their
counsel shall have received all such counterpart originals or certified or
other copies of all documents relating to the Parent incident to the
transactions contemplated hereby as Shareholder or said counsel may
reasonably request and such documents shall be reasonably satisfactory in
form and substance to Shareholder and such counsel.
(h) Opinion of Counsel for The Parent. Shareholder and the Company
shall have received the favorable opinion of Chamberlain, Hrdlicka, White,
Williams & Martin, counsel for the Parent, dated the Closing Date,
substantially in the form and to the effect set forth in Exhibit H hereto.
(i) Legal Actions or Proceedings. No legal action or proceeding
shall have been instituted that is reasonably likely to restrain, prohibit,
violate or otherwise affect the consummation of the transactions
contemplated hereby.
ARTICLE 7
SURVIVAL OF REPRESENTATIONS INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of the parties contained in this Agreement
(except for Section 4.2(u)) shall survive the Closing Date, regardless of any
investigation made by or on behalf of any party, and shall expire and terminate
on the last day of the 24th month after the Effective Time. The representations
and warranties contained in Section 4.2(u) hereof shall not terminate until the
expiration of the applicable statute of limitations (including any extension
thereof) for any claim by a taxing authority for any taxes, penalties or
interest.
7.2 INDEMNIFICATION BY SHAREHOLDER. Shareholder hereby agrees to
indemnify and hold harmless Surviving Corporation and the Parent in respect of
any losses, claims, damages, liabilities or related expenses (including, but not
limited to, all litigation costs, as defined hereafter) which the Surviving
Corporation or the Parent incurs in excess of $5,000 in the aggregate as a
result of (i) the breach of any of the representations, warranties and covenants
made by Shareholder in or pursuant to this Agreement or (ii) any actual
violation or non-compliance with, or remedial obligation arising under, any
environmental laws arising from any event, condition, circumstance, activity,
practice, incident, action or plan relating in any way to that certain real
property located in Pearland, Texas that is referenced on the Company Financial
Statements; provided, however, that in no event shall the aggregate amount of
indemnification hereunder, including amounts paid for attorneys fees and related
expenses, exceed $300,000. The indemnification obligations of Shareholder under
this Section 7.2 shall survive the Closing and will terminate at the time
specified in Section 7.1, except with respect to any indemnity claim or claims
pending on the date of such termination.
7.3 INDEMNIFICATION BY THE SURVIVING CORPORATION AND THE PARENT. The
Parent agrees to indemnify and hold harmless Shareholder in respect of any
losses, claims, damages, liabilities or related expenses (including, but not
limited to, all litigation costs, as defined hereafter) which the Shareholder
incurs in excess of $5,000 in the aggregate as a result of the breach of any of
the
JARL Merger Agreement/Page 28
<PAGE>
representations, warranties and covenants made by the Parent in or pursuant
to this Agreement; provided, however, that in no event shall the aggregate
amount of indemnification hereunder, including amounts paid for attorneys fees
and related expenses, exceed $300,000. The indemnification obligations of the
Parent under this Section 7.3 shall survive the Closing and will terminate at
the time specified in Section 7.1, except with respect to any indemnity claim or
claims pending on the date of such termination.
7.4 NOTICE. Promptly after any party hereto (the "Indemnified Party") has
received notice or has knowledge of the occurrence of any event which the
Indemnified Party asserts is an indemnifiable event or after the commencement of
any action, claim or proceeding commenced against the Indemnified Party by a
third party that might result in any claim for indemnity pursuant to this
Agreement (a "Third Party Claim"), the Indemnified Party shall notify the party
obligated to provide indemnification hereunder (the "Indemnifying Party")
written notice of such claim or the commencement of such action or proceeding.
Promptly after receipt by an Indemnifying Party of any such notice, the
Indemnifying Party shall, within ten business days of receipt of such notice,
either: (i) acknowledge the debt, liability or obligation for which indemnity is
sought as a valid claim and forthwith pay the Indemnified Party an amount
sufficient to discharge such debt, liability or obligation; (ii) in the event of
a Third Party Claim which is not acknowledged by the Indemnifying Party to be
owing, notify the Indemnified Party of the defense thereto and thereupon
promptly assume and diligently contest such Third Party Claim with counsel
satisfactory to the Indemnified Party; or (iii) with respect to a claim other
than a Third Party Claim, in the event of a claim by the Indemnified Party for
indemnity hereunder which is challenged by the Indemnifying Party, notify the
Indemnified Party of such challenge. Failure to respond within the appropriate
time period following the receipt of a notice hereunder shall be deemed
acknowledgment of the right to be indemnified and give rise to the immediate
right in the Indemnified Party to payment in full of the amount claimed.
ARTICLE 8
STOCK TRANSFER RESTRICTIONS
8.1 COMPLIANCE WITH SECURITIES LAWS. Shareholder acknowledges and agrees
with the Parent that the shares of the Parent Stock issued pursuant to the
Merger and this Agreement (the "Restricted Shares") to Shareholder shall not be
transferable except upon the conditions specified in this Article 8, which
conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act and any applicable state securities laws in
respect of the transfer of such Restricted Shares. Shareholder acknowledges and
agrees that the certificates representing the Restricted Shares will contain a
restrictive legend to the effect that transfer of such shares is prohibited
unless the shares are registered under the Securities Act and applicable state
securities laws, or in the event that such transfer is, in the opinion of
counsel to the Parent, exempt from the registration provisions of the Securities
Act and applicable state securities laws.
8.2 RESTRICTIONS ON TRANSFER. Prior to any transfer or attempted transfer
of Restricted Shares other than the sale of such shares pursuant to registration
under the Securities Act, Shareholder agrees to give written notice to the
Parent of his intention to effect such transfer. The notice shall describe the
manner and circumstances of the proposed transfer in detail and shall contain
JARL Merger Agreement/Page 29
<PAGE>
an undertaking to furnish such other information as may be required to enable
the Parent's counsel to render the opinions referred to below, and shall give
the identity and address of the Shareholder's counsel. The Parent shall submit a
copy of the notice to its counsel, and the following provisions shall apply:
(a) If, in the opinion of the Parent's counsel, the proposed transfer
may be effected without registration of the Restricted Shares under the
Securities Act, the Parent shall, as promptly as practicable, so notify
Shareholder who will then be entitled to transfer the Parent Stock in accordance
with the terms of the notice delivered by Shareholder to the Parent.
(b) If, in the opinion of the Parent's counsel, the proposed transfer
of the Parent Stock may not be effected without registration under the
Securities Act, the Parent shall, as promptly as practicable, so notify
Shareholder, and Shareholder shall not be allowed to effect the proposed
transfer except pursuant to an offering registered under the Securities Act.
(c) Shareholder understands and agrees that the Parent is not
obligated to furnish a registration statement under the Act or any state
securities laws covering the Restricted Shares nor is the Parent under any
obligation to aid Shareholder in obtaining any exemption from any such
registration requirements. Shareholder also acknowledges that he shall be
responsible for compliance with all conditions of transfer of the Restricted
Shares imposed by any administrator of any state and for any expenses incurred
by the Parent for legal or accounting services in connection with reviewing such
proposed transfer and issuing opinions in connection therewith.
(d) Shareholder understands and agrees that transfer of the Restricted
Shares may be effected only on the books of the Parent, and that stop transfer
instructions will be issued to the transfer agent of the Parent Common Stock in
accordance with the legend on any certificate representing the Restricted
Shares. The transfer agent will not remove the legend from any certificate
representing the Restricted Shares without either registration of the Restricted
Shares under the Securities Act and applicable state securities laws or an
opinion of the Parent's counsel stating that the transfer of the Restricted
Shares is exempt from such registration requirements and authorizing removal of
the stop transfer instructions.
8.3 OTHER AGREEMENTS. Shareholder acknowledges that certain provisions of
the Shareholders Agreement and the Registration Rights Agreement will contain
additional restriction on Shareholder's rights to transfer the Restricted
shares, and Shareholder understands and agrees that the provisions of this
Article 8 shall apply in addition to, and not as a limitation of, the provisions
of the Shareholders Agreement and the Registration Rights Agreement.
8.4 TAX-FREE REQUIREMENTS. Notwithstanding anything in this Agreement to
the contrary, Shareholder will not effect any disposition of the Parent Common
Stock acquired by him pursuant to this Agreement which disposition would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
JARL Merger Agreement/Page 30
<PAGE>
ARTICLE 9
FURTHER ASSURANCES
9.1 FURTHER ASSURANCES. At any time and from time to time on and after
the Closing Date (a) at the request of the Parent, Shareholder shall deliver to
the Parent any records, documents and data possessed by Shareholder and not
previously delivered to the Parent to which the Parent is entitled and execute
and deliver or cause to be executed and delivered all such deeds, assignments,
consents, documents and further instruments of transfer and conveyance, and take
or cause to be taken all such other actions, as the Parent may reasonably deem
necessary or desirable in order to fully and effectively vest in the Parent, or
to confirm its title to and possession of, the Shares or to assist the Parent in
exercising rights with respect thereto which the Parent is entitled to exercise
pursuant to the terms of this Agreement; and (b) the Parent shall execute and
deliver or cause to be executed and delivered such further instruments and take
or cause to be taken such further actions as Shareholder may reasonably deem
necessary or desirable to carry out the terms and provisions of this Agreement.
9.2 BOOKS AND RECORDS.
(a) The Parent agrees that it shall preserve and keep all books and
records relating to the Company in the Parent's possession until six months
following the expiration of the statute of limitations (including
extensions thereof) applicable to the Tax Returns filed by or with respect
to the Company for taxable periods ending prior to or on the Closing Date
to which such books or records are relevant. Duly authorized
representatives of Shareholder shall, upon reasonable notice, have access
to such books and records during normal business hours to examine, inspect
and copy such books and records.
(b) In any instance in which either a Shareholder or the Parent, as
the case may be, is required to prepare or file (or cause to be filed) Tax
Returns which cover a period that includes the Closing Date or to respond
to an audit by the Internal Revenue Service or other governmental agency
with respect to a period prior to the Closing Date, each Shareholder or the
Parent, as the case may be, will furnish all information and records
reasonably available to it and reasonably requested of him, her or it and
necessary or appropriate for use in preparing such returns or responding to
such audit.
ARTICLE 10
MISCELLANEOUS
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual written consent of Shareholder and the Parent;
(b) by either Shareholder or Parent, if the Closing shall not have
occurred by the 60th calendar day after the date hereof through no fault of
the terminating party; provided,
JARL Merger Agreement/Page 31
<PAGE>
however, that the right to terminate this Agreement under this
Section 10.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement shall have been the cause of,
or shall have resulted in, the failure of the Closing to occur prior to
such date.
10.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 10.1, this Agreement shall forthwith become void and
there shall be no liability on the part of any party hereto, except that (a)
Section 10.3, Section 10.8, Section 10.9, Section 10.10 and Section 10.13 hereof
shall survive such termination and (b) nothing herein shall relieve any party
from liability for any willful breach of any other provision hereof.
10.3 EXPENSES, ETC. Each of the parties will bear their own legal costs
and other expenses incurred in negotiating and preparing this Agreement, the
Schedules, Exhibits or related agreements, or in consummating the transactions
contemplated in this Agreement. The Company will pay any costs associated with
business brokers or advisors engaged by Shareholder. If the Parent's financial
due diligence reveals a material adverse change in the financial condition of
the Company and, as a consequence thereof, the transactions contemplated by this
Agreement are not consummated, the Company will pay the cost of any outside
accountants deemed by the Parent to be necessary to consummate such
transactions. Otherwise, the Parent will pay all such outside accounting or
auditing costs incident to the termination contemplated by this Agreement. Each
of Shareholder, the Company and the Parent will indemnify the other parties, and
hold them harmless from and against any claims for finders' fees or brokerage
commissions in relation to or in connection with such transactions as a result
of any agreement or understanding between such indemnifying party and any third
party.
10.4 EXECUTION IN COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
10.5 NOTICES. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and delivered or mailed by registered or certified
mail postage prepaid, or sent by telex, telecopier, facsimile transmission or
telegraph as follows:
If to the Shareholder, to:
James Willburn
6920 Winton
Houston, Texas 77021
Facsimile No. (713) 747-3221
JARL Merger Agreement/Page 32
<PAGE>
If to the Company, to:
AA JARL, Inc.
6920 Winton
Houston, Texas 77021
Attention: President
Facsimile No. (713) 747-3221
If to the Parent to:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attention: Secretary
Facsimile No. (713) 626-4776
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto. Any notice or other
communication pursuant to this Agreement shall be deemed to have been duly given
or made and to have become effective when delivered in hand to the party to
which directed or if sent by first-class mail postage prepaid or by telex,
telecopier, facsimile transmission or telegraph and properly addressed as set
forth above at the earlier of (a) the time when received by the addressee or (b)
the third business day following the dispatch thereof.
10.6 WAIVERS. Any party hereto (as to itself, but not as to other parties
without their consent) may, by written notice to the other parties hereto, (a)
extend the time for the performance of any of the obligations or other actions
of the other parties under this Agreement; (b) waive any inaccuracies in the
representations or warranties of another party contained in this Agreement or in
any document delivered pursuant to this Agreement; (c) waive compliance with any
of the conditions or covenants of another party contained in this Agreement; or
(d) waive performance of any of the obligations of another party under this
Agreement. Except as otherwise provided in the preceding sentence or Section
5.2 hereof, no action taken pursuant to this Agreement, including without
limitation any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representation, warranty, covenant or agreement contained in this Agreement. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed a waiver of any subsequent breach.
10.7 AMENDMENTS, SUPPLEMENTS, ETC. At any time this Agreement may be
amended or supplemented by such additional agreements, articles or certificates,
as may be determined by the parties hereto to be necessary, desirable or
expedient to further the purposes of the Agreement, or to clarify the intention
of the parties hereto, or to add to or modify the covenants, terms or conditions
hereof or to effect or facilitate any governmental approval or acceptance of
this Agreement or to effect or facilitate the filing or recording of this
Agreement or the consummation of any of the transactions contemplated hereby.
Any such instrument must be in writing and signed by all parties.
JARL Merger Agreement/Page 33
<PAGE>
10.8 ENTIRE AGREEMENT. This Agreement, its Exhibits and Disclosure
Schedules and the documents executed on the Closing Date in connection herewith,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral and written, between the parties hereto with respect to the subject matter
hereof. No representation, warranty, promise, inducement or statement of
intention has been made by any party hereto which is not embodied in this
Agreement or such other documents, and no party hereto shall be bound by, or be
liable for, any alleged representation, warranty, promise, inducement or
statement of intention not embodied herein or therein.
10.9 CHOICE OF FORUM; CONSENT TO JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas.
Any suit, action or proceeding arising with respect to the validity,
construction, enforcement or interpretation of this Agreement, and all issues
relating in any matter hereto, shall be brought in the United States District
Court for the Southern District of Texas, or in the event that federal
jurisdiction does not pertain, in the state courts of the State of Texas in
Harris County. Each of the parties hereto hereby submits and consents to the
jurisdiction of such court for the purpose of any such suit, action or
proceeding and hereby irrevocably waives (a) any objection which any of them may
now or hereafter have to the laying of venue in such courts, and (b) any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
10.10 BINDING EFFECT, BENEFITS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns. Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
10.11 ASSIGNABILITY. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by any party hereto without the prior
written consent of the other parties hereto.
10.12 PUBLIC ANNOUNCEMENTS. The Parent, Shareholder and the Company will
consult with each other before issuing any press release or otherwise making any
public statement with respect to the transactions contemplated herein and shall
not issue any such press release or make any such public statement without the
approval of the other, unless counsel has advised such party that such release
or other public statement must be issued immediately and the issuing party has
not been able, despite its good faith efforts, to secure the prior approval of
the other party.
10.13 INVALID PROVISIONS. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, rule or
regulation, such provision shall be fully severable and this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof. The remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
JARL Merger Agreement/Page 34
<PAGE>
10.14 CONSENT OF SPOUSE. The signature of the spouse of Shareholder
represents that the spouse has read and understands this Agreement and agrees
that its terms are fair and in such spouse's best interest and such spouse
agrees to bind her community interest, if any, in the Parent Common Stock, and
such spouse's heirs, beneficiaries, legal representatives and assigns, to the
terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the date first above written.
THE PARENT
GROUP MAINTENANCE AMERICA CORP.
/s/ J. PATRICK MILLINOR, JR.
By:_____________________________________
J. Patrick Millinor, Jr., President
THE MERGER SUB
JARL ACQUISITION CORP.
/s/ J. PATRICK MILLINOR, JR.
By:_____________________________________
J. Patrick Millinor, Jr. President
SHAREHOLDER
/s/ JAMES WILLBURN
________________________________________
James Willburn (individually)
/s/ MARY ELLEN WILLBURN
________________________________________
Mary Ellen Willburn (individually)
JARL Merger Agreement/Page 35
<PAGE>
THE COMPANY
AA JARL, INC.
/s/ JAMES WILLBURN
By:_____________________________________
James Willburn, President
JARL Merger Agreement/Page 36
<PAGE>
EXHIBIT 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 Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - CLOSING.................................................. 1
Section 1.1 Closing........................................... 1
ARTICLE II - PURCHASE AND SALE....................................... 1
Section 2.1 Purchased Assets and Excluded Assets.............. 1
Section 2.2 Purchase Price.................................... 2
Section 2.3 Additional Consideration.......................... 2
Section 2.4 Allocation Reporting.............................. 3
Section 2.5 Mail Received After Closing....................... 3
ARTICLE III - LIABILITIES AND OBLIGATIONS............................ 3
Section 3.1 Obligations Assumed............................... 3
Section 3.2 Liabilities and Obligations Not Assumed........... 4
Section 3.3 Warranty Performance.............................. 5
Section 3.4 Use of Name....................................... 5
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SELLER................ 6
Section 4.1 Corporate Status and Good Standing................ 6
Section 4.2 Authorization..................................... 6
Section 4.3 Non-Contravention................................. 6
Section 4.4 Validity.......................................... 6
Section 4.5 Broker Involvement................................ 6
Section 4.6 Litigation........................................ 6
Section 4.7 Title............................................. 7
Section 4.8 Contracts......................................... 7
Section 4.9 Delivery of Purchased Assets...................... 7
Section 4.10 Condition of Assets and Inventory................. 7
Section 4.11 Liabilities....................................... 7
Section 4.12 No Material Change................................ 7
Section 4.13 Ownership......................................... 8
Section 4.14 Compliance With Law............................... 8
Section 4.15 WARN Act Notices.................................. 8
Section 4.16 Taxes............................................. 8
Section 4.17 Investment Intention.............................. 8
Section 4.18 Disclosure........................................ 8
Section 4.19 Environmental Laws................................ 8
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 4.20 COBRA Notices.................................... 9
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER................. 9
Section 5.1 Corporate Status and Good Standing............... 9
Section 5.2 Authorization.................................... 9
Section 5.3 Non-Contravention................................ 9
Section 5.4 Validity......................................... 9
Section 5.5 Broker Involvement............................... 10
Section 5.6 Delivery of Parent Common Stock.................. 10
Section 5.7 Maintenance of Accounting and Financial Records.. 10
ARTICLE VI - COVENANTS.............................................. 10
Section 6.1 Employees........................................ 10
Section 6.2 Failure to Obtain Consents....................... 10
Section 6.3 Further Assistance............................... 10
Section 6.4 Consents......................................... 10
Section 6.5 Tax Returns...................................... 11
Section 6.6 Access to Books and Records...................... 11
ARTICLE VII - INDEMNIFICATION....................................... 11
Section 7.1 Seller's Indemnity Obligations.................. 11
Section 7.2 Buyer's Indemnity Obligations.................... 12
Section 7.3 Basket........................................... 12
Section 7.4 Indemnification Procedures....................... 12
Section 7.5 Arbitration of Disputes.......................... 14
ARTICLE VIII - ACTIONS BEING TAKEN AT CLOSING....................... 14
Section 8.1 Actions Being Taken by Seller at the Closing..... 14
Section 8.2 Actions Being Taken by Buyer at the Closing...... 15
ARTICLE IX - GENERAL PROVISIONS..................................... 15
Section 9.1 Confidentiality.................................. 15
Section 9.2 Expenses......................................... 16
Section 9.3 Entire Agreement................................. 16
Section 9.4 Waivers and Consents............................. 16
Section 9.5 Notices.......................................... 16
Section 9.6 Successors and Assigns........................... 16
Section 9.7 Compliance with Bulk Sales Laws.................. 17
Section 9.8 Covenant Not to Compete.......................... 17
</TABLE>
-iii-
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made this 24th day of June,
1997, by and among Hallmark Air Conditioning, Inc., a Texas corporation
("Buyer"), and Way Service, Inc., a Texas corporation ("Seller").
WHEREAS, Buyer wishes to purchase from Seller and Seller wishes to sell,
transfer, assign and deliver to Buyer certain of Seller's assets;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements stated herein, the parties agree as
follows:
ARTICLE I
CLOSING
Section 1.1 Closing. The closing of the purchase and sale provided for
-------
herein (the "Closing") is taking place on June 24, 1997 ("Closing Date"), at the
offices of Bracewell & Patterson, L.L.P., Houston, Texas, concurrently with the
execution and delivery hereof.
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchased Assets and Excluded Assets. Subject to the terms
------------------------------------
and conditions of this Agreement, and on the basis of the representations,
warranties and indemnities hereinafter set forth, at the Closing, Seller is
selling, transferring, conveying, assigning and delivering to Buyer, and Buyer
is purchasing from Seller, the following assets, properties and rights of Seller
(collectively, the "Purchased Assets"):
(a) All inventories of finished products, work in process, raw
materials, supplies and packing and shipping material used in the business
of Seller (the "Business"), a listing of which as of June 18, 1997, has
been delivered to Buyer prior to the date hereof (collectively, the
"Inventory");
(b) All tools, equipment, machinery, dies, patterns, furniture,
fixtures, store equipment, automobiles, trucks, service equipment, computer
equipment and leasehold
<PAGE>
improvements used in the Business (the "Fixed Assets"), a listing of which
is attached as 1 Schedule 2.1(b);
(c) The contracts and agreements listed on 1 Schedule 2.1(c) (the
"Contracts");
(d) All rights of Seller under express or implied warranties, if any,
from the suppliers of Seller, manufacturers or others with respect to the
Purchased Assets; and
(e) All customer and supplier lists, information and data relating to
the Business.
Notwithstanding the foregoing, the Purchased Assets shall not include, and Buyer
will not purchase, (i) any insurance policies or insurance contracts, (ii) the
minute books and stock records of Seller, (iii) tax refunds applicable to
periods prior to the Closing, (iv) notes or accounts receivable, (v) deposits,
cash, and cash equivalents or (vi) any other assets of Seller which are not
Purchased Assets.
Section 2.2 Purchase Price. The purchase price being paid at the Closing
--------------
for the Purchased Assets (the "Purchase Price") is $16,500 in cash and 12,858
shares of common stock, $.001 par value ("Parent Common Stock"), of Group
Maintenance America Corp., Buyer's parent corporation ("Parent"), and the right
to the additional consideration provided in Section 2.3 below.
Section 2.3 Additional Consideration. If the gross revenues derived by
------------------------
the Buyer from the acquired customers for the period ending on the first
anniversary of the Closing Date (the "Consideration Period") equals or exceeds
$XXX, Seller shall be entitled to receive from Buyer, within thirty (30)
days after the last day of the Consideration Period, additional purchase price
consideration in the amount of $XXX. Such consideration shall be payable in
cash. In addition, within 90 days following the last day of each of the fiscal
quarters ending September 30, 1997, December 31, 1997, March 31, 1998, and June
30, 1998, Buyer shall deliver or cause to be delivered to Seller the "Earned
Shares of Parent Common Stock" for such fiscal quarter. The "Earned Shares of
Parent Common Stock" for any such quarter shall mean that number of shares of
Parent Common Stock which have an aggregate "Stock Value" equal to XXX% of the
gross revenues of the Business for such quarter, determined in accordance with
generally accepted accounting principles consistently applied. The term "Stock
Value" means the average of the daily closing prices (or if no closing price is
reported, the average of the daily closing bid and asked prices) of a share of
the Parent Common Stock for the ten consecutive trading days ending on and
including the date which is three trading days prior to the end of such quarter
on the principal national securities exchange if any, on which such shares are
admitted for trading, on the National Association of Securities Dealers, Inc.
National Market System if such shares are quoted thereon or, if such shares are
not quoted thereon, in the over-the-counter market in the United States on which
such shares are publicly traded; provided that if the Parent Common Stock is not
then admitted to trading on any national securities exchange or quoted on the
National Association of Securities Dealers, Inc. National
-2-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
Market System or otherwise traded in the over-the-counter market, the term
"Stock Value" shall mean the value of a share of Parent Common Stock as of the
last day of such quarter as reasonably determined by the Board of Directors of
Parent.
Notwithstanding the foregoing, Seller may elect, by written notice to Buyer at
least ten trading days prior to the end of such quarter, to receive payment of
such Stock Value in cash in lieu of shares of Parent Common Stock.
In the event Parent effects an underwritten initial public offering of Parent
Common Stock for cash resulting in net proceeds to Parent of at least $20
million (the "IPO") within one year from the date hereof, and the gross price to
the public of a share of Parent Common Stock in the IPO, as set forth in an
executed underwriting agreement (the "IPO Price to the Public") is less than
$7.00 (adjusted for stock splits, reverse stock splits and stock dividends
occurring after the date hereof), Buyer shall deliver to Seller, within 30 days
after the closing of the IPO, that number of shares of Parent Common Stock
(rounded to the nearest whole share) which, when added to the number of shares
of Parent Common Stock delivered to Seller pursuant to Section 2.2 (adjusted for
stock splits, reverse splits and stock dividends occurring after the date
hereof) will result in a total value of Parent Common Stock of $90,006, assuming
each share of Parent Common Stock is valued at the IPO Price to the Public.
Section 2.4 Allocation Reporting. Buyer and Seller agree to report the
--------------------
allocation of the Purchase Price among the Purchased Assets as Buyer shall
determine. Buyer shall advise Seller of such determination on or before
September 30, 1997.
Section 2.5 Mail Received After Closing. Following the Closing Buyer may
---------------------------
receive and open all mail addressed to Seller and, to the extent that such mail
and the contents thereof relate to the Business or the Purchased Assets, deal
with the contents thereof at its discretion. Buyer shall notify Seller of (and
provide Seller complete copies of) any mail that on its face obliges any Seller
Party to take any action or indicates that action may be taken against any of
them and any mail applicable solely to Seller or the Excluded Assets.
ARTICLE III
LIABILITIES AND OBLIGATIONS
Section 3.1 Obligations Assumed. As part of the consideration for the
-------------------
Purchased Assets, and subject to Section 3.2, Buyer shall assume Seller's
obligations that accrue after the Closing Date under Contracts listed in
Schedule 2.1(c), if, but only if, they are assigned or transferred to Buyer, or
they are subject to the provisions of Section 6.2.
-3-
<PAGE>
Section 3.2 Liabilities and Obligations Not Assumed. Other than as
---------------------------------------
specifically set forth in Section 3.1 above, Buyer assumes no obligation
whatsoever of Seller under or in connection with any contract between Seller and
any third party or otherwise. Furthermore, except as specifically set forth in
Section 3.1 above, Buyer expressly disclaims the assumption of, and does not
assume, any liability of any type whatsoever of Seller or in connection with any
of Seller's assets or business operations, including without limitation (i) any
and all tax liabilities accruing on or before the Closing Date in connection
with any Purchased Asset, the Excluded Assets or otherwise, and any and all tax
liabilities accruing on or after the Closing Date in connection with the
ownership, operation or disposition of any Excluded Assets, (ii) any and all
liabilities arising from or under any environmental laws, including but not
limited to federal environmental statutes (and associated rules and regulations)
such as the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.)
("RCRA"), the Comprehensive Environmental Response, Compensation, and Liability
Act (42 U.S.C. (S) 9601 et seq.) ("CERCLA"), Superfund, Clean Air Act, Clean
Water Act, Safe Drinking Water Act, Community Right to Know Act, or OSHA, or
otherwise, or any similar state or local environmental laws, rules or
regulations (collectively, the "Applicable Environmental Laws"), (iii) any and
all liabilities in connection with any claim by any person, entity or agency
claiming to have suffered any environmental damage or harm of any type,
including any actual or alleged damage or harm to groundwater, surface water,
well water, ground, soil, or the atmosphere, or otherwise relating to any
Specified Substance (as hereafter defined), (iv) any and all employment or
personnel-related liabilities whatsoever of Seller arising out of any liability
under any employment contract, liability for wages or salary, liability for
bonuses or commissions, liability for severance (including without limitation as
a result of this transaction), OSHA liability, liability for disabled
individuals, workers' compensation liability, ERISA obligations or liability,
WARN Act liability, sick pay, vacation accruals, or similar matters, liability
under any profit sharing plan, liability under any pension plan or savings plan,
liability under any welfare benefit plan, or liability for any claims alleging
illegal discrimination of any type, (v) any account payable, indebtedness,
letter of credit, guaranty, note or obligation of Seller other than the
obligations assumed under Section 3.1., (vi) any liability or obligation
(contingent or otherwise) of Seller arising out of any claim, litigation or
proceeding threatened or pending on or before the Closing Date or out of any
claim, litigation or proceeding threatened or initiated after the Closing Date
to the extent based on or caused by any act or omission occurring, or condition
or circumstances existing, prior to the Closing Date with respect to the
Purchased Assets (or prior to, on or after the Closing Date with respect to the
Excluded Assets or any other business or operations of Seller or its
predecessors), or any condition caused by any act or omission occurring prior to
the Closing Date with respect to the Purchased Assets (or prior to, on or after
the Closing Date with respect to the Excluded Assets or any other business or
operations of Seller or its predecessors), or any product sold or manufactured
by Seller or a service provided by Seller (including all product liability and
warranty claims and product returns with respect thereto), and (vii) any
liability or obligation (contingent or otherwise) of Seller arising out of any
claim, litigation or proceeding threatened or pending on or before the Closing
Date or out of any claim, litigation or proceeding threatened or initiated after
the Closing Date to the extent based on or caused by any act or omission
occurring, or condition or
-4-
<PAGE>
circumstances existing, prior to the Closing Date with respect to the assets,
business or operations of Seller or its predecessors.
Section 3.3 Warranty Performance. For the period during which the
--------------------
existing warranty obligations of Seller are in effect, if any customer of Seller
is entitled, pursuant to such obligations to, and does, seek warranty work on
any item sold by Seller prior to Closing, Buyer shall have the right (but not
the obligation) to provide such warranty work on such item for Seller's account.
Seller, when provided with a bona fide warranty document, shall pay Buyer for
such work based on the following criteria:
(a) Labor shall be reimbursed at the rate of 125% of the Buyer's cost
for burdened labor. The cost of burdened labor for fiscal 1997 will be
$25.00 per hour.
(b) Labor hours to be reimbursed will be based on the repair hours
for the specific tasks performed as stipulated in the most current edition
of Customer Assured Pricing, Managers Reference, published by
--------------------------------------------
Callahan/Roach Products and Publications.
(c) Material and equipment not covered by manufacturer's warranty but
covered by Seller's warranty shall be reimbursed at Buyer's invoiced cost.
(d) All warranty work covered by manufacturer's warranty will be
reimbursed directly to Buyer by the manufacturer.
(e) If any warranty work should not meet the above criteria or be
estimated to exceed $350 for labor and/or $200 for material or equipment,
Buyer shall not proceed with the work until Buyer has given Seller the
option to perform the warranty work itself.
(f) Buyer shall provide Seller a monthly reconciliation of warranty
work performed, including documentation of warranty obligation, labor
hours, and material and equipment costs. Seller shall reimburse Buyer
promptly upon receipt of bona fide invoice and documentation.
Section 3.4 Use of Name. Seller hereby grants to Buyer the right and
-----------
license to use the name "Way Residential Services" for a period of twelve months
from the date hereof.
-5-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer the following:
Section 4.1 Corporate Status and Good Standing. Seller is a corporation
----------------------------------
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, with full corporate power and authority under its
charter and by-laws to own and lease its properties and to conduct its business.
Seller is duly qualified to do business as a foreign corporation in all states
in which the nature of its business requires such qualification and the failure
to do so would have an adverse effect on the Purchased Assets.
Section 4.2 Authorization. Seller has full corporate power and authority
-------------
under its charter and by-laws, and its board of directors and shareholders have
taken all necessary action to authorize it, to execute and deliver this
Agreement and the exhibits and schedules hereto, to consummate the transactions
contemplated herein and to take all actions required to be taken by it pursuant
to the provisions hereof. This Agreement constitutes the valid and binding
obligation of Seller enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, moratorium,
reorganization or similar laws affecting the rights of creditors generally.
Section 4.3 Non-Contravention. Neither the execution and delivery of
-----------------
this Agreement or any documents executed in connection herewith, nor the
consummation of the transactions contemplated herein, does or will violate,
conflict with, result in breach of or require notice or consent under any law,
the charter or bylaws of Seller or any provision of any agreement or instrument
to which Seller is a party.
Section 4.4 Validity. There are no pending or threatened judicial or
--------
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by Seller in
connection with this Agreement.
Section 4.5 Broker Involvement. Seller has not hired, retained or dealt
------------------
with any broker or finder in connection with the transactions contemplated by
this Agreement.
Section 4.6 Litigation. Except as set forth on Schedule 4.6 attached
----------
hereto, there is no investigation, claim or proceeding or litigation of any type
pending or, to the best knowledge of Seller, threatened against Seller involving
any Purchased Asset or that might have an adverse effect on Buyer as the owner
of any Purchased Asset, and there is no judgment, order, writ, injunction or
decree of any court, government or governmental agency, or arbitral tribunal
against or involving Seller or any Purchased Asset that might have an adverse
effect on Buyer as the owner of any Purchased Asset.
-6-
<PAGE>
Section 4.7 Title. Seller is the true and lawful owner of the Purchased
-----
Assets, free and clear of any and all liens, encumbrances, mortgages, options,
security interests, restrictions, liabilities, pledges and assignments of any
kind, and Seller has the full right to sell and transfer to Buyer good and
marketable title to Purchased Assets, free and clear of any and all liens and
encumbrances of any nature or description. The delivery to Buyer of the
instruments of transfer of ownership contemplated by this Agreement will vest
good and marketable title to Purchased Assets in Buyer, free and clear of all
liens and encumbrances of any nature or description.
Section 4.8 Contracts. Each Contract is a valid, binding and enforceable
---------
agreement of Seller and, to the best knowledge of Seller, the other parties
thereto. Seller is not in breach of or default under any Contract, and to the
best knowledge of Seller, there has not occurred any breach or default under any
Contract on the part of the other parties thereto, and no event has occurred
which with the giving of notice or the lapse of time, or both, would constitute
a default under any Contract. There is no dispute between the parties to any
Contract as to the interpretation thereof or as to whether any party is in
breach or default thereunder, and no party to any Contract has indicated its
intention to, or suggested it may evaluate whether to, terminate any Contract.
Seller is not bound to any covenant or obligation of any nature limiting its
freedom of to compete in any line of business which will be binding on Buyer
after the Closing.
Section 4.9 Delivery of Purchased Assets. All Purchased Assets are being
----------------------------
delivered to Buyer on the Closing Date.
Section 4.10 Condition of Assets and Inventory. Each of the tangible
---------------------------------
Purchased Assets is in good, serviceable condition, subject only to normal
maintenance requirements and normal wear and tear reasonably expected in the
ordinary course of business. All items of Inventory are marketable or (in the
case of raw materials, supplies and work in process) suitable and useable for
the production or completion of merchantable products, for sale in the ordinary
course of business as first quality goods at normal mark-ups, none of such items
is below standard quality, and none of such Inventory is excess or obsolete
inventory.
Section 4.11 Liabilities. There is no existing, contingent or threatened
-----------
liability, obligation, lien or claim of any nature (absolute, accrued,
contingent or otherwise) that relates to or has been or may be asserted against
Seller or the Purchased Assets for which Buyer or the Purchased Assets may be
obligated or to which any of them may be subject after the Closing.
Section 4.12 No Material Change. There has been no material adverse
------------------
change in the Purchased Assets or their value from June 18, 1997, to and
including the Closing Date, and no event has occurred of which Seller is aware
which could be expected to lead to or cause such a material adverse change.
-7-
<PAGE>
Section 4.13 Ownership. All of the issued and outstanding capital stock
---------
of Seller is owned by WEHCO, Inc.
Section 4.14 Compliance With Law. Seller is not in violation of any
-------------------
provision of any law, decree, order, regulation, license, permit, consent,
approval, authorization or qualification, including, without limitation, those
relating to health, the environment or Specified Substances, and Seller has not
received any notice of any alleged violation of such law, decree, order,
regulation, license, permit, consent, approval, authorization or qualification.
Section 4.15 WARN Act Notices. Any notice required under the Federal
----------------
Workers Adjustment and Retraining Notification Act ("WARN Act") that is, has
been or will be required of Seller to its employees or former employees by
reason of its obligations under the WARN Act resulting from the transactions
contemplated by this Agreement has been or will be given by Seller.
Section 4.16 Taxes. Seller has caused to be timely filed with appropriate
-----
federal, state, local and other governmental authorities all tax returns,
information returns or statements and reports ("Tax Returns") required to be
filed with respect to the Purchased Assets, Seller's operations or the conduct
of the Business, and has paid or caused to be paid all taxes due with respect
thereto, except for taxes which Seller is contesting in good faith. Seller has
neither received nor has knowledge of any notice of deficiency or assessment or
proposed deficiency or assessment with respect to any of the Purchased Assets,
Seller's operations or the conduct of the Business from any taxing authority,
and there are no outstanding agreements or waivers that extend any statutory
period of limitations applicable to any federal, state or local income or
franchise Tax Returns that include or reflect the use and operation of the
Purchased Assets, Seller's operations or the conduct of the Business. There are
no assessments against, or to the best knowledge of Seller, threatened audits
of, Seller with respect to taxes that may be asserted against Seller. Seller is
not a party to any action or proceeding by any governmental authority for the
collection or assessment of taxes. The transactions contemplated hereby qualify
as an "occasional sale" under Section 151.304 of the Texas Tax Code.
Section 4.17 Investment Intention. Seller is acquiring and will acquire
--------------------
the Parent Common Stock hereunder for investment, solely for its own account and
not with a view to, or for resale in connection with, the distribution or other
disposition thereof.
Section 4.18 Disclosure. All schedules to this Agreement are complete and
----------
accurate. No representation or warranty by Seller in this Agreement or in any
schedule or exhibit to this Agreement, or in any statement or certificate or
other document furnished to Buyer by Seller or any representative of Seller
contains or will contain any untrue statement of a material fact or omits or
will omit a material fact necessary to make the statements therein not
misleading.
Section 4.19 Environmental Laws. Without limiting Section 4.14 above,
------------------
neither the Purchased Assets nor Seller are currently in violation of or subject
to (i) any existing, pending or
-8-
<PAGE>
threatened investigation or inquiry by any governmental authority or (ii) any
remedial obligations under any Applicable Environmental Laws and this
representation and warranty would continue to be true and correct following
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to the Purchased Assets.
Section 4.20 COBRA Notices. Seller has performed all notice obligations
-------------
under Section 4980B of the Internal Revenue Code of 1986, as amended, or under
Section 601 through 608 of the Employee Retirement Income Security Act of 1974,
as amended, and which are required to be performed on or prior to the Closing
Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller the following:
Section 5.1 Corporate Status and Good Standing. Buyer is a corporation
----------------------------------
duly organized, validly existing and in good standing under the laws of Texas,
with full corporate power and authority under its articles of incorporation and
by-laws to conduct its business as the same exists on the date hereof and on the
Closing Date.
Section 5.2 Authorization. Buyer has full corporate power and authority
-------------
under its articles of incorporation and by-laws, and its board of directors has
taken all necessary action to authorize Buyer to execute and deliver this
Agreement and the exhibits and schedules hereto, to consummate the transactions
contemplated herein and to take all actions required to be taken by Buyer
pursuant to the provisions hereof, and this Agreement constitutes the valid and
binding obligation of Buyer enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, moratorium,
reorganization or similar laws affecting the rights of creditors generally.
Section 5.3 Non-Contravention. Neither the execution, delivery and
-----------------
performance of this Agreement or any documents executed in connection herewith,
nor the consummation of the transactions contemplated herein, does or will
violate, conflict with or result in breach of or require notice or consent under
any law, the charter or bylaws of Buyer or any provision of any agreement or
instrument to which Buyer is a party.
Section 5.4 Validity. There are no pending or threatened judicial or
--------
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by Buyer in
connection with this Agreement.
-9-
<PAGE>
Section 5.5 Broker Involvement. Buyer has not hired, retained or dealt
------------------
with any broker or finder in connection with the transactions contemplated by
this Agreement.
Section 5.6 Delivery of Parent Common Stock. The Parent Common Stock to
-------------------------------
be delivered to Seller by Buyer pursuant hereto at the Closing has been, and the
Parent Common Stock to be delivered to Seller pursuant to Section 2.3 will be,
when delivered, validly authorized, duly issued, fully-paid and non-assessable.
Section 5.7 Maintenance of Accounting and Financial Records. Buyer
-----------------------------------------------
agrees to maintain separate accounting and financial records and systems for the
Business for each of the fiscal quarters referred to in Section 2.3 which are
sufficient to permit Seller to verify the gross revenues of the Business for
such fiscal quarters and to provide to Seller, within 90 days after the end of
each of such fiscal quarters, a financial report showing the gross revenues of
the Business for such fiscal quarter. Buyer shall maintain such records for a
period of at least two years after the Closing Date.
ARTICLE VI
COVENANTS
Section 6.1 Employees. At the Closing, Seller will pay its employees
---------
all amounts due them (including, without limitation, on account of vacation pay
and severance), and shall pay all health claims for such employees when and as
the same became due under the WEHCO, Inc. health insurance programs. The
provisions of this Agreement are for the benefit of Buyer only, and no employee
of Seller or any other person shall have any rights hereunder.
Section 6.2 Failure to Obtain Consents. In the event any consent to the
--------------------------
assignment of any Contract is required in connection with the transactions
contemplated hereby has not been obtained, then until such consent is obtained,
Seller and Buyer shall cooperate in any arrangement reasonably satisfactory to
the parties designed to fulfill Seller's obligations thereunder and to afford
Buyer the benefits thereof; so long as Seller is reimbursed by Buyer for any
costs associated with such arrangements.
Section 6.3 Further Assistance. Seller shall execute and deliver to
------------------
Buyer, at Closing or thereafter, any other instrument which may be requested by
Buyer and which is reasonably appropriate to perfect or evidence any of the
sales, assignments, transfers or conveyances contemplated by this Agreement or
to transfer any Purchased Assets identified after Closing.
Section 6.4 Consents. After the Closing, Seller will, upon request of
--------
Buyer, use its reasonable commercial efforts to obtain any consents required in
connection with the transactions contemplated hereby that are requested by Buyer
and that have not been previously obtained.
-10-
<PAGE>
Section 6.5 Tax Returns. Seller shall duly file or cause to be filed
-----------
all tax returns related to taxes of any nature with respect to the Business or
the Purchased Assets for all periods ending on or prior to the Closing Date and
pay all taxes due with respect to such periods.
Section 6.6 Access to Books and Records. During the five years after
---------------------------
the date hereof (the "Access Period"), Seller shall maintain in a reasonably
accessible location all books, records, correspondence, files, customer and
vendor lists and other data (collectively, the "Business Records") used in or
related to the Business and shall afford the officers, employees and authorized
agents and representatives of Buyer access thereto during normal business hours
and the right to copy any thereof at Buyer's expense. Seller shall notify Buyer
prior to disposing of any such Books and Records after the Access Period has
expired and, upon request made by Buyer within sixty (60) days after receipt of
such notice, Seller shall deliver such Books and Records to Buyer at Buyer's
expense.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Seller's Indemnity Obligations. Seller shall indemnify and
-------------------------------
hold Buyer (including its officers, directors, employees and agents) harmless
from and against any and all claims, actions, causes of action, arbitrations,
proceedings, losses, damages, liabilities, judgments and expenses (including,
without limitation, reasonable attorneys' fees) ("Indemnified Amounts") incurred
by Buyer as a result of (a) any error, inaccuracy, breach or misrepresentation
in any of the representations and warranties made by or on behalf of Seller in
this Agreement, (b) any violation or breach by Seller of or default by Seller
under the terms of this Agreement, (c) any act or omission occurring, or
condition or circumstances existing, prior to the Closing Date, or any condition
or circumstances caused by any act or omission occurring prior to the Closing
Date, by Seller or with respect to the Purchased Assets or the Business, (d) the
past or present presence, remediation or clean-up of, or exposure to, Specified
Substances (as defined below) relating to or located on, within or under the
Purchased Assets, (e) any product liability claims concerning (i) products sold
by Seller prior to the Closing Date or (ii) finished Inventory, and (f) any
debts, liabilities or obligations of Seller, direct or indirect, fixed,
contingent or otherwise, that are not expressly assumed by Buyer under Section
3.1 of this Agreement.
The representations and warranties of Seller in this Agreement, other than
those in Sections 4.2, 4.7, 4.16 and 4.19 shall expire upon the third
anniversary of the Closing Date, and the representations and warranties of the
Seller Parties in Sections 4.2, 4.7, 4.16, and 4.19 shall survive for the
maximum period permitted by applicable law; provided, that if a claim has been
made with respect to a breach of a representation or warranty prior to the
expiration thereof, and such claim has
-11-
<PAGE>
not been finally resolved as of the expiration thereof, such representation or
warranty shall survive until the final resolution of such claim.
"Specified Substances" means any pollutant, toxic substance, asbestos,
hazardous waste, or any constituent of any such substance, waste or product,
whether solid, liquid or gaseous in form, described in or regulated under RCRA,
CERCLA, Super Fund or under any other federal, state or local law, statute,
ordinance, rule, regulation, order, judicial decision, arbitration decision or
determination of any governmental authority, and shall include petroleum,
natural gas, natural gas liquids, crude oil and any fraction or product thereof.
Section 7.2 Buyer's Indemnity Obligations. Buyer shall indemnify and
-----------------------------
hold Seller (including its officers, directors, employees and agents) harmless
from and against any and all Indemnified Amounts incurred by Seller as a result
of (a) any error, inaccuracy, breach or misrepresentation in any of the
representations and warranties made by or on behalf of Buyer in this Agreement,
(b) any violation or breach by Buyer of or default by Buyer under the terms of
this Agreement, (c) (except to the extent Section 7.1 applies) any act or
omission occurring after the Closing Date, or any condition or circumstances
caused by any act or omission occurring after the Closing Date, by Buyer or with
respect to the Purchased Assets, (d) (except to the extent Section 7.1 applies)
any product liability claims concerning products manufactured, or purchased from
third parties and resold, by Buyer after the Closing Date, and (e) any
liabilities or obligations of Seller expressly assumed by Buyer under Section
3.1 of this Agreement.
The representations and warranties of Buyer in this Agreement, other than
the representations and warranties in Section 5.2, shall expire upon the third
anniversary of the Closing Date, and the representations and warranties of Buyer
in Section 5.2 shall survive for the maximum period permitted by applicable law;
provided that if a claim has been made with respect to a breach of a
representation or warranty prior to the expiration thereof, and such claim has
not been mutually resolved as of such expiration, such representation or
warranty shall survive until the final resolution of such claim.
Section 7.3 Basket. No party shall be liable under this Article VII for
------
the breach of any representation or warranty until the aggregate amount of such
liability (for all such claims) exceeds $25,000 (the "Basket Amount"); but once
the Basket Amount has been met, such party shall be liable for all such
liability in excess of the Basket Amount. Seller shall not be liable under this
Article VII for breach of any representation or warranty for an aggregate amount
in excess of $100,000.
Section 7.4 Indemnification Procedures. All claims for indemnification
--------------------------
under this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall with reasonable promptness (i) notify the party
from whom indemnification is
-12-
<PAGE>
sought (the "Indemnifying Party") of any third-party claim or claims
asserted against the Indemnified Party ("Third Party Claim") for which
indemnification is sought and (ii) transmit to the Indemnifying Party a
copy of all papers served with respect to such claim (if any) and a written
notice ("Claim Notice") containing a description in reasonable detail of
the nature of the Third Party Claim, an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which
estimate shall not be conclusive of the final amount of such claim) and the
basis of the Indemnified Party's request for indemnification under this
Agreement.
Within 20 days after receipt of any Claim Notice (the "Election
Period"), the Indemnifying Party shall notify the Indemnified Party whether
the Indemnifying Party disputes its potential liability to the Indemnified
Party with respect to such Third Party Claim.
If the Indemnifying Party does not dispute its potential liability to
the Indemnified Party within the Election Period, the Indemnified Party
shall give the Indemnifying Party an opportunity to control negotiations
toward resolution of such claim without the necessity of litigation, and if
litigation ensues, to defend the same with counsel reasonably acceptable to
the Indemnified Party, at the Indemnifying Party's expense, and the
Indemnified Party shall extend reasonable cooperation in connection with
such defense. The Indemnified Party shall be entitled to participate in,
but not to control, the defense of any Third Party Claim resulting in
litigation, at its own cost and expense; provided, however, that if the
parties to any suit or proceeding shall include the Indemnifying Party as
well as the Indemnified Party and the Indemnified Party shall have been
advised by counsel that one or more legal defenses may be available to it
that may not be available to the Indemnifying Party, then the Indemnified
Party shall be entitled to participate in the defense of such suit or
proceeding along with the Indemnifying Party, but the Indemnified Party
shall be obligated to bear the fees and expenses of counsel of the
Indemnified Party, which shall be selected by the Indemnified Party in its
complete and sole discretion. If the Indemnifying Party does not dispute
its potential liability to the Indemnified Party within the Election Period
and the Indemnifying Party fails to assume control of the negotiations
prior to litigation or to defend such action within a reasonable time, the
Indemnified Party shall be entitled, but not obligated, to assume control
of such negotiations or defense of such action, and the Indemnifying Party
shall be liable to the Indemnified Party for its expenses reasonably
incurred or amounts paid in connection therewith. If the Indemnifying
Party disputes its potential liability to the Indemnified Party within the
Election Period, then the Indemnified Party shall be entitled to assume
control of such negotiations or defense of action and the liability for the
expense thereof, as well as any liability with respect to such Third Party
Claim, shall be determined as provided in Section 7.5 below. Neither the
Indemnifying Party nor the Indemnified Party shall settle, compromise, or
make any other disposition of any
-13-
<PAGE>
Third Party Claim which would or might result in any liability to the
Indemnified Party or the Indemnifying Party under this Article VII without
the written consent of such other party.
(b) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder that does not involve a Third Party Claim,
the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature
of the claim, an estimate of the amount of damages attributable to such
claim to the extent feasible (which estimate shall not be conclusive of the
final amount of such claim) and the basis of the Indemnified Party's
request for indemnification under this Agreement. If the Indemnifying Party
does not notify the Indemnified Party within 20 days from its receipt of
the Indemnity Notice that the Indemnifying Party disputes such claim, the
claim specified by the Indemnified Party in the Indemnity Notice shall be
deemed a liability of the Indemnifying Party hereunder.
Section 7.5 Arbitration of Disputes. If the Indemnifying Party
-----------------------
disputes, either as to the amount or liability, that any claim described in a
Claim Notice or an Indemnity Notice, as the case may be, is covered by such
Indemnifying Party's covenant to indemnify contained in this Article VII, then
the Indemnifying Party and the Indemnified Party agree to promptly negotiate in
good faith to resolve their differences and to mutually agree upon an amount (an
"Agreed Amount"), if any, owed to Indemnified Party by the Indemnifying Party
hereunder. If Indemnifying Party and Indemnified Party fail to agree within 30
days thereafter, the dispute shall be resolved (a "Final Determination") by
binding and final arbitration of a single arbitrator mutually agreed to by Buyer
and Seller conducted in Houston, Texas in accordance with the rules of
commercial arbitration of the American Arbitration Association. The Prevailing
Party in any such arbitration proceeding shall be entitled to attorney's fees
and other out-of-pocket expenses reasonably and necessarily incurred in
connection with such proceeding, the amounts of which shall be contained in the
award of the arbitrator. Any amount which is described in a Claim Notice which
is not disputed by the Indemnifying Party shall be paid promptly in cash upon
receipt of the Claim Notice by the Indemnifying Party.
ARTICLE VII
ACTIONS BEING TAKEN AT CLOSING
Section 8.1 Actions Being Taken by Seller at the Closing. Seller is
--------------------------------------------
taking the following actions at the Closing:
(a) Seller is delivering to Buyer copies certified by its Secretary
of resolutions duly adopted by its board of directors and by its sole
shareholder authorizing and approving the execution and delivery of this
Agreement, including the exhibits and schedules hereto, and the
consummation of the transactions contemplated herein.
-14-
<PAGE>
(b) Seller is executing and delivering to Buyer a bill of sale and
deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Buyer, conveying all the
Purchased Assets to Buyer.
(c) Seller is delivering to Buyer estoppel certificates and consents
in form and substance satisfactory to Buyer executed by the other parties
to the Contracts.
(d) Seller is executing and delivering to Buyer and Parent an
investment letter regarding its acquisition of the Parent Common Stock
pursuant hereto.
(e) Seller is executing and delivering a Registration Rights
Agreement ("Registration Rights Agreement"), a Stock Transfer Restriction
Agreement ("Stock Transfer Restriction Agreement") and an Adoption
Agreement ("Adoption Agreement") with Parent.
Section 8.2 Actions Being Taken by Buyer at the Closing. Buyer is
-------------------------------------------
taking the following actions at the Closing:
(a) Buyer is delivering to Seller a copy certified by its Secretary
of resolutions duly adopted by its board of directors authorizing and
approving the execution and delivery of this Agreement, including the
exhibits and schedules hereto, and the consummation of the transactions
contemplated herein.
(b) Buyer is making the payment of funds and the delivery of Parent
Common Stock specified for delivery at Closing under Section 2.2.
(c) Buyer is delivering to Seller counterparts of the Registration
Rights Agreement, the Stock Transfer Restriction Agreement and the Adoption
Agreement executed by Parent.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Confidentiality. After the Closing, Seller will not,
---------------
directly or indirectly, disclose or provide to any other person any non-public
information of a confidential nature concerning the Business, the Purchased
Assets or the business or operations of Buyer, except as is required in
governmental filings or judicial, administrative or arbitration proceedings;
provided that Seller may disclose or provide such information to its agents,
accountants and attorneys who need to know such information and who agree in
writing to be bound by Seller's confidentiality
-15-
<PAGE>
obligations herein; and provided, further, that Seller shall be liable for any
breach of such confidentiality obligations by any such agent, accountant or
attorney.
Section 9.2 Expenses. Except as otherwise provided herein, Buyer and
--------
Seller shall pay their own respective expenses, including the fees and
disbursements of their respective counsel in connection with the negotiation,
preparation and execution of this Agreement and the consummation of the
transactions contemplated herein.
Section 9.3 Entire Agreement. This Agreement, including all schedules
----------------
and exhibits hereto, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and may not be modified, amended or
terminated except by a written instrument specifically referring to this
Agreement signed by all the parties hereto.
Section 9.4 Waivers and Consents. All waivers and consents given
--------------------
hereunder shall be in writing. No waiver by any party hereto of any breach or
anticipated breach of any provision hereof by any other party shall be deemed a
waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar.
Section 9.5 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been received only if and when
(i) personally delivered or (ii) on the third day after mailing, by United
States mail, first class, postage prepaid, by certified mail return receipt
requested, addressed in each case as follows (or to such other address as may be
specified by like notice):
(a) If to Buyer, to: Hallmark Air Conditioning, Inc.
c/o Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
(b) If to Seller to: WEHCO, Inc.
5308 Ashbrook
Houston, Texas 77081
Attn: President
Section 9.6 Successors and Assigns. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns. Except as for the Indemnified
Parties, no third party shall have any rights under or other provision hereof.
No assignment shall release the assigning party.
-16-
<PAGE>
Section 9.7 Compliance with Bulk Sales Laws. Buyer and Seller waive
-------------------------------
compliance with the requirements of any applicable bulk sales laws of any
jurisdiction. Seller shall indemnify Buyer against any and all liabilities or
expenses Buyer may incur as a result of any noncompliance by Seller with any
bulk sales laws as they relate to this transaction.
Section 9.8 Covenant Not to Compete.
-----------------------
(a) For the considerations specified in this agreement and in
recognition that the covenants by the Seller in this Section are a material
inducement to Buyer to enter into and perform this Agreement, Seller agrees
that, for the period from the date hereof to the date which is five (5)
years after the date hereof, neither Seller nor its parent corporation nor
any of their affiliated companies will directly engage in the "Residential
Business" within a 100-mile radius of Houston, Texas. The term
"Residential Business" means heating, ventilation or air conditioning
maintenance, repair or servicing activities ("HVAC Services") for single
family or multiple family dwellings; provided, however, that the term
"Residential Business" shall not include HVAC Services for (i) the central
plant and common areas of multiple family dwellings which utilize
commercial style equipment, (ii) Seller's employees, (iii) the key decision
makers for Seller's commercial customers listed on Schedule 9.8(a) or, (iv)
the residential customers listed on Schedule 9.8(a); provided, however,
that (a) in connection with developing business from new commercial
customers, upon written notice to Buyer, Seller may add up to ten (10)
residential customers per calender year to Schedule 9.8(a), and (b) upon
the prior written consent of Buyer, Seller may add additional residential
customers to Schedule 9.8(a). Notwithstanding the foregoing, Seller may
acquire any corporation, entity or business which engages in the
Residential Business so long as Seller disposes of such Residential
Business within nine months after such acquisition. Seller agrees to grant
Buyer a five (5) year non-expiring right of first refusal to purchase such
Residential Business.
(b) Seller agrees that the limitations set forth herein on Seller's
rights to compete with Buyer and its affiliates as set forth in clause (a)
are reasonable and necessary for the protection of Buyer and its
affiliates. In this regard, Seller specifically agrees that the
limitations as to period of time and geographic area, as well as all other
restrictions on Seller's activities specified herein, are reasonable and
necessary for the protection of Buyer and its affiliates. Seller 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.
(c) Seller agrees that the remedy at law for any breach by Seller of
this Section 9.8 will be inadequate and that Buyer shall be entitled to
injunctive relief.
-17-
<PAGE>
(d) Seller agrees that, except with respect to customers described on
Schedule 9.8(a), for five (5) years after the date hereof, it shall refer
to Buyer any potential customers for residential heating, ventilation or
air conditioning maintenance, repair or servicing activities who request
such services from Seller.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
HALLMARK AIR CONDITIONING, INC.
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
WAY SERVICE, INC.
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
Parent executes this Agreement to acknowledge its obligation to issue
Earned Shares of Parent Common Stock and additional shares of Parent Common
Stock and deliver cash payments when and if required under Section 2.3.
Dated June 24, 1997.
Group Maintenance America Corp.
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
-18-
<PAGE>
EXHIBIT 10.9
================================================================================
AGREEMENT AND PLAN OF EXCHANGE
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.
AND
THE HOLDER OF THE
OUTSTANDING CAPITAL STOCK
OF
CHARLIE CRAWFORD, INC.
(D/B/A CHARLIE'S PLUMBING)
JUNE 25, 1997
===============================================================================
Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE CLOSING............................................................ -1-
1.1. The Closing Date................................................. -1-
----------------
1.2. Post-Closing Adjustment.......................................... -1-
-----------------------
1.3. Arbitrating Accountants.......................................... -2-
-----------------------
2. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR....................... -3-
2.1. Exhibit 2........................................................ -3-
---------
2.2. Stock Ownership.................................................. -3-
---------------
2.3. Authority........................................................ -3-
---------
2.4. Consents......................................................... -3-
---------
3. REPRESENTATIONS AND WARRANTIES OF TRANSFEREE........................... -4-
3.1. Representations and Warranties................................... -4-
------------------------------
3.1.1. Organization............................................. -4-
------------
3.1.2. Capitalization of Transferee............................. -4-
----------------------------
3.1.3. Authority................................................ -4-
---------
3.1.4. Consents................................................. -4-
--------
3.1.5. Defaults................................................. -4-
-------
3.1.6. Investment Company....................................... -5-
------------------
3.1.7. Financial Statements..................................... -5-
--------------------
3.1.8. Taxes.................................................... -5-
-----
3.1.9. Full Authority........................................... -5-
--------------
3.1.10. Access....................................... -5-
------
3.1.11. Disclosure................................... -6-
----------
3.1.12. Transferee Material Adverse Effect........... -6-
------------------------------------
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS......................... -6-
4.1. Transfer Restrictions............................................ -6-
---------------------
4.2. Adoption of Shareholders Agreement............................... -6-
----------------------------------
4.3. Employment Agreement............................................. -6-
--------------------
4.4. Lease............................................................ -6-
-----
4.5. Covenant Not to Compete.......................................... -6-
-----------------------
4.6. Escrow Agreement................................................. -7-
----------------
4.7. Certain Election................................................. -8-
----------------
4.7.1. Securities Sale Election................................. -8-
------------------------
4.7.2. Rescission Election...................................... -9-
-------------------
4.7.3. Arbitration regarding Rescission or Transfer............. -10-
--------------------------------------------
4.7.4. Other.................................................... -10-
-----
4.8. Additional Elections............................................. -10-
--------------------
4.8.1. Securities Acquisition Election.......................... -10-
-------------------------------
4.8.2. Transfer Transaction Election............................ -11-
-----------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.8.3. Other.................................................... -12-
-----
4.9. Release.......................................................... -12-
-------
4.10. Release of Transferor............................................ -12-
---------------------
4.11. Elimination of Expense........................................... -12-
----------------------
4.12. Note Repayments.................................................. -13-
---------------
4.13. Exchange of GMAC Preferred Stock................................. -13-
--------------------------------
4.14. Transition Covenant.............................................. -13-
-------------------
4.15. Other Closing Documents.......................................... -14-
-----------------------
4.16. Indemnity for Certain Uninsured Losses........................... -14-
--------------------------------------
5. SURVIVAL, INDEMNIFICATIONS.............................................. -14-
5.1. Survival......................................................... -14-
--------
5.2. Indemnification.................................................. -15-
---------------
5.2.1. Transferee Indemnified Parties........................... -15-
------------------------------
5.2.2. Transferee Indemnity..................................... -15-
--------------------
5.3. Limitations...................................................... -16-
-----------
5.4. Notice........................................................... -16-
------
6. MISCELLANEOUS........................................................... -17-
6.1. Notice........................................................... -17-
------
6.2. Further Documents................................................ -18-
-----------------
6.3. Assignability.................................................... -18-
-------------
6.4. Exhibits and Schedules........................................... -18-
----------------------
6.5. Sections and Articles............................................ -18-
---------------------
6.6. Entire Agreement................................................. -18-
----------------
6.7. Headings......................................................... -18-
--------
6.8. CONTROLLING LAW, JURISDICTION AND VENUE.......................... -19-
---------------------------------------
6.9. Public Announcements............................................. -19-
--------------------
6.10. No Third Party Beneficiaries..................................... -19-
----------------------------
6.11. Amendments and Waivers........................................... -19-
----------------------
6.12. No Employee Rights............................................... -20-
------------------
6.13. Non-Recourse..................................................... -20-
------------
6.14. When Effective................................................... -20-
--------------
6.15. Number and Gender of Words....................................... -20-
--------------------------
6.16. Invalid Provisions............................................... -20-
------------------
6.17. Multiple Counterparts............................................ -20-
---------------------
6.18. Expenses......................................................... -20-
--------
</TABLE>
-ii-
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this " Agreement") is made this 25th
day of June 1997, between GROUP MAINTENANCE AMERICA CORP., a Texas corporation
("Transferee") and the holder ("Transferor") of all of the outstanding capital
stock of Charlie Crawford, Inc. (d/b/a Charlie's Plumbing), a Texas corporation
(the "Company").
WHEREAS, Transferee and Transferor desire to provide for the transfer by
Transferor to Transferee of the outstanding shares of capital stock of the
Company in exchange for cash, common stock and preferred stock of Transferee;
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as an exchange under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder;
WHEREAS, Transferee has adopted and Transferee and Transferor have executed
and delivered a Section 351 Plan;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1. The Closing Date. For purposes of this Agreement, the term "Closing
----------------
Date" shall mean the date hereof. On the Closing Date, as soon as practicable
after the execution of this Agreement, a Closing (the "Closing") shall occur.
At the Closing, Transferor shall deliver to Transferee Transferor's stock
certificates evidencing all of Transferor's shares of common stock, no par
value, of the Company ("Company Common Stock") and a completed letter of
transmittal, and Transferee shall deliver to the Escrow Agent (as defined in
Section 4.6 below) $1,429,564 in cash (the "Closing Cash Consideration"),
certificates evidencing 678,920 shares of Series B Preferred Stock, $.001 par
value, of Transferee with a liquidation preference of $1.00 per share ("GMAC
Preferred Stock") and certificates evidencing 285,374 shares of common stock,
$.001 par value, of Transferee ("GMAC Common Stock"). One hundred thousand
dollars ($100,000) of the Cash Consideration shall be allocated as consideration
for the covenant not to compete set forth in Section 4.5.
1.2. Post-Closing Adjustment.
-----------------------
(i) As promptly as practicable, and in any event no later than one hundred
twenty (120) days after the date hereof, Transferee shall cause to be prepared
and delivered to Transferor a statement (the "Statement") showing (a) a
calculation, based on the books and records of the Company as of the end of the
month immediately preceding the Closing Date (the "Closing Balance Sheet Date"),
of the Long-Term Debt (as defined below), the Current Assets (as defined below)
and the Current Liabilities (as defined below), and (b) the Final Cash
Consideration (determined as set forth below). Within twenty (20) days following
receipt of the Statement, Transferor shall deliver written notice
<PAGE>
to Transferee describing with specificity any error, omission or other
discrepancy in the Statement. Transferor and Transferee will each work in good
faith to resolve any such discrepancy for a period of not less than twenty (20)
days following Transferee's receipt of such notice from Transferor. After such
period, either party may elect to refer the matter for determination according
to the procedure described in Section 1.3 below. If Transferee does not receive
such written notice within such 20 day period, the Statement shall be
conclusively presumed to be accurate and complete in all respects.
(ii) The Closing Cash Consideration has been determined by agreement of
Transferee and Transferor as being an acceptable estimate of 90% of the Final
Cash Consideration payable to Transferor hereunder. To arrive at the Final Cash
Consideration, there shall be deducted from (or added to) $XXX (a) the
amount, if any, by which Long-Term Debt as shown on the Statement exceeds (or is
less than) $XXX, as applicable, (b) the amount, if any, by which (1) Current
Assets minus (2) the sum of (A) XXX times Current Liabilities (other than
Transaction Costs (as defined in Section 6.18)) and (B) XXX times Transaction
Costs, is less than (or is greater than) $XXX, as applicable, and (c) the
estimated amount, if any, by which the actual expenses of the Company of the
type described in Exhibit 4.11 which are accrued by the Company from the Closing
Balance Sheet Date to the Closing Date exceed an amount equal to the product of
(i) $XXX times (ii) the number of days prior to the Closing Date in the calendar
month of Closing divided by 365.
(iii) If the Final Cash Consideration as shown on the Statement exceeds
the Closing Cash Consideration, Transferee will pay to the Escrow Agent the
amount of the excess in cash within 10 days after the date of delivery of the
Statement to Transferor. If the Closing Cash Consideration exceeds the Final
Cash Consideration, as shown on the Statement, Transferor and Transferee will
cause the Escrow Agent to pay to Transferee the amount of the excess in cash
within 10 days after the date of delivery of the Statement to Transferor.
(iv) For purposes of the Agreement (a) the term "Long-Term Debt" shall mean
all long-term liabilities of the Company as of the Closing Balance Sheet Date,
including deferred taxes and capitalized lease obligations, all as determined in
accordance with U.S. generally accepted accounting principles consistently
applied ("GAAP"); (b) the term "Current Assets" shall mean the current assets of
the Company as of the Closing Balance Sheet Date, as determined in accordance
with GAAP (excluding the note receivable from Charles Crawford carried on the
books of the Company at $132,675.35 as of May 31, 1997); and (c) the term
"Current Liabilities" shall mean the current liabilities of the Company as of
the Closing Balance Sheet Date, as determined in accordance with GAAP; provided,
however, that all expenses of the Company or Transferor (other than the review
fee to be paid by the Company to KPMG Peat Marwick) incurred in connection with
the transactions contemplated hereby which are payable by the Company shall be
accrued as of such date and included in Current Liabilities. Accounts
receivable on the books of the Company at the Closing Balance Sheet Date that
remain uncollected on the date of the Statement and which are over ninety (90)
days past due, if so identified by Transferee, shall not be included in Current
Assets and such accounts receivable so identified shall be assigned to
Transferor without recourse.
1.3. Arbitrating Accountants. If Transferee or Transferor elects to
-----------------------
exercise its right as provided in this Agreement to refer a matter for
determination pursuant to this Section, such party shall promptly notify the
other party of such election and the parties shall submit the matter to a
-2-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
national independent public accounting firm (other than the regular accountants
for any party) reasonably acceptable to each party (the "Arbitrating
Accountants") within ten (10) days following such election. The Arbitrating
Accountants shall be instructed to render a decision, which shall be binding
upon both parties, within thirty (30) days. Each party shall be entitled to
present any information or analysis concerning the matter in good faith to the
Arbitrating Accountants. Transferee and Transferor shall each bear their own
fees and expenses, and the fees and expenses of the Arbitrating Accountants
shall be shared equally by Transferee and Transferor.
2. REPRESENTATIONS AND WARRANTIES
OF THE TRANSFEROR
Transferor hereby represents and warrants to Transferee as follows:
2.1. Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct.
2.2. Stock Ownership. Transferor owns, beneficially and of record, with
---------------
full power to vote, 1000 shares of Company Common Stock and such shares are so
held by Transferor free and clear of all liens, encumbrances and claims
whatsoever.
2.3. Authority. Transferor 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 Transferor (each a "Transferor Related
Document") and (ii) consummate the transactions contemplated herein and thereby.
This Agreement has been duly executed and delivered by Transferor and
constitutes, and each Transferor Related Document, when duly executed and
delivered by Transferor will constitute, legal, valid and binding obligations of
Transferor enforceable against Transferor 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. Other than any action which may be required pursuant to
--------
federal or state securities laws and regulations, 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 Transferor of this Agreement or any Transferor Related Document.
The execution, delivery and performance by Transferor of this Agreement and
Transferor Related Documents do not violate any mortgage, indenture, contract,
agreement, lease or commitment or other instrument of any kind to which
Transferor is a party or by which Transferor or Transferor's assets or
properties may be bound or affected or any law, rule or regulation applicable to
Transferor (other than federal or state securities laws and regulations) 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
Transferor.
-3-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF TRANSFEREE
3.1. Representations and Warranties. Transferee hereby represents and
------------------------------
warrants to Transferor as follows:
3.1.1. Organization. Transferee is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Texas.
Transferee 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 Transferee Material Adverse
Effect (as defined below).
3.1.2. Capitalization of Transferee. As of the date hereof, the total
----------------------------
authorized capital stock of Transferee is 100,000,000 shares of GMAC Common
Stock, of which 19,001,755 shares are issued and outstanding and of which 0
shares are held in the treasury of Parent, 50,000,000 shares of Preferred Stock,
$.001 par value, divided into 15,000,000 shares of Series A Preferred Stock, of
which 45,137 shares are issued and outstanding, 678,920 shares of Series B
Preferred Stock, of which 0 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 0 shares are issued and outstanding. The outstanding
shares of GMAC Common Stock and GMAC Preferred Stock have been duly and validly
issued and are fully paid and non-assessable.
3.1.3. Authority. Transferee has full right, power, legal capacity and
---------
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby and to consummate the
transactions contemplated herein and thereby (the "Transferee Related
Documents"). This Agreement has been duly executed and delivered by Transferee
and constitutes, and all Transferee Related Documents, when executed and
delivered by Transferee will constitute, legal, valid and binding obligations of
Transferee, enforceable in accordance with their respective terms and
conditions except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
3.1.4. Consents. No approval, consent, order or action of or filing
--------
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by Transferee of
this Agreement or the Transferee Related Documents or the consummation by
Transferee of the transactions contemplated hereby.
3.1.5. Defaults. Transferee is not in default under or in violation
--------
of, and the execution, delivery and performance of this Agreement and Transferee
Related Documents and the consummation by Transferee 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 Transferee
is a party or by which Transferee or any of its properties or assets may be
bound or affected or (ii) any law, rule or
-4-
<PAGE>
regulation applicable to Transferee 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 Transferee, which default or violation
could adversely affect the ability of Transferee to consummate the transactions
contemplated hereby or will have a Transferee Material Adverse Effect.
3.1.6. Investment Company. Transferee 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. Transferee has provided certain financial
--------------------
statements to Transferors ("Transferee Financial Statements") and such
Transferee Financial Statements have been prepared in accordance with GAAP, are
true and correct in all material respects, and are fair presentations of the
consolidated financial position, results of operations and cash flows of
Transferee and its then existing consolidated subsidiaries as of the dates and
for the periods indicated. The books and records of Transferee have been kept in
reasonable detail and accurately and fairly reflect the transactions of
Transferee.
3.1.8. Taxes. Transferee has either accrued, discharged or caused to
-----
be discharged, as the same have become due, or the Transferee 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 Transferee for the period ended
December 31, 1996.
3.1.9. Full Authority. Transferee has full power, authority and legal
--------------
right and has 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, including the business of the Company, as being
conducted on the date of this Agreement, 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 Transferee Material Adverse Effect, and there is no
existing condition or state of facts which would give rise to a violation
thereof or a liability or default thereunder, except where a violation,
liability or default will not have a Transferee Material Adverse Effect.
3.1.10. Access. Transferee has cooperated fully in permitting
------
Transferor and his representatives to make a full investigation of the
properties, operations and financial condition of Transferee; and afforded
Transferor and his representatives reasonable access to the offices, buildings,
real properties, machinery and equipment, inventory and supplies, records,
files, books of account, tax returns, agreements and commitments and personnel
of Transferee.
-5-
<PAGE>
3.1.11 Disclosure. No representation or warranty by Transferee in
----------
this Agreement and no statement contained any certificate delivered by
Transferee to Transferor 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 Transferee Material Adverse Effect. The term "Transferee
----------------------------------
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 Transferee and its consolidated
subsidiaries, taken as a whole in an amount of $50,000 or more.
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS
Transferee and Transferor agree as follows:
4.1 Transfer Restrictions. Contemporaneously herewith, Transferor and
---------------------
Transferee are executing and delivering a Stock Transfer Restriction Agreement
and a Registration Rights Agreement.
4.2 Adoption of Shareholders Agreement. Contemporaneously herewith,
----------------------------------
Transferor is executing and delivering to Transferee an adoption agreement
pursuant to which Transferor agrees to be bound by the Amended and Restated
Shareholders Agreement dated April 30, 1997 among Transferee and its existing
shareholders, as amended, a copy of which has been delivered to Transferor.
4.3 Employment Agreement. Contemporaneously herewith, the Company and
--------------------
Transferor are executing and delivering an employment agreement.
4.4 Lease. Contemporaneously herewith, the Company and Transferor are
-----
executing and delivering a triple net lease agreement.
4.5 Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by Transferor in this Section are a material
inducement to Transferee to enter into and perform this Agreement, Transferor
agrees that for the period from the date hereof to the later to occur of (a) the
date which is five (5) years after the Closing Date or (b) the date which is one
(1) year following any termination of Transferor's employment under Transferor's
employment agreement with the Company, Transferor 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 (1%) of the
issued and outstanding stock of a publicly-held company whose gross assets
exceed one hundred million dollars), investor, officer, director, trustee,
manager, employee, agent, associate or consultant engage in any
-6-
<PAGE>
business which involves indoor air quality, heating, ventilation and air
conditioning, plumbing, sewer cleaning, or electrical contracting services
within a 100 mile radius of Houston, Texas.
(ii) Transferor agrees that the limitations set forth herein on
Transferor's rights to compete with Transferee and its affiliates as set forth
in clause (i) are reasonable and necessary for the protection of Transferee and
its affiliates. In this regard, Transferor specifically agrees that the
limitations as to period of time and geographic area, as well as all other
restrictions on Transferor's activities specified herein, are reasonable and
necessary for the protection of Transferee and its affiliates. Transferor
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) Transferor agrees that the remedy at law for any breach by
such Transferor of this Section 4.5 will be inadequate and that Transferee shall
be entitled to injunctive relief.
4.6 Escrow Agreement. Contemporaneously herewith, Transferor and
----------------
Transferee are executing and delivering an escrow agreement ("Escrow Agreement")
with Joe L. Brotherton acting as escrow agent ("Escrow Agent"), and Transferee
is delivering the Closing Cash Consideration, the GMAC Preferred Stock and the
GMAC Common Stock to the Escrow Agent to be held and the cash invested by Escrow
Agent pursuant to terms of the Escrow Agreement. Transferor shall bear all risk
of loss with respect to all cash and securities deposited with the Escrow Agent
and all earnings thereon, and in the event of loss thereof, Transferor shall be
deemed to have received the amount of such cash and securities for all purposes
of this Agreement. Transferee shall deliver to Escrow Agent the excess, if any,
of the amount of the Final Cash Consideration over the Closing Cash
Consideration pursuant to Section 1.2(iii) above. Transferee and Transferor
shall execute and deliver joint written instructions directing Escrow Agent to
release the cash and securities held by Escrow Agent pursuant to the Escrow
Agreement, as follows:
(i) Escrow Agent shall be directed to release to Transferee a cash
amount equal to the excess, if any, of the amount of Closing Cash
Consideration over the amount Final Cash Consideration in
accordance with Section 1.2(iii) above;
(ii) Escrow Agent shall be directed to release to Transferor the cash
amount specified by Transferor as required to pay Transferor's
federal income tax deposit, if any, resulting from the
transactions contemplated by this Agreement;
(iii) In the event that Transferor provides written notice to
Transferee of Transferor's full and final acceptance of the
transactions contemplated by this Agreement prior to the release
from escrow pursuant to clause (iv) or (v) below, Escrow Agent
shall be directed to release to Transferor all cash, GMAC
Preferred Stock and GMAC Common Stock;
(iv) In the event of the successful completion of Transferee's IPO,
provided such cash and securities have not earlier been released
to Transferor pursuant to clause (iii) above,
-7-
<PAGE>
Escrow Agent shall be directed to release to Transferor all cash,
GMAC Preferred Stock and GMAC Common Stock;
(v) In the event that Transferor elects to exercise its rescission
election pursuant to Section 4.7.2 below prior to the successful
completion of Transferee's IPO and prior to Transferor's full and
final acceptance of the transactions contemplated by this
Agreement pursuant to clause (iii) above, Escrow Agent shall be
directed to release to Transferee all cash, GMAC Preferred Stock
and GMAC Common Stock; and
(vi) In the event that Transferor elects to participate in a
Securities Exchange pursuant to Section 4.1.3 below, Escrow Agent
shall be directed to release the GMAC Preferred Stock to
Transferor.
In the event that Transferor gives notice to Transferee of its full and
final acceptance of the transactions contemplated by this Agreement, Transferor
shall have no claim or cause of action against Transferee, its subsidiaries or
affiliates for failure to effect the IPO and Transferor shall be deemed to have
waived its rights (a) to rescind Transferee's acquisition of the Company Common
Stock pursuant to Sections 4.7.2 and 4.8.2, (b) to effect a Securities Sale
Transaction pursuant to Section 4.7.1, and (c) to effect a Securities
Acquisition Transaction pursuant to Section 4.8.1.
4.7 Certain Election. In the event that Transferee has not effected
----------------
an underwritten public offering of GMAC Common Stock (other than any offering
pursuant to any registration statement (i) relating to any capital stock of
Transferee or options, warrants or other rights to acquire any such capital
stock issued or to be issued primarily to directors, officers or employees of
Transferee, 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 Transferee, or (iv) filed pursuant to Rule 145 under the
Securities Act of 1933, as amended, or any successor or similar provision)
resulting in net cash proceeds to Transferee of at least $20,000,000 (the "IPO")
on or before October 30, 1997:
4.7.1 Securities Sale Election. Transferor may elect, by written notice
------------------------
to Transferee delivered on or before November 5, 1997 (the "First Election
Notice") to call upon Transferee to acquire, for the cash amount of $2,476,776
plus simple interest thereon at a rate equal to the effective aggregate annual
rate of return with respect to all investments by the Escrow Agent pursuant to
the Escrow Agreement (the "Reference Rate") from the date hereof to the date of
--------------
the closing of such acquisition (the "Securities Sale Consideration") all of
the shares of GMAC Preferred Stock and GMAC Common Stock issued by Transferee to
Transferor pursuant to this Agreement ("Securities Sale Transaction"). In the
event that Transferee determines not to agree to commit on or before November
10, 1997 to acquire such shares on or before December 31, 1997 in the Securities
Sale Transaction, Transferee shall give written notice to Transferor
("Transferee Rejection Notice") that it has so determined not to agree to
acquire such shares. In the event Transferee determines to agree to acquire such
shares in the Securities Sale Transaction, Transferee shall, on or before
November 10, 1997, give written notice to Transferor ("Transferee Acceptance
Notice") that it agrees to acquire such shares. The Transferee Acceptance Notice
shall also specify the date, time and place of the closing of the Securities
Sale Transaction; provided that such closing shall be held on or before December
31, 1997. At such closing, Transferor shall deliver or cause to be delivered to
Transferee
-8-
<PAGE>
or its designee stock certificates evidencing the GMAC Preferred Stock and the
GMAC Common Stock duly endorsed and in proper form for transfer on the stock
records of the Company with customary written warranties of good title,
authority to transfer and absence of liens or other exceptions to title hereto,
and Transferee or its designee shall deliver or cause to be delivered to
Transferor the Securities Sale Consideration and a letter containing customary
representations and warranties evidencing compliance with applicable securities
laws. If the Transferee Acceptance Notice is not delivered to Transferor on or
before November 10, 1997, Transferee will conclusively be deemed to have
delivered a Transferee Rejection Notice to Transferor on November 10, 1997. Upon
delivery or deemed delivery of the Transferee Rejection Notice, Transferor shall
have no right to require Transferee to acquire any of GMAC Common Stock or GMAC
Preferred Stock, pursuant to this Section 4.7.1.
4.7.2 Rescission Election. Transferor may elect, by written notice to
-------------------
Transferee delivered on or before November 15, 1997, or, if Transferor has
delivered to Transferee the First Election Notice, after the delivery or deemed
delivery of the Transferee Rejection Notice, but in no event later than November
15, 1997 (the "Second Election Notice"), to require Transferee to transfer the
Company Common Stock acquired by it pursuant hereto to the designees named in
the Second Election Notice in a transaction (the "Rescission Transaction") for
the following consideration (collectively, the "Rescission Consideration"): (i)
the cash amount of the Final Cash Consideration, plus simple interest thereon at
a rate equal to the Reference Rate from the date hereof to the date of the
closing of the Rescission Transaction; plus (ii) the return of the GMAC Common
Stock and the GMAC Preferred Stock, duly endorsed and in proper form for
transfer with customary written warranties of good title, authority to transfer
and absence of liens or other exceptions to title; plus (iii) an amount equal to
any additional cash invested in the Company since the Closing Date (whether as a
contribution of capital for the purchase of stock, or in the form of loans);
minus (iv) the net amount of cash dividends and distributions from the Company
(including charges for corporate overhead paid to Transferee or any of its
affiliates) since the Closing Date (other than for goods and services provided
to the Company at prices comparable to those available from third parties). At
the closing of the Rescission Transaction, Transferor shall deliver to
Transferee cash and securities, in addition to the cash and securities released
to Transferee pursuant to Section 4.6(v), such that the aggregate consideration
received by Transferee for the Rescission Transaction is not less than the
Rescission Consideration. At the closing of the Rescission Transaction,
Transferee shall deliver the Company Common Stock to Transferor duly endorsed
and in proper form for transfer with customary written warranties of good title,
authority to transfer and absence of liens or other exceptions to title, and the
Company and its assets shall be free of debt except for debt existing on the
Closing Date, debt used to purchase assets exclusively for the direct benefit of
the Company, and debt related to working capital incurred in the ordinary course
of business. The Rescission Transaction will be structured in a manner that
will eliminate or reduce to the maximum extent possible any adverse tax
consequences both to Transferor and Transferee. In addition, the terms of the
Rescission Transaction will be such that Transferee and Transferor will receive
no unreasonable benefit or detriment therefrom. The Second Election Notice will
contain the addresses of the designee named therein and all of the proposed
terms of the Rescission Transaction. The proposed terms of the Rescission
Transaction contained in the Second Election Notice shall be final, conclusive
and binding for purposes of this Agreement unless Transferee shall deliver to
Transferor a written notice of disagreement ("Notice of Objection") with any
such proposed terms within 5 business days following receipt of the Second
-9-
<PAGE>
Election Notice, specifying in reasonable detail the nature and extent of such
disagreement. If within 5 days following receipt by Transferor of a Notice of
Objection, Transferee and Transferor are unable to resolve any disagreement with
respect to the proposed terms of the Rescission Transaction as set forth in the
Second Election Notice, the disagreement shall be submitted for resolution to
the Arbitrating Accountants, pursuant to Section 1.3, who shall resolve the
issues in dispute, and giving effect to such resolution, determine the final
terms of the Rescission Transaction. The Arbitrating Accountants shall
determine and resolve only those issues in dispute. The Arbitrating
Accountants' resolution shall (a) be made within 30 days of the submission of
the dispute to them, (b) be in accordance with this Agreement, (c) be set forth
in a written statement delivered to Transferee and Transferor, (d) set forth the
final terms of the Rescission Transaction, and (e) be subject to appeal only
through the arbitration procedure described in Section 4.7.3.
4.7.3 Arbitration regarding Rescission or Transfer. This Agreement
--------------------------------------------
shall be governed exclusively by the laws of the State of Texas; provided,
however, that the following arbitration provision shall be governed exclusively
by the Federal Arbitration Act, 9 U. S. C. (S) 1 et. seq. Any and all
controversies, claims or disputes between Transferee and Transferor relating to
the Rescission Transaction or the Transfer Transaction shall be exclusively
resolved by binding arbitration under the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") with arbitration to occur at Houston,
Texas. Administration of the arbitration shall be by the AAA. If there are no
Commercial Arbitration Rules of the AAA then prevailing, the rules used shall be
the closest appropriate rules determined by the AAA. Each party shall pay its
own costs and attorneys' fees unless otherwise determined by the arbitrator(s).
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
4.7.4 Other. Transferee will cooperate fully with Transferor in
-----
obtaining any consent required from Transferee's lenders to effect a Securities
Sale Transaction or a Rescission Transaction as contemplated hereby. On the
closing of a Rescission Transaction, all noncompetition agreements between
Transferee and any employee of the Company who does not continue employment with
Transferee or its affiliates will be terminated. At the closing of a Securities
Sale Transaction or a Rescission Transaction, the parties will enter into mutual
releases under which the parties release all claims against each other which
have arisen or could arise based on events, acts or omissions occurring or
existing prior to such closing. Upon consummation of a Recession Transaction,
Transferee will not solicit the employment of any employee of the Company,
provided that for purposes of this Section, "solicit" does not include
advertising in any public medium.
4.8 Additional Elections. In the event Transferee has not effected an
--------------------
IPO on or before December 31, 1998 and neither a Securities Sale Transaction nor
a Rescission Transaction as provided in Section 4.7 has been consummated by
Transferor:
4.8.1 Securities Acquisition Election. Transferor may elect,
-------------------------------
by written notice to Transferee delivered on or before January 31, 1999 (the
"Third Election Notice") to call upon Transferee to acquire, for the cash
amount of $2,476,776 plus simple interest thereon at the Reference Rate from the
date hereof to the date of the closing of such acquisition (the "Securities
Acquisition Consideration") all of the shares of GMAC Preferred Stock and GMAC
Common Stock issued by Transferee to Transferor pursuant to this Agreement
("Securities Acquisition Transaction")
-10-
<PAGE>
within 90 days of Transferee's receipt of the Third Election Notice. In the
event that Transferee determines not to agree to acquire such shares within 90
days of Transferee's receipt of the Third Election Notice in the Securities
Acquisition Transaction, Transferee shall, within 60 days of receipt of the
Third Election Notice, give written notice to Transferors ("Transferee Second
Rejection Notice") that it has so determined not to agree to acquire such
shares. In the event Transferee determines to agree to acquire such shares in
the Securities Acquisition Transaction, Transferee shall, within 60 days of
receipt of the Third Election Notice, give written notice to Transferors
("Transferee Second Acceptance Notice") that it agrees to acquire such shares.
The Transferee Second Acceptance Notice shall also specify the date, time and
place of the closing of the Securities Acquisition Transaction; provided that
such closing shall be held not more than 90 days after delivery of the Third
Election Notice. At such closing, Transferor shall deliver or cause to be
delivered to Transferee or its designee stock certificates evidencing the GMAC
Preferred Stock and the GMAC Common Stock duly endorsed and in proper form for
transfer on the stock records of the Company with customary written warranties
of good title, authority to transfer and absence of liens or other exceptions to
title hereto, and Transferee or its designee shall deliver or cause to be
delivered to Transferor the Securities Acquisition Consideration and a letter
containing customary representations and warranties evidencing compliance with
applicable securities laws. If the Transferee Second Acceptance Notice is not
delivered to Transferor within 60 days of Transferee's receipt of the Third
Election Notice, Transferee will conclusively be deemed to have delivered a
Transferee Second Rejection Notice to Transferor on the 60th day after
Transferee's receipt of the Third Election Notice. Upon delivery or deemed
delivery of the Transferee Rejection Notice, Transferors shall have no right to
request Transferee to acquire any shares of GMAC Common Stock, GMAC Preferred
Stock, pursuant to this Section 4.8.1.
4.8.2 Transfer Transaction Election. Within 20 days after the
-----------------------------
delivery or deemed delivery of the Transferee Second Rejection Notice,
Transferor may, by written notice to Transferee delivered within such 20 day
period (the "Fourth Election Notice") require Transferee to transfer the stock
or assets of the Company to the designees named in the Third Election Notice in
a transaction (the "1 Transfer Transaction") structured to (i) relieve
Transferee and its affiliates of any liability on the then remaining
indebtedness attributable to the financing of the transactions contemplated
hereby (ii) take into account any capital Transferee invested in/or withdrew
from the Company (other than for debt service on the foregoing, but including
charges for corporate overhead paid to Transferee or any of its affiliates) from
the date hereof to the closing of the Transfer Transaction, and (iii) relieve
Transferee from or otherwise satisfy any income tax consequences to Transferee
from the Transfer Transaction. The terms of the Transfer Transaction will be
such that Transferee will receive no economic benefit or detriment therefrom.
The Fourth Election Notice will contain the addresses of the designee named
therein and all of the proposed terms (including the consideration payable to
Transferee or the Company) of the Transfer Transaction. The proposed terms of
the Transfer Transaction contained in the Fourth Election Notice shall be final,
conclusive and binding for purposes of this Agreement unless Transferee shall
deliver to Transferor a written notice of disagreement ("Second Notice of
Objection") with any such proposed terms within 20 business days following
receipt of the Fourth Election Notice, specifying in reasonable detail the
nature and extent of such disagreement. If within 10 business days following
receipt by Transferor of a Second Notice of Objection, Transferee and Transferor
are unable to resolve any disagreement with respect to the proposed terms of the
Transfer Transaction as set forth in the Fourth Election Notice, the
-11-
<PAGE>
disagreement shall be submitted for resolution to the Arbitrating Accountants,
pursuant to Section 1.3, who shall resolve the issues in dispute, and giving
effect to such resolution, determine the final terms of the Transfer
Transaction. The Arbitrating Accountants shall determine and resolve only those
issues in dispute. The Arbitrating Accountants' resolution shall (a) be made
within 30 days of the submission of the dispute to them, (b) be in accordance
with this Agreement, (c) be set forth in a written statement delivered to
Transferee and Transferor, (d) set forth the final terms of the Transfer
Transaction, and (e) be subject to appeal only through the arbitration procedure
described in Section 4.7.3.
4.8.3 Other. Transferee will cooperate fully with Transferor
-----
in obtaining any consent required from Transferee's lenders to effect a
Securities Acquisition Transaction or a Transfer Transaction as contemplated
hereby. On the closing of a Transfer Transaction, all noncompetition agreements
between Transferee and any employee of the Company who does not continue
employment with Transferee or its affiliates will be terminated. At the closing
of a Securities Acquisition Transaction or a Transfer Transaction, the parties
will enter into mutual releases under which the parties release all claims
against each other which have arisen or could arise based on events, acts or
omissions occurring or existing prior to such closing. Upon consummation of a
Rescission Transaction, Transferee will not solicit the employment of any
employee of the Company, provided that for purposes of this Section, "solicit"
shall not include advertising in any public medium.
4.9 Release. Transferor does hereby (i) release, acquit and forever
-------
discharge the Company from any and all liabilities, obligations, claims,
demands, actions or causes of action arising from or relating to any event,
occurrence, act, omission or condition occurring or existing on or prior to the
Closing Date, including, without limitation, any claim for indemnity or
contribution from the Company in connection with the obligations or liabilities
of Transferor hereunder, except for salary and benefits payable to Transferor as
an employee in the ordinary course of business; (ii) waive all breaches,
defaults or violations of any agreement applicable to the Company Common Stock
and agree that any and all such agreements are terminated as of the Closing
Date; and (iii) waive any and all preemptive or other rights to acquire any
shares of capital stock of the Company and release any and all claims arising in
connection with any prior default, violation or failure to comply with or
satisfy any such preemptive or other rights. Nothing herein shall be construed
to effect a waiver or release of any rights of Transferor that may arise after
the signing of this Agreement.
4.10 Release of Transferor. Within 30 days after the date hereof,
---------------------
Transferee will cause Transferor to be released from any liability under his
personal guaranties of the indebtedness of the Company described in Schedule 11
of the Disclosure Schedule (as defined in Exhibit 2); provided that the
indebtedness so guaranteed does not exceed $221,654.
4.11 Elimination of Expense. On or prior to the date hereof,
----------------------
Transferor will produce evidence to the satisfaction of Transferee and its
lenders that the expenses of the Company as described on Exhibit 4.11 hereto
have been eliminated as expenses of the Company as of and following the Closing
Date.
-12-
<PAGE>
4.12 Note Repayments. On or prior to the date hereof, Transferor will
---------------
produce evidence to the satisfaction of Transferee and its lenders that the
$133,657 note receivable from Transferor to the Company will be collected in
full.
4.13 Exchange of GMAC Preferred Stock. Transferee hereby agrees to
--------------------------------
allow Transferor to exchange all or any portion of the GMAC Preferred Stock
delivered to Transferor or the Escrow Agent at the Closing based on a ratio of
6.3 shares of GMAC Preferred Stock for each one whole share of GMAC Common Stock
on the terms set forth in this Section 4.1.3 ("Securities Exchange"); provided
that Transferor or Escrow Agent is the holder of such GMAC Preferred Stock
immediately prior to such exchange. Fractional shares of GMAC Common Stock will
not be issued in the Securities Exchange. If a fractional share of GMAC Common
Stock would be issued under the foregoing ratio, the number of shares to be
issued shall be rounded down to the next whole share of GMAC Common Stock. In
the event Transferee determines to effect an IPO, Transferee will give
Transferor written notice ("Exchange Notice") of the date on which Transferee,
in good faith and in consultation with its underwriters, expects to file a
registration statement in connection with such IPO ("Filing Date") giving
Transferor the right to complete a Securities Exchange. Within 5 days after
receiving the Exchange Notice, Transferor shall give Transferee written notice
("Exchange Acceptance") of whether he intends to complete a Securities Exchange
under this Section 4.1.3, which Exchange Acceptance shall state the number of
shares of GMAC Preferred Stock to be included in the Securities Exchange. In the
event the expected Filing Date is delayed by more than 30 days from the
estimated Filing Date, Transferee will give Transferor written notice
("Supplemental Exchange Notice") of any other expected Filing Date giving
Transferor the right to withdraw or amend his Exchange Acceptance. Promptly (but
in no event exceeding 2 days) after receiving a Supplemental Exchange Notice,
Transferor shall deliver to Transferee a written notice ("Supplemental
Acceptance") of his decision with respect to a Securities Exchange, stating the
number of shares of GMAC Preferred Stock to be included in the Securities
Exchange. Notwithstanding anything in this Section 4.1.3 to the contrary, if
Transferor fails to properly deliver an Exchange Acceptance or a Supplemental
Acceptance, Transferor shall be conclusively deemed to have elected not to
complete a Securities Exchange, and Transferee shall have no further obligation
to complete the Share Exchange under this Section. Transferor and Transferee
will schedule a closing of the Securities Exchange at a mutually convenient time
and place prior to the IPO. At such closing, Transferor shall deliver all stock
certificates evidencing the GMAC Preferred Stock duly endorsed and in proper
form for transfer on the stock records of Transferee and Transferee will deliver
to Transferor certificates representing the number of shares of GMAC Common
Stock to be issued to Transferor in the Securities Exchange. Notwithstanding the
provisions of this Section 4.1.3, Transferee hereby retains the obligation to
redeem any portion of Transferor's GMAC Preferred Stock that is not exchanged
pursuant to this Section 4.1.3 for cash at the closing of the IPO.
4.14 Transition Covenant. The parties agree that it is in the best
-------------------
interest of the Company that the Company continue to conduct its business
operations according to the same standards of quality and expansion that have
been established by the Company's current management. Accordingly, as of and
after the date hereof, Transferor, in his capacity as President of the Company
shall have the authority to operate the Company in a manner reasonably necessary
to maintain such operational quality and expansion goals previously established,
including the specific authority to cause the Company to (i) make reasonable
expenditures and investments to achieve established expansion goals,
-13-
<PAGE>
(ii) maintain the Company's present and future equipment in proper working
condition, (iii) furnish the Company's employees with necessary tools and
equipment to perform their respective functions in an efficient manner, and (iv)
project an image of quality to the Company's customers, vendors, employees and
the general public. In recognition of the foregoing, within 30 days prior to the
end of the Company's 1996-97 fiscal year end, Transferor, on behalf of the
Company, shall submit a reasonable operating budget to Transferee reflecting
amounts which Transferor in good faith believes is necessary to achieve the
Company's operational and expansion goals during the 1997-98 fiscal year.
Subject to the approval of such operating budget by the Executive Vice
President-Acquisition and Finance of Transferee, Transferee shall provide (or
cause the Company to provide) the resources reasonably necessary to fund the
expenditures and instruments reflected in such operating budget, whether from
funds generated internally by the Company, or through Transferee's working
capital lines of credit, or otherwise. Thereafter, Transferee agrees to continue
to support the Company in achieving its operational and expansion objectives in
such manner as Transferee and Transferor, as a representative of the Company, in
good faith shall agree.
4.15 Other Closing Documents. Contemporaneously herewith:
-----------------------
(i) Transferor is delivering to Transferee an opinion of legal
counsel satisfactory to Transferee; and
(ii) Transferee is delivering to Transferor (a) an opinion of
legal counsel satisfactory to Transferor, and (b) certified resolutions of the
Board of Directors of Transferee in form satisfactory to Transferor.
4.16 Indemnity for Certain Uninsured Losses. In addition to any other
--------------------------------------
indemnity provisions contained herein, Transferor shall indemnify and hold
harmless all of the Transferee Related Parties (as defined below) from and
against any and all Losses (as defined below) arising from, out of or in any
manner connected with any claim relating to any fire which was caused or alleged
to have been caused by any act or omission of any employee, agent, or other
person acting, or alleged to have been acting, on behalf of Transferor or the
Company; provided, however, that such indemnity shall be payable only to the
extent that such Losses are not reimbursed by Insurance. Indemnifiable Losses
under this Section shall be paid pursuant to the procedure set forth in Section
5.4 below.
5. SURVIVAL, INDEMNIFICATIONS
5.1 Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of Transferor herein and of Transferor and the
Company in Transferor Related Documents and the Company Related Documents (as
defined in Exhibit 2) other than those of Transferor in Sections 2.2, 2.3, 2.4
and in Sections 2 and 3 of Exhibit 2 shall survive for a period of thirty-six
(36) months after the date hereof and the representations and warranties of
Transferor 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 Transferee herein and in the Transferee
Related Documents, other than those in Sections 3.1.3 and 3.1.4, shall survive
for a period of thirty-six (36) months after the date hereof and
-14-
<PAGE>
the representations and warranties of Transferee 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 5.1 are referred to herein as the "1 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 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.
5.2 Indemnification.
---------------
5.2.1 Transferee Indemnified Parties. Subject to the provisions of
------------------------------
Sections 5.1 and 5.3 hereof, Transferor shall indemnify, save and hold harmless
Transferee, the Company and any of their assignees (including lenders) and all
of their respective officers, directors, employees, representatives, agents,
advisors and consultants and all of their respective heirs, legal
representatives, successors and assigns (collectively the "Transferee
Indemnified Parties") from and against any and all damages, liabilities, losses,
claims, deficiencies, penalties, interest, expenses, fines, assessments, charges
and costs, including reasonable attorneys' fees and court costs (collectively
"Losses") arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of Transferor or the Company or
the failure by Transferor or the Company to perform any obligation of
Transferor or the Company contained herein or in any Company Related
Document or Transferor Related Document;
(ii) any inaccuracy in or breach of any representation or
warranty of Transferor contained herein or in any Transferor Related
Document;
(iii) any inaccuracy in or breach of any representation or
warranty of the Company conta ined in any Company Related Document;
(iv) indemnification payments made by the Company to its present
or former officers, directors, employees, agents, consultants, advisors or
representatives in respect of actions taken or omitted to be taken prior to
the Closing; and
(v) any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time on or before the Closing and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed in the
Disclosure Schedule or (b) disclosed in the Company Financial Statements
(as defined in Exhibit 2).
5.2.2 Transferee Indemnity. Subject to the provisions of Sections
--------------------
5.1 and 5.3, Transferee shall indemnify, save and hold harmless Transferor and
Transferor's heirs, legal
-15-
<PAGE>
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 Transferee or the failure by
Transferee to perform any obligation of Transferee contained herein or in
the Transferee Related Documents;
(ii) any inaccuracy in or breach of any representation or
warranty of Transferee contained herein or in the Transferee Related
Documents; and
(iii) any act, omission, event, condition or circumstance
occurring or existing at any time after (but not on or before) the date
hereof and involving or relating to the assets, properties, businesses or
operations of the Company; provided, however, that clause (iii) shall not
apply to any Losses to the extent that such Losses result from Transferor's
acts or omissions after the date hereof as an officer, director and/or
employee of Transferee or the Company and/or any other affiliate of
Transferee.
The foregoing indemnities shall not limit or otherwise adversely affect
Transferee Indemnified Parties' rights of indemnity for Losses under Section
5.2.1.
5.3 Limitations. The aggregate liability of Transferor under Sections
-----------
5.2.1 and aggregate liability of Transferee under Section 5.2.2 shall not exceed
actual compensatory damages necessary to compensate the injured party for the
loss sustained, and in no event shall include consequential, punitive, exemplary
or other damages.
5.4 Notice. The party (the "1 Indemnified Party") which may be entitled to
------
indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "1 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 5.4 shall relieve the
Indemnifying Party of its obligations under this Article 5 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice. Transferee 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) Transferor shall at
all times have the right, at his option, to participate fully therein, and (ii)
if Transferee does not proceed diligently to defend the third-party claim, suit
action or proceeding within ten (10) days after receipt of notice of such third-
party claim, suit, action or proceeding, Transferor shall have the right, but
not the obligation, to undertake the defense of any such third-party claim,
suit, action or proceeding. 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 Transferee Indemnified Party, such third-party
suit, action, proceeding or investigation may be settled without the consent of
the Indemnifying Party on ten (10) days' prior written notice to the
Indemnifying Party if such third-party suit, action, proceeding or investigation
is then unreasonably interfering with the business or operations of the Company
and the settlement is commercially reasonable under the circumstances; and
provided further, that if the Indemnifying Party gives ten (10) days' prior
written
-16-
<PAGE>
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 ten (10) days after delivery of the Settlement Notice to the
Indemnified Party, and such settlement otherwise complies with the provisions of
this Section 5.4, the Indemnifying Party shall not be liable for Losses arising
from such third-party suit, action, proceeding or investigation in excess of the
amount proposed in such settlement offer. Notwithstanding the foregoing, no
Indemnifying Party will consent to the entry of any judgment or enter into any
settlement without the consent of the Indemnified Party, if such judgment or
settlement imposes any obligation or liability upon the Indemnified Party other
than the execution, delivery or approval thereof and customary releases of
claims with respect to the subject matter thereof. 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 which are
pertinent to the defense. The parties agree that 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. MISCELLANEOUS
6.1 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 Transferor: With copies to:
Mr. Charles Crawford Mr. Glynn D. Nance, Sr.
c/o Charlie Crawford, Inc. 1111 North Loop West, Suite 810
1309 Pennsylvania Houston, Texas 77008-4713
South Houston, Texas 77587 Telecopy: 713-880-8454
Telecopy: 713-941-7203 and
Mr. Joe L. Brotherton
7324 S. W. Freeway, Suite 960
Houston, Texas 77074
Telecopy: 713-988-9392
To Transferee:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
-17-
<PAGE>
or other such address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been given
as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 6.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
6.2 Further Documents. Transferor shall, at any time and from time to
-----------------
time after the date hereof, upon request by Transferee 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 Transferor hereunder.
6.3 Assignability. Transferor shall not assign this Agreement in whole or
-------------
in part without the prior written consent of Transferee, except by the operation
of law. Transferee may assign its rights under this Agreement, the Company
Related Documents and Transferor Related Documents without the consent of
Transferor.
6.4 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.
6.5 Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections and Articles referred to herein are, respectively, sections and
articles of this Agreement and all Exhibits and Schedules referred to herein
are, respectively, exhibits, and schedules constituting a part of the Disclosure
Schedule.
6.6 Entire Agreement. This Agreement and the related documents hereto
----------------
constitute 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.
6.7 Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
-18-
<PAGE>
6.8 CONTROLLING LAW, JURISDICTION AND VENUE. 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. Any
suit, action or proceeding arising with respect to the validity, construction,
enforcement or interpretation of this Agreement, and all issues relating in any
matter hereto, shall be brought in the United States District Court for the
Southern District of Texas, or in the event that federal jurisdiction does not
pertain, in the state courts of the State of Texas in Harris County. Each of
the parties hereto hereby submits and consents to the jurisdiction of such
courts for the purpose of any such suit, action or proceeding and hereby
irrevocably waives (i) any objection which any of them may now or hereafter have
to the laying of venue in such courts, and (ii) any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum. Upon the written request of Transferor in connection with
any claim or other disputed matter arising under or related to this Agreement,
Transferee shall cause each of its subsidiaries which may hereafter own or
control the Company, directly or indirectly, to provide its written consent and
agreement to be bound by the provisions of this Section as if such subsidiary
were a party hereto.
6.9 Public Announcements. No press release, public announcement,
--------------------
confirmation or other information regarding this Agreement or the contents
hereof shall be made by any party or the Company without the prior consultation
of Transferor and Transferee, except as may be necessary in the opinion of
counsel of any party to meet the requirements or regulations of any applicable
law, governmental unit or agency or stock exchange on which the securities of
such party may be listed. Notwithstanding the foregoing, the Company may make
appropriate disclosures of the general nature of the transaction contemplated
hereby to its employees, vendors and customers to protect the Company's good
will and to facilitate the consummation of the transactions contemplated hereby,
and Transferee may disclose pertinent information regarding the transaction
contemplated hereby to its existing and prospective investors, lenders or
investment bankers or financial advisors for the purposes of obtaining financing
(including a contemplated IPO). Transferee may also make appropriate
disclosures of the general nature of the transaction contemplated hereby and the
identity, nature and scope of the Company's operations to prospective
acquisition candidates in its efforts to attract additional acquisitions for
Transferee. Transferee and Transferor shall jointly approve the contents of any
press releases, written employee presentations or other materials of potentially
wide distribution that disclose or refer to the transaction contemplated hereby,
except for such press releases or other communications required by law.
6.10 No Third Party Beneficiaries. Except as set forth in Article 5, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
6.11 Amendments and Waivers. This Agreement may be amended by Transferee
----------------------
and Transferor; provided that all amendments to this Agreement must be by an
instrument in writing signed on behalf of Transferee and by Transferor. Any
term or provision of this Agreement may be waived in writing at any time by the
party which is entitled to the benefits thereof.
-19-
<PAGE>
6.12 No Employee Rights. Nothing herein expressed or implied (other than
------------------
the employment agreements being delivered in connection with this Agreement)
shall confer upon any employee of the Company (other than Charles Crawford in
his capacity as a shareholder of the Company), any 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.
6.13 Non-Recourse. This Agreement is being entered into between Transferee
------------
and Transferor and shall be binding and effective with respect to each of them
pursuant to its terms, provided there shall be no recourse with respect to any
obligation under this Agreement against any incorporator, organizer, promoter,
shareholder, officer, director, employee or representative as such (other than
Transferor as set forth herein), past, present or future, of Transferee or of
any successor corporation.
6.14 When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by each of
Transferee and Transferor.
6.15 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.
6.16 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.
6.17 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.
6.18 Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any financial advisor, broker or finder engaged by Transferor and the accounting
and review fees and expenses of KPMG Peat Marwick; and provided further that all
fees, costs and expenses incurred or payable by the Company (other than such
accounting and review fees and expenses) in connection with the negotiation and
closing of this Agreement and the transactions contemplated hereby and the costs
of any such financial advisor, broker or finder (collectively, "Transaction
Costs") shall be included in Current Liabilities.
-20-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
TRANSFEREE:
GROUP MAINTENANCE AMERICA CORP.
By: /s/ Chester J. Jachimiec
---------------------------------------------------
Chester J. Jachimiec, Executive Vice President
TRANSFEROR:
/s/ Charles Crawford
-------------------------------------------------------
CHARLES CRAWFORD (Individually)
-21-
<PAGE>
EXHIBIT 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.
July 3, 1997
================================================================================
Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE CLOSING......................................................................... 1
1.1. The Closing Date............................................................. 1
1.2. The Exchange................................................................. 1
1.3. Post-Closing Adjustment...................................................... 2
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.................................. 6
2.1. Exhibit 2.................................................................... 6
2.2. Stock Ownership.............................................................. 6
2.3. Authority.................................................................... 6
2.4. Consents..................................................................... 6
3. REPRESENTATIONS AND WARRANTIES OF PARENT............................................ 7
3.1. Organization................................................................. 7
3.2. Capitalization of Parent..................................................... 7
3.3. Authority.................................................................... 7
3.4. Consents..................................................................... 8
3.5. Defaults..................................................................... 8
3.6. Investment Company........................................................... 8
3.7. Financial Statements......................................................... 8
3.8. Undisclosed Liabilities...................................................... 9
3.9. Taxes........................................................................ 9
3.10. Authority; Permits; Compliance with Laws..................................... 9
3.11. Legal Actions................................................................ 9
3.12. Access....................................................................... 9
3.13. Disclosure...................................................................10
3.14. Parent Material Adverse Effect...............................................10
3.15. Certain Documents and Events Impacting the Parent Common Stock...............10
3.16. Other Transactions...........................................................10
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS......................................10
4.1. Transfer Restrictions........................................................11
4.2. Adoption of Shareholders Agreement...........................................11
4.3. Key Employee Employment Agreements...........................................11
4.4. Covenant Not to Compete......................................................11
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
4.5. Mutual Release...............................................................12
4.6. Releases of Stockholders.....................................................12
4.7. Lease........................................................................12
4.8. Certain Insurance Policies...................................................13
4.9. Other Closing Documents......................................................13
4.10 Certain Residence............................................................13
4.11. Minimum IPO Proceeds.........................................................13
4.12. Funding Date.................................................................14
4.13. Employee Bonuses.............................................................14
4.14. AAA Account Distributions....................................................14
4.15. Payment of Certain Costs of this Transaction.................................14
5. SURVIVAL, INDEMNIFICATIONS..........................................................14
5.1. Survival.....................................................................14
5.2. Indemnification..............................................................15
5.2.1. Parent Indemnified Parties...........................................15
5.2.2. Parent Indemnity.....................................................16
5.3. Limitations..................................................................17
5.4. Notice.......................................................................17
6. MISCELLANEOUS.......................................................................18
6.1. Notice.......................................................................18
6.2. Further Documents............................................................19
6.3. Assignability................................................................19
6.4. Exhibits and Schedules.......................................................19
6.5. Sections and Articles........................................................19
6.6. Entire Agreement.............................................................19
6.7. Headings.....................................................................20
6.8. CONTROLLING LAW AND JURISDICTION.............................................20
6.9. Public Announcements.........................................................20
6.10. No Third Party Beneficiaries.................................................21
6.11. Amendments; Waivers..........................................................21
6.12. No Employee Rights...........................................................21
6.13. Non-Recourse.................................................................21
6.14. When Effective...............................................................21
6.15. Takeover Statutes............................................................21
6.16. Number and Gender of Words...................................................22
6.17. Invalid Provisions...........................................................22
6.18. Multiple Counterparts........................................................22
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
6.19. No Rule of Construction......................................................22
6.20. Expenses.....................................................................22
</TABLE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") is made this 3rd
day of July, 1997, among GROUP MAINTENANCE AMERICA CORP., a Texas corporation (1
"Parent"), and the holders (the "Stockholders") of all of the outstanding
capital stock of A-ABC Appliance, Inc., a Texas corporation ("A-ABC") and A-1
Appliance & Air Conditioning, Inc., a Texas corporation ("A-1"). A-ABC and A-1
are sometimes referred to herein as a "Company" and collectively as the
"Companies".
WHEREAS, Parent and the Stockholders desire to provide for the transfer by
the Stockholders to Parent of the outstanding shares of capital stock of the
Companies in exchange for cash and common stock of Parent;
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as an exchange under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder;
WHEREAS, Parent has adopted and Parent and the Stockholders have executed
and delivered a Section 351 Plan;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1 The Closing Date. For purposes of this Agreement, the term "Closing
----------------
Date" shall mean the date hereof. For accounting and financial reporting
purposes, the effective date of the exchange contemplated hereby shall be the
close of business on May 31, 1997. On the Closing Date, as soon as practicable
after the execution of this Agreement, a Closing (the "Closing") shall occur.
1.2 The Exchange.
------------
(a) At the Closing, the Stockholders shall deliver to Parent the
Stockholders' stock certificates evidencing all of the Stockholders' shares of
common stock, $1.00 par value, of the A-ABC ("A-ABC Common Stock") and all of
the Stockholders' shares of common stock, $.01 par value, of A-1 ("A-1 Common
Stock") and completed letters of transmittal, and Parent shall deliver to the
Stockholders $1,763,885 in cash (the "Closing Cash Consideration") and
certificates
<PAGE>
evidencing 839,945 shares (the "Closing Number of Parent Common Shares") of
common stock, $.001 par value, of Parent ("Parent Common Stock"). The portion of
such Cash Consideration and shares of Parent Common Stock to be delivered to
each Stockholder is set forth on Exhibit 1.2 attached hereto. One hundred
thousand dollars ($100,000) of the Cash Consideration shall be allocated as
consideration for the covenant not to compete set forth in Section 4.4.
(b) The parties agree that, for purposes of this Agreement and the
transactions contemplated hereby, the aggregate value of the A-ABC Common Stock
and the A-1 Common Stock shall be determined as follows:
(i) $XXX which amount represents XXX times the EBITDA (after
adjustment for certain verifiable expense reductions) of the Companies for
the twelve-month period ending March 31, 1997. The parties agree that such
amount has been jointly determined by the parties acting with the advice of
their respective accountants, attorneys and consultants and that such
amount shall be conclusive absent manifest error. Such amount is sometimes
referred to herein as the ("EBITDA Valuation").
(ii) The Companies' Current Assets and Current Liabilities (as such
terms are defined in Section 1.3 below) as of May 31, 1997 shall be
determined. If there is a Net Working Capital Negative Adjustment (as
defined in Section 1.3 below), such amount shall be subtracted from the
EBITDA Valuation. If there is a Net Working Capital Positive Adjustment (as
defined in Section 1.3 below), such amount shall be added to the EBITDA
Valuation. For purposes of Closing, the parties estimate that the
calculation of such amount will result in a Net Working Capital Positive
Adjustment of $213,961, which amount shall be subject to final
determination after Closing as set forth in Section 1.3.
(iii) The Companies' Long-Term Debt (as such term is defined in
Section 1.3 below) as of May 31, 1997 shall be subtracted from the EBITDA
Valuation. For purposes of Closing, the parties estimate the Long-Term Debt
is $805,581, which amount shall be subject to final determination after
Closing as set forth in Section 1.3.
The valuation of the Companies so determined shall constitute the "Estimated
Closing Valuation," and the Closing Cash Consideration and the Closing Number of
Parent Common Shares represent 90% of the Estimated Closing Valuation. The
difference, if any, between the Closing Cash Consideration and the Closing
Number of Parent Common Shares shall be determined and paid as set forth in
Section 1.3.
1.3 Post-Closing Adjustment. The difference between the Closing Cash
-----------------------
Consideration and the Closing Number of Parent Common Shares and the Final Cash
Consideration and Final
-2-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
Number of Parent Common Shares exchanged by the Parent for the Stockholders'
shares of A-ABC Common Stock and A-1 Common Stock shall be determined and paid
as set forth in this Section 1.3 as follows:
(i) As promptly as practicable, and in any event no later than sixty (60)
days after the Closing, Parent shall cause to be prepared and delivered to the
Stockholders a statement (the "Statement") showing (a) a calculation, based on
the Companies' combined balance sheet as of May 31, 1997, of Current Assets,
Current Liabilities and Long-Term Debt of the Companies, (b) the Final Cash
Consideration (determined as set forth below) and (c) the Final Number of Parent
Common Shares (determined as set forth below).
(ii) The Closing Cash Consideration has been determined by agreement of
Parent and the Stockholders as being an acceptable estimate of 90% of the Final
Cash Consideration payable to the Stockholders hereunder. To arrive at the
Final Cash Consideration, (a) if there is a Positive Adjustment Amount (as
defined below) there shall be added to $XXX an amount equal to XXX% of the
Positive Adjustment Amount or (b) if there is a Negative Adjustment Amount (as
defined below), there shall be deducted from $XXX an amount equal to XXX%
of the Negative Adjustment Amount. The resulting amount shall be the Final Cash
Consideration.
(iii) The Closing Number of Parent Common Shares has been determined by
Agreement of Parent and the Stockholder as being an acceptable estimate of 90%
of the Final Number of Parent Common Shares deliverable to the Stockholders
hereunder. To determine the "Final Number of Parent Common Shares" for
purposes hereof (a) if there is a Positive Adjustment Amount, the number equal
to the number of whole dollars constituting XXX% of the Positive Adjustment
Amount shall be divided by XXX and the result, when added to XXX, shall be the
Final Number of Parent Common Shares; or (b) if there is a Negative Adjustment
Amount, the number equal to the number of whole dollars constituting XXX% of the
Negative Adjustment Amount shall be divided by XXX, and the result, when
subtracted from XXX shall be the Final Number of Parent Common Shares.
(iv) After delivery to the Stockholders of the Statement, the Stockholders
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, and to consult
with each Company and its representatives, and each Company's independent
certified public accountants, if necessary, regarding the methods used in the
preparation of the Statement.
(v) The items set forth in the Statement shall be final, conclusive and
binding for purposes of this Agreement, unless the Stockholders shall deliver to
Parent a written notice of disagreement ("Notice of Disagreement") with any
item or items in the Statement within 10 business days following receipt of the
Statement, specifying in reasonable detail the nature and extent of such
-3-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
disagreement. The Stockholders shall not be permitted to give a Notice of
Disagreement unless the amount in dispute exceeds $10,000.
(vi) If within 10 business days following receipt by Parent of a Notice
of Disagreement, Parent and the Stockholders are unable to resolve any
disagreement with respect to the Final Cash Consideration or the Final Number of
Parent Common Shares , as set forth in the Statement and the amount then
disputed exceeds $10,000, the disagreement shall be submitted for resolution to
Ernst & Young (the "Accountants"), who shall resolve the issues in dispute, and,
giving effect to such resolution and the calculations not in dispute, calculate
the Final Cash Consideration and the Final Number of Parent Common Shares. If
the amount then disputed does not exceed $10,000, the Final Cash Consideration
and the Final Number of Parent Common Shares set forth in the Statement shall be
final, conclusive and binding for purposes of this Agreement. The Accountants
shall resolve only those issues still in dispute. The Accountants' resolution
shall (1) be made within 30 days of the submission of the dispute to them, (2)
be in accordance with this Agreement, (3) be set forth in written statement
delivered to Parent and the Stockholders, (4) set forth the Final Cash
Consideration and the Final Number of Parent Common Shares, and (5) be final,
conclusive and binding for purposes of this Agreement.
(vii) The fees and expenses of the Accountants in connection with any such
determination shall be apportioned one-half to Parent and one-half to the
Stockholders. Otherwise, Parent and the Stockholders shall each pay their own
costs incurred in connection with this Section 1.4, including the fees and
expenses of their respective attorneys and accountants, if any.
(viii) If the Final Cash Consideration as finally determined pursuant
hereto exceeds the Closing Cash Consideration, Parent will pay to the
Stockholders (in the percentages set forth on Exhibit 1.2.) the amount of the
excess in cash within 10 days after the date of such final determination. If the
Closing Cash Consideration exceeds the Final Cash Consideration, as finally
determined pursuant hereto, the Stockholders will pay to Parent the amount of
the excess in cash within 10 days after the date of such final determination. If
the Final Number of Parent Common Shares as finally determined pursuant hereto
exceeds the Closing Number of Parent Common Shares, Parent will deliver to the
Stockholders (in the percentages set forth on Exhibit 1.2.) stock certificate(s)
evidencing the excess number of shares within 10 days after such final
determination. If the Closing Number of Parent Common Shares exceeds the Final
Number of Parent Common Shares as finally determined pursuant hereto, the
Stockholders will deliver to Parent stock certificate(s) duly endorsed and in
proper form for transfer, evidencing the excess number of shares within 10 days
after such final determination.
(ix) For purposes of the Agreement:
-4-
<PAGE>
(a) the term "Long-Term Debt" shall mean all long-term liabilities of
the Companies as of May 31, 1997, including deferred taxes and capitalized lease
obligations, all as determined in accordance with U.S. generally accepted
accounting principles consistently applied ("GAAP");
(b) the term "Current Assets" shall mean the current assets of the
Companies as of May 31, 1997, as determined in accordance with GAAP; provided,
however, that accounts receivable on the books of the Companies at the Closing
Date that remain uncollected on the date of the Statement and which are over 60
days old shall, if so identified by Parent, not be included in Current Assets
and such accounts receivable so identified shall be assigned to the Stockholders
without recourse, net of any reserve for bad debt attributable to such accounts
receivable;
(c) the term "Current Liabilities" shall mean the current liabilities
of the Companies as of May 31, 1997 as determined in accordance with GAAP;
provided, however, that all expenses of either Company or the Stockholders
(other than the audit fee paid by the Companies to KPMG Peat Marwick) incurred
in connection with the transactions contemplated hereby which are paid or are
payable by the Companies shall be included in Current Liabilities;
(d) If the amount of Current Assets exceeds XXX times the amount of
Current Liabilities by more than $XXX, the excess shall be the "Net Working
Capital Positive Adjustment" for purposes hereof;
(e) If the amount of Current Assets does not equal or exceed XXX
times the amount of Current Liabilities by more than $XXX, the amount which
would be required to be added to Current Assets in order to make the amount of
Current Assets equal to XXX times Current Liabilities plus $XXX shall be the
"Net Working Capital Negative Adjustment" for purposes hereof;
(f) If the amount of the Long-Term Debt is less than $XXX, the
difference shall be the "Long-Term Debt Positive Adjustment." If the amount of
the Long-Term Debt is more than $XXX, the difference shall be the "Long-Term
Debt Negative Adjustment."
(g) The Long-Term Debt Positive Adjustment shall be added (or the
Long-Term Debt Negative Adjustment shall be subtracted) from the Net Working
Capital Positive Adjustment or the Net Working Capital Negative Adjustment, as
applicable. The result, if a positive number, shall be the "Positive Adjustment
Amount" and, if a negative number, shall be the "Negative Adjustment Amount."
-5-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
(h) The number of shares of Parent Common Stock and the conversion
factor of dollars into shares of 6.30 to 1 is based on the common stock of
Parent as currently constituted, and same would be properly adjusted to reflect
any stock split, stock dividend or similar event that might precede the final
settlement of these matters.
2. REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
The Stockholders, severally and not jointly, hereby represent and warrant
to Parent as follows:
2.1. Exhibit 2. Such Stockholder hereby makes the representations and
---------
warranties set forth on Exhibit 2.
2.2. Stock Ownership. Such Stockholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of A-ABC Common Stock and A-1
Common Stock set forth beside such Stockholder's name on Exhibit 1.2 and such
shares are so held by such Stockholder free and clear of all liens, encumbrances
and claims whatsoever.
2.3. Authority. Such Stockholder has full right, power, legal capacity and
---------
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by such Stockholder (each a "Stockholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by such
Stockholder and constitutes, and each Stockholder Related Document, when duly
executed and delivered by such Stockholder who is a party thereto will
constitute, legal, valid and binding obligations of such Stockholder enforceable
against such Stockholder in accordance with their respective terms and
conditions, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
2.4. Consents. No approval, consent, order or action of or filing with any
--------
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by such Stockholder of this
Agreement or any Stockholder Related Document. The execution, delivery and
performance by such Stockholder of this Agreement and the Stockholder Related
Documents to which such Stockholder is a party do not violate any mortgage,
indenture, contract, agreement, lease or commitment or other instrument of any
kind to which such Stockholder is a party or by which such Stockholder or such
Stockholder's assets or
-6-
<PAGE>
properties may be bound or affected or any law, rule or regulation applicable to
such Stockholder or any court injunction, order or decree or any valid and
enforceable order of any governmental agency in effect as of the date hereof
having jurisdiction over such Stockholder.
3. REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to each Stockholder as follows:
3.1. Organization. Parent is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Texas. 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).
Except as set forth on Schedule 3.1 of Parent's Disclosure Schedule attached
hereto, Parent does not own, of record or beneficially, directly or indirectly,
any of the outstanding capital stock, voting interests or ownership interests in
any corporation, partnership, joint venture, limited liability company, trust,
limited partnership or other entity (collectively, "Parent's Subsidiaries").
3.2. Capitalization of Parent. The total authorized capital stock of
------------------------
Parent is 100,000,000 shares of Parent Common Stock, of which 16,359,446 shares
are issued and outstanding and none of which are held in the treasury of Parent,
50,000,000 shares of Parent preferred stock, $.001 par value, of which 45,137
shares of Series A Preferred Stock 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 and were issued free of
preemptive rights except for the anti-dilution rights available to the Cain
Group (as such term is defined in that certain Amended and Restated Shareholders
Agreement ("Shareholders Agreement") dated April 30, 1997, by and among Parent
and the Shareholders (as such term is defined in the Shareholders Agreement))
under the Shareholders Agreement (the "Cain Rights"). The shares of Parent
Common Stock issued to the Stockholders at the Closing (and any additional
shares issued to the Stockholders pursuant to Section 4.10) shall be duly and
validly issued, fully paid and non-assessable and free of all preemptive rights
except for the Cain Rights. At the Closing, the shares of Parent Common Stock
issued to the Stockholders shall constitute 5% of the Parent Common Stock on a
fully-diluted basis. Except as set forth on Schedule 3.2 of Parent's Disclosure
Schedule, neither Parent nor any of Parent's Subsidiaries has granted any
option, warrant, subscription or similar right to any person or entity to
purchase or acquire any rights with respect to any shares of capital stock or
equity interests of Parent or Parent's Subsidiaries.
3.3. Authority. Parent has full right, power, legal capacity and authority
---------
(i) to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or con-
-7-
<PAGE>
templated hereby and to consummate the transactions contemplated herein and
thereby (the "Parent Related Documents") and (ii) consummate the Transactions
contemplated herein and thereby. This Agreement has been duly executed and
delivered by Parent and constitutes, and all Parent Related Documents, when
executed and delivered by Parent will constitute, legal, valid and binding
obligations of 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).
3.4. 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 Parent of this Agreement
or the Parent Related Documents or the consummation by Parent of the
transactions contemplated hereby.
3.5. Defaults. Parent is not in default under or in violation of, and the
--------
execution, delivery and performance of this Agreement and Parent Related
Documents and the consummation by 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 Parent is a party or by
which Parent or any of its properties or assets may be bound or affected or (ii)
any law, rule or regulation applicable to 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 Parent, which default or
violation could adversely affect the ability of Parent to consummate the
transactions contemplated hereby or will have a Parent Material Adverse Effect.
3.6. Investment Company. Parent is not an "investment company" or a
------------------
company "con trolled" 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.
3.7. Financial Statements. Parent has provided certain financial
--------------------
statements and pro forma financial statements to the Stockholders ("Parent
Financial Statements") as contained in that certain Confidential Information
Statement of Parent dated June 12, 1997, and such Parent Financial Statements
have been prepared in accordance with GAAP, are true and correct in all material
respects, and are fair presentations of the consolidated financial position,
results of operations and cash flows of Parent and its then existing
consolidated subsidiaries as of the dates and for the periods indicated. The
books and records of Parent have been kept in reasonable detail and accurately
and fairly reflect the transactions of Parent.
-8-
<PAGE>
3.8. Undisclosed Liabilities. Except for other planned acquisitions and
-----------------------
except as and to the extent disclosed in Schedule 3.8 of Parent's Disclosure
Schedule or in the Parent Financial Statements, Parent and Parent's Subsidiaries
have no liabilities or obligations of any nature (whether absolute, contingent
or otherwise).
3.9. Taxes. 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 Parent for the period ended December 31, 1996.
3.1. Authority; Permits; Compliance with Laws.
----------------------------------------
(a) Each of Parent and Parent's Subsidiaries has the necessary
corporate power and authority to own and operate its business, properties and
assets as conducted on the date hereof.
(b) Each of Parent and Parent's Subsidiaries has all licenses and
permits (including permits required under applicable Environmental Law (as
defined in Exhibit 2)) necessary to own and operate its business, properties and
assets as conducted on the date hereof, except where the failure to have such
license or permit would not have a Parent Material Adverse Effect.
(c) To Parent's knowledge, Parent and Parent's Subsidiaries'
respective businesses, properties and assets and each employee benefit plan of
Parent are now being conducted, in all material respects, in compliance with all
applicable laws (including Environmental Laws), ordinances, rules and
regulations of any governmental agency of the United States, any state or
political subdivision thereof, and all applicable court or administrative agency
decrees, awards and orders, except where the failure to comply would not have a
Parent Material Adverse Effect.
3.11. Legal Actions. No legal action, suit, audit, investigation, unfair
-------------
labor practice charge, compliant, claim, grievance, or proceeding by or before
any court, arbitration panel, governmental authority or third party is pending
or, to Parent's knowledge, threatened against Parent and Parent's Subsidiaries
that either (i) would impact the ability of Parent to consummate the
transactions contemplated by this Agreement, including, without limitation, the
issuance of the Parent Common Stock to the Stockholders, or (ii) would,
individually or in the aggregate, result in a Parent Material Adverse Effect if
adversely determined.
3.12. Access. Parent has cooperated fully in permitting the Stockholders
------
and their representatives to make a full investigation of the properties,
operations and financial condition of Parent; and afforded the Stockholders and
their representatives reasonable access to the offices,
-9-
<PAGE>
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.13. Disclosure. No representation or warranty by Parent in this Agreement
----------
no statement contained any certificate delivered by Parent to the Stockholders
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.
3.14. Parent Material Adverse Effect. Since December 31, 1996, Parent has
------------------------------
not suffered any 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 Parent and its consolidated
subsidiaries, taken as a whole in an amount of $50,000 or more.
3.15. Certain Documents and Events Impacting the Parent Common Stock.
--------------------------------------------------------------
Parent hereby makes available to Stockholders the following information to
Stockholders:
(a) Schedule 3.15(a) of Parent's Disclosure Schedule is a correct
and complete copy of Parent's Articles of Incorporation and Bylaws.
(b) Schedule 3.15(b) of Parent's Disclosure Schedule is a correct
and complete copy of the Shareholders Agreement.
3.16. Other Transactions. The merger of GroupMAC Management Co., a Texas
------------------
corporation, formerly named "Group Maintenance America Corp." (and which is the
entity with which the Companies executed that certain letter of intent dated
February 21, 1997) and Group Maintenance America Corp., a Texas corporation, has
been consummated. Parent has completed its acquisition of Airtron, Inc. Parent
has in effect letters of intent to acquire K&N Plumbing, Heating and Air
Conditioning, Inc., Hallmark Air Conditioning, Inc., Sibley Services, Inc.,
Charlie Crawford, Inc. and Costner Brothers, Inc. (collectively, the "Targets").
Parent intends to consummate the acquisition of the Targets.
-10-
<PAGE>
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS
Parent and the Stockholders agree as follows:
4.1. Transfer Restrictions. Contemporaneously herewith, the Stockholders
---------------------
and Parent are executing and delivering a Stock Transfer Restriction Agreement
and a Registration Rights Agreement.
4.2. Adoption of Shareholders Agreement. Contemporaneously herewith, the
----------------------------------
Stockholders are executing and delivering to Parent an adoption agreement
pursuant to which the Stockholders agree to be bound by the Shareholders
Agreement among Parent and its existing shareholders, as amended, a copy of
which has been delivered to the Stockholders.
4.3. Key Employee Employment Agreements. Contemporaneously herewith, the
----------------------------------
Company and certain key employees of the Company are executing and delivering
employment agreements. The Company's obligations under such employment
agreements shall be guaranteed by Parent.
4.4. Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Stockholders in this Section are a
material inducement to Parent to enter into and perform this Agreement, each
Stockholder agrees that, for the period from the date hereof to the date which
is five (5) years after the date hereof such Stockholder 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, 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, officer, director, trustee,
manager, employee, agent, associate or consultant engage in any business other
than on behalf of Parent or its subsidiaries which involves indoor air quality,
heating, ventilation and air conditioning, plumbing or electrical contracting
within a 100 mile radius of either Dallas, Texas or Garland, Texas.
(ii) Each Stockholder agrees that the limitations set forth herein on
such Stockholder's rights to compete with Parent and its affiliates as set forth
in clause (i) are reasonable and necessary for the protection of Parent and its
affiliates. In this regard, each Stockholder specifically agrees that the
limitations as to period of time and geographic area, as well as all other
restrictions on such Stockholder's activities specified herein, are reasonable
and necessary for the protection of Parent and its affiliates. Each Stockholder
agrees that, in the event that the provisions of this Section should ever be
deemed to exceed the scope of business, time or geographic
-11-
<PAGE>
limitations permitted by applicable law, such provisions shall be and are hereby
reformed to the maximum scope of business, time or geographic limitations
permitted by applicable law.
(iii) Each Stockholder agrees that the remedy at law for any breach by
such Stockholder of this Section 4.4 will be inadequate and that Parent shall be
entitled to injunctive relief.
4.5. Mutual Release.
--------------
(a) The Stockholders do hereby (i) release, acquit and forever
discharge the Companies from any and all liabilities, obligations, claims,
demands, actions or causes of action arising from or relating to any event,
occurrence, act, omission or condition occurring or existing on or prior to the
Closing Date, including, without limitation, any claim for indemnity or
contribution from either Company in connection with the obligations or
liabilities of the Stockholders hereunder, except for salary and benefits
payable to a Stockholder as an employee in the ordinary course of business; (ii)
waive all breaches, defaults or violations of any agreement applicable to the A-
ABC Common Stock and the A-1 Common Stock and agree that any and all such
agreements are terminated as of the Closing Date; and (iii) waive any and all
pre-emptive or other rights to acquire any shares of capital stock of either
Company and release any and all claims arising in connection with any prior
default, violation or failure to comply with or satisfy any such pre-emptive or
other rights.
(b) The Companies (and Parent, to the extent it may have any
derivative claim as the sole shareholder of the Companies after the Closing) do
hereby release, acquit and forever discharge the Stockholders and Service Today
Management Co. from any and all liabilities, obligations claims, demands,
actions or causes of action arising from or relating to any event, occurrence,
act, omission or condition occurring or existing on or prior to the Closing
Date; provided, that nothing in this subsection (b) shall be construed as
releasing the Stockholders with respect to the warranties, representations and
covenants set forth in this Agreement.
4.6. Releases of Stockholders. Within 30 days after the date hereof,
------------------------
Parent shall cause the Stockholders to be released from any liability under
their personal guaranties of obligations of the Companies described in Schedule
4.6 of the Disclosure Schedule (as defined in Exhibit 2). In the event Parent
cannot obtain such releases within such 30-day period, Parent shall cause the
Companies to pay off or otherwise retire such obligations.
4.7. Lease. Contemporaneously herewith, the A-ABC, as lessee and I. Ahron
-----
Katz as owner of the property located at 14001 Distribution Way, Dallas, Texas
are entering into a lease of such property. Parent shall guarantee the
obligations of A-ABC under such lease.
-12-
<PAGE>
4.8. Certain Insurance Policies. That certain disability insurance policy
--------------------------
described in Schedule 4.8(a) of the Disclosure Schedule shall be terminated
prior to the Closing. That certain disability insurance policy ("Disability
Policy") described in Schedule 4.8(b) of the Disclosure Schedule shall remain in
full force and effect at A-ABC's expense through December 31, 1997; at such
time, if Parent does not have a disability policy in place, the Disability
Policy shall remain in full force and effect at A-ABC's expense until such
policy is replaced by Parent. That certain life insurance policy described in
Schedule 4.8(c) of the Disclosure Schedule shall be purchased by I. Ahron Katz
prior to the Closing from A-ABC for the cash value of such policy on the date
such policy is purchased and such cash shall be excluded from Current Assets.
4.9. Other Closing Documents. Contemporaneously herewith:
-----------------------
(i) The Stockholders are delivering to Parent an opinion of legal
counsel satisfactory to Parent; and
(ii) Parent is delivering to the Stockholders (a) an opinion of legal
counsel satisfactory to the Stockholders, and (b) certified resolutions of the
Board of Directors of Parent in form satisfactory to the Stockholders.
4.10. Certain Residence. The book value on the books of A-ABC as of May 31,
-----------------
1997 attributable to that certain residence located at 8120 Spring
Valley Road, Dallas, Texas shall be replaced with cash prior to the
Closing and such cash shall be excluded from Current Assets.
4.11. Minimum IPO Proceeds. Parent agrees that it will not, without the
--------------------
prior written consent of the Stockholders (which consent shall not be
unreasonably withheld) issue any shares of Parent Common Stock after the date
hereof and prior to the IPO in connection with any acquisition of another
company or business (including, without limitation, in the acquisition of the
Targets) at a price per share of less than $5.60 (adjusted for stock splits,
reverse stock splits and stock dividends). Parent further agrees that, in the
event that the gross selling price of Parent Common Stock in the IPO is less
than $5.60 per share, then within five (5) days after the IPO Parent shall issue
additional shares of Parent Common Stock to the Stockholders in accordance with
the percentages set forth on Exhibit 1.2 such that the number of shares issued
to the Stockholders thereby, when aggregated with the shares of Parent Common
Stock issued to the Stockholders at Closing, equals the quotient obtained when
the Final Number of Parent Common Shares multiplied by $5.60 is divided by the
gross selling price of shares of Parent Common Stock in the IPO. The minimum
IPO gross selling price (i.e., $5.60 per share) and the number of shares issued
at Closing and pursuant to the preceding sentence shall be adjusted for stock
splits, stock dividends, recapitalizations and similar transactions with respect
to the Parent Common Stock between the date hereof and the later to occur of the
IPO date or the date such additional shares are issued.
-13-
<PAGE>
4.12. Funding Date. In the event (i) Parent does not receive the financing
------------
for this transaction, (ii) the transaction could otherwise close and (iii) the
Closing Cash Consideration is not delivered to the Stockholders by June 13,
1997, Parent shall pay to the Stockholders interest on the Closing Cash
Consideration for the period from June 1, 1997 to the date the Closing Cash
Consideration is delivered to the Stockholders (the "Fund Period") at a rate
equal to the rate that Parent would have to pay for such funds during the Fund
Period under that certain Credit Agreement dated May 2, 1997 among Parent, the
Subsidiaries of Parent, Texas Commerce Bank National Association, as the Agent
and the Banks named therein.
4.13. Employee Bonuses. The Companies shall be entitled to pay cash
----------------
employee bonuses prior to Closing, but any such amounts shall be treated for
purposes of this Agreement as if they were paid as of May 31, 1997.
4.14. AAA Account Distributions. The Companies shall be entitled to
-------------------------
distribute cash to the Stockholders prior to Closing of up to $500,000 (of which
approximately $160,000 was distributed in April, 1997), but any such amounts
shall be treated for purposes of this Agreement as if they were distributed as
of May 31, 1997.
4.15. Payment of Certain Costs of this Transaction. All of Elie Balas' and
--------------------------------------------
Sherry Lee's (collectively, the "Advisors") fees and costs in connection with
this transaction shall be paid in GroupMAC Common Stock as set forth on Exhibit
1.2. The Stockholders shall cause the Advisors to execute the Stock Transfer
Restriction Agreement, an Adoption Agreement to the Shareholders Agreement and a
Representation Agreement and Investor Questionnaire.
5. SURVIVAL, INDEMNIFICATIONS
5.1. Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Stockholders herein in the Stockholder
Related Documents other than those of the Stockholders in Sections 2.2, 2.3,
2.4, and in Sections 2 and 3 of Exhibit 2 shall survive for a period of thirty-
six (36) months after the date hereof and the representations and warranties of
the Stockholders 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 Parent herein and in the Parent Related
Documents, other than those in Sections 3.2, 3.3 and 3.4, shall survive for a
period of thirty-six (36) months after the date hereof and the representations
and warranties of Parent contained in Sections 3.2, 3.3 and 3.4 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 5.1 are
referred to herein as the
-14-
<PAGE>
"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 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.
5.2. Indemnification.
---------------
5.2.1. Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 5.1 and 5.3 hereof, the Stockholders, severally in proportion to their
percentages set forth on Exhibit 1.2, shall indemnify, save and hold harmless
Parent, the Companies (if and only if the transactions contemplated by this
Agreement are consummated) 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, claims,
deficiencies, penalties, interest, expenses, fines, assessments, charges and
costs, including reasonable attorneys' fees and court costs (collectively
"Losses") arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of such Stockholder or the failure
by such Stockholder to perform any obligation of such Stockholder contained
herein or in any Stockholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty
of any Stockholder contained herein or in any Stockholder Related Document;
(iii) that certain wrongful termination lawsuit filed against Service
Today Management Co. and I. Ahron Katz styled as Berdis v. Service Today
Management Co., et al., Cause No. 95-08787 in the 44th District Court,
Dallas County, Texas.
(iv) indemnification payments made by either Company to its 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, unless such indemnification is ordered by a court in
accordance with the Texas Business Corporation Act; and
-15-
<PAGE>
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing and involving or
related to the assets, properties, business or operations now or previously
owned or operated by either Company and not (a) disclosed in this Agreement
or in the Disclosure Schedule or (b) disclosed in the Company Financial
Statements (as defined in Exhibit 2).
(vi) if the transaction contemplated hereunder fails to qualify for
Section 351 treatment as a result of any factual misrepresentation made by
A-ABC or A-1 or the Stockholders, the Stockholders shall indemnify GroupMAC
against any losses it suffers, including any net tax loss and penalties and
any claims made against GroupMAC by other participants in the (S) 351
transaction.
5.2.2. Parent Indemnity. Subject to the provisions of Sections 5.1 and
----------------
5.3, Parent shall indemnify, save and hold harmless the Stockholders and the
Stockholders' 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 Parent or the failure by Parent
to perform any obligation of Parent contained herein or in the Parent
Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty
of Parent contained herein or in the Parent Related Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the date hereof and
involving or relating to the assets, properties, businesses or operations
of the Companies; provided, however, that clause (iii) shall not apply to
any Losses to the extent that such Losses result from the Stockholder's
acts or omissions after the date hereof as an officer, director and/or
employee of Parent or either Company and/or any other affiliate of Parent.
(iv) if the transaction fails to qualify for Section 351 treatment,
and such failure is attributable to a factual misrepresentation made by
GroupMAC or any other participants (other than the Companies or the
Stockholders) to KPMG on which KPMG relied in rendering its opinion (other
than a fact that relates specifically to the A-ABC or A-1 transaction),
GroupMAC shall indemnify the Stockholders for the Tax Loss (as defined).
"Tax Loss" means the penalties incurred plus the incremental federal tax
paid, minus the tax benefit (if and when received) from a step up in basis
of the GroupMAC capital stock.
-16-
<PAGE>
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 5.2.1.
5.3 Limitations.
-----------
(a) The aggregate liability of the Stockholders under Sections 5.2.1
shall not exceed the final purchase price determined in accordance with Sections
1.2 and 1.3. The aggregate liability of Parent under Section 5.2.2 shall not
exceed the final purchase price determined in accordance with Sections 1.2 and
1.3.
(b) Notwithstanding any other provision of this Agreement, the
Stockholders shall not be liable to Parent under Section 5.2.1 regarding any
single claim, loss, expense, obligation, or other liability that does not exceed
$50,000 (the "Threshold"); provided, however, that when the aggregate amount of
all such claims, losses, expenses, obligations, and liabilities not exceeding
the Threshold reaches the Threshold, the Stockholders shall thereafter be liable
in full regarding all such claims, losses, expenses, obligations, and
liabilities (including the amount of the Threshold).
5.4 Notice. The party (the "Indemnified Party") which may be entitled
------
to indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim,
or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 5.4 shall relieve the
Indemnifying Party of its obligations under this Article 5 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice. The Indemnifying Party 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
Indemnified Party shall at all times have the right, at its option, to
participate fully therein at the Indemnified Party's expense, and (ii) if the
Indemnifying Party does not proceed diligently to defend the third-party claim,
suit action or proceeding within ten (10) days after receipt of notice of such
third-party claim, suit, action or proceeding, the Indemnified Party shall have
the right, but not the obligation, to undertake the defense of any such third-
party claim, suit, action or proceeding. 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 ten (10) days' prior written
-17-
<PAGE>
notice to the Indemnifying Party if such third-party suit, action, proceeding or
investigation is then unreasonably interfering with the business or operations
of either Company and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives ten
(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 ten (10) days after delivery of the
Settlement Notice to the Indemnified Party, and such settlement otherwise
complies with the provisions of this Section 5.4, the Indemnifying Party shall
not be liable for Losses arising from such third-party suit, action, proceeding
or investigation in excess of the amount proposed in such settlement offer.
Notwithstanding the foregoing, no Indemnifying Party will consent to the entry
of any judgment or enter into any settlement without the consent of the
Indemnified Party, if such judgment or settlement imposes any obligation or
liability upon the Indemnified Party other than the execution, delivery or
approval thereof and customary releases of claims with respect to the subject
matter thereof. 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 which are pertinent to the defense. The parties
agree that 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. MISCELLANEOUS
6.1 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 Stockholders:
At the address and telecopy number for such Stockholder
set forth by such Stockholder's name on the signature
pages hereof.
With a copy to:
James B. Betterman, Esq.
Lathrop & Gage L.C.
2345 Grand Blvd., Suite 2500
Kansas City, Missouri 64108
Telecopy: (816) 292-2001
-18-
<PAGE>
To Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 6.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
6.2. Further Documents. The Stockholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by 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 Stockholders hereunder.
6.3. Assignability. No Stockholder shall assign this Agreement in whole or
-------------
in part without the prior written consent of Parent, except by the operation of
law. Parent may assign its rights under this Agreement and the Stockholder
Related Documents without the consent of any Stockholder (i) prior to the IPO,
only to a wholly-owned subsidiary of Parent, in which case Parent shall not be
relieved of its obligations and (ii) after the IPO, to any person or entity..
6.4. 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.
6.5. Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections and Articles referred to herein are, respectively, sections and
articles of this Agreement and all Exhibits and Schedules referred to herein
are, respectively, exhibits, and schedules constituting a part of the Disclosure
Schedule.
6.6. Entire Agreement. This Agreement, the Stockholder Related Documents
----------------
and the Parent Related Documents constitute 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
-19-
<PAGE>
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.
6.7. Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
6.8. CONTROLLING LAW AND JURISDICTION. 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.
6.9. Public Announcements. No press release, public announcement,
--------------------
confirmation or other information regarding this Agreement or the contents
hereof shall be made by any party or either Company without the prior
consultation of the Stockholders and Parent, except as may be necessary in the
opinion of counsel of any party to meet the requirements or regulations of any
applicable law, governmental unit or agency or stock exchange on which the
securities of such party may be listed. Notwithstanding the foregoing, either
Company may make appropriate disclosures of the general nature of the
transaction contemplated hereby to its employees, vendors and customers to
protect such Company's good will and to facilitate the consummation of the
transactions contemplated hereby, and Parent may disclose pertinent information
regarding the transaction contemplated hereby to its existing and prospective
investors, lenders or investment bankers or financial advisors for the purposes
of obtaining financing (including a contemplated IPO). Parent may also make
appropriate disclosures of the general nature of the transaction contemplated
hereby and the identity, nature and scope of the operations of the Companies to
prospective acquisition candidates in its efforts to attract additional
acquisitions for Parent. Parent and the Stockholders shall jointly approve the
contents of any press releases, written employee presentations or other
materials of potentially wide distribution that disclose or refer to the
transaction contemplated hereby, except for such press releases or other
communications required by law.
-20-
<PAGE>
6.10. No Third Party Beneficiaries. Except as set forth in Article 5, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
6.11. Amendments; Waivers. This Agreement may be amended, modified or
-------------------
supplemented, or the time for the performance of any of the obligations or other
acts of the other parties hereto, or any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto may be
waived, or compliance with any of the agreements or conditions contained herein
may be waived, but only in writing signed by Parent and Stockholders owning a
majority of each of the Company's Common Stock; provided, that (i) any amendment
that reduces the purchase price or changes the payment terms therefor must be
approved in writing by all parties hereto, and (ii) any amendment that imposes
additional liabilities or obligations on any party hereto must, to be effective
against such party, be signed by such party.
6.12. No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of either 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.
6.13. 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 Parent in this Agreement shall be
had against any incorporator, organizer, promoter, stockholder, officer,
director, employee or representative solely by reason of such person serving as
such (other than the Stockholders as set forth herein), past, present or future,
of 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.
6.14. When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by Parent
and the Stockholders.
6.15. Takeover Statutes. If any "fair price", "moratorium", "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, Parent and the Companies 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.
-21-
<PAGE>
6.16. 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.
6.17. 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.
6.18. 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.
6.19. 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.
6.20. Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Companies may pay the costs
of any financial advisor, broker or finder engaged by the Stockholders, the
accounting and auditing fees and expenses of KPMG Peat Marwick (not to exceed
$20,000) and attorneys' fees and expenses of the Stockholders; and provided
further that all fees, costs and expenses incurred or payable by either Company
(other than such accounting and auditing fees and expenses) in connection with
the negotiation and closing of this Agreement and the transactions contemplated
hereby and the costs of any such financial advisor, broker or finder shall be
included in Current Liabilities.
-22-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
GROUP MAINTENANCE AMERICA CORP.
By:_____________________________________
Name:___________________________________
Title:__________________________________
____________________________________
I. Ahron Katz
Address: 14001 Distribution Way
Dallas, Texas 75234
Telecopy: (972) 241-3115
____________________________________
Billy Nix
Address: 211 Wilderness Trail
Mesquite, Texas 75149
Telecopy:______________________
____________________________________
David J. Katz
Address: 5616 Preston Oaks, Apt. 1312
Dallas, Texas 75240
Telecopy:______________________
____________________________________
Gary A. Katz
Address: 2638 Lyndale Avenue South
Minneapolis, Minnesota 55408
Telecopy: (612) 871-6354
-23-
<PAGE>
EXHIBIT 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.
July 15, 1997
================================================================================
Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE CLOSING...................................................................................... 1
1.1. The Closing Date...................................................................... 1
1.2. Post-Closing Adjustment............................................................... 2
1.3. Additional Contingent Purchase Price Consideration.................................... 3
1.3.1. EBITDA Target................................................................. 3
1.3.2. Notices....................................................................... 4
1.3.3. Expenses...................................................................... 5
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS............................................... 5
2.1. Exhibit 2............................................................................. 5
2.2. Stock Ownership....................................................................... 5
2.3. Authority............................................................................. 5
2.4. Consents.............................................................................. 6
3. REPRESENTATIONS AND WARRANTIES OF PARENT......................................................... 6
3.1. Representations and Warranties........................................................ 6
3.1.1. Organization................................................................. 6
3.1.2. Capitalization of Parent..................................................... 6
3.1.3. Authority.................................................................... 6
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........................................................................ 7
3.1.9. Full Authority............................................................... 8
3.1.10. Access....................................................................... 8
3.1.11. Disclosure................................................................... 8
3.1.12. Parent Material Adverse Effect............................................... 8
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS..................................................... 8
4.1. Transfer Restrictions................................................................. 8
4.2. Adoption of Shareholders Agreement.................................................... 9
4.3. Key Employee Employment Agreements.................................................... 9
4.4. Covenant Not to Compete............................................................... 9
4.5. Certain Elections..................................................................... 10
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
4.5.1. Securities Acquisition Election............................................... 10
4.5.2. Transfer Transaction Election................................................. 11
4.5.3. Other......................................................................... 11
4.6. Release............................................................................... 12
4.7. Releases of James Townsend and Wallace Sibley......................................... 12
4.8. Lease................................................................................. 12
4.9. Consulting Agreement Termination...................................................... 12
4.10. Split-Dollar Life Insurance Policies.................................................. 12
4.11. Other Closing Documents............................................................... 13
5. SURVIVAL, INDEMNIFICATIONS......................................................................... 13
5.1. Survival.............................................................................. 13
5.2. Indemnification....................................................................... 14
5.2.1. Parent Indemnified Parties.................................................... 14
5.2.2. Parent Indemnity.............................................................. 14
5.3. Limitations........................................................................... 15
5.4. Notice................................................................................ 15
6. MISCELLANEOUS...................................................................................... 16
6.1. Notice................................................................................ 16
6.2. Further Documents..................................................................... 17
6.3. Assignability......................................................................... 17
6.4. Exhibits and Schedules................................................................ 18
6.5. Sections and Articles................................................................. 18
6.6. Entire Agreement...................................................................... 18
6.7. Headings.............................................................................. 18
6.8. CONTROLLING LAW AND JURISDICTION...................................................... 18
6.9. Public Announcements.................................................................. 18
6.10. No Third Party Beneficiaries.......................................................... 19
6.11. Amendments and Waivers................................................................ 19
6.12. No Employee Rights.................................................................... 19
6.13. Non-Recourse.......................................................................... 19
6.14. When Effective........................................................................ 20
6.15. Takeover Statutes..................................................................... 20
6.16. Number and Gender of Words............................................................ 20
6.17. Invalid Provisions.................................................................... 20
6.18. Multiple Counterparts................................................................. 20
6.19. No Rule of Construction............................................................... 20
6.20. Expenses.............................................................................. 21
</TABLE>
-iii-
<PAGE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") is made this 15th
day of July, 1997, among GROUP MAINTENANCE AMERICA CORP., a Texas corporation (1
"Parent") and the holders (the "Stockholders") of all of the outstanding capital
stock of Sibley Services, Inc., a Tennessee corporation (the "Company").
WHEREAS, Parent and the Stockholders desire to provide for the transfer by
the Stockholders to Parent of the outstanding shares of capital stock of the
Company in exchange for cash, common stock and preferred stock of Parent;
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as an exchange under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder;
WHEREAS, Parent has adopted and Parent and the Stockholders have executed
and delivered a Section 351 Plan;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1. The Closing Date. For purposes of this Agreement, the term "Closing
----------------
Date" shall mean the date hereof. On the Closing Date, as soon as practicable
after the execution of this Agreement, a Closing (the "Closing") shall occur.
At the Closing, the Stockholders shall deliver to Parent the Stockholders' stock
certificates evidencing all of the Stockholders' shares of common stock, no par
value, of the Company ("Company Common Stock") and a completed letter of
transmittal, and Parent shall deliver to the Stockholders $605,576 in cash (the
"Closing Cash Consideration"), certificates evidencing 664,691 shares of Series
F Preferred Stock, $.001 par value, of Parent ("Parent Preferred Stock") and
certificates evidencing 155,002 shares of common stock, $.001 par value, of
Parent ("Parent Common Stock"). The portion of such Closing Cash Consideration,
shares of Parent Preferred Stock and shares of Parent Common Stock to be
delivered to each Stockholder is set forth on Exhibit 1.1 attached hereto. The
Closing Cash Consideration is subject to post-closing adjustment as provided
below. One hundred thousand dollars ($100,000) of the Final Cash Consideration
(as defined below) shall be allocated as consideration for the covenant not to
<PAGE>
compete set forth in Section 4.4 and shall be allocated to the Stockholders in
the percentages shown on Exhibit 1.1.
1.2. Post-Closing Adjustment.
-----------------------
(i) As promptly as practicable, and in any event no later than ninety
(90) days after the date hereof, Parent shall cause to be prepared and delivered
to the Stockholders a statement (the "Statement") showing (a) a calculation,
based on the books and records of the Company as of the Closing Date, of the
Long-Term Debt (as defined below), the Current Assets (as defined below) and the
Current Liabilities (as defined below) and (b) the Final Cash Consideration
(determined as set forth below).
(ii) The Closing Cash Consideration has been determined by agreement of
Parent and the Stockholders as being an acceptable estimate of 90% of the Final
Cash Consideration payable to the Stockholders hereunder. To arrive at the
Final Cash Consideration, there shall be deducted from $XXX (a) the amount,
if any, by which Long-Term Debt as shown on the Statement exceeds $89,872 and
(b) the amount, if any, by which the positive difference of the sum of (1)
Current Assets minus (2) XXX times Current Liabilities is less than $172,223.
The resulting amount shall be the Final Cash Consideration.
(iii) If the Final Cash Consideration as shown on the Statement exceeds
the Closing Cash Consideration, Parent will pay to the Stockholders (in the
percentages shown on Exhibit 1.1) the amount of the excess in cash within 10
days after the date of delivery of the Statement to the Stockholders. If the
Closing Cash Consideration exceeds the Final Cash Consideration, as shown on the
Statement, the Stockholders will pay to Parent the amount of the excess in cash
within 10 days after the date of delivery of the Statement to the Stockholders.
(iv) For purposes of the Agreement (a) the term "Long-Term Debt" shall
mean all long-term liabilities of the Company as of the Closing Date, including
deferred taxes and capitalized lease obligations, all as determined in
accordance with U.S. generally accepted accounting principles consistently
applied ("GAAP"); (b) the term "Current Assets" shall mean the current assets of
the Company as of the Closing Date, as determined in accordance with GAAP; and
(c) the term "Current Liabilities" shall mean the current liabilities of the
Company as of the Closing Date, as determined in accordance with GAAP; provided,
however, that all expenses of the Company or the Stockholders (other than the
audit fee paid by the Company to KPMG Peat Marwick) incurred in connection with
the transactions contemplated hereby which are payable by the Company shall be
accrued as of such date and included in Current Liabilities. Accounts receivable
on the books of the Company at the
-2-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
Closing Date that remain uncollected on the date of the Statement and which are
over 60 days old shall, if so identified by Parent, not be included in Current
Assets and such accounts receivable so identified shall be assigned to the
Stockholder without recourse.
1.3. Additional Contingent Purchase Price Consideration.
--------------------------------------------------
1.3.1. EBITDA Target. In the event that the EBITDA (as defined below)
-------------
of the Company for any consecutive period of twelve calendar months ending after
the Closing Date and on or prior to December 31, 1998 equals or exceeds $XXX
("EBITDA Target"), the Stockholders shall be entitled to receive from Parent,
within ninety days after the end of any such twelve month period in which the
EBITDA Target was met, additional purchase price consideration in the form of
XXX shares of Parent Common Stock (the "Additional Shares") (adjusted for
any stock splits or similar events from the date of this Agreement) and such
additional purchase price consideration shall be delivered to the Stockholders
in the percentages as set forth on Exhibit 1.1 attached hereto. In the event
the EBITDA Target is not achieved by December 31, 1998, the Stockholders shall
be entitled to receive from Parent, on or before March 31, 1999, additional
purchase price consideration of XXX shares of Parent Common Stock (adjusted
for any stock splits or similar events from the date of this Agreement) for each
dollar of the excess, if any, of (i) EBITDA for the twelve months ending on
December 31, 1998 over (ii) $XXX (the "EBITDA Excess"), and such additional
purchase price consideration shall be delivered to the Stockholders in the
percentages as set forth in Exhibit 1.1 attached hereto (rounded up or down to
the nearest whole share). For the purposes of this Agreement, the term "EBITDA"
shall mean the sum of (1) Net After-Tax Income (as defined below), plus (2) the
amount of income and franchise taxes deducted from Net After-Tax Income, plus
(3) the amount of depreciation and amortization deducted from Net After-Tax
Income, plus (4) the amount of interest expense deducted from Net After-Tax
Income (the amounts in clauses (1) through (4) to be determined in accordance
with GAAP); provided that if the Company acquires the assets or business of
another person or entity after the date hereof and prior to or during the
relevant EBITDA measurement period, the EBITDA of the Company will include the
net earnings generated from such assets or business reduced by a "cost of
capital charge" equal to XXX% per annum on the acquisition cost of such assets
and business (including all related transaction costs and the amount of any debt
assumed in the transaction). The term "Net After-Tax Income" shall mean the net
income (or loss) of the Company for the period in question after deduction for
income, franchise and other taxes and without giving effect to non-recurring
gains and losses, interest income or investment income, determined in accordance
with GAAP.
-3-
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
1.3.2. Notices. The Stockholders shall submit to Parent a notice
-------
("EBITDA Notice") no later than thirty days following the end of the twelve
month period in which the EBITDA Target is believed by the Stockholders to have
been met setting forth a statement that the EBITDA Target has been met, the
EBITDA calculation and the supporting data. The information set forth in the
EBITDA Notice shall be final, conclusive and binding for purposes of this
Agreement, unless Parent shall deliver to the Stockholders a written notice of
disagreement ("Parent Notice of Disagreement") specifying the nature and extent
of such disagreement within 10 business days following the actual receipt by
Parent of the EBITDA Notice. If within 10 business days following receipt by
the Stockholders of a Parent Notice of Disagreement, the Stockholders and Parent
are unable to resolve any disagreement with respect to the EBITDA Notice, the
disagreement shall be submitted for resolution to Parent's firm of independent
certified public accountants (the "Independent Accountants") who shall resolve
the issues in dispute. The Independent Accountants shall act as an arbitrator
to determine and resolve only those issues in dispute. The Independent
Accountants' resolution shall (a) be made within 30 days of the submission of
the dispute to them (along with all supporting data or access to the Company's
books and records), (b) be in accordance with this Agreement, (c) be set forth
in a written statement delivered to Parent and the Stockholders, (d) indicate
whether the EBITDA Target has been met, and (e) be final, conclusive and binding
for purposes of this Agreement. In the event the EBITDA Target is not achieved
by December 31, 1998, Parent shall deliver to the Stockholders on or before
March 31, 1999 a statement ("Parent Statement") setting forth the EBITDA Excess,
if any, for the twelve months ending December 31, 1998. The information set
forth in the Parent Statement shall be final, conclusive and binding for
purposes of this Agreement, unless Stockholders shall deliver to Parent a
written notice of disagreement ("Stockholders Notice of Disagreement")
specifying the nature and extent of such disagreement within 10 business days
following the receipt by the Stockholders of the Parent Statement. If within 10
business days following receipt by Parent of a Stockholders Notice of
Disagreement, the Stockholders and Parent are unable to resolve any disagreement
with respect to the Parent Statement, the disagreement shall be submitted for
resolution to the Independent Accountants who shall resolve the issues in
dispute. The Independent Accountants shall act as an arbitrator to determine
and resolve only those issues in dispute. The Independent Accountants'
resolution shall (a) be made within 30 days of the submission of the dispute to
them (along with all supporting data or access to the Company's books and
records), (b) be in accordance with this Agreement, (c) be set forth in a
written statement delivered to Parent and the Stockholders, (d) indicate the
EBITDA Excess, if any, and (e) be final, conclusive and binding for purposes of
this Agreement.
-4-
<PAGE>
1.3.3. Expenses. The fees and expenses of the Independent Accountants
--------
in connection with any resolution described in Section 1.3.2 shall be
apportioned between Parent and the Stockholders by the Independent Accountants
based upon the inverse proportion of the disputed amounts resolved in favor of
each party (i.e., so that the prevailing party bears a lesser amount of such
fees and expenses). Otherwise, Parent and the Stockholders shall each pay their
own costs incurred in connection with Section 1.3.2, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
The Stockholders, jointly and severally, hereby represent and warrant to
Parent as follows:
2.1. Exhibit 2. The statements in Exhibit 2 attached hereto are true and
---------
correct to the best knowledge and belief of each Stockholder ("Knowledge
Qualifier"); provided, however, that the Knowledge Qualifier shall not in any
way limit the obligations of either such Stockholder under Section 5.2 of this
Agreement in the event the Company incurs Losses (as defined) due to the
inaccuracy of any representation or warranty contained in Exhibit 2 whether or
not such inaccuracy was known to such Stockholder or believed to exist by such
Stockholder.
2.2. Stock Ownership. Each Stockholder owns, beneficially and of record,
---------------
with full power to vote, the number of shares of Company Common Stock set forth
beside such Stockholder's name on Exhibit 1.1 and such shares are so held by
such Stockholder free and clear of all liens, encumbrances and claims
whatsoever.
2.3. Authority. Each Stockholder 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 Stockholder (each a "Stockholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by each
Stockholder and constitutes, and each Stockholder Related Document, when duly
executed and delivered by each Stockholder who is a party thereto will
constitute, legal, valid and binding obligations of such Stockholder enforceable
against such Stockholder 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).
-5-
<PAGE>
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 Stockholders of this
Agreement or any Stockholder Related Document. The execution, delivery and
performance by each Stockholder of this Agreement and the Stockholder Related
Documents to which such Stockholder is a party do not violate any mortgage,
indenture, contract, agreement, lease or commitment or other instrument of any
kind to which such Stockholder is a party or by which such Stockholder or such
Stockholder's assets or properties may be bound or affected or any law, rule or
regulation applicable to such Stockholder or any court injunction, order or
decree or any valid and enforceable order of any governmental agency in effect
as of the date hereof having jurisdiction over such Stockholder.
3. REPRESENTATIONS AND WARRANTIES OF PARENT
3.1. Representations and Warranties. Parent hereby represents and warrants
------------------------------
to the Stockholders as follows:
3.1.1. Organization. Parent is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Texas. 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 Parent. The total authorized capital stock of
------------------------
Parent is 100,000,000 shares of Parent Common Stock, of which 20,127,437 shares
are issued and outstanding and none of which are held in the treasury of Parent,
50,000,000 shares of Parent preferred stock, $.001 par value, of which 45,137
shares of Series A Parent Preferred Stock are issued and outstanding, 678,920
shares of Series B Parent Preferred Stock are issued and outstanding, 100,000
shares of Series C Parent Preferred Stock are issued and outstanding, 1,568,000
shares of Series D Parent Preferred Stock are issued and outstanding and 580,000
shares of Series E Parent Preferred Stock are issued and outstanding. The
outstanding shares of Parent Common Stock and Parent preferred stock have been
duly and validly issued and are fully paid and non-assessable.
3.1.3. Authority. Parent has full right, power, legal capacity and
---------
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby and to consummate the
transactions contemplated herein and thereby (the "Parent Related Documents").
This Agreement has been duly executed and delivered by Parent and constitutes,
and all Parent Related Documents, when executed and delivered by Parent will
constitute, legal, valid and binding obligations of 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
-6-
<PAGE>
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding at law or in equity).
3.1.4. Consents. No approval, consent, order or action of or filing
--------
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by Parent of this
Agreement or the Parent Related Documents or the consummation by Parent of the
transactions contemplated hereby.
3.1.5. Defaults. Parent is not in default under or in violation of,
--------
and the execution, delivery and performance of this Agreement and Parent Related
Documents and the consummation by 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 Parent is a party or by
which Parent or any of its properties or assets may be bound or affected or (ii)
any law, rule or regulation applicable to 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 Parent, which default or
violation could adversely affect the ability of Parent to consummate the
transactions contemplated hereby or will have a Parent Material Adverse Effect.
3.1.6. Investment Company. 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. Parent has provided certain financial
--------------------
statements to the Stockholders ("Parent Financial Statements") and such Parent
Financial Statements have been prepared in accordance with GAAP, are true and
correct in all material respects, and are fair presentations of the consolidated
financial position, results of operations and cash flows of Parent and its then
existing consolidated subsidiaries as of the dates and for the periods
indicated. The books and records of Parent have been kept in reasonable detail
and accurately and fairly reflect the transactions of Parent.
3.1.8. Taxes. Parent has either accrued, discharged or caused to be
-----
dis charged, 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 Parent for the period ended December 31, 1996.
-7-
<PAGE>
3.1.9. Full Authority. Parent has full power, authority and legal
--------------
right and has 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,
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 which would give
rise to a violation thereof or a liability or default thereunder, except where a
violation, liability or default will not have a Parent Material Adverse Effect.
3.1.10. Access. Parent has cooperated fully in permitting the
------
Stockholders and their representatives to make a full investigation of the
properties, operations and financial condition of Parent; and afforded the
Stockholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11. Disclosure. No representation or warranty by Parent in this
----------
Agreement no statement contained any certificate delivered by Parent to the
Stockholders 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 Parent and its consolidated
subsidiaries, taken as a whole in an amount of $50,000 or more.
4. CERTAIN OTHER ACTIONS, COVENANTS AND DOCUMENTS
Parent and the Stockholders agree as follows:
4.1. Transfer Restrictions. Contemporaneously herewith, the Stockholders
---------------------
and Parent are executing and delivering a Stock Transfer Restriction Agreement
and a Registration Rights Agreement.
-8-
<PAGE>
4.2. Adoption of Shareholders Agreement. Contemporaneously herewith,
----------------------------------
the Stockholders are executing and delivering to Parent an adoption agreement
pursuant to which the Stockholders agree to be bound by the Shareholders
Agreement among Parent and its existing shareholders, as amended, a copy of
which has been delivered to the Stockholders.
4.3. Key Employee Employment Agreements. Contemporaneously herewith,
----------------------------------
the Company and each of (i) James Townsend and (ii) Walter Townsend are
executing and delivering employment agreements.
4.4. Covenant Not to Compete.
-----------------------
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Stockholders in this Section are a
material inducement to Parent to enter into and perform this Agreement, each
Stockholder agrees that, for the period from the date hereof to the later to
occur of (a) five (5) years after the date hereof or (b) two (2) years from and
after the date of termination of such Stockholder's employment relationship with
the Company, if any, regardless of the reason for such termination, such
Stockholder 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, 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, officer, director, trustee, manager, employee, agent, associate or
consultant engage in any business which involves indoor air quality, heating,
ventilation and air conditioning, plumbing or electrical contracting or services
within a 100 mile radius of Memphis, Tennessee.
(ii) Each Stockholder agrees that the limitations set forth
herein on such Stockholder's rights to compete with Parent and its affiliates as
set forth in clause (i) are reasonable and necessary for the protection of
Parent and its affiliates. In this regard, each Stockholder specifically agrees
that the limitations as to period of time and geographic area, as well as all
other restrictions on such Stockholder's activities specified herein, are
reasonable and necessary for the protection of Parent and its affiliates. Each
Stockholder 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 .
-9-
<PAGE>
(iii) Each Stockholder agrees that the remedy at law for any
breach by such Stockholder of this Section 4.4 will be inadequate and that
Parent shall be entitled to injunctive relief.
4.5. Certain Elections. In the event that Parent has not effected an
-----------------
underwritten public offering of Parent Common Stock (other than any offering
pursuant to any registration statement (i) relating to any capital stock of
Parent or options, warrants or other rights to acquire any such capital stock
issued or to be issued primarily to directors, officers or employees of 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 Parent, or (iv) filed pursuant to Rule 145 under the Securities
Act of 1933, as amended, or any successor or similar provision) resulting in net
cash proceeds to Parent of at least $20,000,000 (the "IPO") on or before
December 31, 1998:
4.5.1. Securities Acquisition Election. The Stockholders jointly
-------------------------------
may elect, by written notice to Parent delivered on or before January 31, 1999
(the "Election Notice") to call upon Parent to acquire, for the cash amount of
$1.00 per share of Parent Preferred Stock and $6.30 per share of Parent Common
Stock (taking into account any stock splits or other similar events since the
Closing), plus simple interest thereon at the rate of 8% per annum from the date
hereof to the date of the closing of such acquisition (the "Securities
Acquisition Consideration") all of the shares of Parent Preferred Stock and
Parent Common Stock issued by Parent to the Stockholders pursuant to this
Agreement. In the event that Parent determines not to agree to acquire such
shares in the Securities Acquisition Transaction, Parent shall, within 90 days
of receipt of the Election Notice, give written notice to the Stockholders
("Parent Rejection Notice") that it has so determined not to agree to acquire
such shares. In the event Parent determines to agree to acquire such shares in
the Securities Acquisition Transaction, Parent shall, within 90 days of receipt
of the Election Notice, give written notice to the Stockholders ("Parent
Acceptance Notice") that it agrees to acquire such shares. The Parent Acceptance
Notice shall also specify the date, time and place of the closing of the
Securities Acquisition Transaction; provided that such closing shall be held not
more than 60 days after delivery of the Parent Acceptance Notice. At such
closing, the Stockholders shall deliver or cause to be delivered to Parent or
its designee stock certificates evidencing the Parent Preferred Stock and the
Parent Common Stock duly endorsed and in proper form for transfer on the stock
records of the Company with customary written warranties of good title,
authority to transfer and absence of liens or other exceptions to title hereto,
and Parent or its designee shall deliver or cause to be delivered to the
Stockholders the Securities Acquisition Consideration and a letter containing
customary representations and warranties evidencing compliance with applicable
securities laws. If the Parent Acceptance Notice is not delivered to the
Stockholders within 90 days of Parent's
-10-
<PAGE>
receipt of the Election Notice, Parent will conclusively be deemed to have
delivered a Parent Rejection Notice to the Stockholders on the 90th day after
Parent's receipt of the Election Notice. Upon delivery or deemed delivery of the
Parent Rejection Notice, the Stockholders shall have no right to request Parent
to acquire any Parent Common Stock or Parent Preferred Stock pursuant to this
Section 4.5.1.
4.5.2. Transfer Transaction Election. Within 20 days after the
-----------------------------
delivery or deemed delivery of the Parent Rejection Notice, the Stockholders
may, by joint written notice to Parent delivered within such 20 day period, (the
"Second Election Notice") require Parent to transfer the stock or assets of
the Company to the designees named in the Second Election Notice in a
transaction (the "Transfer Transaction") structured to (i) relieve Parent and
its affiliates of any liability on the then remaining indebtedness attributable
to the financing of the transactions contemplated hereby (ii) take into account
any capital Parent invested in/or withdrew from the Company (other than for debt
service on the foregoing) from the date hereof to the closing of the Transfer
Transaction, and (iii) relieve Parent from or otherwise satisfy any income tax
consequences to Parent from the Transfer Transaction. The terms of the Transfer
Transaction will be such that Parent will receive no economic benefit or
detriment therefrom. The Second Election Notice will contain the addresses of
the designee named therein and all of the proposed terms (including the
consideration payable to Parent or the Company) of the Transfer Transaction. The
proposed terms of the Transfer Transaction contained in the Second Election
Notice shall be final, conclusive and binding for purposes of this Agreement
unless Parent shall deliver to the Stockholders a written notice of disagreement
("Notice of Objection") with any such proposed terms within 20 business days
following receipt of the Second Election Notice, specifying in reasonable detail
the nature and extent of such disagreement. If within 10 business days following
receipt by the Stockholders of a Notice of Objection, Parent and the
Stockholders are unable to resolve any disagreement with respect to the proposed
terms of the Transfer Transaction as set forth in the Second Election Notice,
the disagreement shall be submitted for resolution to the Independent
Accountants, who shall resolve the issues in dispute, and giving effect to such
resolution, determine the final terms of the Transfer Transaction. The
Independent Accountants shall act as an arbitrator to determine and resolve only
those issues in dispute. The Independent Accountants' resolution shall (a) be
made within 30 days of the submission of the dispute to them, (b) be in
accordance with this Agreement, (c) be set forth in a written statement
delivered to Parent and the Stockholders, (d) set forth the final terms of the
Transfer Transaction, and (e) be final, conclusive and binding for purposes of
this Agreement.
4.5.3. Other. Parent will cooperate fully with the Stockholders in
-----
obtaining any consent required from Parent's lenders to effect a Securities
Acquisition Transaction or
-11-
<PAGE>
a Transfer Transaction as contemplated hereby. On the closing of a Transfer
Transaction, all noncompetition agreements between Parent and any employee of
the Company who does not continue employment with Parent or its affiliates will
be terminated. At the closing of a Securities Acquisition Transaction or a
Transfer Transaction, the parties will enter into mutual releases under which
the parties release all claims against each other which have arisen or could
arise based on events, acts or omissions occurring or existing prior to such
closing.
4.6. Release. The Stockholders do hereby (i) release, acquit and
-------
forever discharge the Company from any and all liabilities, obligations, claims,
demands, actions or causes of action arising from or relating to any event,
occurrence, act, omission or condition occurring or existing on or prior to the
Closing Date, including, without limitation, any claim for indemnity or
contribution from the Company in connection with the obligations or liabilities
of the Stockholders hereunder, except for salary and benefits payable to a
Stockholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Closing Date; and (iii) waive any and all pre-emptive 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 pre-emptive or other rights.
4.7. Releases of James Townsend and Wallace Sibley. Within 30 days
---------------------------------------------
after the date hereof, Parent shall cause James Townsend and Wallace Sibley to
be released from any liability under their personal guaranties of the
indebtedness of the Company described in Section 4.7 of the Disclosure Schedule
(as defined in Exhibit 2); provided that the indebtedness so guaranteed does not
exceed $304,768.
4.8. Lease. Contemporaneously herewith, the Company, as lessee and
-----
Wallace Sibley as owner of the property located at 1892 Lynbrook, Memphis,
Tennessee are entering into a lease of such property.
4.9. Consulting Agreement Termination. Contemporaneously herewith,
--------------------------------
Parent is making a cash payment to Wallace Sibley as consideration for the
termination of Mr. Sibley's consulting agreement with the Company, and Mr.
Sibley and the Company are entering into a Termination Agreement terminating
such consulting agreement.
4.10. Split-Dollar Life Insurance Policies. The Stockholders and Parent
------------------------------------
hereby agree that any future obligations of the Company with respect to any
split-dollar life insurance policies on the life of any Stockholder, Jerry
Sibley or Wallace Sibley are hereby
-12-
<PAGE>
terminated and that as soon as practicable following the Closing any such
policies shall be either cashed in by the Company or purchased from the Company
for the cash value of such policy by the respective insured under such policy.
4.11. Other Closing Documents. Contemporaneously herewith:
-----------------------
(i) The Stockholders are delivering to Parent an opinion of legal
counsel satisfactory to Parent; and
(ii) Parent is delivering to the Stockholders (a) an opinion of legal
counsel satisfactory to the Stockholders, and (b) certified resolutions of the
Board of Directors of Parent in form satisfactory to the Stockholders.
5. SURVIVAL, INDEMNIFICATIONS
5.1. Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Stockholders herein and of the
Stockholders and the Company in the Stockholder Related Documents and the
Company Related Documents (as defined in Exhibit 2) other than those of the
Stockholders in Sections 2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2
shall survive for a period of thirty-six (36) months after the date hereof and
the representations and warranties of the Stockholders 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
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 thirty-six (36) months after the
date hereof and the representations and warranties of 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 5.1 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 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.
-13-
<PAGE>
5.2. Indemnification.
---------------
5.2.1. Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 5.1 and 5.3 hereof, the Stockholders, jointly and severally, shall
indemnify, save and hold harmless Parent, the Company and any of their assignees
(including lenders) and all of their respective officers, directors, employees,
representatives, agents, advisors and consultants and all of their respective
heirs, legal representatives, successors and assigns (collectively the "Parent
Indemnified Parties") from and against any and all damages, liabilities, losses,
claims, deficiencies, penalties, interest, expenses, fines, assessments, charges
and costs, including reasonable attorneys' fees and court costs (collectively
"Losses") arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of any Stockholder or the Company or
the failure by any Stockholder or the Company to perform any obligation of
such stockholder or the Company contained herein or in any Company Related
Document or Stockholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty of
any Stockholder contained herein or in any Stockholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained in any Company Related Document;
(iv) indemnification payments made by the Company to its present or
former officers, directors, employees, agents, consultants, advisors or
representatives in respect of actions taken or omitted to be taken prior to
the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing and involving or
related to the assets, properties, business or operations now or previously
owned or operated by the Company and not (a) disclosed in the Disclosure
Schedule or (b) disclosed in the Company Financial Statements (as defined
in Exhibit 2).
5.2.2. Parent Indemnity. Subject to the provisions of Sections 5.1 and
----------------
5.3, Parent shall indemnify, save and hold harmless the Stockholders and
the Stockholders' heirs,
-14-
<PAGE>
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 Parent or the failure by Parent to
perform any obligation of Parent contained herein or in the Parent Related
Documents;
(ii) any inaccuracy in or breach of any representation or warranty of
Parent contained herein or in the Parent Related Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the date hereof and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that clause (iii) shall not apply to any
Losses to the extent that such Losses result from the Stockholder's acts or
omissions after the date hereof as an officer, director and/or employee of
Parent or the Company and/or any other affiliate of Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 5.2.1.
5.3. Limitations. The aggregate liability of the Stockholders under
-----------
Section 5.2.1 shall not exceed the final purchase price determined in accordance
with Sections 1.2 and 1.3. Any such liability of the Stockholders may be
satisfied by cash, Parent Preferred Stock (valued at $1.00 per share) and Parent
Common Stock (valued at $6.30 per share) (taking into account any stock splits
or other similar events since the Closing) in the same proportions as set forth
in Sections 1.2 and 1.3. The aggregate liability of Parent under Section 5.2.2
shall not exceed the final purchase price determined in accordance with Sections
1.2 and 1.3.
5.4. Notice. The party (the "Indemnified Party") which may be entitled
------
to indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim,
or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 5.4 shall relieve the
Indemnifying Party of its obligations under this Article 5 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice. 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
-15-
<PAGE>
hereunder, provided that (i) the Stockholders 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 ten (10) days after receipt of notice of such third-party claim, suit,
action or proceeding, the Stockholders shall have the right, but not the
obligation, to undertake the defense of any such third-party claim, suit, action
or proceeding. 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
ten (10) days' prior written notice to the Indemnifying Party if such third-
party suit, action, proceeding or investigation is then unreasonably interfering
with the business or operations of the Company and the settlement is
commercially reasonable under the circumstances; and provided further, that if
the Indemnifying Party gives ten (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 ten
(10) days after delivery of the Settlement Notice to the Indemnified Party, and
such settlement otherwise complies with the provisions of this Section 5.4, the
Indemnifying Party shall not be liable for Losses arising from such third-party
suit, action, proceeding or investigation in excess of the amount proposed in
such settlement offer. Notwithstanding the foregoing, no Indemnifying Party will
consent to the entry of any judgment or enter into any settlement without the
consent of the Indemnified Party, if such judgment or settlement imposes any
obligation or liability upon the Indemnified Party other than the execution,
delivery or approval thereof and customary releases of claims with respect to
the subject matter thereof. 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 which are pertinent to the
defense. The parties agree that 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. MISCELLANEOUS
6.1. 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:
-16-
<PAGE>
To the Stockholders:
Mr. James Townsend
c/o Sibley Services, Inc.
1892 Lynbrook
Memphis, Tennessee 38116
Telecopy: (901) 345-8912
To Parent:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 6.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
6.2. Further Documents. The Stockholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by 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 Stockholders hereunder.
6.3. Assignability. No Stockholder shall assign this Agreement in whole or
-------------
in part without the prior written consent of Parent, except by the operation of
law. Parent may assign its rights under this Agreement, the Company Related
Documents and the Stockholder Related Documents without the consent of either
Stockholder.
-17-
<PAGE>
6.4. 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.
6.5. Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections and Articles referred to herein are, respectively, sections and
articles of this Agreement and all Exhibits and Schedules referred to herein
are, respectively, exhibits, and schedules constituting a part of the Disclosure
Schedule.
6.6. 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.
6.7. Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
6.8. CONTROLLING LAW AND JURISDICTION. 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.
6.9. Public Announcements. No press release, public announcement,
--------------------
confirmation or other information regarding this Agreement or the contents
hereof shall be made by any party or the Company without the prior consultation
of the Stockholders and Parent, except as may be necessary in the opinion of
counsel of any party to meet the requirements or regulations of any applicable
law, governmental unit or agency or stock exchange on which
-18-
<PAGE>
the securities of such party may be listed. Notwithstanding the foregoing, the
Company may make appropriate disclosures of the general nature of the
transaction contemplated hereby to its employees, vendors and customers to
protect the Company's good will and to facilitate the consummation of the
transactions contemplated hereby, and Parent may disclose pertinent information
regarding the transaction contemplated hereby to its existing and prospective
investors, lenders or investment bankers or financial advisors for the purposes
of obtaining financing (including a contemplated IPO). Parent may also make
appropriate disclosures of the general nature of the transaction contemplated
hereby and the identity, nature and scope of the Company's operations to
prospective acquisition candidates in its efforts to attract additional
acquisitions for Parent. Parent and the Stockholders shall jointly approve the
contents of any press releases, written employee presentations or other
materials of potentially wide distribution that disclose or refer to the
transaction contemplated hereby, except for such press releases or other
communications required by law.
6.10. No Third Party Beneficiaries. Except as set forth in Article 5, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
6.11. Amendments and Waivers. This Agreement may be amended by Parent and
----------------------
the Stockholders; provided that all amendments to this Agreement must be by an
instrument in writing signed on behalf of Parent and by the Stockholders. Any
term or provision of this Agreement may be waived in writing at any time by the
party which is entitled to the benefits thereof.
6.12. 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.
6.13. 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 Parent in this Agreement shall be
had against any incorporator, organizer, promoter, stockholder, officer,
director, employee or representative as such (other than the Stockholders as set
forth herein), past, present or future, of 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
-19-
<PAGE>
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Agreement.
6.14. When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by Parent
and the Stockholders.
6.15. Takeover Statutes. If any "fair price," "moratorium," "control share
-----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, Parent and the Company and
their respective members of their Boards of Directors shall grant such approvals
and take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated herein.
6.16. 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.
6.17. 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.
6.18. 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.
6.19. 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.
-20-
<PAGE>
6.20. Expenses. Each of the parties shall bear all of their own expenses in
--------
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any financial advisor, broker or finder engaged by the Stockholders and the
accounting and auditing fees and expenses of KPMG Peat Marwick; and provided
further that all fees, costs and expenses incurred or payable by the Company
(other than such accounting and auditing fees and expenses) in connection with
the negotiation and closing of this Agreement and the transactions contemplated
hereby and the costs of any such financial advisor, broker or finder shall be
included in Current Liabilities.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
GROUP MAINTENANCE AMERICA CORP.
By:_______________________________
Name:_____________________________
Title:____________________________
____________________________
James Townsend
____________________________
Paulanne Townsend
-21-
<PAGE>
EXHIBIT 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.
JULY 16, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE MERGER.................................................................... 1
1.1 The Merger............................................................... 1
1.2 Effective Time of the Merger............................................. 1
1.3 Closing.................................................................. 1
1.4 Effects of the Merger.................................................... 2
1.4.1 At the Effective Time............................................. 2
1.4.2 Effects on the Surviving Corporation.............................. 2
1.5 Written Consents and Other Actions....................................... 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............. 2
1.5.3 All Other Necessary Actions....................................... 3
1.6 Conversion of Stock...................................................... 3
1.6.1 Merger Sub Capital Stock.......................................... 3
1.6.2 Cancellation of the Company Treasury Stock........................ 3
1.6.3 Merger Consideration.............................................. 3
1.7 Exchange of and Payment for Stock........................................ 4
1.7.1 Delivery of Company Common Stock and Closing Merger Consideration. 4
1.7.2 Assignments....................................................... 4
1.7.3 Payment In Full Satisfaction of All Rights........................ 4
1.8 Post-Closing Determination of Final Merger Consideration................. 4
1.8.1 Statement......................................................... 4
1.8.2 Review............................................................ 4
1.8.3 Disputes.......................................................... 4
1.8.4 Resolution by Parties............................................. 5
1.8.5 Final Determination............................................... 5
1.8.6 Expenses.......................................................... 5
1.9 Additional Consideration................................................. 5
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS............ 6
2.1 Exhibit 2................................................................ 6
2.2 Stock Ownership.......................................................... 6
2.3 Authority................................................................ 6
2.4 Consents................................................................. 6
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB................... 6
3.1 Representations and Warranties........................................... 6
3.1.1 Organization...................................................... 7
3.1.2 Capitalization of the Parent...................................... 7
3.1.3 Authority......................................................... 7
3.1.4 Consents.......................................................... 7
3.1.5 Defaults.......................................................... 7
3.1.6 Investment Company................................................ 8
3.1.7 Financial Statements.............................................. 8
3.1.8 Taxes............................................................. 8
3.1.9 Full Authority.................................................... 8
3.1.10 Access............................................................ 8
3.1.11 Disclosure........................................................ 8
3.1.12 Parent Material Adverse Effect.................................... 9
3.1.13 Tax-Free Reorganization........................................... 9
3.1.14 Delivery of Parent Common Stock and Parent Preferred Stock........ 10
3.2 Representations and Warranties Concerning the Merger Sub................. 10
3.2.1 Organization and Standing......................................... 10
3.2.2 Capital Structure................................................. 10
3.2.3 Authority......................................................... 10
3.2.4 Consents.......................................................... 10
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS......................... 11
4.1 Agreements of the Shareholders to be Effective Upon Closing.............. 11
4.1.1 Covenant Not to Compete........................................... 11
4.1.2 Release........................................................... 11
4.2 Elimination of Expense................................................... 12
4.3 Guaranteed Indebtedness.................................................. 12
4.4 Audit.................................................................... 12
4.5 Certain Payables and Receivables......................................... 12
4.6 Pre-Closing Covenants and Agreements..................................... 12
4.7 Confidentiality.......................................................... 12
4.8 Tax-Free Reorganization.................................................. 12
4.9 Company Plans............................................................ 13
4.10 Offices of Surviving Corporation......................................... 13
4.11 Purchase of Certain Receivables.......................................... 13
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES...................................... 13
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub..... 13
5.1.1 Accuracy of Representations and Warranties........................ 13
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
5.1.2 Performance of Covenants............................................ 13
5.1.3 Legal Actions or Proceedings........................................ 13
5.1.4 Approvals........................................................... 14
5.1.5 Closing Deliveries.................................................. 14
5.1.6 No Casualty, Loss or Damage......................................... 14
5.1.7 Licenses, etc....................................................... 14
5.1.8 No Material Adverse Change.......................................... 14
5.1.9 Closing of CRA Purchase............................................. 14
5.1.10 Certain Corporate Actions........................................... 14
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company 14
5.2.1 Accuracy of Representations and Warranties.......................... 14
5.2.2 Performance of Covenants............................................ 14
5.2.3 Approvals........................................................... 15
5.2.4 Closing Deliveries.................................................. 15
5.2.5 Closing of CRA Purchase............................................. 15
5.3 Deliveries by the Shareholders at the Closing.............................. 15
5.3.1 Closing Certificates................................................ 15
5.3.2 Stock Transfer Restriction Agreement................................ 15
5.3.3 Employment Agreements............................................... 15
5.3.4 Adoption Agreement.................................................. 15
5.3.5 Registration Rights Agreement....................................... 15
5.3.6 Opinion of Counsel for the Shareholders and the Company............. 15
5.3.7 Documents, Stock Certificates....................................... 16
5.3.8 Discharge of Indebtedness, Releases, Etc............................ 16
5.4 Deliveries by the Parent at the Closing.................................... 16
5.4.1 Closing Certificates................................................ 16
5.4.2 Registration Rights Agreement....................................... 16
5.4.3 Opinion of Counsel for the Parent and Merger Sub.................... 16
5.4.4 Adoption Agreement.................................................. 17
5.4.5 Closing Merger Consideration........................................ 17
5.4.6 Employment Agreements............................................... 17
6. SURVIVAL, INDEMNIFICATIONS...................................................... 17
6.1 Survival................................................................... 17
6.2 Indemnification............................................................ 18
6.2.1 Parent Indemnified Parties.......................................... 18
6.2.2 Parent Indemnity.................................................... 18
6.3 Limitations................................................................ 19
6.4 Procedures for Indemnification............................................. 19
6.4.1 Notice.............................................................. 19
6.4.2 Legal Defense....................................................... 20
6.4.3 Settlement.......................................................... 20
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
6.4.4 Cooperation......................................................... 20
6.5 Subrogation................................................................ 21
6.6 Exclusive Remedy........................................................... 21
7. TERMINATION..................................................................... 21
7.1 Grounds for Termination.................................................... 21
7.1.1 Mutual Consent...................................................... 21
7.1.2 Optional By the Company............................................. 21
7.1.3 Optional By the Parent.............................................. 21
7.1.4 Breach By the Parent or Merger Sub.................................. 21
7.1.5 Breach by the Company or any Shareholder............................ 21
7.2 Effect of Termination...................................................... 21
8. MISCELLANEOUS................................................................... 22
8.1 Notice..................................................................... 22
8.2 Further Documents.......................................................... 22
8.3 Assignability.............................................................. 22
8.4 Exhibits and Schedules..................................................... 22
8.5 Sections and Articles...................................................... 23
8.6 Entire Agreement........................................................... 23
8.7 Headings................................................................... 23
8.8 CONTROLLING LAW............................................................ 23
8.9 Public Announcements....................................................... 23
8.10 No Third Party Beneficiaries............................................... 23
8.11 Amendments and Waivers..................................................... 23
8.12 No Employee Rights......................................................... 24
8.13 Non-Recourse............................................................... 24
8.14 When Effective............................................................. 24
8.15 Takeover Statutes.......................................................... 24
8.16 Number and Gender of Words................................................. 24
8.17 Invalid Provisions......................................................... 24
8.18 Multiple Counterparts...................................................... 24
8.19 No Rule of Construction.................................................... 25
8.20 Expenses................................................................... 25
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS
Exhibit 1.5.1..............................Consent of Shareholders of Company
Exhibit 1.5.2.......................Consent of Sole Shareholder of Merger Sub
Exhibit 1.........................Determination of Final Merger Consideration
Exhibit 1.7.............................................Letter of Transmittal
Exhibit 1.9..........................................Additional Consideration
Exhibit 2..........................................................Statements
Exhibit 2.2.................................Ownership of Company Common Stock
Exhibit 3.1.2.............................Parent Options, Subscriptions, etc.
Exhibit 3.1.4......................................Required Consents - Parent
Exhibit 4.2.........................................Expenses to be eliminated
Exhibit 4.3...........................................Guaranteed Indebtedness
Exhibit 4.6.............................................Pre-Closing Covenants
Exhibit 4.9......................................................Company Plan
Exhibit 5.3.2............................Stock Transfer Restriction Agreement
Exhibit 5.3.3...................................................Employee List
Exhibit 5.3.3A-1, 5.3.3A-2...............................Employment Agreement
Exhibit 5.3.4..............................................Adoption Agreement
Exhibit 5.3.5...................................Registration Rights Agreement
Exhibit 5.3.6.................Opinion of Counsel for Shareholders and Company
Exhibit 5.3.8..........................................Terminated Obligations
Exhibit 5.4.3....................................Opinion of Counsel to Parent
Exhibit X..........................................Certificate of Designation
-v-
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accountants........................................................... 5
Agreement............................................................. 1
Applicable Corporate Law.............................................. 1
Closing............................................................... 1
Closing Date.......................................................... 1
Closing Merger Consideration.......................................... 2
Closing Outstanding Common Stock Number............................... 2
Closing Per Share Common Stock Amount................................. 2
Closing Per Share Preferred Stock Amount.............................. 2
Closing Statement..................................................... 2
Code.................................................................. 1
Company............................................................... 1
Company Common Stock.................................................. 1
Converted Share....................................................... 3
CRA Asset Purchase Agreement.......................................... 14
Effective Time........................................................ 1
Final Outstanding Common Stock Number................................. 2
Final Per Share Cash Amount........................................... 1
Final Per Share Common Stock Amount................................... 1
Final Per Share Preferred Stock Amount................................ 1
GAAP.................................................................. 2
Indemnified Party..................................................... 19
Indemnifying Party.................................................... 19
Long-Term Debt........................................................ 2
Losses................................................................ 18
Merger................................................................ 1
Merger Sub............................................................ 1
negligent misrepresentation........................................... 21
Net After-Tax Income Amount........................................... 2
Notice of Dispute..................................................... 4
Other Ownership Interests............................................. 2
Parent................................................................ 1
Parent Common Stock................................................... 1
Parent Financial Statements........................................... 8
Parent Indemnified Parties............................................ 18
Parent Material Adverse Effect........................................ 9
Parent Preferred Stock................................................ 1
Parent Related Documents.............................................. 7
</TABLE>
-vi-
<PAGE>
<TABLE>
<S> <C>
Payment Period........................................................ 5
Settlement Notice..................................................... 20
Shareholder Related Document.......................................... 6
Shareholders.......................................................... 1
Statement of Final Per Share Amounts.................................. 4
Stock Certificate..................................................... 3
Survival Period....................................................... 17
Surviving Corporation................................................. 1
Terminated Obligations................................................ 16
Threshold............................................................. 19
Total Consideration................................................... 3
Total Parent Preferred Stock.......................................... 7
Working Capital....................................................... 3
Working Capital Addition.............................................. 3
Working Capital Deduction............................................. 3
</TABLE>
-vii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made effective as of
July 16, 1997, by and among Group Maintenance America Corp., a Texas corporation
(the "Parent"), CRP Acquisition Corp., a Colorado corporation ("Merger Sub"),
Callahan Roach Products & Publications, Inc., a Colorado 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 Colorado, and pursuant to the Merger each issued and outstanding share
of Common Stock, $1.00 par value per share, of the Company ("Company Common
Stock") will be converted into the right to receive certain shares of common
stock, $.001 par value per share, of the Parent ("Parent Common Stock"), certain
shares of Series I Preferred Stock, $.001 par value per share, of the Parent
("Parent Preferred Stock") (the Certificate of Designation of which is attached
hereto as Exhibit X) and certain cash, all as provided herein;
WHEREAS, the Merger has been approved, as required by applicable law, by
the Parent, acting as sole shareholder of Merger Sub, and by the Shareholders,
as the holders of all of the outstanding capital stock of the Company;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in
accordance with the Colorado Business Corporation Act (the "Applicable
Corporate Law") upon the Effective Time (as defined in Section 1.2), the Company
shall be merged with and into Merger Sub. Merger Sub, as the surviving entity
following the Merger, is sometimes referred to in this Agreement as the
"Surviving Corporation."
1.2 Effective Time of the Merger. In accordance with the requirements of
applicable law, appropriate Articles of Merger under the Applicable Corporate
Law shall be prepared, executed and submitted filing with the Secretary of
State of the State of Colorado as soon as practicable following the Closing (as
defined below). The date of such filing is referred to in this Agreement as the
"Effective Time."
1.3 Closing. The closing of the Merger ("Closing") will take place at
10:00 a.m. at the offices of Bracewell & Patterson, L.L.P. in Houston, Texas on
or about July 18, 1997, but in no event later than December 31, 1997 ("Closing
Date"); provided that each of the conditions precedent to the obligations of the
parties to effect the Merger set forth in Article 5 of this Agreement are then
satisfied or waived by the applicable party. The parties may agree in writing
on another date, time or place for the Closing. At the
<PAGE>
Closing, the parties will deliver or cause to be delivered the documents
described in Sections 5.3 and 5.4 below.
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 "Callahan Roach Products &
Publications, Inc.," (iii) the Bylaws of Merger Sub as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation,
and (iv) the directors and officers of Merger Sub immediately prior to the
Effective Time shall become the directors and officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected or appointed, as the case may be.
1.4.2 Effects on the Surviving Corporation. As of and after the
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises of a public as well as of a private nature
previously belonging to the Company and Merger Sub; and all property (real,
personal and mixed), and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to each of the Company and Merger Sub shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all such property, rights and privileges, powers and franchises and
all and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Company and Merger Sub; and the title to any
real estate, or interest therein, whether by deed or otherwise, shall not revert
or be in any way impaired by reason of the Merger. The Surviving Corporation
shall be responsible and liable for all the liabilities and obligations of the
Company and Merger Sub, and any claim existing, or action or proceeding pending,
by or against the Company or Merger Sub may be prosecuted against the Surviving
Corporation. Neither the rights of creditors nor any liens upon the property of
the Company or Merger Sub shall be impaired by the Merger, and all debts,
liabilities and duties of each of the Company and Merger Sub shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with the Applicable Corporate Law and the terms of this Agreement.
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 Article 111 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
-2-
<PAGE>
shareholder of Merger Sub, in the form of Exhibit 1.5.2 attached hereto,
pursuant to the applicable provisions of the Applicable Corporate Law, adopting
this Agreement.
1.5.3 All Other Necessary Actions. In addition to the actions set
forth in Sections 1.5.1 and 1.5.2, the Parent, Merger Sub and the Company will
take all actions necessary in accordance with the Applicable Corporate Law and
their respective articles of incorporation and bylaws to cause the Merger to be
consummated on, and subject to, the terms set forth in this Agreement and the
Applicable Corporate Law.
1.6 Conversion of Stock. As of the Effective Time, by virtue of the
Merger and without further action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Merger Sub:
1.6.1 Merger Sub Capital Stock. Each share of capital stock of Merger
Sub issued and outstanding at the Effective Time shall remain outstanding and
shall be unchanged at and after the Merger and immediately following the
Effective Time shall constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
1.6.2 Cancellation of the Company Treasury Stock. All shares of
Company Common Stock that are owned by the Company as treasury stock or by any
of its subsidiaries shall be canceled and retired and shall cease to exist and
no stock of the Parent or other consideration shall be delivered in exchange
therefor.
1.6.3 Merger Consideration. Each share of Company Common Stock (other
than shares to be canceled in accordance with Section 1.6.2) shall be converted
into the right to receive (i) that number of shares of Parent Common Stock equal
to the Final Per Share Common Stock Amount (as defined in Exhibit 1 attached
hereto), and (ii) except as set forth below, that number of shares of Parent
Preferred Stock equal to the Final Per Share Preferred Stock Amount; provided,
however, that in lieu of receiving certain shares of Parent Preferred Stock owed
to hereunder, if any, Mr. James Kimmons may receive up to $250,000 in cash and
Ms. Susan Paturzo may receive up to $200,000 in cash. For purposes of this
Agreement, each $1 of cash paid to Mr. James Kimmons and Ms. Susan Paturzo shall
reduce the number of shares of Parent Preferred Stock owed to them in exchange
for their Company Common Stock by one share. Each share of Company Common Stock
so converted into the right to receive shares of Parent Preferred Stock equal to
the Final Per Share Preferred Stock Amount (or as to Mr. James Kimmons and Ms.
Susan Paturzo, Parent Preferred Stock and/or cash) and shares of Parent Common
Stock equal to the Final Per Share Common Stock Amount (a "Converted Share")
shall, by virtue of the Merger and without any action on the part of the holder
thereof, at the Effective Time no longer be outstanding and shall at such time
be canceled and retired and shall cease at such time to exist, and each holder
of a certificate which prior to the Effective Time validly evidenced any such
Converted Share (a "Stock Certificate") shall thereafter cease to have any
rights with respect to such Converted Share, except, upon the surrender of the
Stock Certificate and a duly executed and completed letter of transmittal in
accordance with Section 1.7, the right to receive such Parent Common Stock,
Parent Preferred Stock (or, in the case of Mr. James Kimmons and Ms. Susan
Paturzo, Parent Preferred Stock and/or cash) at the times and in the manner set
forth herein.
-3-
<PAGE>
1.7 Exchange of and Payment for Stock.
1.7.1 Delivery of Company Common Stock and Closing Merger
Consideration. Prior to the Closing, the Parent will deliver to each
Shareholder a letter of transmittal, in substantially the form attached hereto
as Exhibit 1.7, to be used for the purpose of surrendering the Stock
Certificates in exchange for the right to receive the Final Per Share Preferred
Stock Amount (or, in the case of Mr. James Kimmons and Ms. Susan Paturzo, Parent
Preferred Stock and/or cash) 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 Preferred Stock Amount (as defined in Exhibit 1 attached
hereto) and the Closing Per Share Common Stock Amount (as defined in Exhibit 1
attached hereto) applicable to each of the Converted Shares evidenced by the
Stock Certificates properly surrendered (with properly executed and completed
letters of transmittal) by each Shareholder to the Parent.
1.7.2 Assignments. The assignment, transfer or other disposition of
record or beneficial ownership of any shares of Company Common Stock may not be
made on or after the date hereof.
1.7.3 Payment In Full Satisfaction of All Rights. The delivery of the
Closing Per Share Preferred Stock 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 Preferred Stock and Parent Common Stock pursuant to Sections 1.8 and
1.9.
1.8 Post-Closing Determination of Final Merger Consideration.
1.8.1 Statement. No later than 60 days after the Closing, the Parent
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as defined in Exhibit 1 attached hereto), the Final Per
Share Preferred Stock 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").
1.8.2 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.
1.8.3 Disputes. The Final Outstanding Common Stock Number, the Final
Per Share Preferred Stock 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
-4-
<PAGE>
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
Preferred Stock 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.
1.8.4 Resolution by Parties. If a Notice of Dispute is properly given,
the Parent and the Shareholders agree to negotiate in good faith and use their
best efforts to resolve any disagreement with respect to the Statement of Final
Per Share Amounts. If the Parent and the Shareholders shall not reach such
resolution within 30 days following receipt by the Parent of a properly given
Notice of Dispute, the dispute shall be referred to the KPMG Peat Marwick LLP
"Accountants"), who shall resolve such dispute within 30 days after its
submission to them. The Parent and the Shareholders (if the dispute is resolved
by them or the Statement of Final Per Share Amounts otherwise becomes final
pursuant hereto without referral to the Accountants) or the Accountants (if a
dispute is resolved by them) shall set forth such resolution in writing and such
writing shall (i) set forth the Final Outstanding Common Stock Number, the Final
Per Share Preferred Stock 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.
1.8.5 Final Determination. Within 10 business days following the final
determination of the Final Outstanding Common Stock Number, the Final Per Share
Preferred Stock Amount, the Final Per Share Common Stock Amount and the Final
Merger Consideration as provided in this Section 1.9 (such period being referred
to as the "Payment Period") (i) the Parent shall deliver to each Shareholder (a)
the number of shares of Parent Preferred Stock, if any, by which the aggregate
of the Final Per Share Preferred Stock Amount deliverable to such Shareholder,
as finally determined pursuant hereto, exceeds the aggregate of the Closing Per
Share Preferred Stock Amounts delivered 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 number of shares of Parent
Preferred Stock (or in the case of Mr. James Kimmons and Ms. Susan Paturzo,
cash), if any, by which the aggregate of the Closing Per Share Preferred Stock
Amounts delivered to such Shareholder at the Closing exceeds the aggregate of
the Final Per Share Preferred Stock Amounts deliverable 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.
1.8.6 Expenses. The Parent and the Shareholders shall each pay their
own costs incurred in connection with this Section 1.9, including the fees and
expenses of their respective attorneys and accountants, if any. The fees and
expenses of the Accountants shall be shared 50% by the Parent and 50% by the
Shareholders.
1.9 Additional Consideration. The Parent shall deliver or cause to be
delivered to the Shareholders, as additional consideration, Additional Parent
Common Stock on the terms, subject to the
-5-
<PAGE>
conditions and in the amounts, if any, determined to be deliverable to the
Shareholders in accordance with Exhibit 1.9 attached hereto.
2. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, hereby represent
and warrant to the Parent and Merger Sub as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
correct.
2.2 Stock Ownership. Each Shareholder owns, beneficially and of record,
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibit 2.2 and such shares are so held by
such Shareholder free and clear of all liens, encumbrances and adverse claims
whatsoever.
2.3 Authority. Each Shareholder has full right, power, legal capacity and
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by such Shareholder (each a "Shareholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by the
Shareholders and constitutes, and any Shareholder Related Document, when duly
executed and delivered by the Shareholders named as parties therein will
constitute, legal, valid and binding obligations of such Shareholders
enforceable against such Shareholders in accordance with their respective terms
and conditions, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
2.4 Consents. Other than the filing of the Articles of Merger, 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:
-6-
<PAGE>
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 20,282,439 shares are issued and
outstanding and of which none are held in the treasury of the Parent and
50,000,000 shares of Preferred Stock, $.001 par value ("Total Parent Preferred
Stock"), of which 45,137 shares of Series A Preferred Stock are issued and
outstanding, 678,920 shares of Series B Preferred Stock are issued and
outstanding, 100,000 shares of Series C Preferred Stock are issued and
outstanding, 1,568,000 shares of D Preferred Stock are issued and outstanding,
580,000 shares of Series E Preferred Stock are issued and outstanding, and
664,691 shares of Series F Preferred Stock are issued and outstanding. The
outstanding shares of Parent Common Stock and Total Parent Preferred Stock have
been duly and validly issued and are fully paid and non-assessable. Except as
set forth on Exhibit 3.1.2, Parent has not granted any option, warrant,
subscription or similar right to any person or entity to purchase or acquire any
rights with respect to any shares of capital stock or equity interests of
Parent.
3.1.3 Authority. The Parent has the requisite power and authority to
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent will
constitute, legal, valid and binding obligations of the Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4 Consents. Except as provided on Exhibit 3.1.4, no approval,
consent, order or action of or filing with any court, administrative agency,
governmental authority or other third party is required for the execution,
delivery or performance by the Parent of this Agreement or the Parent Related
Documents or the consummation by the Parent of the transactions contemplated
hereby, except for the filing of the Articles of Merger with the Secretary of
State of Colorado.
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.
-7-
<PAGE>
3.1.6 Investment Company. The Parent is not an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain financial
statements to the Shareholders ("Parent Financial Statements") and such Parent
Financial Statements have been prepared in accordance with GAAP and fairly
present the consolidated financial position, results of operations and cash
flows of the Parent and its then existing consolidated subsidiaries as of the
dates and for the periods indicated, subject to normal year-end adjustments and
any other adjustments described therein or in the notes or schedules thereto.
The books and records of the Parent have been kept in reasonable detail and
accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to be
discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period covered by the Parent
Financial Statements.
3.1.9 Full Authority. The Parent has the corporate power and authority
and has obtained all licenses, permits, qualifications, and other documentation
(including permits required under applicable Environmental Law, as defined in
Exhibit 2) necessary to own and/or operate its businesses, properties and assets
and to carry on its businesses as being conducted on the date of this Agreement,
except such licenses, permits, qualifications or other documentation, the
failure to obtain which is not reasonably likely to result in a Parent Material
Adverse Effect, and such businesses are now being conducted and such assets and
properties are being owned and/or operated in compliance with all applicable
laws (including Environmental Law), ordinances, rules and regulations of any
governmental agency of the United States, any state or political subdivision
thereof, or any foreign jurisdiction, all applicable court or administrative
agency decrees, awards and orders and all such licenses, permits, qualifications
and other documentation, except where the failure to comply will not have a
Parent Material Adverse Effect, and there is no existing condition or state of
facts that would give rise to a violation thereof or a liability or default
thereunder that is reasonably likely to have a Parent Material Adverse Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
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. None of the information supplied by Parent for
inclusion in the Confidential Information Statement dated June 12, 1997, or in
any supplement thereto, contained any untrue statement of a material
-8-
<PAGE>
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Notwithstanding the foregoing,
Parent makes no representation with respect to statements made in the
Confidential Information Statement dated June 12, 1997, or in any supplement
thereto, based on information supplied by anyone other than Parent for inclusion
therein.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code:
(i) The Parent has no plan or intention to sell, exchange or otherwise
dispose or liquidate the Surviving Corporation, to merge the Surviving
Corporation with or into any other corporation, to sell or otherwise
dispose of its Surviving Corporation Common Stock except for transfers of
Surviving Corporation Common Stock to corporations of which the Parent has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer, or to cause the Surviving Corporation to sell or otherwise
dispose of any of its assets or of any assets acquired in the Merger,
except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Surviving Corporation has
control (within the meaning of Section 368(a) of the Code) at the time of
such transfer.
(ii) The Parent has no plan or intention to cause the Surviving
Corporation, after the Merger, to issue additional shares of its stock that
would result in the Parent losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(iii) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of its
historic business assets in a business.
(iv) Except as provided in Section 8.20 below, if the Merger is
effected, the Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(v) The Parent Common Stock that will be issued in connection with the
Merger is voting stock within the meaning of Section 368(c) of the Code.
(vi) At the Effective Time, neither the Parent nor Merger Sub will
have any outstanding warrants, options, convertible securities, or any
other right pursuant to which any person could acquire stock in the Parent
or Merger Sub which, if exercised or converted, would affect the Parent's
acquisition or retention of control of the Surviving Corporation.
(vii) Neither the Parent nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F) of the Code.
-9-
<PAGE>
(viii) None of the Parent Common Stock received by the Shareholders as
a part of the Final Merger Consideration will be separate consideration
for, or allocable to, any employment agreement.
(ix) Neither the Parent nor Merger Sub is under the jurisdiction of a
court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a federal or state
court.
3.1.14 Delivery of Parent Common Stock and Parent Preferred Stock. The
Parent Common Stock, if issued, and the Parent Preferred Stock, if issued, if
and when issued and delivered pursuant to the Agreement will be, when delivered,
validly authorized, duly issued, fully-paid and non-assessable.
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 Colorado
3.2.2 Capital Structure. The authorized capital stock of Merger Sub
consists of 5,000 shares of common stock, par value $.01 per share, 1,000 of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by the Parent free and clear of all liens, encumbrances and adverse
claims.
3.2.3 Authority. Merger Sub has the corporate power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by Merger Sub of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly authorized by its Board of
Directors and the Parent as its sole shareholder, and, except for the corporate
filings required by state law, no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement and the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Merger Sub and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity).
3.2.4 Consents. 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 Merger Sub of this Agreement or the consummation
by the Merger Sub of the transactions contemplated hereby, except for the filing
of the Articles of Merger with the Secretary of State of Colorado.
-10-
<PAGE>
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of the Shareholders to be Effective Upon Closing.
Effective upon Closing, and without further action on the part of any party or
other person, the Shareholders covenant and agree as follows:
4.1.1 Covenant Not to Compete.
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is one year following any termination of such
Shareholder's employment with the Company, such Shareholder will not
represent, engage in, carry on, or have a financial interest in, directly
or indirectly, individually, as a member of a partnership or limited
liability company, equity owner, shareholder (other than as a shareholder
of less than one percent of the issued and outstanding stock of a publicly-
held company whose gross assets exceed $100 million), investor, officer,
director, trustee, manager, employee, agent, associate or consultant engage
in any business that involves indoor air quality, heating, ventilation, air
conditioning, appliance, mechanical construction or sewer cleaning products
or services or consulting, training, pricing, evaluation, brokerage or
other support services with respect to any such business within the United
States; provided, however, that (i) the period in clause (a) above shall be
reduced to three years with respect to consulting and training services
(including evaluation and brokerage services) so long as such Shareholder
does not own, directly or indirectly, any financial or equity interest in
any business that involves indoor air quality, heating, ventilation, air
conditioning, appliance, mechanical construction or sewer cleaning products
or services, and (ii) the current ownership interest of certain of the
Shareholders in Kendale Airconditioning, Inc., shall not be considered a
violation of this Section 10.20.
(ii) Each Shareholder agrees that the limitations set forth herein on
such Shareholder's rights to compete with the Parent and its affiliates as
set forth in clause (i) are reasonable and necessary for the protection of
Parent and its affiliates. In this regard, each Shareholder specifically
agrees that the limitations as to period of time and geographic area, as
well as all other restrictions on such Shareholder's activities specified
herein, are reasonable and necessary for the protection of the Parent and
its affiliates. Each Shareholder agrees that, in the event that the
provisions of this Section should ever be deemed to exceed the scope of
business, time or geographic limitations permitted by applicable law, such
provisions shall be and are hereby reformed to the maximum scope of
business, time or geographic limitations permitted by applicable law.
(iii) Each Shareholder agrees that the remedy at law for any breach by
such Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Effective Time, each Shareholder
does hereby (i) release, acquit and forever discharge the Surviving Corporation
from any and all liabilities, obligations, claims, demands, actions or causes of
action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Effective Time, including,
without limitation, any claim
-11-
<PAGE>
for indemnity or contribution from the Surviving Corporation in connection with
the obligations or liabilities of such Shareholder hereunder, except for salary
and benefits payable to such Shareholder as an employee in the ordinary course
of business; (ii) waive all breaches, defaults or violations of any agreement
applicable to the Company Common Stock and agree that any and all such
agreements are terminated as of the Effective Time, and (iii) waive any and all
preemptive or other rights to acquire any shares of capital stock of the Company
and release any and all claims arising in connection with any prior default,
violation or failure to comply with or satisfy any such preemptive or other
rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholders will
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 Guaranteed Indebtedness. Within 30 days after the Closing, the Parent
will either pay in full the indebtedness described on Exhibit 4.3 attached
hereto or cause any Shareholder who has personally guaranteed any such
indebtedness to be released therefrom.
4.4 Audit. Intentionally Omitted.
4.5 Certain Payables and Receivables. On or prior to Closing, the
Shareholders shall pay in full in cash all accounts receivable, notes receivable
and advances payable by any Shareholder to the Company and the Company shall pay
in full in cash all accounts payable, notes payable and advances payable by the
Company to any Shareholder.
4.6 Pre-Closing Covenants and Agreements. The Shareholders and the
Company jointly and severally agree as set forth in Exhibit 4.6 attached
hereto.
4.7 Confidentiality. Prior to the Effective Time, none of the Parent,
Merger Sub, the Company or the Shareholders will disclose the terms of this
Agreement or the Merger to any person other than their respective directors,
officers, agents or representatives, except as otherwise provided herein or
unless required by law. The Company may make appropriate disclosures of the
general nature of the Merger to its employees, vendors and customers to protect
the Company's goodwill and to facilitate the Closing. The Parent and Merger Sub
may disclose pertinent information regarding the Merger to its existing and
prospective investors, lenders, or investment bankers or financial advisors for
the purpose of obtaining financing, including, without limitation, financing
related to the IPO or other offerings of its securities, and may describe this
Agreement and the transactions contemplated hereby in any registration statement
filed by the Parent under the Securities Act and in reports filed by the Parent
under the Securities Exchange Act of 1934, and may file this Agreement as an
exhibit to any thereof. The Parent may also make appropriate disclosures of the
general nature of the Merger and the identity, nature and scope of the Company's
operations to prospective acquisition candidates in connection with the Parent's
efforts to effect additional acquisitions. Each party will have mutual approval
rights with respect to written employee presentations concerning the prospective
merger.
4.8 Tax-Free Reorganization. Unless the other parties shall otherwise
agree in writing, none of the Shareholders, the Parent, Merger Sub, the Company
or the Surviving Corporation shall knowingly take
-12-
<PAGE>
or fail to take any action that would jeopardize the qualification of the Merger
as a reorganization within the meaning of Section 368(a) of the Code.
4.9 Company Plans. Except as otherwise contemplated by this Agreement,
Company in effect at the date of this Agreement will remain in effect unless
otherwise determined by the Parent after the Effective Time.
4.10 Offices of Surviving Corporation. The Parent will permit the
Surviving Corporation to continue to operate from the Company's present offices
in Colorado unless, in the judgment of the Board of Directors of the Parent,
continued operation from such present offices is not in the best interests of
the Parent.
4.11 Purchase of Certain Receivables. If any accounts receivable included
in current assets of the Company for purposes of determining Working Capital (as
defined in Exhibit 1) remain unpaid in full for 120 days after the Closing, the
Shareholders shall, upon written request by the Surviving Corporation made
within 150 days after the Closing, purchase the same from the Surviving
Corporation, without recourse, for the uncollected amount thereof.
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent and Merger Sub.
The obligations of the Parent and Merger Sub to effect the Merger under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Parent in writing to the extent permitted by applicable
law:
5.1.1 Accuracy of Representations and Warranties. The representations
and warranties of the Shareholders and the Company contained in this Agreement,
in Exhibit 2 and the Disclosure Schedule referred to therein and the other
Exhibits provided by the Shareholders or the Company pursuant to this Agreement
or in any closing certificate or document delivered to the Parent pursuant
hereto shall be true and correct at and as of the Closing Date as though made at
and as of that time other than such representations and warranties as are
specifically made as of another date, and the Shareholders and the Company shall
each have delivered to the Parent and Merger Sub a certificate to that effect.
5.1.2 Performance of Covenants. The Shareholders and the Company shall
have performed and complied with all covenants of this Agreement to be performed
or complied with by them at or prior to the Closing Date, and the Shareholders
and the Company shall each have delivered to the Parent and Merger Sub a
certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
shall have been instituted after the date hereof against the Company or against
the Parent or Merger Sub arising by reason of the acquisition of the Company
pursuant to this Agreement, which is reasonably likely (i) to restrain, prohibit
or invalidate the consummation of the transactions contemplated by this
Agreement, (ii) to have a Company Material Adverse Effect or (iii) to have a
Parent Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement, and the Shareholders and the
Company shall each have delivered to the Parent and Merger Sub a certificate to
that effect.
-13-
<PAGE>
5.1.4 Approvals. The Company and the Shareholders shall have procured
all of the consents, approvals and waivers of third parties or any regulatory
body or authority, whether required contractually or by applicable law or
otherwise necessary for the execution, delivery and performance of this
Agreement (including the Company Related Documents and the Shareholder Related
Documents) by the Company and the Shareholders prior to the Closing Date, and
the Shareholders and the Company shall each have delivered to the Parent and 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. No material casualty, loss or
damage shall have occurred on or prior to the Effective Time to any of the
properties or assets of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such licenses
and permits as are legally required for the continued operation of the business
after the Effective Time, except such licenses and permits, the absence of which
will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since February 28, 1997, there shall
not have been any event that in the reasonable judgment of the Parent materially
and adversely affects the properties, assets, financial condition, results of
operations, cash flows, businesses or prospects of the Company.
5.1.9 Closing of CRA Purchase. The Parent shall have been satisfied
that the closing under that certain Asset Purchase Agreement of even date
herewith among the Parent, Merger Sub, Callahan Roach & Associates and the
partners of Callahan Roach & Associates (the "CRA Asset Purchase Agreement") has
occurred or will occur contemporaneously with or immediately after the Closing.
5.1.10 Certain Corporate Actions. All necessary director and
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
Company. The obligations of the Shareholders and the Company under this
Agreement are subject to the satisfaction of each of the following conditions,
unless waived by the Shareholders and the Company in writing to the extent
permitted by applicable law:
5.2.1 Accuracy of Representations and Warranties. The representations
and warranties of the Parent and Merger Sub contained in this Agreement or in
any closing certificate or document delivered to the Shareholders or the Company
pursuant hereto shall be true and correct on and as of the Closing Date as
though made at and as of that date other than such representations and
warranties as are specifically made as of another date, and the Parent and
Merger Sub shall have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.2 Performance of Covenants. The Parent and Merger Sub shall have
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the
-14-
<PAGE>
Closing Date and the Parent and Merger Sub shall have delivered to the
Shareholders and the Company a certificate to such effect.
5.2.3 Approvals. The Parent shall have procured all of the consents,
approvals and waivers specified in Exhibit 3.1.4 prior to the Closing Date, and
the Parent shall have delivered to the Shareholders and the Company a
certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
5.2.5 Closing of CRA Purchase. The Shareholders shall have been
satisfied that the closing under the CRA Asset Purchase Agreement has occurred
or will occur contemporaneously with or immediately after the Closing.
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. Certain employees of the Company
specified on Exhibit 5.3.3 shall execute and deliver an Employment Agreement
(with the insertion of the appropriate Section 7(b) based on whether any such
employee is designated an "Executive or Key Employee" or "Manager" on Exhibit
5.3.3 and with the blanks appropriately completed as set forth in a confidential
letter between the Company and the Parent) with the Company on the Closing Date,
effective as of the Effective Time, substantially in the form(s) set forth in
Exhibit 5.3.3A-1 and 5.3.3.A-2.
5.3.4 Adoption Agreement. If requested by the Parent, the Shareholders
shall execute and deliver at the Closing, effective as of the Effective Time, an
Adoption Agreement 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 Robert Wilson, 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.
-15-
<PAGE>
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 the Shareholder, and requests a waiver
thereof by the Parent, and the Parent shall waive any such specifically
identified breach in writing prior to the Closing Date, the Parent and the
Surviving Corporation, for themselves and for each Parent Indemnified Party (as
defined below) shall be deemed to have waived their respective rights and
remedies hereunder for, and the Shareholders shall have no liability with
respect to, any such specifically identified breach, to the extent so identified
by the Company and so waived by the Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent and
Merger Sub pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent and Merger Sub shall deliver
the certificates required pursuant to Sections 5.2.1, 5.2.2 and 5.2.3.
5.4.2 Registration Rights Agreement. The Parent shall execute and
deliver to the Shareholders a Registration Rights Agreement at the Closing,
effective as of the Effective Time, substantially in the form set forth in
Exhibit 5.3.5.
5.4.3 Opinion of Counsel for the Parent and Merger Sub. The Parent
shall deliver the favorable opinion of its legal counsel dated the Effective
Time, substantially in the form and to the effect set forth in Exhibit 5.4.3.
-16-
<PAGE>
5.4.4 Adoption Agreement. The Parent shall execute and deliver to the
Shareholders an Adoption Agreement at the Closing, effective as of the Effective
Time, substantially in the form attached as Exhibit 5.3.4.
5.4.5 Closing Merger Consideration. The Parent shall deliver the
Closing Merger Consideration to the Shareholders.
5.4.6 Employment Agreements. The Parent shall cause the Merger Sub to
deliver the Employment Agreements contained in Section 5.3.3 of this Agreement.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent or Merger Sub irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of any Shareholder; provided, however, that if the Parent shall disclose in
writing to the Shareholders prior to the Closing a specified breach of a
specifically identified representation, warranty, covenant or agreement of the
Parent or Merger Sub contained herein by the Parent or Merger Sub, and requests
a waiver thereof by the Company and the Shareholders, and the Company and the
Shareholders shall waive any such specifically identified breach in writing
prior to the Closing, the Company and the Shareholders shall be deemed to have
waived their rights and remedies hereunder for, and the Parent and Merger Sub
shall have no liability or obligation to the Shareholders or the Company with
respect to, any such specifically identified breach, to the extent so identified
by the Parent and waived by the Company and the Shareholders.
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders and the Company in Sections
2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2 shall survive for a period of
36 months after the Closing Date and the representations and warranties of the
Shareholders and the Company contained in Sections 2.2, 2.3, 2.4 and in Sections
2 and 3 of Exhibit 2 shall survive for the maximum period permitted by
applicable law. The representations and warranties of the Parent herein and in
the Parent Related Documents, other than those in Sections 3.1.3, 3.1.4 and
3.1.14, shall survive for a period of 36 months after the Closing Date and the
representations and warranties of the Parent contained in Sections 3.1.3, 3.1.4
and 3.1.14 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.
-17-
<PAGE>
6.2 Indemnification.
6.2.1 Parent Indemnified Parties. Subject to the provisions of
Sections 6.1 and 6.3 hereof, the Shareholders, severally in proportion to the
ratio that the number of shares of Company Common Stock owned by them as of the
date hereof bears to the total outstanding Company Common Stock as of the date
hereof, shall indemnify, save and hold harmless the Parent, the Surviving
Corporation, Merger Sub and any of their assignees (including lenders) and all
of their respective officers, directors, employees, representatives, agents,
advisors and consultants and all of their respective heirs, legal
representatives, successors and assigns (collectively the "Parent Indemnified
Parties") from and against any and all damages, liabilities, losses, loss of
value (including the value of adverse effects on cash flow or earnings), claims,
deficiencies, penalties, interest, expenses, fines, assessments, charges and
costs, including reasonable attorneys' fees and court costs (collectively
"Losses") arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of the Shareholders or the Company or
the failure by the Shareholders or the Company to perform any obligation of
the Shareholders or the Company contained herein or in any Company Related
Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty of
the Shareholders contained herein or in any Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty of
the Company contained herein or in any Company Related Document;
(iv) indemnification payments made by the Company or the Surviving
Corporation to the Company's present or former officers, directors,
employees, agents, consultants, advisors or representatives in respect of
actions taken or omitted to be taken prior to the Closing;
(v) federal, state, county, city or other taxes (including, without
limitation, penalties and fines related thereto) based upon, arising from
or related to the assets, properties, business or operations of the Company
prior to the Closing Date; and
(vi) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed with
reasonable specificity in the Disclosure Schedule or (b) disclosed in the
Company Financial Statements (as defined in Exhibit 2).
The foregoing indemnities shall not limit or otherwise adversely affect the
Shareholders ' rights of indemnity for Losses under Section 6.2.2.
6.2.2 Parent Indemnity. Subject to the provisions of Sections 6.1 and
6.3, the Parent shall indemnify, save and hold harmless the 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:
-18-
<PAGE>
(i) any breach of any covenant of the Parent or Merger Sub or the
failure by the Parent or Merger Sub to perform any of its obligations
contained herein or in the Parent Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty of
the Parent or Merger Sub contained herein or in the Parent Related
Documents; and
(iii) any act, omission, event, condition or circumstance occurring or
existing at any time after (but not on or before) the Effective Time and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from any Shareholder's
acts or omissions after the Effective Time as an officer, director and/or
employee of the Parent, the Surviving Corporation and/or any other
affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
6.3 Limitations. The aggregate liability of the Shareholders under
Section 6.2.1(ii) or (iii) shall not exceed the cash amount equal to the Final
Merger Consideration. The aggregate liability of the Parent under Section
6.2.2(ii) shall not exceed the cash amount equal to the Final Merger
Consideration. For purposes of this Section 6.3, if the notice required
pursuant to Section 6.4 below is delivered prior to the IPO Closing (as defined
in Exhibit 1.9), the Parent Common Stock shall be valued at $7.00 per share;
provided, however, that if the notice required in Section 6.4 below is delivered
after the IPO Closing, the Parent Common Stock shall be valued at the average of
the daily closing prices (or if no closing price is reported, the average of the
daily closing bid and asked prices) of a share of Parent Common Stock for the
ten consecutive trading days ending on and including the date which is three
trading days prior to the date the notice required pursuant to Section 6.4 below
is delivered, as reflected on the principal national securities exchange if any,
on which such shares are admitted for trading, on the National Association of
Securities Dealers, Inc. National Market System if such shares are quoted
thereon or, if such shares are not quoted thereon, in the over-the-counter
market in the United States on which such shares are publicly traded; provided
that if shares of the Parent Common Stock are not then admitted to trading on
any national securities exchange or quoted on the National Association of
Securities Dealers, Inc. National Market System or otherwise traded in the over-
the-counter market, the value shall mean $7.00. Notwithstanding any other
provision of this Agreement, the Company and the Shareholders shall not be
liable to the Merger Sub and the Parent under Sections 6.2.1(ii) or (iii)
regarding any single claim, loss, expense, obligation, or other liability that
does not exceed $15,000 (the "Threshold"); provided, however, that when the
aggregate amount of all such claims, losses, expenses, obligations, and
liabilities not exceeding the Threshold reaches the Threshold, the Company and
the Shareholders shall thereafter be liable in full regarding all such claims,
losses, expenses, obligations, and liabilities in excess of the amount of the
Threshold.
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
-19-
<PAGE>
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 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.
-20-
<PAGE>
6.5 Subrogation. Each Indemnifying Party hereby waives for itself,
himself or herself and its, his or her affiliates (as defined in Exhibit 2) any
rights to subrogation against any Indemnified Party or such Indemnified Party's
insurers for Losses arising from any third-party claims for which the
Indemnifying Party is liable or against which the Indemnifying Party
indemnifies any Indemnified Party and, if necessary, each Indemnifying Party
shall obtain waivers of such subrogation from its, his or her insurers.
6.6 Exclusive Remedy. The indemnities under this Section 8 shall be the
exclusive remedy for an Indemnified Party under this Agreement except in the
case of fraud or negligent misrepresentation. As used in this Agreement, the
term "negligent misrepresentation" means the communication of false information
to others for the purpose of guiding such others in such others' business by
failing to use reasonable care or competence in obtaining such information or
communicating such information to others.
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 materially breached this Agreement or has failed to perform any of their
respective material obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to the
Company, if the Closing shall have failed to occur by 5:00 p.m. Houston, Texas
time on December 31, 1997, but only if neither the Parent nor Merger Sub has
materially breached this Agreement or has failed to perform any of its material
obligations under this Agreement;
7.1.4 Breach By the Parent or Merger Sub. By the Company, by written
notice to the Parent, if either the Parent or Merger Sub has materially breached
this Agreement or failed to perform any of its material obligations under this
Agreement; or
7.1.5 Breach by the Company or any Shareholder. By the Parent, by
written notice to the Company, if the Company or any Shareholder has materially
breached this Agreement or has failed to perform any of their respective
material obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
-21-
<PAGE>
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Company (prior to the Effective Time) or the Shareholders:
Callahan Roach Products & Publications, Inc.
1532 Dunwoody Village Parkway, Suite 212
Dunwoody, Georgia 30338
Attention: Mr. Alfred Roach, Jr.
Telecopy: 770-393-8185
To the Parent or Merger Sub or the Surviving Corporation:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from time
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholders hereunder.
8.3 Assignability. The Shareholders shall not assign this Agreement in
whole or in part without the prior written consent of the Parent, except by the
operation of law. The Parent may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of any Shareholder or the Company. After the Effective Time, the
Surviving Corporation may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
any Shareholder.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
-22-
<PAGE>
8.5 Sections and Articles. Unless the context otherwise requires, all
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent,
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
-23-
<PAGE>
behalf of the Parent and the Shareholders. Any term or provision of this
Agreement (other than the requirements for shareholder approvals) may be waived
in writing at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever under or by reason of this Agreement, or shall cause the
employment status of any employee to be other than terminable at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
execution and delivery of one or more counterparts of this Agreement by each of
the Parent, Merger Sub, the Company and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Parent and the Company
and their respective members of their Boards of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated herein and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or 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
-24-
<PAGE>
such counterparts shall, collectively, constitute one agreement, but, in making
proof of this Agreement, it shall not be necessary to produce or account for
more than one such counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
8.20 Expenses. Each of the parties shall bear all of their own expenses in
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company may pay the costs of
any broker or other advisor engaged by the Shareholders (to the extent, and only
to the extent, that any such payment will not jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the
Code); and provided further that all fees, costs and expenses incurred or
payable by the Company in connection with the negotiation and closing of this
Agreement and the transactions contemplated hereby (other than such auditing
fees and expenses paid prior to the Closing) shall be included in current
liabilities for purposes of determining Working Capital.
-25-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
-----------------------------------------------
J. Patrick Millinor, Jr., President
MERGER SUB:
CRP ACQUISITION CORP.
By:
--------------------------------------------
President
SHAREHOLDERS:
-----------------------------------------------
William Michael Callahan
-----------------------------------------------
Alfred R. Roach, Jr.
-----------------------------------------------
James Kimmons
-----------------------------------------------
Susan Paturzo
-26-
<PAGE>
COMPANY:
CALLAHAN ROACH PRODUCTS & PUBLICATIONS, INC.
By:
--------------------------------------------
Name: James Kimmons
Title: President
-27-
<PAGE>
EXHIBIT 10.13
ASSET PURCHASE AGREEMENT
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I - CLOSING............................................................. 1
Section 1.1 Closing.................................................. 1
Section 1.2 Written Consents and Other Actions....................... 1
ARTICLE II - PURCHASE AND SALE.................................................. 2
Section 2.1 Purchased Assets and Excluded Assets..................... 2
Section 2.2 Purchase Price........................................... 2
Section 2.3 Allocation Reporting..................................... 2
Section 2.4 Mail Received After Closing.............................. 2
ARTICLE III - LIABILITIES AND OBLIGATIONS....................................... 3
Section 3.1 Obligations Assumed...................................... 3
Section 3.2 Liabilities and Obligations Not Assumed.................. 3
Section 3.3 Use of Name.............................................. 4
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES................... 4
Section 4.1 Exhibit 4.1.............................................. 4
Section 4.2 Ownership................................................ 4
Section 4.3 Authority................................................ 4
Section 4.4 Consents................................................. 4
Section 4.5 WARN Act Notices......................................... 5
Section 4.6 COBRA Notices............................................ 5
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE PARENT AND BUYER.............. 5
Section 5.1 Organization............................................. 5
Section 5.2 Capitalization of the Parent............................. 5
Section 5.3 Authority................................................ 6
Section 5.4 Consents................................................. 6
Section 5.5 Defaults................................................. 6
Section 5.6 Investment Company....................................... 6
Section 5.7 Financial Statements..................................... 6
Section 5.8 Taxes.................................................... 7
Section 5.9 Full Authority........................................... 7
Section 5.10 Access................................................... 7
Section 5.11 Disclosure............................................... 7
Section 5.12 Parent Material Adverse Effect........................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
Section 5.13 Organization and Standing of Buyer...................... 8
Section 5.14 Delivery of Warrant, Warrant Stock and
Parent Preferred Stock................................. 8
ARTICLE VI - COVENANTS......................................................... 8
Section 6.1 Pre-Closing Covenants and Agreements.................... 8
Section 6.2 Confidentiality......................................... 8
Section 6.3 Employees............................................... 9
Section 6.4 Failure to Obtain Consents.............................. 9
Section 6.5 Further Assistance...................................... 9
Section 6.6 Consents................................................ 9
Section 6.7 Tax Returns............................................. 9
Section 6.8 Audit................................................... 9
Section 6.9 Proration............................................... 9
ARTICLE VII - CONDITIONS PRECEDENT; CLOSING DELIVERIES......................... 10
Section 7.1 Conditions Precedent to the Obligations of
the Parent and Buyer................................... 10
Section 7.2 Conditions Precedent to the Obligations of
the Seller Parties..................................... 11
Section 7.3 Deliveries by the Seller Parties at the Closing......... 12
Section 7.4 Deliveries by the Parent at the Closing................. 13
ARTICLE VIII - SURVIVAL, INDEMNIFICATIONS...................................... 14
Section 8.1 Survival................................................ 14
Section 8.2 Indemnification......................................... 14
Section 8.3 Limitations............................................. 16
Section 8.4 Procedures for Indemnification.......................... 16
Section 8.5 Subrogation............................................. 17
Section 8.6 Exclusive Remedy........................................ 17
ARTICLE IX - TERMINATION...................................................... 17
Section 9.1 Grounds for Termination................................. 17
Section 9.2 Effect of Termination................................... 18
ARTICLE X - MISCELLANEOUS...................................................... 18
Section 10.1 Notice.................................................. 18
Section 10.2 Further Documents....................................... 19
Section 10.3 Assignability........................................... 19
Section 10.4 Exhibits and Schedules.................................. 19
Section 10.5 Sections and Articles................................... 19
Section 10.6 Entire Agreement........................................ 19
Section 10.7 Headings................................................ 20
</TABLE>
-ii-
<PAGE>
<TABLE>
<C> <S> <C>
Section 10.8 CONTROLLING LAW......................................... 20
Section 10.9 Public Announcements.................................... 20
Section 10.10 No Third Party Beneficiaries............................ 20
Section 10.11 Amendments and Waivers.................................. 20
Section 10.12 No Employee Rights...................................... 20
Section 10.13 Non-Recourse............................................ 20
Section 10.14 When Effective.......................................... 21
Section 10.15 Number and Gender of Words.............................. 21
Section 10.16 Invalid Provisions...................................... 21
Section 10.17 Multiple Counterparts................................... 21
Section 10.18 No Rule of Construction................................. 21
Section 10.19 Expenses................................................ 21
Section 10.20 Covenant Not to Compete................................. 22
</TABLE>
-iii-
<PAGE>
LIST OF EXHIBITS
Name
----
Exhibit 1.2(a)....Written Consent of All Partners of Callahan Roach & Associates
Exhibit 2.1.....................................................Purchased Assets
Exhibit 2.1-A............................................Certain Excluded Assets
Exhibit 2.2.............................................Additional Consideration
Exhibit 4.1...........................................................Statements
Exhibit 5.2.........................................Options, Subscriptions, Etc.
Exhibit 5.4.............................Required Consents - The Parent and Buyer
Exhibit 7.3(b)..............................Stock Transfer Restriction Agreement
Exhibit 7.3(c).....................................Registration Rights Agreement
Exhibit 7.3(d)..........................Opinion of Counsel to the Seller Parties
Exhibit 7.3(e)...................Bill of Sale, General Assignment and Conveyance
Exhibit 7.3(f)..................................Investment Representation Letter
Exhibit 7.3(g)................................................Adoption Agreement
Exhibit 7.4(d)........................Opinion of Counsel to the Parent and Buyer
Exhibit X.............................................Certificate of Designation
-iv-
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accountant............................. 4
Additional Consideration............... 2
affiliate.............................. 6
Agreement.............................. 1
Applicable Environmental Laws.......... 3
Asset Purchase Agreement............... 4
Buyer.................................. 1
Callahan............................... 1
Cash Payment........................... 2
CERCLA................................. 3
Closing................................ 1
Closing Cash Payment................... 2
Closing Date........................... 1
Common Stock Unit Amount............... 2
control................................ 6
Cumulative Operating EBITDA Amount..... 3
Disclosure Schedule.................... 2
Disposition............................ 4
Eligible Acquisition................... 3
Eligible Company....................... 3
Environmental Law...................... 5
ERISA.................................. 4
Excluded Assets........................ 2
Indemnified Party...................... 16
Indemnifying Party..................... 16
Intellectual Property.................. 1
Investments............................ 4
IPO.................................... 3
IPO Closing............................ 3
Losses................................. 14
Merger Agreement....................... 11
Minimum Proceeds....................... 4
negligent misrepresentation............ 17
Net After-Tax Income................... 4
Notice of Objection.................... 5
One Year Holding Period................ 5
</TABLE>
-v-
<PAGE>
Operating EBITDA Amount................ 4
Overlap Period......................... 9
Parent................................. 1
Parent Common Stock.................... 5
Parent Financial Statements............ 6
Parent Indemnified Parties............. 14
Parent Material Adverse Effect......... 8
Parent Preferred Stock................. 2
Parent Related Documents............... 6
Partner................................ 1
Partner Related Document............... 4
Partners............................... 1
Proprietary Rights..................... 1
Purchase Price......................... 2
Purchased Assets....................... 2
RCRA................................... 3
Roach.................................. 1
Second Holding Period.................. 5
Securities Act......................... 3
Seller................................. 1
Seller Contract........................ 3
Seller Material Adverse Effect......... 7
Seller Parties......................... 1
Seller Plans........................... 4
Seller Related Documents............... 1
Settlement Notice...................... 17
Statement of Additional Consideration.. 4
Stock.................................. 4
Stockholder............................ 4
Stockholders........................... 4
Survival Period........................ 14
Tax Returns............................ 5
Threshold.............................. 16
Total Value Earned..................... 4
WARN Act............................... 5
Warrant................................ 4
Warrant Exercise Price................. 2
Warrant Payment........................ 2
-vi-
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made this 16th day of July,
1997 by and among Group Maintenance America Corp., a Texas corporation (the
"Parent"), CRP Acquisition Corp., a Colorado corporation ("Buyer"), Callahan
Roach & Associates, an Ohio general partnership ("Seller"), William Michael
Callahan, an individual resident of the State of Ohio ("Callahan"), and Alfred
R. Roach, Jr., an individual resident of the State of Georgia ("Roach")
(Callahan and Roach being the holders of all of the outstanding partnership
interests of Seller and being sometimes referred to herein individually as a
"Partner" and collectively as the "Partners"). The Partners and Seller are
sometimes referred to herein as the "Seller Parties".
WHEREAS, on the terms and conditions hereof, Buyer wishes to purchase from
Seller and Seller wishes to sell, transfer, assign and deliver to Buyer certain
of Seller's assets;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements stated herein, the parties agree as
follows:
ARTICLE I
CLOSING
Section 1.1 Closing. The closing of the purchase and sale contemplated
hereby ("Closing") will take place at 10:00 a.m. at the offices of Bracewell &
Patterson, L.L.P. in Houston, Texas on July 18, 1997, 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 Closing set forth in
Article VII of this Agreement are then satisfied or waived by the applicable
party. Seller and Buyer 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 Article VIII.
Section 1.2 Written Consents and Other Actions.
(a) Contemporaneously with the execution hereof, the Partners are
executing and delivering to Seller a Written Consent in substantially the form
of Exhibit 1.2(a) attached hereto.
(b) In addition to the actions set forth in Section 1.2(a), the
Seller Parties agree to take all actions necessary in accordance with the
applicable law and the partnership agreement of Seller and all other governing
instruments of Seller to cause the purchase and sale contemplated hereby to be
consummated on, and subject to, the terms set forth in this Agreement.
<PAGE>
(c) Buyer agrees to take all actions necessary in accordance with
applicable law and its charter and bylaws to cause the purchase and sale
contemplated hereby to be consummated on, and subject to, the terms set forth in
this Agreement.
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchased Assets and Excluded Assets. Subject to the terms
and conditions of this Agreement, and on the basis of the representations,
warranties and indemnities hereinafter set forth, at the Closing, Seller shall
sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase
from Seller, the assets, properties and rights of Seller described on Exhibit
2.1 attached hereto (collectively, the "Purchased Assets"). Notwithstanding the
foregoing, the Purchased Assets shall not include, and Buyer will not purchase,
(a) any insurance policies or insurance contracts, (b) tax refunds applicable to
periods prior to the Closing or (c) the assets listed on Exhibit 2.1-A attached
hereto (collectively the "Excluded Assets").
Section 2.2 Purchase Price. The purchase price which shall be paid by
Buyer to Seller for the Purchased Assets (the "Purchase Price") is $1,000,000 in
cash (the "Closing Cash Payment") and a certificate evidencing 500,000 shares of
Series H Preferred Stock, $.001 par value, of Parent ("Parent Preferred Stock")
(the Certificate of Designation of which is attached hereto as Exhibit X), plus
additional consideration which may be deliverable to Seller as provided in
Exhibit 2.2 attached hereto.
At the Closing, subject to the terms and conditions hereof, Buyer shall
deliver to Seller the Closing Cash Payment and a certificate representing the
shares of Parent Preferred Stock against receipt of the documents and
instruments required hereby to be delivered by the Seller Parties to Buyer at
the Closing.
Section 2.3 Allocation Reporting. Buyer and Seller agree to report the
allocation of the Purchase Price among the Purchased Assets as Buyer and Seller
shall agree prior to Closing.
Section 2.4 Mail Received After Closing. Following the Closing, Buyer
may receive and open all mail addressed to Seller and, to the extent that such
mail and the contents thereof relate to the Business or the Purchased Assets,
deal with the contents thereof at its discretion. Buyer shall notify Seller of
(and provide Seller complete copies of) any mail that on its face obliges any
Seller Party to take any action or indicates that action may be taken against
any of them and any mail applicable solely to Seller or the Excluded Assets.
-2-
<PAGE>
ARTICLE III
LIABILITIES AND OBLIGATIONS
Section 3.1 Obligations Assumed. As part of the consideration for the
Purchased Assets, and subject to Section 3.2, Buyer shall assume Seller's
obligations that accrue after the Closing Date under the Contracts, the Permits,
and the Intellectual Property rights, if, but only if, they are assigned or
transferred to Buyer, or they are subject to the provisions of Section 6.4.
Section 3.2 Liabilities and Obligations Not Assumed. Other than as
specifically set forth in Section 3.1 above, Buyer shall assume no obligation
whatsoever of Seller. Furthermore, except as specifically set forth in Section
3.1 above, Buyer expressly disclaims the assumption of, and shall not assume,
any liability of any type whatsoever of Seller or in connection with any of
Seller's assets or business operations, including without limitation (a) any and
all tax liabilities accruing on or before the Closing Date in connection with
any Purchased Asset, the Excluded Assets or otherwise, and any and all tax
liabilities accruing on or after the Closing Date in connection with the
ownership, operation or disposition of any Excluded Assets, (b) any and all
liabilities arising from or under any environmental laws, including but not
limited to federal environmental statutes (and associated rules and regulations)
such as the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.)
("RCRA"), the Comprehensive Environmental Response, Compensation, and Liability
Act (42 U.S.C. (S) 9601 et seq.) ("CERCLA"), Superfund, Clean Air Act, Clean
Water Act, Safe Drinking Water Act, Community Right to Know Act, or OSHA, or
otherwise, or any similar state or local environmental laws, rules or
regulations (collectively, the "Applicable Environmental Laws"), (c) any and all
liabilities in connection with any claim by any person, entity or agency
claiming to have suffered any environmental damage or harm of any type,
including any actual or alleged damage or harm to groundwater, surface water,
well water, ground, soil, or the atmosphere, or otherwise , (d) any and all
employment or personnel-related liabilities whatsoever of Seller arising out of
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), OSHA liability, liability for
disabled individuals, workers' compensation liability, ERISA obligations or
liability, WARN Act liability, sick pay, vacation accruals, or similar matters,
liability under any profit sharing plan, liability under any pension plan or
savings plan, liability under any welfare benefit plan, or liability for any
claims alleging illegal discrimination of any type, (e) any account payable,
indebtedness, letter of credit, guaranty, note or obligation of Seller other
than the obligations specifically assumed under Section 3.1., (f) any liability
or obligation (contingent or otherwise) of Seller arising out of any claim,
litigation or proceeding threatened or pending on or before the Closing Date or
out of any claim, litigation or proceeding threatened or initiated after the
Closing Date to the extent based on or caused by any act or omission occurring,
or condition or circumstances existing, prior to the Closing Date with respect
to the Purchased Assets (or prior to, on or after the Closing Date with
-3-
<PAGE>
respect to the Excluded Assets or any other business or operations of Seller or
its predecessors), or any condition caused by any act or omission occurring
prior to the Closing Date with respect to the Purchased Assets (or prior to, on
or after the Closing Date with respect to the Excluded Assets or any other
business or operations of Seller or its predecessors), or any product sold or
manufactured by Seller or any service provided by Seller (including all product
liability and warranty claims and product returns with respect thereto), and (g)
any liability or obligation (contingent or otherwise) of Seller arising out of
any claim, litigation or proceeding threatened or pending on or before the
Closing Date or out of any claim, litigation or proceeding threatened or
initiated after the Closing Date to the extent based on or caused by any act or
omission occurring, or condition or circumstances existing, prior to the Closing
Date with respect to the assets, business or operations of Seller or its
predecessors.
Section 3.3 Use of Name. The Seller Parties hereby grant to Buyer the
right and license to use the name "Callahan Roach" in perpetuity and for no
additional consideration. Notwithstanding the foregoing, each of the Partners
shall have the right to use their own name for any purpose or business other
than a purpose or business conducted by Seller prior to the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
The Seller Parties jointly and severally represent and warrant to
Buyer the following:
Section 4.1 Exhibit 4.1. The statements in Exhibit 4.1 attached hereto
are true and correct.
Section 4.2 Ownership. The Partners own, legally and beneficially, with
full power to exercise management authority with respect to Seller, all of the
outstanding partnership interests of Seller.
Section 4.3 Authority. Each Partner has full right, power, legal
capacity and authority to (a) execute, deliver and perform this Agreement, and
all other documents and instruments referred to herein or contemplated hereby to
be executed, delivered and performed by such Partner (each a "Partner Related
Document") and (b) consummate the transactions contemplated herein and thereby.
This Agreement has been duly executed and delivered by the Partners and
constitutes, and the Partner Related Documents, when duly executed and delivered
by any Partner named as a party thereto will constitute, legal, valid and
binding obligations of such Partners enforceable against such Partners 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).
Section 4.4 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
Partners of this Agreement or any Partner Related Document. The execution,
delivery and performance by the Partners of this Agreement and any Partner
Related Documents do not violate any
-4-
<PAGE>
mortgage, indenture, contract, agreement, lease or commitment or other
instrument of any kind to which any Partner is a party or by which any Partner
or such Partner's assets or properties may be bound or affected or any law, rule
or regulation applicable to any partner 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 Partner.
Section 4.5 WARN Act Notices. Any notice required under the Federal
Workers Adjustment and Retraining Notification Act ("WARN Act") that is, has
been or will be required of Seller to its employees or former employees by
reason of its obligations under the WARN Act resulting from the transactions
contemplated by this Agreement has been or will be given by Seller.
Section 4.6 COBRA Notices. Seller has performed or will perform prior
to the Closing Date all notice obligations under Section 4980B of the Internal
Revenue Code of 1986, as amended or under Section 601 through 608 of the
Employee Retirement Income Security Act of 1974, as amended and which are
required to be performed on or prior to the Closing Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND BUYER
The Parent and Buyer jointly and severally represent and warrant to the
Seller Parties the following:
Section 5.1 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).
Section 5.2 Capitalization of the Parent. The total authorized capital
stock of Parent is 100,000,000 shares of common stock, par value $.001 per
share, ("Parent Common Stock"), of which 20,282,439 shares are issued and
outstanding and none of which are held in the treasury of Parent, 50,000,000
shares of Parent preferred stock, $.001 par value, of which 45,137 shares of
Series A Parent Preferred Stock are issued and outstanding, 678,920 shares of
Series B Parent Preferred Stock are issued and outstanding, 100,000 shares of
Series C Parent Preferred Stock are issued and outstanding, 1,568,000 shares of
Series D Parent Preferred Stock are issued and outstanding, 580,000 shares of
Series E Parent Preferred Stock are issued and outstanding, and 664,691 shares
of Series F Parent Preferred Stock 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. Except as set forth on
Exhibit 5.2, Parent has not
-5-
<PAGE>
granted any option, warrant, subscription or similar right to any person or
entity to purchase or acquire any rights with respect to any shares of capital
stock or equity interests of Parent.
Section 5.3 Authority. The Parent and Buyer each has the requisite
power and authority to execute, deliver and perform this Agreement and all
documents and instruments referred to herein or contemplated hereby to be
executed and delivered by it (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 Buyer and constitutes, and all the
Parent Related Documents, when executed and delivered by the Parent or Buyer (if
named a party therein) will constitute, legal, valid and binding obligations of
the Parent and Buyer, 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).
Section 5.4 Consents. Except as provided on Exhibit 5.4, 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 or Buyer of this Agreement or the Parent
Related Documents or the consummation by the Parent or Buyer of the transactions
contemplated hereby.
Section 5.5 Defaults. Neither the Parent nor Buyer is 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
and Buyer of the transactions contemplated hereby and thereby will not result in
a default under or in violation of (a) any mortgage, indenture, charter or bylaw
provision, contract, agreement, lease, commitment or other instrument of any
kind to which the Parent or Buyer is a party or by which the Parent or Buyer or
any of its properties or assets may be bound or affected or (b) any law, rule or
regulation applicable to the Parent or Buyer or any court injunction, order or
decree, or any valid and enforceable order of any governmental agency in effect
as of the date hereof having jurisdiction over the Parent or Buyer, which
default or violation will prevent the Parent and Buyer from consummating the
transactions contemplated hereby or is reasonably likely to have a Parent
Material Adverse Effect.
Section 5.6 Investment Company. Neither the Parent nor Buyer is 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.
Section 5.7 Financial Statements. The Parent has provided certain
financial statements to the Seller Parties ("Parent Financial Statements") and
such Parent Financial Statements have been prepared in accordance with GAAP and
fairly present the consolidated financial position, results of operations and
cash flows of the Parent and its then existing consolidated subsidiaries as of
the dates and for the periods
-6-
<PAGE>
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.
Section 5.8 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 or Buyer for the period
covered by the Parent Financial Statements.
Section 5.9 Full Authority. The Parent and Buyer each 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 4.1) 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 is not reasonably likely to 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.
Section 5.10 Access. The Parent and Buyer have cooperated fully in
permitting the Seller Parties and their representatives to make a full
investigation of the properties, operations and financial condition of the
Parent and Buyer and have afforded the Seller Parties 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 and Buyer.
Section 5.11 Disclosure. No representation or warranty by the Parent or
Buyer in this Agreement, and no statement contained in any certificate delivered
by the Parent or Buyer to the Seller Parties 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. None of the
information supplied by Parent for inclusion in the Confidential Information
Statement dated June 12, 1997, or in any supplement thereto, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, Parent makes no representation with
respect to statements made in the Confidential Information Statement dated June
12, 1997, or in any supplement thereto, based on information supplied by anyone
other than Parent for inclusion therein.
-7-
<PAGE>
Section 5.12 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.
Section 5.13 Organization and Standing of Buyer. Buyer is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Colorado.
Section 5.14 Delivery of Warrant, Warrant Stock and Parent Preferred
Stock. Warrants, if issued, will be duly authorized by all requisite corporate
action, will not require the approval of Parent's stockholders and will not
violate any provision of law, any order of any court or other agency of
government or Parent's Articles of Incorporation or its Bylaws. Warrant Stock,
when issued upon proper exercise of a Warrant, if any, and Parent Preferred
Stock to be delivered to Seller pursuant hereto, will be, when delivered,
validly authorized, duly issued, fully-paid and non-assessable.
ARTICLE VI
COVENANTS
Section 6.1 Pre-Closing Covenants and Agreements. Intentionally
Omitted.
Section 6.2 Confidentiality. Prior to the Closing Date, none of Buyer,
the Parent, or any Seller Party will disclose the terms of this Agreement to any
person other than their respective partners (if any) directors or officers (if
any) or agents or representatives, except as otherwise provided herein or unless
required by law. Seller may make appropriate disclosures of the general nature
of the transaction contemplated hereby to its employees, vendors and customers
to protect Seller's goodwill and to facilitate the Closing. Buyer and the
Parent may disclose pertinent information regarding the transaction contemplated
hereby to their 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
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. Buyer and the
Parent may also make appropriate disclosures of the general nature of the
transaction contemplated hereby and the identity, nature and scope of Seller'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
transaction contemplated hereby.
-8-
<PAGE>
Section 6.3 Employees. At the Closing, Seller will pay its employees
all amounts due them (including, without limitation, on account of vacation pay
and severance), and shall pay all health claims for such employees when and as
the same became due. The provisions of this Agreement are for the benefit of
the Parent and Buyer only, and no employee of any Seller Party or any other
person shall have any rights hereunder.
Section 6.4 Failure to Obtain Consents. In the event any consent to the
assignment of any Contract, Permit or Intellectual Property right is required in
connection with the transactions contemplated hereby has not been obtained as of
the Closing, then until such consent is obtained, Seller and Buyer shall
cooperate in any arrangement reasonably satisfactory to the parties designed to
fulfill Seller's obligations thereunder and to afford Buyer the benefits
thereof, so long as Seller is reimbursed by Buyer for any costs associated with
such arrangements.
Section 6.5 Further Assistance. The Seller Parties shall execute and
deliver to Buyer, at Closing or thereafter, any other instrument which may be
requested by Buyer and which is reasonably appropriate to perfect or evidence
any of the sales, assignments, transfers or conveyances contemplated by this
Agreement or to transfer any Purchased Assets identified after Closing.
Section 6.6 Consents. After the Closing, the Seller Parties will, upon
request of Buyer, use their reasonable commercial efforts to obtain any consents
required in connection with the transactions contemplated hereby that are
requested by Buyer and that have not been previously obtained.
Section 6.7 Tax Returns. The Seller Parties shall duly file or cause to
be filed all tax returns related to taxes of any nature with respect to the
Business or the Purchased Assets for all periods ending on or prior to the
Closing Date and pay all taxes due with respect to such periods.
Section 6.8 Audit. Intentionally Omitted.
Section 6.9 Proration. Notwithstanding anything herein to the contrary,
any taxes not measured or measurable, in whole or in part, by net or gross
income or receipts (including, but not limited to, real or personal property or
ad valorem taxes) imposed on the Purchased Assets and other expense items such
as insurance, utilities and similar expenses with respect to the Purchased
Assets that relate to a period beginning before the Closing Date and ending
after the Closing Date (an "Overlap Period") shall be apportioned as of the
Closing Date such that Seller shall be liable for (and shall reimburse Buyer to
the extent that Buyer shall have paid) that portion of such taxes and other
expense items relating to, or arising in respect to, periods on or prior to the
Closing Date and Buyer shall be liable for (and shall reimburse Seller to the
extent Seller shall have paid) that portion of such taxes and other expense
items relating to, or arising in respect to, periods after the Closing Date.
Should any amounts to be prorated not have been finally determined on the
Closing Date, a mutually satisfactory estimate of such amounts made on the basis
of Seller's records shall be used as a basis
-9-
<PAGE>
for settlement at Closing, and the amount finally determined will be prorated as
of the Closing Date and appropriate settlement made as soon as practicable after
such final determination.
ARTICLE VII
CONDITIONS PRECEDENT; CLOSING DELIVERIES
Section 7.1 Conditions Precedent to the Obligations of the Parent and
Buyer. The obligations of the Parent and Buyer to effect the Closing 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:
(a) The representations and warranties of the Seller Parties contained
in this Agreement, in Exhibit 4.1 and the Disclosure Schedule referred to
therein and the other Exhibits provided by any Seller Party pursuant to this
Agreement or in any closing certificate or document delivered to the Parent or
Buyer 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 Seller Parties
shall each have delivered to the Parent and Buyer a certificate to that effect.
(b) The Seller Parties 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 Seller Parties shall each have delivered to the
Parent and Buyer a certificate to that effect.
(c) No legal action or proceeding shall have been instituted after the
date hereof against the Purchased Assets or against the Parent or Buyer arising
by reason of the acquisition of the Purchased Assets 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
Seller 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 Seller Parties shall each have delivered to the Parent and
Buyer a certificate to that effect.
(d) The Seller Parties 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 Seller
Related Documents and the Partner Related Documents) by the Seller Parties prior
to the Closing Date, and the Seller Parties shall each have delivered to the
Parent and Buyer a certificate to that effect.
(e) All documents required to be executed or delivered at Closing by
the Seller Parties pursuant to Section 7.3 of this Agreement shall have been so
executed or delivered.
-10-
<PAGE>
(f) No casualty, loss or damage shall have occurred on or prior to the
Closing Date to any of the properties or assets of Seller.
(g) Buyer shall have obtained all such licenses and permits as are
legally required for the continued operation of the Business after the Closing
Date, except such licenses and permits, the absence of which will not have a
Parent Material Adverse Effect.
(h) Since December 31, 1996, there shall not have been any event that
in the reasonable judgment of the Parent adversely affects the properties,
assets, financial condition, results of operations, cash flows, businesses or
prospects of the Business or the Purchased Assets.
(i) All necessary partners' resolutions, waivers and consents required
to consummate the transactions contemplated hereunder shall have been executed
and delivered.
(j) Buyer shall have been satisfied that the closing under that
certain Agreement and Plan of Merger of even date herewith among the Parent,
Buyer, Callahan Roach Products & Publications, Inc. and the shareholders of
Callahan Roach Products & Publications, Inc. named therein (the "Merger
Agreement") has occurred or will occur contemporaneously with or immediately
after the Closing Date.
Section 7.2 Conditions Precedent to the Obligations of the Seller
Parties. The obligations of the Seller Parties under this Agreement are subject
to the satisfaction of each of the following conditions, unless waived by the
Seller Parties in writing to the extent permitted by applicable law:
(a) The representations and warranties of the Parent and Buyer
contained in this Agreement or in any closing certificate or document delivered
to the Seller Parties 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 Buyer shall have delivered to the Seller Parties a certificate to
that effect.
(b) The Parent and Buyer 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 Buyer shall have delivered to the Seller
Parties a certificate to such effect.
(c) The Parent shall have procured all of the consents, approvals and
waivers specified in Exhibit 5.4 prior to the Closing Date, and the Parent shall
have delivered to the Seller Parties a certificate to that effect.
(d) All documents required to be executed or delivered at Closing by
the Parent or Buyer pursuant to Section 7.4 of this Agreement shall have been so
executed or delivered.
-11-
<PAGE>
Section 7.3 Deliveries by the Seller Parties at the Closing. At the
Closing, simultaneously with the deliveries by the Parent specified in Section
7.4 below, and in addition to any deliveries required to be made by the Seller
Parties pursuant to any other transaction document at the Closing, the Seller
Parties shall deliver or cause to be delivered to the Parent and Buyer the
following:
(a) The Seller Parties shall deliver the certificates required
pursuant to Sections 7.1(a), (b), (c) and (d).
(b) Seller shall execute and deliver a Stock Transfer Restriction
Agreement substantially in the form set forth in Exhibit 7.3 (b) attached
hereto.
(c) Seller shall execute and deliver a Registration Rights Agreement
substantially in the form set forth in Exhibit 7.3 (c) attached hereto.
(d) The Seller Parties shall deliver the favorable opinion of Hunter,
Maclean, Exley & Dunn, P.C., counsel to the Seller Parties, dated the Closing
Date, substantially to the effect set forth in Exhibit 7.3 (d) attached hereto.
(e) The Seller Parties shall execute and deliver such bills of sale,
deeds, assignments and other conveyance instruments (including without
limitation, a Bill of Sale, General Assignment and Conveyance substantially in
the form set forth in Exhibit 7.3(e) attached hereto) and any other documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by any Seller Party 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 instruments required under Article VI and any consents,
estoppel certificates, landlord's subordination agreements, termination
statements, releases and waivers requested by the Parent, Buyer or any of their
respective lenders.
(f) Seller shall deliver to the Parent an investment representation
letter and attachments substantially in the form set forth as Exhibit 7.3 (f)
attached hereto, executed by Seller and properly completed.
(g) If requested by Parent, Seller shall execute and deliver an
Adoption Agreement substantially in the form set forth in Exhibit 7.3 (g)
attached hereto.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or Buyer of any of their rights or remedies against the Seller
Parties hereunder for any breach of warranty, covenant or agreement by any
Seller Party herein irrespective of any knowledge of or investigation made by or
on behalf of the Parent or Buyer; provided, however, that if Seller 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
any Seller Party herein by a Seller Party, and requests a waiver thereof by the
Parent and
-12-
<PAGE>
Buyer, and the Parent and Buyer shall waive any such specifically identified
breach in writing prior to the Closing Date, the Parent and Buyer, for
themselves and for each Parent Indemnified Party shall be deemed to have waived
their respective rights and remedies hereunder for, and the Seller Parties shall
have no liability to the Parent Indemnified Parties with respect to, any such
specifically identified breach, to the extent so identified by Seller and so
waived by the Parent and Buyer.
Section 7.4 Deliveries by the Parent at the Closing. At the Closing,
simultaneously with the deliveries by the Seller Parties specified in Section
7.3 above, and in addition to any other deliveries to be made by the Parent and
Buyer pursuant to any other transaction document at the Closing, the Parent
shall deliver or cause to be delivered to the Seller Parties the following:
(a) The Parent and Buyer shall deliver the certificates required
pursuant to Section 7.2 (a), (b) and (c).
(b) The Parent shall execute and deliver to Seller a Stock Transfer
Restriction Agreement substantially in the form set forth in Exhibit 7.3(b)
attached hereto.
(c) The Parent shall execute and deliver to Seller a Registration
Rights Agreement substantially in the form set forth in Exhibit 7.3 (c) attached
hereto.
(d) The Parent shall deliver the favorable opinion of the Parent's and
Buyer's counsel, dated the Closing Date, substantially to the effect set forth
in Exhibit 7.4 (d) attached hereto.
(e) The Parent shall execute and deliver to Seller an Adoption
Agreement substantially in the form set forth in Exhibit 7.3 (g) attached
hereto.
(f) Buyer shall deliver the Closing Cash Payment and a certificate
representing the Parent Preferred Stock to Seller.
The consummation of the Closing shall not be deemed to be a waiver by
the Seller Parties of any of their rights or remedies hereunder for breach of
any warranty, covenant or agreement herein by the Parent or Buyer irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of any Seller Party; provided, however, that if the Parent shall disclose in
writing to Seller prior to the Closing a specified breach of a specifically
identified representation, warranty, covenant or agreement of the Parent or
Buyer contained herein by the Parent or Buyer, and requests a waiver thereof by
the Seller Parties, and the Seller Parties shall waive any such specifically
identified breach in writing prior to the Closing, the Seller Parties shall be
deemed to have waived their rights and remedies hereunder for, and the Parent
and Buyer shall have no liability or obligation to the Seller Parties (or their
heirs, legal representatives, successors and assigns) with respect to, any such
specifically identified breach, to the extent so identified by the Parent and
waived by the Seller Parties.
-13-
<PAGE>
ARTICLE VII
SURVIVAL, INDEMNIFICATIONS
Section 8.1 Survival. The representations and warranties set forth in
this Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Seller Parties herein and in the Partner
Related Documents and the Seller Related Documents, other than those of the
Seller Parties in Sections 4.2, 4.3 and 4.4 and in Sections 3 and 6 of Exhibit
4.1 shall survive for a period of 36 months after the Closing Date and the
representations and warranties of the Seller Parties contained in Sections 4.2,
4.3, 4.4 and in Sections 3 and 6 of Exhibit 4.1 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
5.3, 5.4, and 5.14 shall survive for a period of 36 months after the Closing
Date and the representations and warranties of the Parent contained in Sections
5.3, 5.4 and 5.14 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 8.1 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 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.
Section 8.2 Indemnification.
(a) Subject to the provisions of Sections 8.1 and 8.3 hereof, the
Seller Parties, jointly and severally, shall indemnify, save and hold harmless
the Parent, Buyer and any of their assignees (including lenders) and all of
their respective officers, directors, employees, representatives, agents,
advisors and consultants and all of their respective heirs, legal
representatives, successors and assigns (collectively the "Parent Indemnified
Parties") from and against any and all damages, liabilities, losses, loss of
value (including the value of adverse effects on cash flow or earnings), claims,
deficiencies, penalties, interest, expenses, fines, assessments, charges and
costs, including reasonable attorneys' fees and court costs (collectively
"Losses") arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of any Seller Party or the failure
by any Seller Party to perform any obligation of the such Seller Party
contained herein or in any Seller Related Document or Partner Related
Document;
-14-
<PAGE>
(ii) any inaccuracy in or breach of any representation or
warranty of any Partner contained herein or in any Partner Related
Document;
(iii) any inaccuracy in or breach of any representation or
warranty of Seller contained herein or in any Seller Related Document;
(iv) the Excluded Liabilities; and
(v) any act, omission, occurrence, event, condition or
circumstance occurring or existing at any time on or before the Closing
Date and involving or related to the assets, properties, business or
operations now or previously owned or operated by Seller other than the
Assumed Liabilities.
The foregoing indemnities shall not limit or otherwise adversely affect the
Seller Indemnified Parties' rights of indemnity for Losses under Section 8.2
(b).
(b) Subject to the provisions of Sections 8.1 and 8.3, the Parent and
Buyer, jointly and severally, shall indemnify, save and hold harmless the Seller
Parties and their respective 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 Buyer or the
failure by the Parent or Buyer 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 Buyer contained herein or in the Parent Related
Documents;
(iii) the Assumed Liabilities; and
(iv) any act, omission, event, condition or circumstance
occurring or existing at any time after (but not on or before) the Closing
Date and involving or relating to the Purchased Assets; provided, however,
that this clause (iv) shall not apply to any Losses to the extent that such
Losses result from any Seller Party's acts or omissions after the Closing
Date as an officer, director and/or employee of the Parent, Buyer 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 8.2(a).
-15-
<PAGE>
Section 8.3 Limitations. The aggregate liability of the Seller Parties
under Section 8.2 (a) (ii) or (iii) shall not exceed $1,500,000, and the
aggregate liability of the Parent and Buyer under Section 8.2 (b) (ii) shall not
exceed $1,500,000. Notwithstanding any other provision of this Agreement, the
Seller Parties shall not be liable to Parent under Sections 8.2(a)(ii) or (iii)
regarding any single claim, loss, expense, obligation, or other liability that
does not exceed $15,000 (the "Threshold"); provided, however, that when the
aggregate amount of all such claims, losses, expenses, obligations, and
liabilities not exceeding the Threshold reaches the Threshold, the Stockholders
shall thereafter be liable in full regarding all such claims, losses, expenses,
obligations, and liabilities in excess of the amount of the Threshold.
Section 8.4 Procedures for Indemnification.
(a) 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 8.4(a) shall relieve the Indemnifying
Party of its obligations under this Article VIII 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.
(b) 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 Seller Parties
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 Seller Parties shall
have the right, but not the obligation, to undertake the defense of any such
third-party claim, suit, action or proceeding.
(c) 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 Buyer 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
-16-
<PAGE>
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 8.4, the Indemnifying Party shall
not be liable for Losses arising from such third-party suit, action, proceeding
or investigation in excess of the amount proposed in such settlement offer.
Notwithstanding the foregoing, no Indemnifying Party will consent to the entry
of any judgment or enter into any settlement without the consent of the
Indemnified Party, if such judgment or settlement imposes any obligation or
liability upon the Indemnified Party other than the execution, delivery or
approval thereof and customary releases of claims with respect to the subject
matter thereof.
(d) 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.
Section 8.5 Subrogation. Each Indemnifying Party hereby waives for
itself, himself or herself and its, his or her affiliates (as defined in Exhibit
4.1) any rights to subrogation against any Indemnified Party or such Indemnified
Party's insurers for Losses arising from any third-party claims for which the
Indemnifying Party is liable or against which the Indemnifying Party indemnifies
any Indemnifying Party and, if necessary, each Indemnifying Party shall obtain
waivers of such subrogation from its, his or her insurers.
Section 8.6 Exclusive Remedy. The indemnities under this Section 8
shall be the exclusive remedy for an Indemnified Party under this Agreement
except in the case of fraud or negligent misrepresentation. As used in this
Agreement, the term "negligent misrepresentation" means the communication of
false information to others for the purpose of guiding such others in such
others' business by failing to use reasonable care or competence in obtaining
such information or communicating such information to others.
ARTICLE IX
TERMINATION
Section 9.1 Grounds for Termination. This Agreement may be terminated
at any time prior to the Closing Date:
(a) By the written agreement of Seller and the Parent; or
-17-
<PAGE>
(b) By Seller 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 no Seller Party has materially breached this Agreement or has failed to
perform any of such Seller Party's material obligations under this Agreement;
(c) By the Parent, by written notice to Seller, 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 Buyer has materially breached this Agreement or
has failed to perform any of its material obligations under this Agreement;
(d) By Seller, by written notice to the Parent, if either the Parent
or Buyer has materially breached this Agreement or failed to perform any of its
material obligations under this Agreement; or
(e) By the Parent, by written notice to Seller, if any Seller Party
has materially breached this Agreement or has failed to perform any of such
Seller Party's material obligations under this Agreement.
Section 9.2 Effect of Termination. If this Agreement is terminated as
permitted under Section 9.1, 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.
ARTICLE X
MISCELLANEOUS
Section 10.1 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 Seller Parties:
Callahan Roach & Associates
1532 Dunwoody Village Parkway, Suite 212
Dunwoody, Georgia 30338
Attention: Wm. Michael Callahan and Alfred R. Roach, Jr.
Telecopy: (770) 393-8185
-18-
<PAGE>
To the Parent or Buyer:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 10.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
Section 10.2 Further Documents. The Seller Parties 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 Seller Parties hereunder.
Section 10.3 Assignability. The Seller Parties shall not assign this
Agreement in whole or in part without the prior written consent of the Parent,
except by the operation of law. Any attempted assignment by the Seller Parties
in violation of this Section 10.3 shall be null and void. The Parent may assign
its rights under this Agreement, the Seller Related Documents and the Partner
Related Documents without the consent of any Seller Party. After the Closing
Date, Buyer may assign its rights under this Agreement, the Seller Related
Documents and the Partner Related Documents without the consent of any Seller
Party.
Section 10.4 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.
Section 10.5 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.
Section 10.6 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
-19-
<PAGE>
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.
Section 10.7 Headings. Headings as to the contents of particular
articles and sections are for convenience only and are in no way to be construed
as part of this Agreement or as a limitation of the scope of the particular
articles or sections to which they refer.
SECTION 10.8 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 LAW OF THE SITUS OF ANY OF THE PURCHASED ASSETS MANDATORILY
APPLIES WITH RESPECT THERETO.
Section 10.9 Public Announcements. After the Closing Date, no Seller
Party shall make any press release, public announcement, or public confirmation
or disclose any other information regarding this Agreement or the contents
hereof.
Section 10.10 No Third Party Beneficiaries. Except as set forth in
Article VIII, no person or entity not a party to this Agreement shall have
rights under this Agreement as a third party beneficiary or otherwise.
Section 10.11 Amendments and Waivers. This Agreement may be amended by
the Parent, Buyer and the Seller Parties by an instrument in writing signed on
behalf of the Parent, Buyer and the Seller Parties. Any term or provision of
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof.
Section 10.12 No Employee Rights. Nothing herein expressed or implied
shall confer upon any employee of the Seller, 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.
Section 10.13 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,
-20-
<PAGE>
and no recourse under or upon any obligation, covenant or agreement of the
Parent or Buyer in this Agreement shall be had against any incorporator,
organizer, promoter, shareholder, officer, director, employee or representative
as such (other than the Seller Parties as set forth herein), past, present or
future, of the Parent or Buyer or of any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by enforcement of any
assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Agreement.
Section 10.14 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, Buyer and the Seller Parties.
Section 10.15 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.
Section 10.16 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.
Section 10.17 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.
Section 10.18 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.
Section 10.19 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
-21-
<PAGE>
Section 10.20 Covenant Not to Compete.
(a) For the considerations specified in this Agreement and in
recognition that the covenants by the Partners in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Partner agrees that for the period from the Closing Date to the later
to occur of (i) the date which is five years after the Closing Date or (ii)
the date which is one year following any termination of such Partner's
employment with Buyer, such Partner will not represent, engage in, carry
on, or have a financial interest in, directly or indirectly, individually,
as a member of a partnership or limited liability company, equity owner,
shareholder (other than as a shareholder of less than one percent of the
issued and outstanding stock of a publicly-held company whose gross assets
exceed $100 million), investor, officer, director, trustee, manager,
employee, agent, associate or consultant engage in any business that
involves indoor air quality, heating, ventilation, air conditioning,
appliance, mechanical construction or sewer cleaning products or services
or consulting, training, pricing, evaluation, brokerage or other support
services with respect to any such business within the United States;
provided, however, that (i) the period in clause (i) above shall be reduced
to three years with respect to consulting and training services (including
evaluation and brokerage services) so long as such Partner does not own,
directly or indirectly, any financial or equity interest in any business
that involves indoor air quality, heating, ventilation, air conditioning,
appliance, mechanical construction or sewer cleaning products or services,
and (ii) the current ownership interest of the Partners in Kendale
Airconditioning, Inc., shall not be considered a violation of this Section
10.20.
(b) Each Partner agrees that the limitations set forth herein on such
Partner's rights to compete with the Parent and its affiliates as set forth
in clause (a) are reasonable and necessary for the protection of the Parent
and its affiliates. In this regard, each Partner specifically agrees that
the limitations as to period of time and geographic area, as well as all
other restrictions on such Partner's activities specified herein, are
reasonable and necessary for the protection of the Parent and its
affiliates. Each Partner 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.
(c) Each Partner agrees that the remedy at law for any breach by such
Partner of this Section 10.20 will be inadequate and that the Parent shall
be entitled to injunctive relief.
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
CRP ACQUISITION CORP.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
CALLAHAN ROACH & ASSOCIATES
By:
----------------------------------------------
Name: William Michael Callahan
Title: Partner
By:
----------------------------------------------
Name: Alfred R. Roach, Jr.
Title: Partner
Partners:
--------------------------------------------------
William Michael Callahan
Partner
--------------------------------------------------
Alfred R. Roach, Jr.
Partner
-23-
<PAGE>
GROUP MAINTENANCE AMERICA CORP.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
-24-
<PAGE>
EXHIBIT 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.
DATED JULY 31, 1997
Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - CLOSING 1
Section 1.1 Closing 1
ARTICLE II - PURCHASE AND SALE 1
Section 2.1 Purchased Assets and Excluded Assets 1
Section 2.2 Purchase Price 3
Section 2.3 Portion of the Purchase Price Payable at Closing 4
Section 2.4 Post-Closing Adjustment and Delivery of Parent
Preferred Shares 4
Section 2.5 Allocation Reporting 5
Section 2.6 Mail Received After Closing 5
ARTICLE III - LIABILITIES AND OBLIGATIONS 5
Section 3.1 Obligations Assumed 5
Section 3.2 Liabilities and Obligations Not Assumed 6
Section 3.3 Warranty Performance 7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES 7
Section 4.1 Exhibit 4.1 7
Section 4.2 Ownership 7
Section 4.3 Authority 7
Section 4.4 Consents 8
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT 8
Section 5.1 Representations and Warranties Concerning Buyer 8
a. Organization 8
b. Authority 8
c. Consents 9
d. Defaults 9
e. Investment Company 9
f. Full Authority 9
g. Disclosure 10
h. Buyer Material Adverse Effect 10
ii
<PAGE>
i. Organization and Good Standing of Parent 10
Section 5.2 Representations and Warranties Concerning Parent 10
a. Organization 10
b. Capitalization of the Parent 10
c. Authority 11
d. Consents 11
e. Defaults 11
f. Investment Company 11
g. Financial Statements 12
h. Taxes 12
i. Full Authority 12
j. Access 12
k. Disclosure 13
l. Parent Material Adverse Effect 13
m. Delivery of Parent Common Stock and Parent
Preferred Stock 13
ARTICLE VI - CERTAIN COVENANTS AND AGREEMENTS 13
Section 6.1 Covenant Not to Compete 13
Section 6.2 Release 14
Section 6.3 Company Plans 15
Section 6.4 Purchase of Certain Receivables 15
Section 6.5 Assignment of Contracts 15
ARTICLE VII - CLOSING DELIVERIES 15
Section 7.1 Closing Deliveries by the Seller Parties 15
Section 7.2 Closing Deliveries by Buyer 18
ARTICLE VIII - SURVIVAL, INDEMNIFICATIONS 19
Section 8.1 Survival 19
Section 8.2 Indemnity by the Seller and the Members 19
Section 8.3 Indemnity by Parent 20
Section 8.4 Limitations 21
Section 8.5 Procedures for Indemnification 21
Section 8.6 Subrogation 23
iii
<PAGE>
ARTICLE IX - MISCELLANEOUS 23
Section 9.1 Notice 23
Section 9.2 Further Documents 24
Section 9.3 Assignability 24
Section 9.4 Exhibits and Schedules 24
Section 9.5 Sections and Articles 24
Section 9.6 Entire Agreement 24
Section 9.7 Headings 25
Section 9.8 CONTROLLING LAW 25
Section 9.9 Public Announcements 25
Section 9.10 No Third Party Beneficiaries 25
Section 9.11 Amendments and Waivers 25
Section 9.12 No Employee Rights 26
Section 9.13 Non-Recourse 26
Section 9.14 When Effective 26
Section 9.15 Takeover Statutes 26
Section 9.16 Number and Gender of Words 26
Section 9.17 Invalid Provisions 26
Section 9.18 Multiple Counterparts 27
Section 9.19 No Rule of Construction 27
Section 9.20 Expenses 27
iv
<PAGE>
EXHIBITS
NAME
Exhibit 2.1(b) Fixed Assets
Exhibit 2.1(c) Contracts
Exhibit 2.1(e)-1 Leases
Exhibit 2.1(h) Intellectual Property
Exhibit 3.1 Long-Term Indebtedness of Seller
Exhibit 3.3 Warranty Performance
Exhibit 4.1 Representations and Warranties of the Seller Parties
Exhibit 5.1(b) Parent Options, Subscriptions, etc.
Exhibit 5.2(d) Consents
Exhibit 6.3 Company Plans
Exhibit 7.1(b) Stock Transfer Restriction Agreement
Exhibit 7.1(c) List of Employees
Exhibit 7.1(c)-1 Form of Employment Agreement
Exhibit 7.1(d) Registration Rights Agreement
Exhibit 7.1(e) Seller Parties' Counsel Legal Opinion
Exhibit 7.1(f) Bill of Sale, General Assignment and Conveyance
Exhibit 7.1(h) Investment Representation Letter
Exhibit 7.1(i) Adoption Agreement
Exhibit 7.2(e) Buyer's Counsel Legal Opinion
v
<PAGE>
DEFINED TERMS
PAGE
Adoption Agreement 17
Agreement 1
Allocation Determination 5
Business 2
Buyer 1
Buyer Indemnified Parties 19
Buyer Material Adverse Effect 10
Buyer Related Documents 8
Cash Consideration 3
Closing 1
Closing Date 1
Contracts 2
Employment Agreements 17
Excluded Assets 3
Fixed Assets 2
Fixtures and Improvements 3
GAAP 4
HVAC 13
Indemnified Employee 21
Indemnified Party 21
Indemnifying Party 21
Independent Accountants 4
Intellectual Property 2
Inventory 2
IRS 5
Leased Property 3
Leases 3
Losses 19
Member 1
Member Related Document 7
Members 1
Membership Interests 7
Network 13
Other Current Assets 2
vi
<PAGE>
Parent 1
Parent Common Shares 3
Parent Common Stock 3
Parent Financial Statements 12
Parent Material Adverse Effect 13
Parent Preferred Shares 3
Parent Preferred Stock 3
Parent Related Documents 11
Permits 2
Purchase Price 3
Purchased Assets 1
Receivables 2
Registration Rights Agreement 17
Seller 1
Seller Indemnified Parties 20
Seller Notice of Disagreement 4
Seller Parties 1
Settlement Notice 22
Statement 4
Stock Transfer Restriction Agreement 16
Survival Period 19
Threshold 21
Total Parent Preferred Stock 10
Working Capital 4
vii
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made this 31st day of July,
1997 by and among United Acquisition, Corp., an Iowa corporation ("Buyer"),
Group Maintenance America Corp., a Texas corporation ("Parent"), United Service
Alliance, L.C., an Iowa limited liability company ("Seller"), and all of the
members of Seller listed on the signature page(s) hereto of Seller
(individually, a "Member" and collectively, the "Members"). The Members and
Seller are sometimes referred to herein as the "Seller Parties".
WHEREAS, Buyer wishes to purchase from Seller and Seller wishes to sell,
transfer, assign and deliver to Buyer substantially all of Seller's assets;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements stated herein, the parties agree as
follows:
ARTICLE I
CLOSING
Section 1.1 Closing. The closing of the purchase and sale provided for
herein (the "Closing") is taking place on July 31, 1997 ("Closing Date") at the
offices of Bracewell & Patterson, L.L.P., Houston, Texas, concurrently with the
execution and delivery hereof.
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchased Assets and Excluded Assets. Subject to the terms
and conditions of this Agreement, and on the basis of the representations,
warranties and indemnities hereinafter set forth, at the Closing, Seller is
selling, transferring, conveying, assigning and delivering to Buyer, and Buyer
is purchasing from Seller, all of the assets, properties, business and rights of
Seller (collectively, the "Purchased Assets"), including without limitation, the
following assets, and excluding only the Excluded Assets referred to below.
<PAGE>
(a) All inventories of finished products, work in process, raw
materials, supplies, spare parts and packing and shipping material owned or
maintained by or used in the business (the "Business") of Seller
(collectively, the "Inventory");
(b) All tools, equipment, machinery, dies, patterns, furniture,
fixtures, automobiles, trucks, trailers, vehicles, transportation
equipment, service equipment, computer equipment and leasehold improvements
(the "Fixed Assets"), including the assets listed on Exhibit 2.1(b);
(c) All contracts, agreements, leases and licenses of personal
property (including computer equipment and programs) of Seller, including
those listed on Exhibit 2.1(c) (the "Contracts");
(d) All rights of Seller under express or implied warranties, if any,
from the suppliers of Seller, manufacturers or others with respect to the
Purchased Assets or the Business;
(e) All of the accounts and notes receivable and advance payments
generated in connection with the Business (including allowances for
deductions from remittances, airline travel advances, employee advances,
rebates receivable, deposits on bids, other receivables and claims
receivables (the "Receivables");
(f) All cash, cash equivalents, prepaid and deferred items (including
prepaid rent and other prepaid expenses) or credits and deposits, rights of
offset and credits and claims for refund (other than tax refunds arising
from or pertaining to periods prior to the Closing Date) generated or
incurred by or in connection with the Business (the "Other Current
Assets");
(g) All governmental licenses, certificates, permits, franchises,
approvals, authorizations, exemptions, registrations, and rights of the
Business (the "Permits");
(h) All intellectual property rights used in the Business, including
patents, patent applications, trade names, service marks, service mark
applications, trademarks, trademark applications, copyrights, copyright
applications, trade secrets and confidential business information (whether
patentable or unpatentable) (collectively, the "Intellectual Property")
2
<PAGE>
and the goodwill associated therewith, including without limitation those
listed in Exhibit 2.1(h);
(i) All of the books, records, manuals, documents, books of account,
correspondence, sales and credit reports, supplier lists, customer lists,
distribution lists, bid and quote information, literature, catalogs,
brochures, advertising material and the like which are used in the
Business;
(j) The Leases and Leased Property. For purposes hereof, the term
List of Defined Terms "Fixtures and Improvements" means the buildings,
structures, fixtures and other fixed assets and personalty or a permanent
nature annexed, affixed or attached to the Leased Property, and the term
"Leased Property" means those certain parcels of real property leased by
Seller (as tenant) pursuant to the leases described on Exhibit 2.1(e)-1
(the "Leases"), together with (i) all of Seller's right, title and interest
in and to the Fixtures and Improvements located on such leased real
property, if any, (ii) all of Seller's right, title and interest in and to
all easements, rights, and privileges appurtenant thereto, if any, and
(iii) all options to renew or extend the term of such Leases or to purchase
all or any part of such leased real property;
(k) All computer equipment and all computer programs and documentation
used in the Business; and
(l) All other assets, tangible or intangible, owned or leased by
Seller and used or arising in connection with the Business, including
without limitation, claims, choices in action and rights against third
parties.
Notwithstanding the foregoing, the Purchased Assets shall not include, and Buyer
will not purchase, the following (the "Excluded Assets"): (a) any insurance
policies or insurance contracts, (b) minute books and membership transfer
records of Seller, or (c) tax refunds applicable to periods prior to the
Closing.
Section 2.2 Purchase Price. The purchase price ("Purchase Price") being
paid for the Purchased Assets is $435,779 in cash (the "Cash Consideration"),
435,771 shares of Series G Preferred Stock, $.001 par value ("Parent Preferred
Stock"), of Parent (such shares of Parent Preferred Stock being referred to as
the "Parent Preferred Shares"), and 124,509 shares of common stock, $.001 par
value ("Parent Common Stock"), of Parent (such shares of Parent Common Stock
being referred to herein as the "Parent Common Shares"). The Parent Preferred
Shares are subject
3
<PAGE>
to post closing adjustment as set forth in Section 2.4 below. The Purchase Price
shall be payable in the manner and at the times set forth in Sections 2.3 and
2.4 below.
Section 2.3 Portion of the Purchase Price Payable at Closing. At the
Closing, Buyer shall deliver to Seller the Cash Consideration and a certificate
evidencing the Parent Common Shares.
Section 2.4 Post-Closing Adjustment and Delivery of Parent Preferred
Shares.
(a) As promptly as practicable, and in any event no later than
sixty (60) days after the date hereof, Buyer shall cause to be prepared and
delivered to Seller a statement (the "Statement") showing (a) a
calculation, based on the books and records of Buyer as of June 30, 1997,
of the Working Capital (as defined below) and (b) the Final Parent
Preferred Shares (as determined below). For purposes of the Agreement, the
term "Working Capital" shall mean the current assets of Seller as of June
30, 1997, minus XXX% of the current liabilities of Seller as of June 30,
1997, all as determined in accordance with U.S. generally accepted
accounting principles consistently applied ("GAAP"); provided, however,
that the current portion of all long term debt of Seller shall not be
included in the determination of current liabilities. The information set
forth in the Statement shall be final, conclusive and binding for purposes
of this Agreement, unless Seller shall deliver to Buyer a written notice of
disagreement ("Seller Notice of Disagreement") specifying the nature and
extent of such disagreement within 10 business days following the actual
receipt by Seller of the Statement. If within 10 business days following
receipt by Buyer of a Seller Notice of Disagreement, Seller and Buyer are
unable to resolve any disagreement with respect to the Statement, the
disagreement shall be submitted for resolution to Parent's firm of
independent certified public accountants (the "Independent Accountants")
who shall resolve the issues in dispute. The Independent Accountants shall
act as an arbitrator to determine and resolve only those issues in dispute.
The Independent Accountants' resolution shall (a) be made within 30 days of
the submission of the dispute to them (along with all supporting data or
access to Seller's books and records), (b) be in accordance with this
Agreement, (c) be set forth in a written statement delivered to Seller and
Buyer, and (d) be final, conclusive and binding for purposes of this
Agreement. The fees and expenses of the Independent Accountants in
connection with any resolution described in this Section 2.4 shall be
apportioned between Buyer and Seller by the Independent Accountants based
upon the inverse proportion of the disputed amounts resolved in favor of
each party (i.e., so that the prevailing party bears a lesser amount of
such fees and expenses). Otherwise, Buyer and
4
Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
<PAGE>
Seller shall each pay their own costs incurred in connection with this
Section 2.4, including the fees and expenses of their respective attorneys
and accountants, if any.
(b) To arrive at the Final Parent Preferred Shares, there shall
be deducted from 435,771 the amount, if any, by which Working Capital, as
shown on the Statement, is less than $(225,000). The resulting amount when
rounded to the nearest whole number shall be the Final Parent Preferred
Shares. Within ten (10) days after the final determination of the Final
Parent Preferred Shares, Buyer shall deliver to Seller a certificate
evidencing the Final Parent Preferred Shares.
Section 2.5 Allocation Reporting. Buyer and Seller agree to report the
allocation of the Purchase Price among the Purchased Assets as Buyer shall
determine. Buyer shall advise Seller of such determination on or before October
31, 1997 (the "Allocation Determination"). Each party to this Agreement agrees
to file all tax reports, returns and claims and other statements consistent with
the Allocation Determination (and in particular to report the information
required by Section 1060(b) of the Internal Revenue Code of 1986, as amended) in
a manner consistent with such allocation and shall not make any inconsistent
written statement or take any inconsistent position on any returns, in any
refund claim, during the course of any Internal Revenue Service ("IRS") or other
tax audit, for any financial or regulatory purpose, in any litigation or
investigation or otherwise, so long as there exists a reasonable basis in law to
maintain such position. Each party to this Agreement shall notify the other
party if it receives notice that the IRS proposes any allocation different from
the Allocation Determination.
Section 2.6 Mail Received After Closing. Following the Closing, Buyer
may receive and open all mail addressed to Seller and, to the extent that such
mail and the contents thereof relate to the Business or the Purchased Assets,
deal with the contents thereof at its discretion. Buyer shall notify Seller of
(and provide Seller complete copies of) any mail that on its face obliges any
Seller Party to take any action or indicates that action may be taken against
any of them and any mail applicable solely to Seller or the Excluded Assets.
ARTICLE III
LIABILITIES AND OBLIGATIONS
Section 3.1 Obligations Assumed. As part of the consideration for the
Purchased Assets, and subject to Section 3.2, Buyer shall assume Seller's
obligations that accrue after the Closing Date
5
<PAGE>
under the Contracts, the Leases and the Permits if, but only if, they are
assigned or transferred to Buyer, or they are subject to the provisions of
Section 6.5, the current liabilities, determined in accordance with GAAP of
Seller as of the Closing Date and the long-term indebtedness of Seller described
in Exhibit 3.1 attached hereto.
Section 3.2 Liabilities and Obligations Not Assumed. Other than as
specifically set forth in Section 3.1 above, Buyer assumes no obligation
whatsoever of Seller under or in connection with any contract between Seller and
any third party or otherwise. Furthermore, except as specifically set forth in
Section 3.1 above, Buyer expressly disclaims the assumption of, and does not
assume, any liability of any type whatsoever of Seller or in connection with any
of Seller's assets or business operations, including without limitation (a) any
and all tax liabilities accruing on or before the Closing Date in connection
with any Purchased Asset, the Excluded Assets or otherwise, and any and all tax
liabilities accruing on or after the Closing Date in connection with the
ownership, operation or disposition of any Excluded Assets, (b) any and all
liabilities arising from or under any Environmental Laws, (c) any and all
liabilities in connection with any claim by any person, entity or agency
claiming to have suffered any environmental damage or harm of any type,
including any actual or alleged damage or harm to groundwater, surface water,
well water, ground, soil, or the atmosphere, (d) any and all employment or
personnel-related liabilities whatsoever of Seller arising out of any liability
under any employment contract, liability for wages or salary, liability for
bonuses or commissions, liability for severance (including without limitation as
a result of this transaction), OSHA liability, liability for disabled
individuals, workers' compensation liability, ERISA (as defined in Exhibit 4.1)
obligations or liability, WARN Act liability, sick pay, vacation accruals, or
similar matters, liability under any profit sharing plan, liability under any
pension plan or savings plan, liability under any welfare benefit plan, or
liability for any claims alleging illegal discrimination of any type, (e) any
account payable, indebtedness, letter of credit, guaranty, note or obligation of
Seller other than the obligations assumed under Section 3.1., (f) any liability
or obligation (contingent or otherwise) of Seller arising out of any claim,
litigation or proceeding threatened or pending on or before the Closing Date or
out of any claim, litigation or proceeding threatened or initiated after the
Closing Date to the extent based on or caused by any act or omission occurring,
or condition or circumstances existing, prior to the Closing Date with respect
to the Purchased Assets (or prior to, on or after the Closing Date with respect
to the Excluded Assets or any other business or operations of Seller or its
predecessors), or any condition caused by any act or omission occurring prior to
the Closing Date with respect to the Purchased Assets (or prior to, on or after
the Closing Date with respect to the Excluded Assets or any other business or
operations of Seller or its predecessors), or any product sold or manufactured
by Seller or a service provided by Seller (including all product liability and
warranty claims and product returns with respect thereto), and (g) any liability
or
6
<PAGE>
obligation (contingent or otherwise) of Seller arising out of any claim,
litigation or proceeding threatened or pending on or before the Closing Date or
out of any claim, litigation or proceeding threatened or initiated after the
Closing Date to the extent based on or caused by any act or omission occurring,
or condition or circumstances existing, prior to the Closing Date with respect
to the assets, business or operations of Seller or its predecessors.
Section 3.3 Warranty Performance. For the period during which the
existing warranty obligations of Seller are in effect, as described on Exhibit
3.3 attached hereto, if any customer of Seller is entitled, pursuant to such
obligations to, and does, seek warranty work on any item sold or service
performed by Seller prior to Closing, Buyer shall have the right (but not the
obligation) to provide such warranty work for Seller's account. Seller shall
pay Buyer for such work an amount equal to Buyer's customary third-party charges
for such work.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES
Section 4.1 Exhibit 4.1. The Seller hereby represents and warrants to
Buyer that the statements in Exhibit 4.1 attached hereto are true and correct.
Section 4.2 Ownership. Each Member represents and warrants that it
owns, beneficially and of record, with full power to vote, the outstanding
membership interests in Seller set forth opposite its name on Attachment A to
Exhibit 4.1, free and clear of all liens, encumbrances and adverse claims
whatsoever (collectively, the "Membership Interests"). Further, Seller
represents and warrants that the Membership Interests constitute all of the
outstanding membership interests in Seller.
Section 4.3 Authority. Each Member represents and warrants that it (a)
has full right, power, legal capacity and authority to (i) execute, deliver and
perform this Agreement, and all other documents and instruments referred to
herein or contemplated hereby to be executed, delivered and performed by such
Member (each a "Member Related Document") and (ii) consummate the transactions
contemplated herein and thereby; and (b) this Agreement has been duly executed
and delivered by such Members and constitutes, and each Member Related Document,
when duly executed and delivered by such Members will constitute, legal, valid
and binding obligations of such Member, enforceable against such Member in
accordance with their respective terms and conditions,
7
<PAGE>
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).
Section 4.4 Consents. Each Member represents and warrants that no
approval, consent, order or action of or filing with any court, administrative
agency, governmental authority or other third party is required for the
execution, delivery or performance by such Member of this Agreement or any
Member Related Document. The execution, delivery and performance by such Member
of this Agreement and the Member Related Documents do not violate any mortgage,
indenture, contract, agreement, lease or commitment or other instrument of any
kind to which such Member is a party or by which such Member or its assets or
properties may be bound or affected or any law, rule or regulation applicable to
such Member or any court injunction, order or decree or any valid and
enforceable order of any governmental agency in effect as of the date hereof
having jurisdiction over such Member.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Section 5.1 Representations and Warranties Concerning Buyer. Buyer and
Parent, jointly and severally, hereby represent and warrant to the Seller
Parties as follows:
a. Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Iowa. Buyer 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 Buyer Material Adverse Effect.
b. Authority. Buyer has the requisite power and authority to execute,
deliver and perform this Agreement and all documents and instruments referred to
herein or contemplated hereby to which it is a party (the "Buyer Related
Documents") and to consummate the transactions contemplated herein and thereby.
This Agreement has been duly executed and delivered by Buyer and constitutes,
and all the Buyer Related Documents, when executed and delivered by Buyer will
constitute, legal, valid and binding obligations of Buyer, enforceable against
Buyer in accordance with their respective terms and conditions except as such
enforcement may be limited by bankruptcy,
8
<PAGE>
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).
c. Consents. Except as set forth in Exhibit 5.2(d), 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 Buyer of this Agreement or the Buyer Related
Documents or the consummation by Buyer of the transactions contemplated hereby.
d. Defaults. Buyer is not in default under or in violation of, and the
execution, delivery and performance of this Agreement and the Buyer Related
Documents and the consummation by Buyer of the transactions contemplated hereby
and thereby will not result in a default under or in violation of (a) any
mortgage, indenture, charter or bylaw provision, contract, agreement, lease,
commitment or other instrument of any kind to which Buyer is a party or by which
Buyer or any of its properties or assets may be bound or affected or (b) any
law, rule or regulation applicable to Buyer 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 Buyer, which default or violation
prevents Buyer from consummating the transactions contemplated hereby or is
reasonably likely to have a Buyer Material Adverse Effect.
e. Investment Company. Buyer 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" (as defined in Exhibit 4.1) of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
f. Full Authority. Buyer 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 4.1)) 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 Buyer
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
9
<PAGE>
licenses, permits, qualifications and other documentation, except where the
failure to comply is not reasonably likely to have a Buyer 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 Buyer Material Adverse Effect.
g. Disclosure. No representation or warranty by Buyer in this Agreement,
and no statement contained in any certificate delivered by Buyer to the Seller
Parties 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.
h. Buyer Material Adverse Effect. The term "Buyer Material Adverse
EffectList of Defined Terms " shall mean a material adverse effect on the
properties, assets, financial position, results of operations, long-term debt,
other indebtedness, cash flows or contingent liabilities of Parent and its
consolidated subsidiaries, taken as a whole.
i. Organization and Good Standing of Parent. Parent is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Texas.
Section 5.2 Representations and Warranties Concerning Parent. The
Parent hereby represents and warrants to the Seller Parties as follows:
a. 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.
b. 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 22,695,125 shares are issued and
outstanding and of which none are held in the treasury of the Parent and
50,000,000 shares of Preferred Stock, $.001 par value ("Total Parent Preferred
Stock"), of which 45,137 shares of Series A Preferred Stock are issued and
outstanding, 678,920 shares of Series B Preferred Stock are issued and
outstanding, 100,000 shares of Series C Preferred Stock are issued and
outstanding, 1,568,000 shares of D Preferred Stock are issued and outstanding,
580,000 shares of Series E Preferred Stock are issued and outstanding, 664,691
shares of Series F are issued and
10
<PAGE>
outstanding, zero shares of Series G are issued and outstanding, 500,000 shares
of Series H are issued and outstanding, and zero shares of Series I are issued
and outstanding. The outstanding shares of Parent Common Stock and Total Parent
Preferred Stock have been duly and validly issued and are fully paid and non-
assessable. Except as set forth on Exhibit 5.1(b), Parent has not granted any
option, warrant, subscription or similar right to any person or entity to
purchase or acquire any rights with respect to any shares of capital stock or
equity interests of Parent.
c. 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 to which it is a party (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).
d. Consents. Except as provided on Exhibit 5.2(d), 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.
e. 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.
f. 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
11
<PAGE>
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.
g. Financial Statements. The Parent has provided certain financial
statements to the Seller Parties ("Parent Financial Statements") and such
Parent Financial Statements have been prepared in accordance with GAAP and
fairly present the consolidated financial position, results of operations and
cash flows of the Parent and its then existing consolidated subsidiaries as of
the dates and for the periods indicated, subject to normal year-end adjustments
and any other adjustments described therein or in the notes or schedules
thereto. The books and records of the Parent have been kept in reasonable
detail and accurately and fairly reflect the transactions of the Parent.
h. 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.
i. Full Authority. The Parent has the corporate power and authority and
has obtained all licenses, permits, qualifications, and other documentation
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, 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.
j. Access. The Parent has cooperated fully in permitting the Members and
their representatives to make a full investigation of the properties, operations
and financial condition of the Parent and has afforded the Members and their
representatives reasonable access to the offices, buildings, real properties,
machinery and equipment, inventory and supplies, records, files, books
12
<PAGE>
of account, tax returns (as defined in Exhibit 4.1), agreements and commitments
and personnel of Parent.
k. Disclosure. No representation or warranty by the Parent in this
Agreement, and no statement contained in any certificate delivered by the Parent
to the Members 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. None of the information supplied by Parent for
inclusion in the Confidential Information Statement dated June 12, 1997, or in
any supplement thereto, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing, Parent makes no
representation with respect to statements made in the Confidential Information
Statement dated June 12, 1997, or in any supplement thereto, based on
information supplied by anyone other than Parent for inclusion therein.
l. 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.
m. Delivery of Parent Common Stock and Parent Preferred Stock. The
Parent Common Stock, if issued, and the Parent Preferred Stock, if issued, if
and when issued and delivered pursuant to the Agreement will be, when delivered,
validly authorized, duly issued, fully-paid and non-assessable.
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS
Section 6.1 Covenant Not to Compete.
(a) The Business consists of providing training programs for
individuals working in the heating, ventilation and air conditioning
("HVAC") industry. Such training programs are designed to promote the sale
of HVAC service and maintenance agreements, train and motivate the
management of HVAC sales personnel and improve general HVAC
13
<PAGE>
management skills. The Business also includes an informal network (the
"Network") of companies in the HVAC business that are available to provide
local HVAC services for national customers of Seller Parties. For the
considerations specified in this Agreement and in recognition that the
covenants by Seller Parties in this Section are a material inducement to
Buyer to enter into and perform this Agreement, each Seller Party agrees
that for the period from the Closing Date to the date which is five years
after the Closing Date, such Seller Party 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 with respect to
any business whose business is substantially similar to the Business or the
Network; provided, however, notwithstanding anything to the contrary in
this Section 6.1(a), Air Comfort Corporation, a Delaware corporation, shall
not be bound or restricted by this Section 6.1(a). Except as expressly
provided above, nothing in this Agreement shall restrict the ability of any
Seller Party to provide indoor air quality, heating, ventilation, air
conditioning, plumbing or electrical contracting or other HVAC products and
services in any location.
(b) The Seller Parties agree that the limitations set forth
herein on the Seller Parties' rights to compete with Parent and its
affiliates as set forth in clause (a) are reasonable and necessary for the
protection of Parent and its affiliates. In this regard, each Seller Party
specifically agrees that the limitations as to period of time and
geographic area, as well as all other restrictions on such Seller Party's
activities specified herein, are reasonable and necessary for the
protection of Parent and its affiliates. Each Seller Party 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.
(c) Each Seller Party agrees that the remedy at law for any
breach by such Seller Party of this Section 6.1 will be inadequate and that
Buyer and Parent shall be entitled to injunctive relief.
Section 6.2 Release. Each Member does hereby release, acquit and
forever discharge Buyer from any and all liabilities, obligations, claims,
demands, actions or causes of action arising
14
<PAGE>
from or relating to any event, occurrence, act, omission or condition occurring
or existing on or prior to the Closing Date, including, without limitation, any
claim for indemnity or contribution from Buyer in connection with the
obligations or liabilities of such Member hereunder.
Section 6.3 Company Plans. Except as otherwise contemplated by this
Agreement, the Company Plans (as defined in Exhibit 4.1) described on Exhibit
6.3 of Seller in effect at the date of this Agreement will remain in effect
unless otherwise determined by Parent after the Closing Date.
Section 6.4 Purchase of Certain Receivables. The Seller Parties agree
that if any Receivable remains unpaid for 90 days after Closing Date, Seller
shall, upon written request by Buyer made within 120 days after the Closing
Date, purchase the same from Buyer, without recourse, for cash equal to the
unpaid amount thereof.
Section 6.5 Assignment of Contracts. To the extent the assignment of
any Contract, Lease, Permit, commitment, security or other asset to be assigned
to Buyer pursuant to the provisions hereof shall require the consent of any
other person, this Agreement shall not constitute a contract to assign the same
if an attempted assignment would constitute a breach thereof or give rise to any
right of acceleration or termination. If any such consent has not been obtained
as of the date hereof, Seller agrees to cooperate with Buyer in any reasonable
arrangement designed to provide Buyer substantially the same benefits of any
such Contract, Lease, Permit, commitment, security or other asset, including
enforcement of any and all rights of Seller against the other party thereto
arising out of breach or cancellation thereof by such party or otherwise.
Seller agrees to use commercially reasonable efforts after the date hereof to
obtain any required consent to assignment which has not been obtained.
ARTICLE VII
CLOSING DELIVERIES
Section 7.1 Closing Deliveries by the Seller Parties. The Seller
Parties are delivering the following to Buyer on the Closing Date at the
Closing:
(a) A certificate, executed by Seller, to the effect that:
15
<PAGE>
(i) the representations and warranties of the Seller Parties
contained in this Agreement, in Exhibit 4.1 and the Disclosure
Schedule referred to therein and the other Exhibits provided by the
Seller Parties pursuant to this Agreement or in any closing
certificate or document delivered to Buyer pursuant hereto are true
and correct in all material respects at and as of the Closing Date as
though made at and as of that date;
(ii) the Seller Parties 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;
(iii) no legal action or proceeding has been instituted against
any Seller Party, Buyer or Parent arising by reason of the acquisition
of the Purchased Assets by Buyer pursuant to this Agreement which is
reasonably likely (A) to restrain, prohibit or invalidate the
consummation of the transactions contemplated by this Agreement, (B)
to have a Parent Material Adverse Effect or (C) to have a Buyer
Material Adverse Effect after giving effect to the consummation of the
transactions contemplated by this Agreement;
(iv) the Seller Parties have obtained 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 (as defined in
Exhibit 4.1) and the Member Related Documents) by the Seller Parties;
(v) no casualty, loss or damage has occurred to any of the
properties or assets of Seller;
(vi) since December 31, 1996, there has not been any event that
in the reasonable judgment of Seller materially and adversely affects
the properties, assets, financial condition, results of operations,
cash flows, businesses or prospects of Seller; and
(vii) all necessary director and member resolutions, waivers and
consents required to consummate the transactions contemplated
hereunder have been executed and delivered.
16
<PAGE>
(b) A Stock Transfer Restriction Agreement, executed by Seller, in
substantially the form of Exhibit 7.1(b) attached hereto ("Stock Transfer
Restriction Agreement").
(c) Employment Agreements (with the insertion of the appropriate
Section 7(b) based on whether any such employee is designated an "Executive
or Key Employee" or "Manager" on Exhibit 7.1(c) attached hereto and with
the blanks appropriately completed as set forth in a confidential letter
between Seller and Buyer) with Buyer executed by the employees of Seller
specified in Exhibit 7.1(c), substantially in the form of Exhibit 7.1(c)-1
attached hereto (the "Employment Agreements").
(d) A Registration Rights Agreement, executed by Seller, in
substantially the form of Exhibit 7.1(d) attached hereto ("Registration
Rights Agreement").
(e) The favorable opinion of Lichtenfels, Pansing & Miller in Denver,
Colorado, counsel to the Seller, dated the Closing Date, substantially to
the effect set forth in Exhibit 7.1(e) attached hereto.
(f) Bills of sale, deeds, assignments and any other necessary
instruments, executed by Seller, satisfactory in form and content and
approved prior to Closing by Buyer, conveying all the Purchased Assets to
Buyer, including, without limitation, a Bill of Sale, General Assignment
and Conveyance in substantially the form of Exhibit 7.1(f) attached hereto.
(g) If requested by Buyer, estoppel certificates and consents in form
and substance satisfactory to Buyer executed by the other parties to the
Contracts, Leases and Permits.
(h) An investment representation letter properly completed and
executed by Seller regarding its acquisition of the Parent Preferred Stock
and the Parent Common Stock pursuant hereto, in substantially the form of
Exhibit 7.1(h) attached hereto.
(i) An Adoption Agreement, executed by Seller, in substantially the
form of Exhibit 7.1(i) attached hereto ("Adoption Agreement").
17
<PAGE>
(j) A certificate or certificates executed by the holder or holders of
the long-term indebtedness of Seller described in Exhibit 3.1 certifying
the outstanding amount of such indebtedness as of the Closing Date.
The consummation of the Closing shall not be deemed to be a waiver by
Buyer of any of its rights or remedies against the Seller Parties hereunder for
any breach of warranty, covenant or agreement by any Seller Party herein
irrespective of any knowledge of or investigation made by or on behalf of Buyer.
Section 7.2 Closing Deliveries by Buyer. Buyer is delivering to Seller
the following on the Closing Date at the Closing:
(a) A certificate or certificates, executed by Buyer and Parent, to
the effect that:
(i) the representations and warranties of the Buyer and Parent
contained in this Agreement or in any closing certificate or document
delivered to the Seller Parties pursuant hereto are true and correct
in all material respects on and as of the Closing Date as though made
at and as of that date; and
(ii) Buyer has performed and complied with all covenants of this
Agreement to be performed or complied with by it at or prior to the
Closing Date.
(b) The Stock Transfer Restriction Agreement, executed by Parent.
(c) The Employment Agreements, executed by Buyer.
(d) The Registration Rights Agreement, executed by Parent.
(e) The favorable opinion of Buyer's legal counsel, dated the Closing
Date, substantially to the effect set forth in Exhibit 7.2(e) attached
hereto.
(f) The Adoption Agreement, executed by Parent.
(g) The Parent Common Stock and the cash required to be delivered to
Seller pursuant to Section 2.2.
18
<PAGE>
The consummation of the Closing shall not be deemed to be a waiver by
the Seller Parties of any of their rights or remedies hereunder for breach of
any warranty, covenant or agreement herein by Buyer irrespective of any
knowledge of or investigation with respect thereto made by or on behalf of the
Seller Parties.
ARTICLE VII
SURVIVAL, INDEMNIFICATIONS
Section 8.1 Survival. The representations and warranties set forth in
this Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Seller Parties herein and in the Member
Related Documents and the Company Related Documents other than those of the
Seller Parties in Sections 4.2, 4.3 and 4.4 and in Sections 1 and 3 of Exhibit
4.1 shall survive for a period of 36 months after the date hereof and the
representations and warranties of the Seller Parties contained in Sections 4.2,
4.3 and 4.4 and in Sections 1 and 3 of Exhibit 4.1, shall survive for the
maximum period permitted by applicable law. The representations and warranties
of Buyer and Parent herein and in the Buyer Related Documents, other than those
in Sections 5.1(a) and (b) and 5.2(a) and (c) herein, shall survive for a period
of 36 months after the date hereof and the representations and warranties of
Buyer contained in Sections 5.1(a) and (b) and 5.3 (a) and (c) herein 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
8.1 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 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.
Section 8.2 Indemnity by the Seller and the Members. Subject to the
provisions of Sections 8.1 and 8.4, the Seller and each of the Members,
severally, shall indemnify, save and hold harmless Buyer, Parent and any of
their assignees (including lenders) and all of their respective officers,
directors, employees, representatives, agents, advisors and consultants and all
of their
19
<PAGE>
respective heirs, legal representatives, successors and assigns (collectively
the "Buyer Indemnified Parties") from and against any and all damages,
liabilities, losses, loss of value (including the value of adverse effects on
cash flow or earnings), claims, deficiencies, penalties, interest, expenses,
fines, assessments, charges and costs, including reasonable attorneys' fees and
court costs (collectively "Losses") arising from, out of or in any manner
connected with or based on:
(a) the breach of any covenant of any Seller Party or the failure by
any Seller Party to perform any obligation of any Seller Party contained
herein or in any Company Related Document or Member Related Document;
(b) inaccuracy in or breach of any representation or warranty of the
Seller (in the case of the representations and warranties contained in
Section 4.1 of this Agreement or in any Company Related Document) or such
Member contained herein or in any Company Related Document or Member
Related Document;
(c) indemnification payments payable by Seller to Seller's present or
former officers, directors, managers, employees, agents, consultants,
advisors or representatives in respect of actions taken or omitted to be
taken prior to the Closing;
(d) any liability or obligation, fixed or contingent, direct or
indirect, known or unknown, of Seller other than those specifically assumed
by Buyer pursuant to Section 3.1;
(e) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing Date and
involving or related to the assets, properties, business or operations now
or previously owned or operated by Seller and not assumed by Buyer under
Section 3.1; and
(f) any failure to comply with applicable bulk sales or bulk transfer
laws in connection with the transactions contemplated hereby.
Section 8.3 Indemnity by Parent. Subject to the provisions of Sections
8.1 and 8.4, Parent shall indemnify, save and hold harmless the Seller Parties
and their respective heirs, legal representatives, successors and assigns
(collectively, the "Seller Indemnified Parties") from and against all Losses
arising from, out of or in any manner connected with or based on:
20
<PAGE>
(a) any breach of any covenant of the Buyer or Parent or the failure
by Buyer or Parent to perform any of its obligations contained herein or in
the Buyer Related Documents;
(b) any inaccuracy in or breach of any representation or warranty of
Buyer or Parent contained herein or in the Buyer Related Documents;
(c) any act, omission, event, condition or circumstance occurring or
existing at any time after (but not on or before) the Closing Date and
involving or relating to the assets, properties, businesses or operations
of Seller; provided, however, that, with respect to any Seller Indemnified
Party that is or becomes an officer, director and/or employee of Parent,
Buyer or any other affiliate of the Parent (such Seller Indemnified Party
being referred to herein as an "Indemnified Employee"), this clause (c)
shall not apply to any Losses of such Indemnified Employee to the extent
such Losses result form such Indemnified Employee's acts or omissions after
the Closing Date as an officer, director and/or employee of Parent, Buyer
or any other affiliate of the Parent.
(d) the obligations and liabilities of Seller assumed by Buyer under
Section 3.1.
The foregoing indemnities shall not limit or otherwise adversely affect the
Buyer Indemnified Parties' rights of indemnity for Losses under Section 8.2.
Section 8.4 Limitations. The aggregate liability of the Seller under
this Section 8 shall not exceed the cash amount equal to the Purchase Price and
the aggregate liability of any Member under this Section 8 shall not exceed the
cash amount equal to the Purchase Price multiplied by the ratio that such
Member's interest in the Seller bears to all outstanding interests in the Seller
as of the date hereof. Notwithstanding any other provision of this Agreement
but subject to the limitations set forth in this Section 8.4, (i) the Seller
Parties shall not be liable to the Buyer Indemnified Parties under this Section
8 regarding any Losses until the aggregate Losses exceed $15,000 (the
"Threshold"); provided, however, that when the aggregate amount of all Losses
reaches the Threshold, the Seller Parties shall thereafter be liable in full
regarding all such Losses in excess of the amount of the Threshold, and (ii) the
Buyer and Parent shall not be liable to the Seller Indemnified Parties under
this Section 8 regarding any Losses until the aggregate Losses exceed the
Threshold; provided, however, that when the aggregate amount of all such Losses
reaches the Threshold, the Buyer and the Parent shall thereafter be liable in
full regarding all such Losses in excess of the amount of the Threshold.
21
<PAGE>
Section 8.5 Procedures for Indemnification.
(a) The party (the "Indemnified Party") that may be entitled to
indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim, or
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought hereunder. Any failure on the part of any Indemnified Party to
give the notice described in this Section 8.5(a) shall relieve the Indemnifying
Party of its obligations under this Article 8 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.
(b) Buyer 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) Seller shall at all
times have the right, at its option, to participate fully therein, and (ii) if
Buyer 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, Seller shall have the right, but not the obligation,
to undertake the defense of any such third-party claim, suit, action or
proceeding.
(c) 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 Buyer 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 Buyer 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 8.5, the Indemnifying Party shall not be liable for
Losses arising from such
22
<PAGE>
third-party suit, action, proceeding or investigation in excess of the amount
proposed in such settlement offer. Notwithstanding the foregoing, no
Indemnifying Party will consent to the entry of any judgment or enter into any
settlement without the consent of the Indemnified Party, if such judgment or
settlement imposes any obligation or liability upon the Indemnified Party other
than the execution, delivery or approval thereof and customary releases of
claims with respect to the subject matter thereof.
(d) 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 (as defined in Exhibit 4.1) 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.
Section 8.6 Subrogation. Each Indemnifying Party hereby waives for
itself and its affiliates (as defined in Exhibit 4.1) any rights to subrogation
against any Indemnified Party or its insurers for Losses arising from any third-
party claims for which it is liable or against which it indemnifies any
Indemnified Party and, if necessary, each Indemnifying Party shall obtain
waivers of such subrogation from its, his or her insurers.
ARTICLE IX
MISCELLANEOUS
Section 9.1 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 Seller Parties:
United Service Alliance, L.C.
3900 S. Wadsworth Blvd., Suite 500
Lakewood, Colorado 80235
Attention: Tom Walton
Telecopy: (303) 988-6299
23
<PAGE>
To Buyer:
Group Maintenance America Corp.
1800 West Loop South, Suite 1375
Houston, Texas 77027
Attn: President
Telecopy: (713) 626-4766
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 9.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
Section 9.2 Further Documents. The Seller Parties shall, at any time
and from time to time after the date hereof, upon request by Buyer 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 Seller Parties hereunder.
Section 9.3 Assignability. The Seller Parties shall not assign this
Agreement in whole or in part without the prior written consent of Buyer, except
by the operation of law. Buyer may assign its rights under this Agreement, the
Company Related Documents and the Member Related Documents without the consent
of any Seller Party.
Section 9.4 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.
Section 9.5 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 (as defined in Exhibit 4.1).
Section 9.6 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
24
<PAGE>
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.
Section 9.7 Headings. Headings as to the contents of particular
articles and sections are for convenience only and are in no way to be construed
as part of this Agreement or as a limitation of the scope of the particular
articles or sections to which they refer.
SECTION 9.8 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.
Section 9.9 Public Announcements. The Seller Parties hereby agree that
no Seller Party shall make any press release, public announcement, or public
confirmation or disclose any other information regarding this Agreement or the
contents hereof.
Section 9.10 No Third Party Beneficiaries. Except as set forth in
Article VIII, no person or entity not a party to this Agreement shall have
rights under this Agreement as a third party beneficiary or otherwise.
Section 9.11 Amendments and Waivers. This Agreement may be amended by
the Buyer and Seller to the extent permitted by applicable law; provided,
however, that no such amendment shall (a) alter or change any provision of this
Agreement, the alteration or change of which must be adopted by the Members
under the articles of organization of Seller or applicable law, or (b) alter or
change this Section 9.11, unless each such alteration or change is adopted by
the Members as may be required by the articles of organization of Seller or
applicable law. All amendments to this
25
<PAGE>
Agreement must be by an instrument in writing signed on behalf of Buyer and the
Seller Parties. Any term or provision of this Agreement (other than the
requirements for Member approvals) may be waived in writing at any time by the
party which is, or whose Members are, entitled to the benefits thereof.
Section 9.12 No Employee Rights. Nothing herein expressed or implied
shall confer upon any employee of Seller, 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.
Section 9.13 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 Buyer in this Agreement shall be
had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Seller Parties as
set forth herein), past, present or future, of Buyer, Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
Section 9.14 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 Seller Parties and Buyer.
Section 9.15 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, Buyer and
Seller and their respective members of their Boards of Directors or other
governing bodies 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.
Section 9.16 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.
26
<PAGE>
Section 9.17 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.
Section 9.18 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.
Section 9.19 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.
Section 9.20 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.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
BUYER:
UNITED ACQUISITION CORP.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
27
<PAGE>
SELLER:
UNITED SERVICE ALLIANCE, L.C.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
28
<PAGE>
MEMBERS:
JAMES T. SMERZ TRUST SPECTRUM ENERGY ENGINEERS, INC.
By: By:
------------------------- ----------------------------
Name: Name:
------------------------- ----------------------------
Title: Title:
------------------------- ----------------------------
JOHN SAUCIER REVOCABLE TRUST LEE COMPANY
DATED 1/24/91
By: By:
------------------------- ----------------------------
Name: Name:
------------------------- ----------------------------
Title: Title:
------------------------- ----------------------------
MACDONALD-MILLER INC. ENERGY SYSTEMS IND., INC.
By: By:
------------------------- ----------------------------
Name: Name:
------------------------- ----------------------------
Title: Title:
------------------------- ----------------------------
HURST MECHANICAL, INC.
By:
------------------------- -------------------------------
Name: LOUIS R. BINDNER, an Individual
-------------------------
Title:
-------------------------
- --------------------------------------------------------------------------------
29
<PAGE>
MEMBERS:
- -------------------------------- --------------------------------
THOMAS A. WALTON, an Individual ROBERT I. MONSEN, an Individual
30
<PAGE>
EXHIBIT 10.31
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement") is made as of
August 1, 1997 by and between Airtron, Inc., (the "Company"), a Delaware
corporation and a subsidiary of Group Maintenance America Corp., a Texas
corporation ("GroupMAC"), and James D. Jennings, an individual resident of the
State of Ohio ("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 ending April 30, 2000 and may continue for additional one year
periods upon the mutual written agreement of the Company and the Employee,
unless terminated in accordance with Section 6.
3. Scope of Duties; Representations and Warranties.
(a) The Employee will have such duties as are assigned or delegated to
the Employee by the Board of Directors of the Company and will initially serve
as the President of the Company. The Employee will devote his entire business
time, attention, skills, and energy exclusively to the business of the Company,
and will use his best efforts to promote the success of the Company's business,
and will cooperate fully with the Board of Directors in the advancement of the
best interests of the Company. If the Employee is elected as a director of the
Company or as a director or officer of any of its affiliates, the Employee will
fulfill his duties as such director or officer without additional compensation.
(b) The Employee represents and warrants that the execution and
delivery by the Employee of this Agreement do not, and the performance by the
Employee of the Employee's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (i) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Employee or (ii) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Employee is a party or by which the Employee is or may be
bound.
4. Compensation.
(a) The Company shall initially pay the Employee an annual base salary
of $150,000, subject to adjustment as provided below, which will be payable in
equal periodic installments according to the Company's customary payroll
practices, but no less frequently than monthly. Employee's base salary will be
reviewed by the Board of Directors of the Company not less frequently than
annually, and may be adjusted upward or downward in the sole discretion of the
Board of Directors of the Company, but in no event will Employee's base salary
be less than $150,000 per year.
<PAGE>
(b) All payments of salary and other compensation to the Employee
shall be made after deduction of any taxes and other amounts which are required
to be withheld with respect thereto under applicable federal and state laws.
5. 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; provided, however, that 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;
provided, however, that the Employee must file expense reports with respect to
such expenses in accordance with the Company's policies as are in effect from
time to time.
(c) The Employee shall be entitled to a minimum of four (4) weeks paid
vacation in accordance with the vacation policies of the Company in effect from
time to time. The Employee will also be entitled to the paid holidays and other
paid leave set forth in the Company's policies.
6. Termination. 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 6. Such termination shall be effective upon delivery of written notice
to Employee of the Company's election to terminate this Agreement under this
Section 6.
(a) Definition of "Cause". When used in connection with the
termination of employment with the Company, "Cause" shall mean: (i) Employee's
breach of his obligations under this Agreement after the Employee has been given
a reasonable opportunity to cure such breach; (ii) Employee's failure to adhere
to any written Company policy after the Employee has been given a reasonable
opportunity to comply with such policy or cure his failure to comply; (iii) the
conviction of, or the indictment for (or its procedural equivalent), or the
entering of a guilty plea or plea of no contest with respect to, a felony, the
equivalent thereof, or any other crime with respect to which imprisonment is a
possible punishment; (iv) the commission by the Employee of an act of fraud upon
the Company or any of its affiliates; (v) the misappropriation (or attempted
misappropriation) of any funds or property of the Company or any of its
affiliates by the Employee; (vi) the failure by the Employee to perform duties
assigned to him after reasonable notice and opportunity to cure such
performance; (vii) the 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 and which has been
communicated to the Employee; (viii) the 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 any of its affiliates or which
would result in a material injury to the Company or any of its affiliates; (ix)
the engagement by the Employee in any activity which
<PAGE>
would constitute a material violation of the provisions of the Company's or
Group MAC's Insider Trading Policy or Business Ethics Policy, if any, then in
effect and which has been communicated to the Employee, or (x) the failure by
the Employee to 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 Group MAC or to take other actions
reasonably related thereto as requested by the Board of Directors of the
Company; provided, however, that such letters, agreements or documentation shall
be no more restrictive than any such letters, agreements or documentation signed
by the management of the Company or Group MAC.
(b) Termination for Cause or Resignation. If the Company terminates
Employee's employment for Cause or the Employee voluntarily resigns, the Company
shall pay the Employee's base salary earned through the date of termination but
all rights to any other compensation or benefits arising hereunder, shall be
canceled and terminated in all respects concurrently with such termination of
employment; provided that Employee may elect to continue to participate, at
Employee's own expense, in such health insurance and other benefits as to which
the opportunity for continuing participation is mandated by applicable laws.
(c) Termination Without Cause. In the event that the Employee's
employment is terminated by the Company without Cause, the Company shall,
subject to the terms of subsections (d) and (e) of this Section 6 below, and
only if and as long as Employee is not in breach of his obligations under this
Agreement, (i) pay to the Employee an amount equal to six (6) months
compensation at his then current base salary payable in a lump sum and (ii)
continue to provide benefits in the kind and amounts provided up to the date of
termination for such six (6) month period, including, continuation of any
Company-paid benefits as described in Section 5 for the Employee and his family.
In the event that employment is terminated with Cause or the Employee
voluntarily resigns, the Employee shall not be entitled to receive any of the
foregoing compensation.
(d) Disability; Death. 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 six (6) months of such
disability to the extent not covered by the Company's disability insurance
policies. Upon the expiration of such six (6) 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 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.
(e) Securities Matters. 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
Group MAC, or take other actions reasonably related thereto as requested by the
Board of Directors of the Company. Failure to
<PAGE>
take any such action shall be "Cause" for termination, or if termination has
already occurred, shall cause Employee to forfeit any further rights to the
salary continuation or other payments that would otherwise be payable to
Employee. In addition, Employee agrees that in such event the Company can seek
and obtain specific performance of such covenant, including any injunction
requiring execution of such documents and the taking of such actions, 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 management shareholders generally.
(f) Waiver and Release. In the event that employment is terminated by
the 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 amounts payable to Employee as set forth in this Section 6. Employee
hereby waives any and all rights he may have to bring any cause of action or
proceeding contesting any termination without Cause. 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.
7. 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 its
affiliates.
(b) Employee further agrees that, for the period from the date hereof
to the later to occur of (i) April 30, 2002 or (ii) one (1) year from and after
the date of termination of Employee's employment under this Agreement,
regardless of the reason for such termination, he will, within a 50 mile radius
of Dayton, Ohio, neither represent any other 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 which
directly competes with any of the 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
<PAGE>
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. Employee agrees that, in the event that the
provisions of this Agreement 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.
(d) Employee agrees that the remedy at law for any breach by him of
this Section 7 will be inadequate and that the Company shall also be entitled to
injunctive relief.
8. Confidential Information and Results of Service. 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 at the termination of the Employee's employment or at any other time
at the Company's request 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, such information 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 (i) which is, at the time in question, in the public domain through
no wrongful act of Employee, (ii) which is later disclosed to Employee by one
not under obligations of confidentiality to the Company or Employee, (iii) which
is required by court or governmental order, law or regulation to be disclosed,
or (iv) 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 8 will be inadequate and that the Company shall
also be entitled to injunctive relief.
9. Employee Inventions. Each Employee Invention (as defined below) will
belong exclusively to the Company. The Employee acknowledges that all of the
Employee's writing, works of authorship, specially commissioned works, and other
Employee Inventions are works made for hire and the property of the Company,
including any copyrights, patents, or other intellectual property rights
pertaining thereto. If it is determined that any such works are not works made
for hire, the Employee hereby assigns to the Company all of the Employee's
right, title, and interest, including all rights of copyright, patent, and other
intellectual property rights, to or in such Employee Inventions. The Employee
covenants that he will promptly:
<PAGE>
(a) disclose to the Company in writing any Employee Invention;
(b) assign to the Company or to a party designated by the Company, at
the Company's request and without additional compensation, all of the Employee's
right to the Employee Invention for the United States and all foreign
jurisdictions;
(c) execute and deliver to the Company such applications, assignments,
and other documents as the Company may request in order to apply for and obtain
patents or other registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(d) sign all other papers necessary to carry out the above
obligations; and
(e) give testimony and render any other assistance but without expense
to the Employee in support of the Company's rights to any Employee Invention.
For purposes of this Agreement, "Employee Invention" means any idea,
invention, technique, modification, process, or improvement (whether patentable
or not), any industrial design (whether registerable or not), any mask work,
however fixed or encoded, that is suitable to be fixed or programmed in a
semiconductor product (whether recordable or not), and any work of authorship
(whether or not copyright protection may be obtained for it) created, conceived,
developed, purchased or acquired by Employee, either solely or in conjunction
with others, during the term of Employee's employment with the Company that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Company, and any such item created
by the Employee, either solely or in conjunction with others, following
termination of the Employee's employment with the Company, that is based upon or
uses Confidential Information.
10. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently given if delivered by hand, by courier service, sent by registered
mail, postage prepaid, or sent by facsimile (with written confirmation of
receipt) to the parties at their respective addresses listed below:
(a) If to the Employee:
James D. Jennings
c/o Airtron, Inc.
7813 N. Dixie Drive
Dayton, Ohio 45414
(b) If to the Company:
Airtron, Inc.
c/o Group Maintenance America Corp.
<PAGE>
1800 West Loop South, Suite 1375
Houston, Texas 77027
Facsimile No. (713) 626-4776
Attn: President
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 pledge, 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 or its affiliates 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.
(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.
<PAGE>
(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 effective as of the date first above written.
COMPANY:
AIRTRON, INC., a Delaware corporation
By: /s/ Timothy Johnston
--------------------------------------
Name: Timothy Johnston
Title: Vice President
EMPLOYEE:
/s/ James D. Jennings
-----------------------------------------
James D. Jennings
<PAGE>
EXHIBIT 10.32
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement") is made as of
August 1, 1997 by and between Airtron, Inc., (the "Company"), a Delaware
corporation and a subsidiary of Group Maintenance America Corp., a Texas
corporation ("GroupMAC"), and Timothy Johnston, an individual resident of the
State of Ohio ("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 ending April 30, 2000 and may continue for additional one year
periods upon the mutual written agreement of the Company and the Employee,
unless terminated in accordance with Section 6.
3. Scope of Duties; Representations and Warranties.
(a) The Employee will have such duties as are assigned or delegated to
the Employee by the Board of Directors of the Company and will initially serve
as the Vice President of the Company. The Employee will devote his entire
business time, attention, skills, and energy exclusively to the business of the
Company, and will use his best efforts to promote the success of the Company's
business, and will cooperate fully with the Board of Directors in the
advancement of the best interests of the Company. If the Employee is elected as
a director of the Company or as a director or officer of any of its affiliates,
the Employee will fulfill his duties as such director or officer without
additional compensation.
(b) The Employee represents and warrants that the execution and
delivery by the Employee of this Agreement do not, and the performance by the
Employee of the Employee's obligations hereunder will not, with or without the
giving of notice or the passage of time, or both: (i) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Employee or (ii) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Employee is a party or by which the Employee is or may be
bound.
4. Compensation.
(a) The Company shall initially pay the Employee an annual base salary
of $150,000, subject to adjustment as provided below, which will be payable in
equal periodic installments according to the Company's customary payroll
practices, but no less frequently than monthly. Employee's base salary will be
reviewed by the Board of Directors of the Company not less frequently than
annually, and may be adjusted upward or downward in the sole discretion of the
Board of Directors of the Company, but in no event will Employee's base salary
be less than $150,000 per year.
<PAGE>
(b) All payments of salary and other compensation to the Employee
shall be made after deduction of any taxes and other amounts which are required
to be withheld with respect thereto under applicable federal and state laws.
5. 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; provided, however, that 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;
provided, however, that the Employee must file expense reports with respect to
such expenses in accordance with the Company's policies as are in effect from
time to time.
(c) The Employee shall be entitled to a minimum of four (4) weeks paid
vacation in accordance with the vacation policies of the Company in effect from
time to time. The Employee will also be entitled to the paid holidays and other
paid leave set forth in the Company's policies.
6. Termination. 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 6. Such termination shall be effective upon delivery of written notice
to Employee of the Company's election to terminate this Agreement under this
Section 6.
(a) Definition of "Cause". When used in connection with the
termination of employment with the Company, "Cause" shall mean: (i) Employee's
breach of his obligations under this Agreement after the Employee has been given
a reasonable opportunity to cure such breach; (ii) Employee's failure to adhere
to any written Company policy after the Employee has been given a reasonable
opportunity to comply with such policy or cure his failure to comply; (iii) the
conviction of, or the indictment for (or its procedural equivalent), or the
entering of a guilty plea or plea of no contest with respect to, a felony, the
equivalent thereof, or any other crime with respect to which imprisonment is a
possible punishment; (iv) the commission by the Employee of an act of fraud upon
the Company or any of its affiliates; (v) the misappropriation (or attempted
misappropriation) of any funds or property of the Company or any of its
affiliates by the Employee; (vi) the failure by the Employee to perform duties
assigned to him after reasonable notice and opportunity to cure such
performance; (vii) the 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 and which has been
communicated to the Employee; (viii) the 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 any of its affiliates or which
would result in a material injury to the Company or any of its affiliates; (ix)
the engagement by the Employee in any activity which
<PAGE>
would constitute a material violation of the provisions of the Company's or
Group MAC's Insider Trading Policy or Business Ethics Policy, if any, then in
effect and which has been communicated to the Employee, or (x) the failure by
the Employee to 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 Group MAC or to take other actions
reasonably related thereto as requested by the Board of Directors of the
Company; provided, however, that such letters, agreements or documentation shall
be no more restrictive than any such letters, agreements or documentation signed
by the management of the Company or Group MAC.
(b) Termination for Cause or Resignation. If the Company terminates
Employee's employment for Cause or the Employee voluntarily resigns, the Company
shall pay the Employee's base salary earned through the date of termination but
all rights to any other compensation or benefits arising hereunder, shall be
canceled and terminated in all respects concurrently with such termination of
employment; provided that Employee may elect to continue to participate, at
Employee's own expense, in such health insurance and other benefits as to which
the opportunity for continuing participation is mandated by applicable laws.
(c) Termination Without Cause. In the event that the Employee's
employment is terminated by the Company without Cause, the Company shall,
subject to the terms of subsections (d) and (e) of this Section 6 below, and
only if and as long as Employee is not in breach of his obligations under this
Agreement, (i) pay to the Employee an amount equal to six (6) months
compensation at his then current base salary payable in a lump sum and (ii)
continue to provide benefits in the kind and amounts provided up to the date of
termination for such six (6) month period, including, continuation of any
Company-paid benefits as described in Section 5 for the Employee and his family.
In the event that employment is terminated with Cause or the Employee
voluntarily resigns, the Employee shall not be entitled to receive any of the
foregoing compensation.
(d) Disability; Death. 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 six (6) months of such
disability to the extent not covered by the Company's disability insurance
policies. Upon the expiration of such six (6) 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 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.
(e) Securities Matters. 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
Group MAC, or take other actions reasonably related thereto as requested by the
Board of Directors of the Company. Failure to
<PAGE>
take any such action shall be "Cause" for termination, or if termination has
already occurred, shall cause Employee to forfeit any further rights to the
salary continuation or other payments that would otherwise be payable to
Employee. In addition, Employee agrees that in such event the Company can seek
and obtain specific performance of such covenant, including any injunction
requiring execution of such documents and the taking of such actions, 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 management shareholders generally.
(f) Waiver and Release. In the event that employment is terminated by
the 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 amounts payable to Employee as set forth in this Section 6. Employee
hereby waives any and all rights he may have to bring any cause of action or
proceeding contesting any termination without Cause. 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.
7. 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 its
affiliates.
(b) Employee further agrees that, for the period from the date hereof
to the later to occur of (i) April 30, 2002 or (ii) one (1) year from and after
the date of termination of Employee's employment under this Agreement,
regardless of the reason for such termination, he will, within a 50 mile radius
of Dayton, Ohio, neither represent any other 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 which
directly competes with any of the 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
<PAGE>
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. Employee agrees that, in the event that the
provisions of this Agreement 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.
(d) Employee agrees that the remedy at law for any breach by him of
this Section 7 will be inadequate and that the Company shall also be entitled to
injunctive relief.
8. Confidential Information and Results of Service. 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 at the termination of the Employee's employment or at any other time
at the Company's request 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, such information 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 (i) which is, at the time in question, in the public domain through
no wrongful act of Employee, (ii) which is later disclosed to Employee by one
not under obligations of confidentiality to the Company or Employee, (iii) which
is required by court or governmental order, law or regulation to be disclosed,
or (iv) 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 8 will be inadequate and that the Company shall
also be entitled to injunctive relief.
9. Employee Inventions. Each Employee Invention (as defined below) will
belong exclusively to the Company. The Employee acknowledges that all of the
Employee's writing, works of authorship, specially commissioned works, and other
Employee Inventions are works made for hire and the property of the Company,
including any copyrights, patents, or other intellectual property rights
pertaining thereto. If it is determined that any such works are not works made
for hire, the Employee hereby assigns to the Company all of the Employee's
right, title, and interest, including all rights of copyright, patent, and other
intellectual property rights, to or in such Employee Inventions. The Employee
covenants that he will promptly:
<PAGE>
(a) disclose to the Company in writing any Employee Invention;
(b) assign to the Company or to a party designated by the Company, at
the Company's request and without additional compensation, all of the Employee's
right to the Employee Invention for the United States and all foreign
jurisdictions;
(c) execute and deliver to the Company such applications, assignments,
and other documents as the Company may request in order to apply for and obtain
patents or other registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(d) sign all other papers necessary to carry out the above
obligations; and
(e) give testimony and render any other assistance but without expense
to the Employee in support of the Company's rights to any Employee Invention.
For purposes of this Agreement, "Employee Invention" means any idea,
invention, technique, modification, process, or improvement (whether patentable
or not), any industrial design (whether registerable or not), any mask work,
however fixed or encoded, that is suitable to be fixed or programmed in a
semiconductor product (whether recordable or not), and any work of authorship
(whether or not copyright protection may be obtained for it) created, conceived,
developed, purchased or acquired by Employee, either solely or in conjunction
with others, during the term of Employee's employment with the Company that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Company, and any such item created
by the Employee, either solely or in conjunction with others, following
termination of the Employee's employment with the Company, that is based upon or
uses Confidential Information.
10. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently given if delivered by hand, by courier service, sent by registered
mail, postage prepaid, or sent by facsimile (with written confirmation of
receipt) to the parties at their respective addresses listed below:
(a) If to the Employee:
Timothy Johnston
c/o Airtron, Inc.
7813 N. Dixie Drive
Dayton, Ohio 45414
(b) If to the Company:
Airtron, Inc.
c/o Group Maintenance America Corp.
<PAGE>
1800 West Loop South, Suite 1375
Houston, Texas 77027
Facsimile No. (713) 626-4776
Attn: President
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 pledge, 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 or its affiliates 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.
(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.
<PAGE>
(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 effective as of the date first above written.
COMPANY:
AIRTRON, INC., a Delaware corporation
By: /s/ James D. Jennings
---------------------------------
Name: James D. Jennings
Title: President
EMPLOYEE:
/s/ Timothy Johnston
------------------------------------
Timothy Johnston
<PAGE>
SUBSCRIPTION AGREEMENT
MAINTENANCE SPECIALISTS OF AMERICA, INC.
(A TEXAS CORPORATION)
Maintenance Specialists of America, Inc.
1225 North Loop West, Suite 324
Houston, Texas 77008
Gentlemen:
This subscription agreement (this "Agreement") is intended to set forth
certain representations, covenants and agreements of the undersigned and
Maintenance Specialists of America, Inc., a Texas corporation (the "Company")
with respect to the offering for sale by the Company of 6,500,000 shares of
Common Stock, par value $.001 per share.
1. SUBSCRIPTION. Subject to the terms and conditions hereof, the
undersigned hereby irrevocably subscribes for 6,500,000 shares of Common Stock,
par value $.001 per share of the Company (collectively, the "Securities") at a
purchase price of $1.231 per share.
(a) The subscription shall be made in installments in the amount
designated in the Installment Notice (defined below) or in this Agreement.
The first installment for 500,000 shares shall be due and payable within
five (5) days after the date of this Agreement. Thereafter, as needed to
meet the capital requirements of the Company, the Company may from time to
time provide written notice (each an, "Installment Notice") that an
additional installment is due within thirty (30) days after the date of the
Installment Notice; provided that in any event, subject to the provisions
in Section 1.(b), all outstanding installments for which no Installment
Notice has been given will be due and payable on the date two (2) years
after the date hereof. In the event any such day should not be a business
day (which for purposes hereof shall be a Saturday, Sunday or legal holiday
recognized as such by the government of the United States or the State of
Texas) such installment's purchase shall take place on the next succeeding
business day.
(b) The undersigned, at his option, may cease payments of outstanding
installments in the event either (i) the Company has failed to close by
June 30, 1997, acquisitions of plumbing, indoor air quality or heating,
ventilation and air conditioning ("HVAC") or other service businesses
having among them aggregate annual gross revenues of at least $20,000,000
based upon the most recent available financial information, or (ii) the
Company has failed to close by December 31, 1997, acquisitions of plumbing,
indoor air quality, HVAC or other service businesses having among them
aggregate annual gross revenues of at least $40,000,000 based upon the most
recent available financial information.
<PAGE>
In addition, if any of the foregoing events shall occur, the undersigned
shall have the right to compel the Company to sell previously acquired
businesses and apply the net proceeds of such sales, after the satisfaction
of all debts and commitments of the Company, to repay all amounts invested
in the Company by the undersigned pursuant to this Agreement. If the
undersigned elects to cease his installment payments as provided above, the
undersigned shall be obligated for payment of (x) the Company's accrued
expenses incurred prior to the date such election is made and (y) a minimum
of three months severance for the individuals employed by the Company at
that time.
(c) In the event the undersigned should fail to timely fund any
installment purchase hereunder (i) the Company may exercise all rights and
remedies available to it, in law and in equity, to enforce that obligation
or receive damages as consequence of such breach by the undersigned and
(ii) the Company may, by written notice to the undersigned, deem the right
of the undersigned to purchase shares to be forfeited. Notwithstanding
anything to the contrary in this Agreement, the undersigned may, at his
option and from time to time, elect at any time to purchase all or any
outstanding installments by providing written notice to the Company of such
election together with the required payment.
2. ACCEPTANCE OF SUBSCRIPTION; DELIVERY OF SECURITIES. The undersigned
understands and agrees that this subscription is made subject to the following
terms and conditions:
(a) The Company shall have the right to reject this subscription in
whole, but not in part, so that once accepted by the Company, the Company
irrevocably agrees to sell the Securities to the undersigned in accordance
with the terms and conditions of this Subscription Agreement;
(b) The subscription for Securities shall be deemed to be accepted
only when this Subscription Agreement has been accepted in writing by the
Company;
(c) The Securities to be issued and delivered on account of this
subscription will only be issued in the name of, and delivered to, the
undersigned, and the undersigned agrees to comply with the terms of this
Agreement; and
(d) The representations and warranties of the Company set forth herein
shall be true and correct as of the date that the Company accepts this
subscription.
3. REPRESENTATIONS AND WARRANTIES OF THE UNDERSIGNED. The undersigned
hereby represents and warrants to the Company as follows:
(i) The undersigned is acquiring the Securities for its own
account, for investment and not with a view to, or for resale in
connection with, any distribution
2
<PAGE>
or public offering thereof within the meaning of the Securities Act of
1933, as amended (the "Act"), and applicable state securities laws.
(ii) The undersigned understands that (A) the Securities (1) have
not been registered under the Act or any state securities laws, (2)
will be issued in reliance upon an exemption from the registration and
prospectus delivery requirements of the Act pursuant to Section 4(2)
and/or Regulation D thereof, (3) will be issued in reliance upon
exemptions from the registration and prospectus delivery requirements
of state securities laws which relate to private offerings and (4)
must be held by the undersigned indefinitely, and (B) the undersigned
must therefore bear the economic risk of such investment indefinitely
unless a subsequent disposition thereof is registered under the Act
and applicable state securities laws or is exempt therefrom. The
undersigned further understands that such exemptions depend upon,
among other things, the bona fide nature of the investment intent of
the undersigned expressed herein. Pursuant to the foregoing, the
undersigned acknowledges that the certificate representing the
Securities acquired by the undersigned shall bear a restrictive legend
substantially as follows:
"The Securities represented by this certificate are subject to
restrictions on transfer under the Securities Act of 1933, as
amended, and state securities laws, and may not be offered for
sale, sold, assigned, transferred, pledged or otherwise disposed
of unless registered under the applicable securities laws or
until the Company has received advice of its counsel that the
Securities may be transferred without such registration."
(iii) The undersigned has knowledge, skill and experience in
financial, business and investment matters relating to an investment
of this type and is capable of evaluating the merits and risks of such
investment and protecting the undersigned's interest in connection
with the acquisition of the Securities. The undersigned understands
that the acquisition of the Securities is a speculative investment and
involves substantial risks and that the undersigned could lose its
entire investment in the Securities. To the extent deemed necessary
by the undersigned, the undersigned has retained, at its own expense,
and relied upon, appropriate professional advice regarding the
investment, tax and legal merits and consequences of purchasing and
owning the Securities. The undersigned has the ability to bear the
economic risks of his investment in the Company, including a complete
loss of the investment, and the undersigned has no need for liquidity
in such investment.
(iv) The undersigned has been furnished by the Company all
information (or provided access to all information) regarding the
business and financial condition of the Company, its expected plans
for future business activities, the attributes of the
3
<PAGE>
Securities and the merits and risks of an investment in the Securities
which the undersigned has requested or which is otherwise required to
provide full disclosure of material facts regarding an investment in
the Securities.
(v) In making the proposed investment decision, the undersigned
is relying solely on investigations made by the undersigned and the
undersigned's representatives. The offer to sell the Securities was
communicated to the undersigned in such a manner that the undersigned
was able to ask questions of and receive answers from the management
of the Company concerning the terms and conditions of the proposed
transaction and that at no time was the undersigned presented with or
solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general or public
advertising or solicitation.
(vi) The undersigned acknowledges that the undersigned has been
advised that:
THE 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 ANY REPRESENTATIONS BY THE COMPANY. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION THE UNDERSIGNED MUST RELY
ON HIS OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF ANY REPRESENTATION. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE UNDERSIGNED IS AWARE THAT
4
<PAGE>
HE MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
(vii) The undersigned acknowledges and is aware that there has
never been any representation, guarantee or warranty made by the
Company or any officer, director, employee or agent or representative
of the Company, expressly or by implication, as to (i) the approximate
or exact length of time that the undersigned will be required to
remain an owner of the Securities; (ii) the percentage of profit
and/or amount of or type of consideration, profit or loss to be
realized, if any, as a result of this investment; or (iii) that the
limited past performance or experience on the part of the Company, or
any future expectations will in any way indicate predictable results
of the ownership of Securities or of the overall financial performance
of the Company.
(viii) The undersigned agrees to furnish the Company such other
information as the Company may reasonably request in order to verify
the accuracy of the information contained herein and agrees to notify
the Company immediately of any material change in the information
provided herein that occurs prior to the Company's acceptance of this
subscription.
The foregoing representations and warranties and undertakings are made by
the undersigned and on behalf of the undersigned with the intent that they be
relied upon in determining its suitability as an investor and the undersigned
hereby agrees that such representations and warranties shall survive its
purchase of the Securities.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the undersigned as follows:
(a) The Company is duly incorporated, validly existing and in good
standing under the laws of its state of incorporation, and is duly
qualified to do business as a foreign corporation in all jurisdictions in
which the failure to be so qualified would materially and adversely affect
the business or financial condition, properties or operations of the
Company. The Company has all requisite corporate power and authority (i) to
own and lease the properties and assets it currently owns and leases and it
contemplates owning and leasing and (ii) to conduct its activities as such
activities are currently conducted and as currently contemplated to be
conducted.
(b) The Company has duly authorized the issuance and sale of the
Securities in accordance with the terms of this Agreement (as described
herein) by all requisite corporate action, including the authorization of
the Company's Board of Directors of the issuance and sale of the Securities
in accordance herewith, and the execution, delivery and performance of any
other agreements and instruments executed in connection herewith.
5
<PAGE>
(c) The Securities, when issued and paid for in accordance with this
Agreement, will represent duly authorized, validly issued and fully paid
and nonassessable shares of Common Stock of the Company, and the issuance
thereof will not conflict with the articles of incorporation or bylaws of
the Company and will be in full compliance with all federal and state
securities laws applicable to such issuance and sale.
(d) There is no litigation or governmental proceeding pending or
threatened against the Company which would materially and adversely affect
the business or financial condition, properties or operations of the
Company. The Company has complied with all laws, rules, regulations and
orders applicable to its business, operations, properties, assets, products
and services, and the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted, except in all
cases for those laws, rules, regulations and orders and those permits,
licenses and authorizations the failure to comply with or the failure to
hold or obtain would not have a material adverse effect on the business or
financial condition, properties or operations of the Company.
(e) The Company is not in default in the performance of any
obligation, agreement or condition contained in any agreement of the
Company or in any agreement by which the Company or any of its property is
bound, except for those defaults which would not have a material adverse
effect on the business or financial condition, properties or operations of
the Company.
(f) The execution and delivery of this Agreement, the fulfillment of
the terms set forth herein and the consummation of the transactions
contemplated hereby will not conflict with, or constitute a breach of or
default under, any agreement, indenture or instrument by which the Company
is bound or any law, administrative rule, regulation or decree of any court
or any governmental body or administrative agency applicable to the
Company.
(g) This Agreement and the information provided pursuant hereto do not
contain, as of the date hereof, an untrue statement of a material fact and
do not omit a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not
disclosed to the undersigned and of which the Company is aware which
materially and adversely affects or could, in the Company's reasonable
opinion, materially and adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company.
5. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of Texas, notwithstanding principles of conflicts of laws.
6
<PAGE>
(b) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, and may be amended only
by a writing executed by all parties hereto.
(c) This Agreement and the representations and warranties contained
herein shall be binding upon the heirs, executors, legal representatives,
administrators, successors and permitted assigns of the undersigned.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
October __, 1996.
---------------------------------------
GORDON A. CAIN
The Company hereby accepts the foregoing subscription subject to the terms and
conditions hereof as of October __, 1996.
MAINTENANCE SPECIALISTS OF
AMERICA, INC.
By:
-----------------------------------
J. Patrick Millinor, Jr., President
7
<PAGE>
EXHIBIT 10.36
AIRTRON, INC.
1997 CORPORATE STAFF BONUS PLAN
Eligibility: President, Chief Financial Officer
Participation: Participation in the plan commences plan year. Any participant
who terminated employment with Airtron for any reason except
retirement or disability prior to the fiscal year end will
forfeit any bonus award.
Any participant who retires, is disabled or who transfers to
another job within the company will receive a prorated bonus
based upon the number of completed accounting months spent as a
participant in the plan during the plan year.
Bonus Award: President = 2.5% of pre-tax net profit, excluding interest,
closing costs and gain or loss of fixed assets.
CFO = 1.0%.
NOTE: Bonus will not be paid unless the total company has
satisfied the company's lender charge. Gain or loss on the
sales of fixed assets will not be in the calculation of
the finance charge.
For the purpose of calculating division operating profit, the following
adjustments to the February 28 operating statement shall apply:
* Exclude any gain or loss on the sale of fixed assets.
* Exclude any unusual gains or losses arising from accounting charges
during the year.
* Include accrued bonus.
* Any unusual non-reoccurring expense must be approved by Corporate
Management before inclusion.
Bonus Payment: The bonus will be paid after certification of the year end profit
and loss statement by Airtron's independent accounting firm.
/s/ JAMES D. JENNINGS 3/17/97
APPROVAL SIGNATURE: ____________________________ DATE: ________________________
President
<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 1, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this 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 1, 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. 1 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 1, 1997
