<PAGE> 1
As filed with the Securities And Exchange Commission on July 7, 1998.
Registration No. 333-53641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GENERAL ROOFING SERVICES, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
FLORIDA 1761 65-0836979
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
951 SOUTH ANDREWS AVENUE
POMPANO BEACH, FLORIDA 33069
(954) 942-3550
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GREGG E. WALLICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GENERAL ROOFING SERVICES, INC.
951 SOUTH ANDREWS AVENUE
POMPANO BEACH, FLORIDA 33069
(954) 942-3550
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
ANDREW HULSH, ESQ. JEFFREY M. STEIN, ESQ.
BAKER & MCKENZIE KING & SPALDING
1200 BRICKELL AVENUE, SUITE 1900 191 PEACHTREE STREET, N.E.
MIAMI, FLORIDA 33131 ATLANTA, GEORGIA 30303
(305) 789-8900 (404) 572-4600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly 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, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] -----------------.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------------.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
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 JULY 7, 1998
4,000,000 SHARES
GENERAL ROOFING
SERVICES, INC.
COMMON STOCK
---------------------
All of the 4,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by General
Roofing Services, Inc. ("GRS" or the "Company").
Prior to the Offering there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price will be
between $13.00 and $15.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price of the
Common Stock. The Company's Common Stock has been approved for quotation on the
Nasdaq Stock Market's National Market under the symbol "ROOF."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF 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>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............................... $ $ $
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Total(3)................................ $ $ $
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</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
600,000 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 ________ 1998.
THE ROBINSON-HUMPHREY COMPANY
BANCAMERICA ROBERTSON STEPHENS
RAYMOND JAMES & ASSOCIATES, INC.
, 1998
<PAGE> 3
[MAP OF UNITED STATES INDICATING GRS LOCATIONS]
"GRS," "General Roofing Services" and its logo are service marks of the
Company, and the Company has applied for federal service mark registration of
these service marks. All other service marks, trademarks or trade names referred
to in this Prospectus are the property of their respective owners.
---------------------
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 IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
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. Concurrently with, and as a condition to, the Offering, the
Company plans to acquire (the "Combination") 18 commercial roofing companies
(the "Founding Companies"). See "The Company" for a detailed listing of the
Founding Companies. Unless the context otherwise requires, (i) the "Company" or
"GRS" refers to General Roofing Services, Inc. and the Founding Companies, and
assumes that the Combination has been consummated and (ii) the information in
this Prospectus assumes that the Underwriters' over-allotment option has not
been exercised.
THE COMPANY
General Roofing Services, Inc. (the "Company" or "GRS") was founded in 1998
to become the leading nationwide provider of commercial roofing services.
Concurrently with, and as a condition to, the Offering, GRS plans to acquire 18
leading commercial roofing companies (the "Founding Companies"). The Founding
Companies, which have been in business for an average of approximately 28 years,
had pro forma combined 1997 revenues and income from operations of approximately
$195.9 million and $13.4 million, respectively. Following the Combination and
the Offering, the Company will have operations in 20 cities in 12 states, and
will be one of the largest providers of commercial roofing services in the
United States. Combined historical revenues of the Founding Companies grew at a
compound annual growth rate of 14.7% from 1995 through 1997. Management believes
that the Company will have certain competitive advantages as the first public
company seeking to consolidate the commercial roofing industry.
The Company offers a broad range of comprehensive roofing services, which
include re-roofing, restoration and repair, and new roof construction.
Approximately 65% of the Company's 1997 pro forma revenues were derived from
re-roofing, restoration and repair services, and 35% were derived from new roof
construction. The Company also offers maintenance services, which provide
recurring revenues and ongoing interaction with its customers. The Company
provides services to customers in a broad range of industries, including the
industrial, office, retail, hospitality, government, educational and
entertainment industries. The Company has performed services for a broad range
of companies, including Home Depot, Inc., The Walt Disney Company, United States
Postal Service, NationsBank, N.A., Bass Hotels & Resorts (Holiday Inn Hotels),
Sea World, AMC Entertainment Inc., General Motors Corporation, Rockwell
International Corp., Ford Motor Company, Chrysler Corporation, The Coca-Cola
Company, U.S. Army, U.S. Navy, Simon DeBartolo Group, Inc., Wal-Mart Stores,
Inc., Sears Roebuck & Company, Abbott Laboratories, Inc., Trammel Crow Company,
Arvida Company, Cushman & Wakefield, Inc., Columbia/HCA Healthcare Corporation,
and University of Michigan.
The Company believes that its size, geographic diversity of operations,
knowledge of local markets and industry relationships will give the Company
significant competitive advantages. Through increased size, the Company believes
that it will have a greater ability to (i) provide services to customers with
locations in multiple markets, (ii) more effectively allocate resources in
serving customers in each of its markets, (iii) attract, train and retain
skilled roofing labor and (iv) achieve economies of scale in the purchase of
roofing materials. The Company also believes that increased size will provide
operating and cost efficiencies by allowing it to perform a wide range of
functions on a centralized basis, including administrative functions, such as
those relating to human resources, employee benefits and insurance, as well as
purchasing, accounting and bonding. The Company intends to share best practices
among the Founding Companies and with other companies to be acquired. The
Company believes that the geographic diversity of its operations will diminish
the effects of local market downturns, offer opportunities to pursue growth in
its existing markets and create a base of expertise and relationships to expand
into new markets. In anticipation of the Combination, one of the Founding
Companies has made a substantial investment in a scalable, advanced enterprise
information system to be utilized by the Company, which will provide critical
project status and cost information to all employees on a daily basis and will
provide management with comprehensive reports on substantially all aspects of
the Company's operations.
3
<PAGE> 5
The Company plans to leverage its experienced management and extensive
relationships within the commercial roofing industry to increase its revenues
through internal growth as well as through the acquisition of additional
commercial roofing companies. The Company has extensive relationships within the
industry, in part through the Founding Companies, all of which are members of
the National Roofing Contractor's Association (the "NRCA"), the largest roofing
trade organization with approximately 3,200 commercial roofing companies as
members. Gregg E. Wallick, the Company's Chairman of the Board, President and
Chief Executive Officer, with more than 18 years of experience in the commercial
roofing industry, is a member of the Board of Directors of the NRCA. Mr. Wallick
is also a member of the Board of Governors of the Alliance for Progress and is a
member of its Steering Committee. The Alliance for Progress is an industry
organization that invests funds contributed by its membership in certain
programs, such as special training programs, for the benefit of the roofing
industry and the organization's membership.
According to a market survey conducted by the NRCA, total expenditures for
roofing services in the United States in 1997 were approximately $20.0 billion,
of which approximately $14.5 billion were for commercial roofing services. The
roofing industry is highly fragmented, and is estimated to be comprised of more
than 25,000 companies, most of which are small, owner-operated, independent
contractors serving a local customer base, with limited access to capital for
investment in infrastructure, technology and expansion. The Company believes
that no single company accounted for more than 1% of total expenditures for
roofing services in the United States. According to the NRCA market survey,
approximately 75% of roofing expenditures in 1997 were attributable to
re-roofing, restoration and repair, with the balance attributable to new roof
construction.
The Company believes that its business strategy will enable it to continue
its growth in existing markets and, together with its relative size and
recognition within the industry, enable it to achieve its goal of maintaining
and expanding its position as the leading national provider of commercial
roofing services. Key elements of the Company's strategy are to:
Focus on Commercial Roofing Market. The Company intends to continue
to focus on the commercial roofing market because of its size, the
magnitude of individual projects, the diverse and multiple-location
customer base, the trend of consolidation in commercial real estate,
recurring revenue opportunities and the potential for long-term
relationships with building owners, property managers, general contractors
and roof consultants.
Establish Regional and National Market Coverage. The Company believes
that the growth of many of the Founding Companies has been restricted due
to the geographic limitations of their existing operations and that the
Company's broad geographic coverage will increase internal growth
opportunities. The Company intends to leverage its geographic diversity to
solicit additional business from existing customers and new business from
new customers that operate on a regional and national basis, such as real
estate investment trusts ("REITs"), contractors, owners of national chains
and roof consultants. The Company believes that significant demand exists
from such companies to utilize the services of a single commercial roofing
service provider and that existing local and regional relationships can be
expanded as the Company develops a nationwide network.
Expand Maintenance Services. The Company intends to further develop
its maintenance service operations, which generally provide higher gross
margins, recurring revenues and ongoing interaction with customers. The
Company has adopted a maintenance-oriented approach, whereby it performs
regularly-scheduled maintenance checks and focuses on increasing customer
awareness of the cost-effectiveness of preventive maintenance and the
available repair and restoration services that can most efficiently prolong
the life of a roof. The Company believes that this approach builds
long-term relationships with customers and encourages them to turn to the
Company for all of their roofing needs.
Apply Certain Functions and Technology to Achieve Operating and Cost
Efficiencies. The Company believes that it will achieve operating and cost
efficiencies by performing a wide range of functions on a centralized
basis, including administrative functions, such as those relating to human
resources, employee benefits and insurance, as well as purchasing,
accounting and bonding. The Company also intends to leverage its
proprietary, scalable, advanced enterprise information system, which will
provide
4
<PAGE> 6
management on a daily basis with information regarding project estimates,
materials and labor cost, accounts receivable and accounts payable
tracking, project progress and sales, as well as comprehensive reports on
substantially all aspects of the Company's operations. Management believes
that this system, which was developed by one of the Founding Companies over
a five-year period, will provide the Company with significant competitive
advantages through more accurate job estimates, enhanced cost awareness and
uniform control procedures through the timely flow of comprehensive project
information. Management believes that this advanced enterprise information
system will be fully implemented and accessible on a Company-wide basis by
the end of 1999.
Adopt Best Practices. The Company believes that it will be able to
increase operating efficiencies and enhance internal growth by identifying
and incorporating the operational and marketing strengths of individual
Founding Companies. The Company intends to institute a "best practices"
program, which will evaluate and implement on a Company-wide basis selected
policies, practices and procedures of the Founding Companies and other
companies to be acquired, with the goal of maximizing service levels and
profitability. In order to ensure that best practices are shared among each
of the individual Founding Companies, the Company has created a Presidents'
Council composed of the president or senior executive of each of the
Founding Companies. The Council has begun meeting on a regular basis as a
group and through smaller working committees, to share operating practices
and to develop additional methods to improve the overall performance of the
Company and the individual operating companies. Best practices that result
from the work of the Council will be included in the training and
monitoring programs developed and disseminated to the respective operating
companies.
Operate on a Decentralized Basis. The Company believes that, while
maintaining strong operating and financial controls, a decentralized
operating structure will retain the entrepreneurial spirit present in each
of the Founding Companies. The Company's decentralized operating structure
will allow it to capitalize on the considerable local and regional market
knowledge and customer relationships possessed by each Founding Company, as
well as by companies that may be acquired in the future.
Grow through Acquisitions. The Company believes that, due to the
highly fragmented nature of the commercial roofing industry, it has
significant opportunities to pursue an acquisition strategy and expand in
targeted geographic markets. The Company intends to focus on acquiring
profitable companies with an established customer base and a reputation for
quality that will serve as a platform for the acquisition and integration
of smaller companies. The Company will also seek to acquire companies with
entrepreneurial management philosophies and a willingness to learn and
share improved business practices through open communications. The Company
believes that many commercial roofing businesses that lack the capital
necessary to expand their operations will become acquisition candidates.
The Company believes that it will be attractive to these acquisition
candidates because it will provide (i) information on best practices, (ii)
expertise to expand in specialized markets, (iii) the opportunity to focus
on customers rather than administration, (iv) national name recognition,
(v) increased financial flexibility, (vi) the opportunity for existing
management to have a continuing role with the Company and (vii) the
opportunity to provide services to the Company's customers in their
respective geographic markets. All of the Founding Companies participate in
professional associations, including the NRCA. The Company intends to
capitalize on the relationships created within these professional
associations and the combined industry reputation of the Founding Companies
to pursue its acquisition strategy. Through these and other resources, the
Company believes it will be able to identify and attract acquisition
candidates that meet the Company's criteria. The Company reviews on an
ongoing basis suitable acquisition opportunities. However, the Company does
not currently have any plans, arrangements or understandings with respect
to any particular acquisition, except for the Founding Companies.
5
<PAGE> 7
THE OFFERING
Common Stock Offered.................. 4,000,000 Shares
Common Stock to be Outstanding after
the Offering(1)....................... 10,258,667 Shares
Use of Proceeds....................... To fund the cash portion of the
purchase price for the Founding
Companies, to repay certain
outstanding indebtedness of the
Founding Companies and for other
general corporate purposes, including
working capital and future
acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbol......... ROOF
- ---------------
(1) Includes 6,258,667 shares to be issued in connection with the acquisition of
the Founding Companies concurrently with the Offering, but excludes 282,222
shares of Common Stock reserved for issuance upon the exercise of stock
options and warrants to be issued to holders of options and warrants of
certain of the Founding Companies in the Combination. In addition,
immediately following the Offering the Company will grant options to
purchase approximately 560,000 shares of Common Stock to employees and
directors of the Company pursuant to the Company's 1998 Stock Option and
Restricted Stock Purchase Plan. See "Management -- 1998 Stock Option and
Restricted Stock Purchase Plan."
6
<PAGE> 8
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
General Roofing Services, Inc. will acquire the Founding Companies
concurrently with and as a condition to the consummation of the Offering. For
financial statement presentation purposes, General Roofing Industries ("GRI"),
one of the Founding Companies, has been identified as the "accounting acquirer,"
and the financial statements of GRI will be regarded as the historical financial
statements of the Company. The following summary unaudited pro forma combined
financial data present certain data for the Company, as adjusted for (i) the
effects of the Combination, (ii) the effects of certain other pro forma
adjustments to historical financial statements and (iii) the consummation of the
Offering and the application of the net proceeds therefrom. The unaudited pro
forma combined income statement data assume that the Combination, the Offering
and related transactions were consummated on January 1, 1997 and are not
necessarily indicative of the results that the Company would have obtained had
these events actually occurred at that date or indicative of the Company's
future results. During the period presented below, the Founding Companies were
not under common control or common management, and therefore, the data presented
may not be comparable to or indicative of post-Combination results to be
achieved by the Company. The unaudited pro forma combined income statement data
are based on preliminary estimates, available information and certain
assumptions that Company management deems appropriate. The unaudited pro forma
combined financial data should be read in conjunction with the other financial
information included elsewhere in this Prospectus. See "Selected Historical and
Pro Forma Financial Data," the Unaudited Pro Forma Combined Financial Statements
and notes thereto, and the historical financial statements for each of the
Founding Companies and the notes thereto, all included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
-----------------
YEAR ENDED
DECEMBER 31, 1997
-----------------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C>
INCOME STATEMENT DATA:
Revenues.................................................. $ 195,909
Cost of Revenues.......................................... 153,390
-----------
Gross Profit.............................................. 42,519
Selling, General and Administrative Expenses(1)........... 27,497
Goodwill Amortization(2).................................. 1,607
-----------
Income from Operations.................................... 13,415
Interest and Other Expense, net(3)........................ (531)
-----------
Income before Income Taxes................................ 12,884
Provision for Income Taxes(4)............................. (5,652)
-----------
Net Income................................................ $ 7,232
===========
Basic and Diluted Earnings per Share...................... $ 0.70
===========
Shares used in Computing Pro Forma Net Income per
Share(5)............................................... 10,258,667
===========
</TABLE>
- ---------------
(1) The pro forma combined income statement data reflect an aggregate of $3.3
million for the year ended December 31, 1997, in pro forma reductions in
salaries, bonuses, and benefits to the owners and key employees of the
Founding Companies. The owners and key employees have agreed to these
reductions effective upon the Combination. See "Management -- Employment
Agreements."
(2) Consists of amortization of goodwill to be recorded as a result of the
Combination over a 40-year period and computed on the basis described in the
Notes to the Unaudited Pro Forma Combined Financial Statements.
(3) Several of the Founding Companies are S Corporations. Prior to the
Combination, these Founding Companies will make distributions to their
stockholders totaling $15.3 million, representing substantially all of their
previously-taxed undistributed earnings (the "S Corporation Distributions").
Certain
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<PAGE> 9
Founding Companies will incur debt of $12.1 million relating to these
distributions and, subsequent to the Offering, such amounts will be repaid
by borrowings of the Company under a three-year, $50.0 million revolving
credit facility which will become available concurrent with, and conditioned
upon the Offering. Accordingly, pro forma interest expense has been
increased by $968,000 for the year ended December 31, 1997.
(4) Assumes a corporate income tax rate of 39% and the non-deductibility of
goodwill. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Pro Forma
Combined."
(5) Includes the 4,000,000 shares of Common Stock offered by this Prospectus and
6,258,667 shares to be issued in connection with the acquisition of the
Founding Companies concurrently with the Offering. Excludes 282,222 shares
of Common Stock reserved for issuance upon the exercise of stock options and
warrants to be issued to holders of options and warrants of certain of the
Founding Companies in the Combination. In addition, immediately following
the Offering the Company will grant options to purchase approximately
560,000 shares of Common Stock to employees and directors of the Company
pursuant to the Company's 1998 Stock Option and Restricted Stock Purchase
Plan. See "Management -- 1998 Stock Option and Restricted Stock Purchase
Plan."
8
<PAGE> 10
SUMMARY INDIVIDUAL FOUNDING COMPANY HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
The following table presents certain summary historical income statement
data of the Founding Companies and supplemental combined summary historical
income statement data for the Founding Companies for each of their three most
recent fiscal years and for the three months ended March 31, 1997 and 1998. The
historical income statement data below have not been adjusted for the pro forma
adjustments related to contractually agreed reductions in salaries and benefits,
or any other pro forma adjustments reflected in the Unaudited Pro Forma Combined
Financial Statements, included elsewhere in this Prospectus. The income
statement data presented below have been audited for certain of the Founding
Companies and for the periods as reflected in the historical financial
statements of such Founding Companies, included elsewhere in this Prospectus.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The supplemental combined historical financial data of the Founding
Companies do not represent data derived from results of operations presented in
accordance with generally accepted accounting principles, but are only the
summation of the revenues, gross profit, selling, general and administrative
expenses and operating income of the Founding Companies.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS(1) MARCH 31,
------------------------------ -----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
COMBINED:
Revenues.................................................. $152,184 $171,510 $201,220 $40,682 $40,746
Gross Profit.............................................. 29,458 35,634 42,686 7,576 7,893
Selling, General and Administrative Expenses.............. 24,329 28,690 31,194 7,229 7,929
Excess (Deficit) of Gross Profit over Selling, General and
Administrative Expenses................................. 5,129 6,944 11,492 347 (36)
GENERAL ROOFING INDUSTRIES(2):
Revenues.................................................. $ 18,174 $ 24,810 $ 26,792 $ 6,508 $ 7,135
Gross Profit.............................................. 4,615 7,552 7,691 1,977 1,827
Selling, General and Administrative Expenses.............. 4,955 6,570 6,995 1,715 2,049
Operating Income (Loss)................................... (340) 982 696 262 (222)
THE C.E.I. COMPANIES(3):
Revenues.................................................. $ 39,694 $ 42,525 $ 45,163 $ 9,653 $10,025
Gross Profit.............................................. 8,505 9,673 10,264 1,911 2,292
Selling, General and Administrative Expenses.............. 7,289 7,699 8,018 1,933 2,105
Operating Income (Loss)................................... 1,216 1,974 2,246 (22) 187
ANTHONY ROOFING, LTD.:
Revenues.................................................. $ 12,290 $ 12,226 $ 19,778 $ 2,524 $ 2,489
Gross Profit.............................................. 3,446 2,719 5,337 282 357
Selling, General and Administrative Expenses.............. 1,961 2,086 2,870 372 445
Operating Income (Loss)................................... 1,485 633 2,467 (90) (88)
SPECIALTY ASSOCIATES, INC. AND AFFILIATE(4):
Revenues.................................................. $ 13,297 $ 15,306 $ 17,197 $ 3,529 $ 2,300
Gross Profit.............................................. 1,584 1,647 2,240 326 14
Selling, General and Administrative Expenses.............. 1,416 1,236 1,486 272 317
Operating Income (Loss)................................... 168 411 754 54 (303)
CYCLONE ROOFING COMPANY:
Revenues.................................................. $ 9,243 $ 10,254 $ 16,057 $ 3,085 $ 2,829
Gross Profit.............................................. 1,625 1,716 3,534 501 372
Selling, General and Administrative Expenses.............. 683 1,157 1,099 227 227
Operating Income.......................................... 942 559 2,435 274 145
WRIGHT-BROWN ROOFING COMPANY:
Revenues.................................................. $ 10,923 $ 12,820 $ 15,316 $ 2,135 $ 2,447
Gross Profit.............................................. 1,441 2,190 2,496 347 334
Selling, General and Administrative Expenses.............. 1,007 1,285 1,393 393 307
Operating Income (Loss)................................... 434 905 1,103 (46) 27
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS(1) MARCH 31,
------------------------------ -----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
HARRINGTON-SCANLON ROOFING COMPANY, INC.
AND AFFILIATES(5):
Revenues.................................................. $ 5,067 $ 10,313 $ 11,816 $ 2,654 $ 2,369
Gross Profit.............................................. 989 1,636 1,770 468 184
Selling, General and Administrative Expenses.............. 839 1,515 1,550 329 377
Operating Income (Loss)................................... 150 121 220 139 (193)
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.:
Revenues.................................................. $ 7,273 $ 9,322 $ 11,265 $ 2,816 $ 2,858
Gross Profit.............................................. 1,087 1,053 1,337 321 555
Selling, General and Administrative Expenses.............. 981 1,043 1,215 302 347
Operating Income.......................................... 106 10 122 19 208
FIVE-K INDUSTRIES, INC. AND SUBSIDIARY:
Revenues.................................................. $ 10,402 $ 9,361 $ 11,091 $ 2,117 $ 2,172
Gross Profit.............................................. 2,349 2,840 3,212 543 859
Selling, General and Administrative Expenses.............. 2,226 2,652 2,775 823 882
Operating Income (Loss)................................... 123 188 437 (280) (23)
ADVANCED ROOFING, INC. AND AFFILIATES:
Revenues.................................................. $ 12,078 $ 10,682 $ 12,174 $ 2,627 $ 3,097
Gross Profit.............................................. 1,740 1,839 2,347 455 630
Selling, General and Administrative Expenses.............. 1,219 1,317 1,571 335 400
Operating Income.......................................... 521 522 776 120 230
BLACKMORE AND BUCKNER ROOFING, INC.:
Revenues.................................................. $ 7,210 $ 7,704 $ 7,739 $ 1,401 $ 1,061
Gross Profit.............................................. 1,415 1,756 1,418 128 165
Selling, General and Administrative Expenses.............. 1,161 1,326 1,220 206 215
Operating Income (Loss)................................... 254 430 198 (78) (50)
REGISTER CONTRACTING COMPANY, INC.:
Revenues.................................................. $ 6,533 $ 6,187 $ 6,832 $ 1,633 $ 1,964
Gross Profit.............................................. 662 1,013 1,040 317 304
Selling, General and Administrative Expenses.............. 592 804 1,002 322 258
Operating Income (Loss)................................... 70 209 38 (5) 46
</TABLE>
- ---------------
(1) The fiscal years presented above are the years ended December 31, 1995, 1996
and 1997, except for (i) General Roofing Industries, for which the fiscal
years presented are the years ended October 31, 1995, 1996 and 1997; (ii)
Anthony Roofing, Ltd., for which the fiscal years presented are October 31,
1995, and December 31, 1996 and 1997; (iii) Specialty Associates, Inc. and
Affiliate, for which the fiscal years presented are the year ended June 30,
1995, the 53-week period ended February 2, 1997 and the 52-week period ended
February 1, 1998; (iv) Slavik, Butcher & Baecker Construction Company, Inc.,
for which the fiscal years presented are the years ended June 30, 1995, 1996
and 1997; (v) Five-K Industries, Inc. and Subsidiary, for which the fiscal
years presented are the years ended March 31, 1996, 1997 and 1998; and (vi)
Register Contracting Company, Inc., for which the fiscal years presented are
the years ended September 30, 1995, 1996 and 1997.
(2) Consists of (i) GRI of South Florida, Inc., (ii) GRI of West Florida, Inc.,
(iii) GRI of Orlando, Inc. and (iv) Dakota Leasing, Inc.
(3) Consists of (i) C.E.I. Roofing, Inc., (ii) C.E.I. West Roofing Company, Inc.
and (iii) C.E.I. Florida, Inc.
(4) Consists of Specialty Associates, Inc. and SAI Wholesale Distributors, Inc.
(5) Consists of Harrington-Scanlon Roofing Company, Inc. and Subsidiary,
Architectural Sheet Metal, Inc., and H&S Investments LLC.
10
<PAGE> 12
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
Although each of the Founding Companies has operated for more than 10
years, the business of the Founding Companies will not be operated on a combined
basis until after the Offering. There can be no assurance that the Company will
be able to integrate the operations of the Founding 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. In addition, there can be no assurance that the Company's 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 Founding
Companies cover periods when the Founding 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 Founding 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 commercial roofing
companies in its existing and new markets. The Company's acquisition strategy
presents risks that, singularly 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, the possible adverse effect 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 identify,
acquire, successfully integrate and profitably manage additional businesses, and
no assurance can be given that the Company's strategy will succeed. 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 -- Strategy -- Acquisition Strategy."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH
Expansion of the Company through acquisitions and internal growth will
require significant capital. 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 a 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 expects to have
approximately $12.7 million (at an assumed offering price of $14.00 per share)
of the net proceeds of this Offering remaining for future acquisitions and
working capital. There can be no assurance the Company will be able to raise
sufficient capital upon terms acceptable to the Company, or 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 equity or debt financing.
Such indebtedness, if incurred, would increase the Company's leverage, may make
the Company more vulnerable to economic downturns and may limit its
11
<PAGE> 13
ability to withstand competitive pressures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Combined."
SEASONALITY; QUARTERLY FLUCTUATIONS; GENERAL ECONOMIC CONDITIONS
The Company's results of operations and the demand for its roofing services
can be expected to fluctuate from quarter to quarter due to a variety of
factors, including adverse weather conditions and the timing of acquisitions.
For example, mild, dry weather results in reduced demand for repair services.
Conversely, adverse weather increases the number of roofs in need of repair, but
due to the increased demand and the inability to render services during such
periods, severe weather can delay the time it takes to complete a roofing
project. Accordingly, the Company expects its revenues and operating results
generally will be lower in the first and fourth quarters. The Company believes
that the roofing industry is sensitive to economic conditions, including
national, regional and local slowdowns in construction, commercial, industrial
and/or real estate activity and weakening demand for roofing services. New roof
construction is particularly sensitive to economic conditions. In addition, the
Company's operating results may be adversely affected by increases in interest
rates that may lead to a decline in economic activity. There can be no assurance
that adverse economic conditions will not 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 the Commercial Roofing Industry."
RISKS ASSOCIATED WITH DEVELOPMENT, IMPLEMENTATION, AND INTEGRATION OF OPERATING
SYSTEMS AND POLICIES
As a rapidly growing provider of commercial roofing 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
Founding Companies, including accounting systems, employment and human resources
policies, purchasing programs and certain centralized marketing programs. Each
of the Founding Companies and companies to be acquired in the future will 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 -- Strategy -- Operating Strategy."
DEPENDENCE ON ENTERPRISE INFORMATION SYSTEMS
The Company's operations are dependent on the Company's enterprise
information systems, which consist of a proprietary project management system
and a management information system. The Company relies on these information
systems for communications with its operating locations, employees and customers
and information regarding the status of roofing projects, employee productivity,
Company operations, accounting and financial matters, marketing and sales, the
Company's facility management program and a variety of other matters. In
addition, any significant disruption or unavailability of the Company's
information systems for any significant period of time would have a material
adverse effect on the Company's business and results of operations. Although the
Company has taken precautions to protect itself from events that could interrupt
its operations, including the secured storage of back-up data, physical security
systems and an early warning fire detection system, there can be no assurance
that a sustained electrical or communications link outage, fire, flood or other
natural disaster would not disable the information systems or prevent the
information systems from communicating with the Company's branch locations. See
"Business -- Enterprise Information Systems."
VALUATION OF ACQUISITIONS
The initial public offering price of the Common Stock will be determined
based on negotiations between the Company and the representatives of the
Underwriters, and the factors which will be considered in
12
<PAGE> 14
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 Founding
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 Founding Companies would likely result in a
different valuation of the Company than that reflected by the initial public
offering price of the Common Stock offered hereby. The aggregate consideration
related to the Founding Companies (other than General Roofing Industries) will
be approximately $101.8 million, which will consist of $58.7 million in Common
Stock and $25.7 million in cash, assumed debt of $11.7 million for the S
Corporation Distributions and $5.7 million of assumed existing debt to be repaid
upon completion of the Offering. The consideration to be paid by the Company for
each Founding Company other than GRI, the accounting acquirer was based upon
arms-length negotiations between the Company's management and the stockholders
of each Founding Company, and management considered a number of factors
including historical and anticipated earnings, customer base, geographic
location, market presence and management of each Founding Company, among other
factors. There can be no assurance that the consideration paid or to be paid by
the Company for the Founding 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 Founding Companies reflects the value of the
assets of the Founding Companies. See "The Combination."
AVAILABILITY OF SKILLED ROOFING LABOR
The timely provision of high-quality maintenance, repair, restoration,
re-roofing and new roof construction services requires an adequate supply of
skilled roofing labor. The supply of roofing labor is sensitive to economic and
competitive conditions and the level of demand for roofing services.
Accordingly, the Company's ability to increase its productivity and
profitability may be limited by its ability to employ, train and retain the
skilled roofing laborers necessary to meet the Company's service requirements.
From time to time, there are shortages of skilled labor, 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 expense will
not increase as a result of a shortage in the supply of skilled labor or the
unionization of a portion of its labor force, or that the Company will not have
to curtail its planned internal growth as a result of labor shortages. At March
31, 1998, the Company had 1,960 full-time employees, including 1,666 employees
in field operations and 294 managers and administrative employees. Approximately
600 employees in seven of the Founding Companies are members of unions and work
under collective bargaining agreements which are subject to renegotiation from
time to time. See "Business -- Personnel, Training and Safety."
FACTORS AFFECTING INTERNAL GROWTH
The Company's ability to increase the revenues of the Founding Companies
and any subsequently acquired company will be affected by various factors,
including demand for commercial roofing services, the level of new construction,
the Company's ability to expand the range of services offered to customers of
individual Founding 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 skilled roofing labor 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 Strategy -- Operating Strategy."
COMPETITION
The commercial roofing industry is highly fragmented and competitive and is
served principally by small, owner-operated private companies. The Company
competes for sales with numerous roofing companies in each of its markets.
Certain of these smaller competitors have lower overhead cost structures and may
be able
13
<PAGE> 15
to provide their services at lower rates than the Company. There can be no
assurance that the Company will not encounter increased competition from
existing competitors or new market entrants that may be significantly larger and
have greater financial and marketing resources. In addition, to the extent
existing or future competitors seek to gain or retain market share by reducing
prices, the Company may be required to lower its prices, which may adversely
affect operating results. Existing or future competitors also may seek to
compete with the Company for acquisition candidates. Other consolidators of
commercial roofing companies may have greater financial and other resources than
the Company, which could have the effect of increasing the price for
acquisitions or reducing the number of suitable acquisition candidates. 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 Founding 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. Certain shareholders and key managers of the Founding
Companies have entered into employment agreements containing, among other
things, confidentiality and non-competition provisions. The Company has "key
man" life insurance policies on the life of Gregg E. Wallick in the amount of
. The Company is the beneficiary of such policy. See "Management."
CONTROL BY EXISTING MANAGEMENT AND SHAREHOLDERS
Upon the consummation of the Offering, the existing stockholders of the
Founding Companies will beneficially own in the aggregate approximately 61.0% of
the outstanding Common Stock (57.6% if the Underwriters' over-allotment is
exercised in full). 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 any matter submitted to a vote of shareholders.
See "Security Ownership of Certain Beneficial Owners and Management."
AMORTIZATION OF GOODWILL
The Company's balance sheet immediately following the Offering and
consummation of the acquisition of the Founding Companies will include an amount
designated as "goodwill" that represents 49% of assets and 67% of stockholders'
equity. Goodwill arises when an acquirer pays more for a business than the fair
value of the tangible and separately measurable intangible net assets. Generally
accepted accounting principles require that this and all other intangible assets
be amortized over the period benefited. Management has determined that period is
no less than 40 years.
If the Company were to assign a shorter life to a material portion of the
goodwill, earnings reported in periods immediately following the acquisition of
the Founding Companies would be reduced. Earnings in later years could be
significantly affected if management determined then that the remaining balance
of goodwill was impaired. Management has reviewed with its independent
accountants all of the factors and related future cash flows which it considered
in arriving at the amount incurred to acquire each of the Founding Companies.
Management concluded that the anticipated future cash flows associated with
intangible assets recognized in the acquisitions will continue indefinitely, and
there is no persuasive evidence that any material portion will dissipate over a
period shorter than 40 years.
14
<PAGE> 16
PROCEEDS OF OFFERING PAYABLE FOR PURCHASE PRICE FOR FOUNDING COMPANIES AND FOR
EXISTING OBLIGATIONS
The Company will use approximately $35.4 million of net proceeds of the
Offering to fund the cash portion of the consideration paid to acquire the
Founding Companies and to repay debt assumed and certain obligations resulting
from the acquisition of the Founding Companies. Accordingly, only approximately
$12.7 million of the net proceeds of the Offering will be available to meet the
Company's cash requirements following the closing of the Offering. See "Use of
Proceeds" and "The Combination."
REGULATION
The Company's business and the activities of its roofing contractors are
subject to various federal, state, and local laws, regulations and ordinances
relating to, among other things, the licensing and certification of roofing
contractors, OSHA standards, advertising, building and zoning regulations and
environmental laws and regulations relating to the disposal of demolition debris
and other solid wastes. In certain jurisdictions, the Company or one of its
employees is required to be a licensed contractor. In addition, certain
jurisdictions require the Company to obtain a building permit for each roofing
project. The Company is also subject to certain federal, state and local laws
and regulations, which, among other things, regulate the Company's advertising,
warranties and disclosures to customers. Although the Company believes that it
has been and is currently in compliance in all material respects with such laws
and regulations, there can be no assurance that in the future the Company's
results of operations will not be materially adversely affected by existing or
new laws or regulations applicable to the Company's business. See
"Business -- Government Regulation."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon the closing of the Offering, 10,258,667 shares of Common Stock will be
outstanding. The 4,000,000 shares sold in this Offering (other than shares that
may be purchased by affiliates of the Company) will be freely tradable. The
remaining shares outstanding may be resold publicly only following their
effective registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption (such as provided by
Rule 144 under the Securities Act following a holding period for previously
unregistered shares) from the registration requirements of the Securities Act.
Sales made pursuant to Rule 144 must comply with its applicable volume
limitations and other requirements. The holders of Common Stock issued in
connection with the Combination have agreed with the Company and the
Underwriters that they generally will not sell, transfer or otherwise dispose of
any of their shares for two years following the date of acquisition of such
shares.
Upon the closing of the Offering, the Company also will have outstanding
options and warrants to purchase up to a total of 282,222 shares of Common
Stock, none of which will be exercisable until February 1999. The Company
intends to register all the shares subject to these options and warrants under
the Securities Act for public resale. In addition, the Company will grant
options to purchase approximately 560,000 shares of Common Stock to employees
and directors of the Company upon the consummation of the Offering pursuant to
the Company's 1998 Stock Option and Restricted Stock Purchase Plan.
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 (A) that the Company may issue Common
Stock in the Offering, in connection with acquisitions generally, and pursuant
to the exercise of stock options which are either (i) outstanding on the date of
this Prospectus or (ii) issued under the Company's 1998 Stock Option and
Restricted Stock Purchase Plan and (B) that such directors, executive officers
and shareholders may sell Common Stock pursuant to a cashless exercise of such
stock options or make a bona fide gift of Common Stock, provided that the donee
agrees to be bound by the terms of the donor's lockup agreement. However, this
restriction may be waived by The Robinson-Humphrey Company, LLC in its
discretion.
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. See "Shares Eligible for Future Sale."
15
<PAGE> 17
RESTRICTIONS ON DIVIDENDS; DEPENDENCE ON SUBSIDIARIES
The Company will conduct its operations through subsidiaries, including the
Founding 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 Founding 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 could be
restricted by the terms of subsequent financings and shares of Preferred Stock
that may be issued in future transactions. See "Description of Capital Stock."
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. 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.
LIABILITY AND INSURANCE
The Company's business exposes it to potential claims for personal injury
or death resulting from injuries to its employees and other persons caused in
connection with the Company's maintenance, repair or installation of roofing
systems. Certain types of claims, such as claims for punitive damages or for
damages arising from intentional misconduct, are generally not covered by the
Company's insurance. The Company carries comprehensive insurance subject to a
deductible. There can be no assurance that existing or future claims will not
exceed the level of the Company's insurance, or that such insurance will
continue to be available on economically reasonable terms, if at all. See
"Business -- Insurance" and "-- Legal Proceedings."
POSSIBLE ANTI-TAKEOVER EFFECTS OF FLORIDA LAW, CHARTER PROVISIONS AND PREFERRED
STOCK
The Company is incorporated under the laws of the State of Florida. Certain
provisions of Florida law may have the effect of delaying, deferring or
preventing a change in control of the Company. In addition, certain provisions
of the Company's Articles of Incorporation ("Articles") and Bylaws may be deemed
to have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a shareholder might consider in its best interest. The Board of Directors
can, without any vote or action by the holders of the Common Stock, authorize
and issue shares of preferred stock with voting or conversion rights and other
privileges and preferences that could adversely affect the voting or other
rights of holders of the Common Stock. In addition, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change of
control of the Company. See "Description of Capital Stock -- Anti-Takeover
Effects of Certain Provisions of Florida Law" and "-- Certain Provisions of the
Company's Articles and Bylaws."
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 $10.97 per
share and (ii) may experience further dilution in that value from issuances of
Common Stock in connection with future acquisitions. See "Dilution."
16
<PAGE> 18
YEAR 2000 ISSUE
Several of the Founding Companies are not year 2000-compliant. The Company
has plans to prepare its computer systems and related software to accommodate
sensitive information relating to the year 2000. The Company intends for the
Founding Companies to convert their computer systems as part of its program to
adopt best practices and leverage its propriety information system. The Company
expects that any additional costs related to ensuring that such systems and
software will be ready for the year 2000 will not be material to the financial
condition or results of operations of the Company. In addition, the Company is
discussing with its vendors and customers the possibility of any difficulties
which may affect the Company as a result of its vendors and customers ensuring
that their computer systems and software are year 2000-compliant. To date, no
significant concerns have been identified. However, there can be no assurance
that no year 2000-related computer operating problems or expenses will arise
with the Company's computer systems and software or in the computer systems and
software of the Company's vendors and customers.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED COMMON STOCK
Following the Offering, the Company will have 79,741,333 authorized but
unissued shares of Common Stock available for future issuance without
shareholder approval, subject to applicable requirements of the Nasdaq National
Market. These additional shares of Common Stock may be utilized for a variety of
corporate purposes, including acquisitions, future public offerings to raise
additional capital, and employee benefits plans and director compensation plans.
The existence of these shares may enable the Board to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger or otherwise, and thereby protect the continuity of the Company's
management. See "Description of Capital Stock."
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<PAGE> 19
THE COMPANY
The Company was founded in 1998 to create the leading nationwide provider
of commercial roofing services. Concurrently with, and as a condition to, the
Offering, the Company plans to acquire the 18 Founding Companies providing
roofing services which are comprised of 12 unaffiliated groups of companies, and
also include other affiliated companies providing administrative and other
services. The Founding Companies, which have been in business for an average of
approximately 28 years, had pro forma combined 1997 revenues and income from
operations of approximately $195.9 million and $13.4 million, respectively.
Following the Combination and the Offering, the Company will have operations in
20 cities in 12 states, and will be one of the largest providers of commercial
roofing services in the United States. The aggregate consideration (the
"Acquisition Consideration") to be paid by the Company for the Founding
Companies consists of approximately $41.3 million in cash (without giving effect
to certain earn-out provisions and distributions to be made by certain Founding
Companies prior to the consummation of the Offering) and 6,258,667 shares of
Common Stock. Certain shareholders and key managers of the Founding Companies
have entered into employment agreements containing, among other things,
confidentiality and non-competition provisions. Certain information for the
Founding Companies is set forth below.
<TABLE>
<CAPTION>
PERCENTAGE OF 1997 REVENUES
-----------------------------
REPAIR,
YEAR RESTORATION NEW ROOF TOTAL
FOUNDING COMPANIES FOUNDED HEADQUARTERS SITE AND RE-ROOFING CONSTRUCTION REVENUES(1)
------------------ ------- ------------------------- -------------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
General Roofing
Industries(2)........ 1988 Pompano Beach, Florida 52% 48% $ 26,792
The C.E.I. Companies
("C.E.I.")
C.E.I. Roofing,
Inc............... 1981 Dallas, Texas 53 47 17,929
C.E.I. West Roofing
Company, Inc...... 1977 Denver, Colorado 40 60 16,991
C.E.I. Florida,
Inc............... 1978 DeBary, Florida 60 40 10,243
Blackmore and Buckner
Roofing, Inc......... 1919 Indianapolis, Indiana 85 15 7,739
Cyclone Roofing
Company.............. 1964 Indian Trail, N. Carolina 70 30 16,057
Anthony Roofing,
Ltd.................. 1979 Aurora, Illinois 72 28 19,778
Slavik, Butcher &
Baecker
Construction Company,
Inc.................. 1977 Rochester Hills, Michigan 95 5 11,265
Advanced Roofing, Inc.
and Affiliates....... 1983 Ft. Lauderdale, Florida 95 5 12,174
Five-K Industries, Inc.
and Subsidiary....... 1942 Smyrna, Georgia 63 37 11,091
Wright-Brown Roofing
Company.............. 1951 Detroit, Michigan 89 11 15,316
Register Contracting
Company, Inc......... 1981 Jacksonville, Florida 70 30 6,832
Harrington-Scanlon
Roofing Company, Inc.
and Affiliates(3).... 1983 Kansas City, Kansas 38 62 11,816
Specialty Associates,
Inc. and
Affiliate(4)......... 1975 West Allis, Wisconsin 70 30 17,197
--------
Total........ 65% 35% $201,220
== == ========
</TABLE>
- ---------------
(1) Several of the individual Founding Companies have fiscal year ends that
differ from December 31. All of the Founding Companies will use the fiscal
year end December 31 upon the consummation of the Combination. In addition,
certain operations of two Founding Companies are not being acquired in the
Combination.
18
<PAGE> 20
(2) Consists of (i) GRI of South Florida, Inc., (ii) GRI of West Florida, Inc.,
(iii) GRI of Orlando, Inc. and (iv) Dakota Leasing, Inc.
(3) Consists of (i) Harrington-Scanlon Roofing Company, Inc. and Subsidiary,
(ii) Architectural Sheet Metals, Inc. and (iii) H&S Investments, LLC.
(4) Consists of Specialty Associates, Inc., and SAI Wholesale Distributors, Inc.
General Roofing Industries ("GRI") was founded in 1988 by Gregg E. Wallick
and began its initial operations in south Florida. In 1992, GRI acquired a
roofing company in Tampa, Florida and, in 1994, acquired an additional roofing
company in Orlando, Florida. GRI currently operates throughout Florida and is
the largest commercial roofing company in Florida. GRI specializes in commercial
and industrial roofing and sheet metal systems. GRI has approximately 320
employees. GRI has implemented an enterprise information system and centralized
accounting system which will be implemented by the Company following the
consummation of the Combination. GRI was named Roofing, Siding and Installation
Magazine ("RSI") Contractor of the Year in 1993. GRI is a member of the NRCA and
the Alliance for Progress. Gregg E. Wallick, its president and chief executive
officer, has signed a three year employment agreement with the Company and
serves as the President and Chief Executive Officer and Chairman of the Board of
Directors of the Company.
C.E.I. Roofing, Inc. ("C.E.I. Roofing") was founded in 1981 by George
Cook, John C. Cook and Doug Reader, and operates in Dallas, Texas and Detroit,
Michigan. C.E.I. Roofing specializes in commercial and industrial roofing and
sheet metal systems. C.E.I. Roofing has approximately 210 employees. George
Cook, its executive vice president, and Doug Reader, its president, have signed
three year employment agreements to continue in their present positions with
C.E.I. Roofing upon the consummation of the Combination.
C.E.I. West Roofing Company, Inc. ("C.E.I. West") was founded in 1977 by
George Cook, John C. Cook and Frederick E. Holland and operates in Denver,
Colorado and Sacramento, California. C.E.I. West specializes in commercial and
industrial roofing and sheet metal systems. C.E.I. West has approximately 200
employees. Frederick E. Holland, its president, and Michael McClane, the vice
president and manager of C.E.I. West's Sacramento, California branch office,
have signed three year employment agreements to continue in their present
positions with C.E.I. West upon the consummation of the Combination.
C.E.I. Florida, Inc. ("C.E.I. Florida") was founded in 1978 by George
Cook, John C. Cook and Ron Martin and operates in north and central Florida.
C.E.I. Florida specializes in commercial and industrial roofing and sheet metal
systems. C.E.I. Florida has approximately 100 employees. John Cook, its
president and chief executive officer, has signed a three year employment
agreement to continue in his present position with C.E.I. Florida and will
become a director of the Company upon the consummation of the Combination.
Blackmore and Buckner Roofing, Inc. ("Blackmore & Buckner") was founded in
1919 and operates primarily in central Indiana. Blackmore & Buckner specializes
in commercial and industrial roofing and sheet metal systems. Blackmore &
Buckner has approximately 100 employees. Stephen Buckner, its president, and
Donald Parrish, its vice president, have each signed a three year employment
agreement to continue in their present positions with Blackmore & Buckner upon
the consummation of the Combination.
Cyclone Roofing Company ("Cyclone Roofing") was founded in 1964 and
operates primarily in North Carolina and South Carolina. Cyclone Roofing
specializes in commercial and industrial roofing and sheet metal systems.
Cyclone Roofing has approximately 140 employees. Cyclone Roofing has been
recognized for outstanding work by the U.S. Army and Metal Architecture, a trade
magazine. R. Wayne Cooke, its president, has signed a three year employment
agreement to continue in his present position with Cyclone Roofing upon the
consummation of the Combination.
Anthony Roofing, Ltd. ("Anthony Roofing") was founded in 1979 and operates
in Aurora, Illinois, a suburb of Chicago. Anthony Roofing specializes in
commercial and industrial roofing and sheet metal systems. Anthony Roofing has
approximately 130 employees. Joel A. Thompson, its founder and president, has
signed a three year employment agreement to continue in his present position
with Anthony Roofing and will become a director of the Company upon the
consummation of the Combination.
19
<PAGE> 21
Slavik, Butcher & Baecker Construction Company, Inc. ("Slavik Butcher"),
was founded in 1977 and operates in east and central Michigan. Slavik Butcher
specializes in re-roofing and restoration, and has expertise in low and
steep-sloped roofing. Slavik Butcher was named Contractor of the Year by RSI in
1994. Slavik Butcher has approximately 65 employees. Patrick Butcher, its
co-founder and president, and Joe Butcher, its co-founder, vice president and
chief financial officer, have signed three year employment agreements to
continue in their present positions with Slavik Butcher upon the consummation of
the Combination.
Advanced Roofing, Inc. ("Advanced Roofing") was founded in 1983 and
operates in south Florida. Advanced Roofing specializes in commercial and
industrial roofing and sheet metal systems, and has expertise in difficult
re-roofing projects. Advanced Roofing has approximately 100 employees. Robert
Kornahrens, its founder and president, has signed a three year employment
agreement to continue in his present position with Advanced Roofing upon the
consummation of the Combination.
Five-K Industries, Inc., which conducts business under the name of
"Therrel-Kizer" ("Therrel-Kizer" or "Five-K") was founded in 1942 and operates
in Atlanta, Georgia and the surrounding metropolitan area. Therrel-Kizer
specializes in commercial and industrial roofing and sheet metal systems, and
has expertise in large-scale roofing projects. Therrel-Kizer has approximately
100 employees. Herbert J. Kizer III, its president and chief executive officer,
has signed a three year employment agreement to continue in his present position
with Therrel-Kizer upon the consummation of the Combination.
Wright-Brown Roofing Company ("Wright-Brown") was founded in 1951 and
operates in the Detroit, Michigan metropolitan area. Wright-Brown specializes in
commercial and industrial roofing and sheet metal systems, and has a full
service roof management program. Wright-Brown has received the Ford Motor
Companies Q1 Preferred Quality Supplier Award. Wright-Brown has approximately
120 employees. Thomas E. Brown, Jr., its chairman and chief executive officer,
has previously served as a director of the NRCA. Mr. Brown has signed a three
year employment agreement to continue in his present position with Wright-Brown
and will become a director of the Company upon the consummation of the
Combination. Terry M. Mudge, its President, has signed a three year employment
agreement to continue in his present position with Wright-Brown upon the
consummation of the Combination.
Register Contracting Company, Inc. ("Register Roofing") was founded in 1981
and operates in north Florida. Register Roofing specializes in commercial and
industrial roofing and sheet metal systems, and has experience in working with
architects and owners on various types of roof designs and specifications.
Register Roofing has approximately 85 employees. Gary Register, its founder and
president, has signed a three year employment agreement to continue in his
present position with Register Roofing upon the consummation of the Combination.
Harrington-Scanlon Roofing Company, Inc. ("Harrington-Scanlon") was founded
in 1983 and operates in western Missouri and eastern Kansas and in the Tucson
and Phoenix, Arizona areas. Harrington-Scanlon specializes in commercial and
industrial roofing and sheet metal systems. Harrington-Scanlon has approximately
140 employees. J.R. Harrington, its co-founder and president, and Kevin Scanlon,
its co-founder and vice president, have signed three year employment agreements
to continue in their present positions with Harrington-Scanlon upon the
consummation of the Combination.
Specialty Associates, Inc. ("Specialty Associates") was founded in 1975 and
operates in the Milwaukee, Wisconsin area. Specialty Associates specializes in
commercial and industrial roofing and sheet metal systems, and has expertise in
designing and renovating roofing systems. Specialty Associates has approximately
140 employees. Ronald J. Werowinski, its president, has signed a three year
employment agreement to continue in his present position with Specialty
Associates, upon the consummation of the Combination.
The Company is a Florida corporation with its principal executive offices
located at 951 South Andrews Avenue, Pompano Beach, Florida 33069, and its
telephone number is (954) 942-3550.
20
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering, at an assumed initial offering price of $14.00 per share, are
estimated to be approximately $48.1 million ($55.9 million if the Underwriters'
over-allotment option is exercised in full) after deduction of underwriting
discounts and Offering expenses payable by the Company. The Company plans to use
$25.7 million to fund the cash portion of the Acquisition Consideration. The
Company intends to use $9.7 million to repay certain outstanding indebtedness of
the Founding Companies with a weighted average interest rate of 9.3%, and the
remaining proceeds will be 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 general corporate purposes. See "The Combination" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Combined." Pending application
of the net proceeds as described above, the Company intends to invest the net
proceeds in short-term investment grade or U.S. government interest bearing
securities.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth the current maturities of long-term debt and
the capitalization (i) of GRI as of March 31, 1998 (A) on a historical basis and
(B) as adjusted to give effect to planned S Corporation distributions and (ii)
of the Company as of March 31, 1998 (A) on a pro forma combined basis after
giving effect to the Combination and related transactions, and (B) on a pro
forma combined basis after giving effect to the Combination and related
transactions, as adjusted to give effect to the Offering and the application of
the estimated net proceeds therefrom. See "Use of Proceeds." This table should
be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements of the Company and the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
GRI GRI-ADJUSTED AS OF MARCH 31, 1998
HISTORICAL FOR S CORPORATION ----------------------
AS OF DISTRIBUTIONS COMBINED
MARCH 31, 1998 MARCH 31, 1998 COMBINED AS ADJUSTED
-------------- ----------------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes Payable and Current Maturities of
Long-Term Debt(1)...................... $ 931 $1,331 $42,076(2) $12,364
====== ====== ======= =======
Long-Term Debt, net of Current
Maturities............................. $3,720 3,720 $ 6,054 $ 410
------ ------ ------- -------
Stockholders' Equity:
Preferred Stock: $.01 par value,
10,000,000 shares authorized; no
shares issued and outstanding....... -- -- --
Common Stock: $.01 par value,
90,000,000 shares authorized;
6,258,667 shares issued and
outstanding, pro forma combined; and
10,258,667 shares issued and
outstanding, pro forma combined as
adjusted(3)......................... 1 1 63 103
Additional Paid-In Capital............... 629 345 47,223 95,263
Retained Earnings........................ 448 0 -- --
------ ------ ------- -------
Total Stockholders' Equity..... 1,078 346 47,286 95,366
------ ------ ------- -------
Total Capitalization........... $4,798 $4,066 $53,340 $95,776
====== ====== ======= =======
</TABLE>
- ---------------
(1) Includes $12.1 million in short-term obligations to reflect that portion of
S Corporation distributions that will be funded through borrowings.
(2) Includes $25.7 million in notes payable to the stockholders of the Founding
Companies, representing the cash portion of the Acquisition Consideration to
be paid from the net proceeds of the Offering.
(3) Excludes shares of Common Stock subject to options, of which options to
purchase approximately 560,000 shares of Common Stock will be granted to
employees and directors of the Company immediately following the Offering
and options to purchase 216,300 shares of Common Stock will be issued in the
Combination upon conversion of existing options of GRI. Also, excludes
warrants to purchase 65,922 shares of Common Stock that will be issued upon
conversion of outstanding warrants of GRI. See "Management -- 1998 Stock
Option and Restricted Stock Purchase Plan." GRI Historical consists of 1,200
shares, $1 par value of the four affiliates comprising GRI.
22
<PAGE> 24
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. The Company 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
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.
DILUTION
At March 31, 1998, after giving effect to the Combination as if it had
occurred at such date, the deficit in pro forma combined net tangible book value
of the Company would have been approximately $17.0 million, or $2.72 per share.
The deficit in pro forma combined net tangible book value is equal to the
aggregate net tangible book value (tangible assets less total liabilities) of
the Company after giving effect to the Combination. The number of shares used
for the per share calculation includes the 6,258,667 shares of Common Stock to
be issued in the Combination but does not include shares to be issued in the
Offering. After giving effect to the Combination and the sale by the Company of
the 4,000,000 shares of Common Stock offered hereby and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the pro forma combined net tangible book value of the Company
would have been $31.1 million, or $3.03 per share. This represents an immediate
increase in pro forma net tangible book value of $5.75 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$10.97 per share to new investors purchasing the shares of Common Stock in the
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................ $14.00
Pro forma combined net tangible book value prior to the
Offering............................................. (2.72)
Increase in pro forma net tangible book value
attributable to new investors........................ 5.75
-----
Pro forma combined net tangible book value after the Offering.... 3.03
------
Dilution to new investors........................................ $10.97
======
</TABLE>
The following table sets forth on a pro forma basis, after giving effect to
the Combination as of March 31, 1998, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by (i) existing stockholders and
owners of the Founding Companies and (ii) the new investors purchasing Common
Stock from the Company in the Offering (before deducting underwriting discounts
and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED
-------------------- TOTAL AVERAGE PRICE
NUMBER PERCENT CONSIDERATION PER SHARE
---------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Existing stockholders and owners of
Founding Companies(1)(2)............. 6,258,667 61.0% $(17,012,000) $(2.72)
New investors.......................... 4,000,000 39.0 56,000,000 14.00
---------- ----- ------------
Total........................ 10,258,667 100.0% $ 38,988,000
========== ===== ============
</TABLE>
- ---------------
(1) See "The Combination" for a discussion of the issuance of Common Stock to
the owners of the Founding Companies.
(2) Total consideration paid by the Company to the stockholders of the Founding
Companies represents the combined historical owners' equity of the Founding
Companies before the Combination and the Offering, and has been adjusted to
reflect (i) the payment of $25.7 million in cash to the owners of the
Founding Companies as part of the Acquisition Consideration and (ii) the S
Corporation Distributions of $15.3 million. The Combination excludes certain
assets and operations of the Founding Companies with a net book value of
$1.0 million, not required for the ongoing operations of the Company.
23
<PAGE> 25
The foregoing tables assume no exercise of outstanding options and
warrants. Upon consummation of the Offering, there will be 216,300 and 65,922
shares of Common Stock issuable upon exercise of options and warrants to
purchase shares of Common Stock at average exercise prices of $6.38 and $.01 per
share, respectively. In addition, immediately following the Offering, the
Company will grant options to purchase approximately 560,000 shares of Common
Stock to employees and directors of the Company pursuant to the Company's 1998
Stock Option and Restricted Stock Purchase Plan at an option price equal to the
Offering price per share. See "Management -- 1998 Stock Option and Restricted
Stock Purchase Plan."
24
<PAGE> 26
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company will acquire the Founding Companies concurrently with, and as a
condition to, the consummation of the Offering. For financial statement
presentation purposes, GRI has been designated as the "accounting acquirer," and
the historical financial statements of GRI will be regarded as the historical
financial statements of the Company. The following selected historical financial
data for GRI as of October 31, 1996 and 1997, and for the years ended October
31, 1995, 1996 and 1997, have been derived from audited combined financial
statements of GRI included elsewhere in this Prospectus. The selected historical
financial data for the five months ended March 31, 1997 and 1998, and as of
October 31, 1993, 1994 and 1995, and for the years ended October 31, 1993 and
1994, have been derived from the unaudited combined financial statements of GRI,
which have been prepared on the same basis as the audited financial statements
and, in the opinion of management, reflect all adjustments, consisting of normal
recurring items, necessary for a fair presentation of such data. The results of
operations for the periods ended March 31, 1997 and 1998 should not be regarded
as indicative of the results that may be expected for a full year.
The summary unaudited pro forma combined financial data below present
certain financial data for the Company and includes (i) the effects of the
Combination and (ii) the effect of certain other pro forma adjustments to the
historical financial statements. The summary unaudited pro forma combined as
adjusted financial data below includes the effects of the consummation of the
Offering and the application of the net proceeds therefrom. The unaudited pro
forma combined income statement data assume that the Combination, the Offering
and related transactions were closed on January 1, 1997, and are not necessarily
indicative of the results that the Company would have obtained had these events
actually occurred at that date or of the Company's future results. During the
periods presented below, the Founding Companies were not under common control of
management and, therefore, the data presented may not be comparable to or
indicative of results to be achieved by the Company. The unaudited pro forma
combined income statement data are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate.
The unaudited pro forma combined balance sheet data assume that the Combination
was consummated on March 31, 1998. The unaudited pro forma combined financial
data should be read in conjunction with the other financial information included
elsewhere in this Prospectus. See the Unaudited Pro Forma Combined Financial
Statements and the notes thereto, included elsewhere in this Prospectus.
Because of varying weather patterns, the commercial roofing industry is
seasonal in nature. Typically, because of winter weather during the first and
fourth calendar quarters of each year, the Founding Companies have experienced
periods of relatively lower revenues and gross profits with no corresponding
decrease in selling, general and administrative expenses. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonal and Cyclical Nature of the Commercial Roofing Industry"
for a more detailed discussion of seasonality.
25
<PAGE> 27
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED COMBINED AS
AS ADJUSTED FIVE MONTHS ENDED ADJUSTED
YEAR ENDED OCTOBER 31,(1) YEAR ENDED MARCH 31, THREE MONTHS
----------------------------------------------- DECEMBER 31, ----------------- ENDED MARCH 31,
1993 1994 1995 1996 1997 1997 1997 1998 1998
------- ------- ------- ------- ------- ------------ ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................... $13,649 $18,984 $18,174 $24,810 $26,792 $ 195,909 $11,339 $10,838 $ 39,584
Cost of Revenues........... 10,249 13,900 13,559 17,258 19,101 153,390 7,738 8,016 31,701
------- ------- ------- ------- ------- ----------- ------- ------- -----------
Gross Profit............... 3,400 5,084 4,615 7,552 7,691 42,519 3,601 2,822 7,883
Selling, General and
Administrative
Expenses(2)(3)........... 3,291 5,498 4,955 6,570 6,995 27,497 2,557 3,244 7,588
Goodwill Amortization(4)... -- -- -- -- -- 1,607 -- -- 402
------- ------- ------- ------- ------- ----------- ------- ------- -----------
Income (Loss) from
Operations............... 109 (414) (340) 982 696 13,415 1,044 (422) (107)
Interest and Other Income
(Expense), net(5)........ 61 (86) (73) (22) (71) (531) 15 (126) (133)
------- ------- ------- ------- ------- ----------- ------- ------- -----------
Income (Loss) before Income
Taxes.................... 170 (500) (413) 960 625 12,884 1,059 (548) (240)
Provision for Income
Taxes(6)................. -- -- -- -- -- (5,652) -- -- (64)
------- ------- ------- ------- ------- ----------- ------- ------- -----------
Net Income (Loss).......... $ 170 $ (500) $ (413) $ 960 $ 625 $ 7,232 $ 1,059 $ (548) $ (304)
======= ======= ======= ======= ======= =========== ======= ======= ===========
Basic and Diluted Earnings
(Loss) per Share......... $ 0.70 $ (0.03)
=========== ===========
Shares used in Computing
Pro Forma Net Income
(Loss) per Share(7)...... 10,258,667 10,258,667
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL AS OF MARCH 31, 1998
------------------------------------------------------ ---------------------------
AS OF OCTOBER 31, AS OF COMBINED
------------------------------------------ MARCH 31, AS
1993 1994 1995 1996 1997 1998 COMBINED ADJUSTED(8)
------ ------ ------ ------ ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficiency)(5).......... $1,562 $1,161 $ 616 $1,093 $ 447 $1,845 $(23,530)(9) $ 18,906
Total Assets............................. 3,750 4,924 5,280 6,591 7,523 9,394 118,181 130,905
Long-Term Debt net of Current
Maturities(5).......................... 505 666 494 665 767 3,720 6,054 410
Total Stockholders' Equity(5)............ 1,055 683 270 1,140 1,570 1,078 47,286 95,366
</TABLE>
- ---------------
(1) Concurrent with the Combination, GRI intends to change its year end from
October 31 to December 31.
(2) The pro forma combined income statement data reflect an aggregate of $3.3
million for the year ended December 31, 1997 and $317,000 for the three
months ended March 31, 1998 in pro forma reductions in salaries, bonuses,
and benefits to the owners and key employees of the Founding Companies. The
owners and key employees have agreed to these reductions effective upon the
Combination. See "Management -- Employment Agreements."
(3) Includes $498,000, $331,000, and $215,000 of expenses for the build-up of
corporate management and infrastructure during the year ended October 31,
1997, the five months ended March 31, 1998 and the three months ended March
31, 1998, respectively.
(4) Consists of amortization of goodwill to be recorded as a result of the
Combination over a 40-year period and computed on the basis described in
the Notes to the Unaudited Pro Forma Combined Financial Statements.
(5) Several of the Founding Companies are S Corporations. Prior to the
Combination, these Founding Companies will make S Corporation Distributions
totaling $15.3 million. Certain Founding Companies will incur debt of $12.1
million relating to these distributions and, subsequent to the Offering,
such amounts will be repaid from borrowings by the Company. Accordingly,
pro forma interest expense has been increased by $968,000 for the year
ended December 31, 1997 and $242,000 for the three months ended March 31,
1998, pro forma working capital has been reduced by $2.6 million, pro forma
debt has been increased by $12.1 million and pro forma stockholders' equity
has been reduced by $14.9 million.
26
<PAGE> 28
One of the Founding Companies has declared S Corporation distributions of
$434,000 which have been recorded as a dividend payable to shareholder and
reduction of stockholders' equity in the pro forma combined balance sheet
data. This $434,000 is included in the $15.3 million of S Corporation
Distributions. The Combination excludes certain assets and operations of
the Founding Companies with a net book value of $1.0 million, not required
for the ongoing operations of the Company.
(6) Assumes a corporate income tax rate of 39% and the non-deductibility of
goodwill.
(7) Includes 6,258,667 shares to be issued in connection with the acquisition
of the Founding Companies concurrently with the Offering, but excludes
282,222 shares of Common Stock reserved for issuance upon the exercise of
stock options and warrants to be issued to holders of options and warrants
of certain of the Founding Companies in the Combination. In addition,
immediately following the Offering the Company will grant options to
purchase approximately 560,000 shares of Common Stock to employees and
directors of the Company pursuant to the Company's 1998 Stock Option and
Restricted Stock Purchase Plan. See "Management -- 1998 Stock Option and
Restricted Stock Purchase Plan."
(8) Adjusted for the sale of the 4,000,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(9) Includes an aggregate of a $25.7 million of notes payable to the owners of
the Founding Companies, representing the cash portion of the Acquisition
Consideration to be paid from a portion of the net proceeds of the
Offering. Excludes contingent consideration of up to $7.6 million issuable
upon achievement of certain operating performance requirements. See
footnotes (3) - (7) and (8), of "The Combination."
27
<PAGE> 29
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 of the Founding Companies, and related notes thereto, and
"Selected Historical and Pro Forma Financial Data" appearing elsewhere in this
Prospectus.
INTRODUCTION
The Company's revenues are derived primarily from comprehensive roofing
services, including re-roofing, restoration and repair, and new roof
construction which are customers in a broad range of industries. The Company
also provides some residential roofing services. Approximately 65% of the
Company's 1997 pro forma revenues were derived from re-roofing, restoration and
repair services, and 35% were derived from new roof construction. The Company
also offers maintenance services, which provide recurring revenues and ongoing
interaction with its customers. Revenues from fixed-price construction and
renovation contracts are generally accounted for on a percentage-of-completion
basis using the cost-to-cost method. The cost-to-cost method measures the
percentage completion of a contract based on total costs incurred to date
compared to total estimated costs to completion. Revenue from the distribution
of products is recognized at the time of delivery. Typically, because of winter
weather during the first and fourth calendar quarters of each year, the Founding
Companies have experienced periods of relatively lower revenues and gross
profits with no corresponding decrease in selling, general and administrative
expenses.
Cost of revenues consists primarily of compensation and benefits to field
staff, materials, subcontracted services, parts and supplies, depreciation, fuel
and other vehicle expenses and equipment rentals. The Company's gross profit
percentage, which is gross profit expressed as a percentage of revenues, depends
primarily on the relative proportions of costs related to labor and materials.
On jobs in which a higher percentage of the cost of revenues consists of labor
costs, the Company typically achieves higher gross margins than on jobs where
materials represent more of the cost of revenues. Margins are also affected by
the competitive bidding process and the technical difficulty of the project. New
roof construction work is more likely to be competitively bid than re-roofing,
restoration and repair. Typically, re-roofing, restoration and repair jobs are
more labor intensive and have higher margins than new roof construction.
Selling, general and administrative expenses consist primarily of
compensation and related benefits for owners, administrative salaries and
benefits, advertising, office rent and utilities, property taxes and
professional fees. The Founding Companies have operated throughout the periods
presented as privately-owned entities and their results of operations reflect
tax structures as S Corporations or C Corporations under the Internal Revenue
Code ("S Corporations" or "C Corporations") which have influenced the historical
level of owners' compensation. Accordingly, selling, general and administrative
expenses as a percentage of revenues may not be comparable among the individual
Founding Companies. Certain owners and key employees of the Founding Companies
have contractually agreed to reductions in their compensation and related
benefits totaling approximately $3.3 million in the year ended December 31, 1997
in connection with the Combination. Such reductions in salaries, bonuses and
benefits have been reflected as a pro forma adjustment in the Unaudited Pro
Forma Combined Statement of Operations presented elsewhere in this Prospectus.
The Company believes that it will realize savings from (i) consolidation of
insurance and bonding programs; (ii) reduction in other general and
administrative expenses, such as training and advertising; (iii) the Company's
ability to borrow at lower interest rates than the Founding Companies; (iv)
consolidation of operations in certain locations; and (v) greater volume
discounts from suppliers of materials, parts and supplies. Offsetting these
savings will be costs related to the Company's new corporate management, costs
of being a public company and costs of integrating the operations of the
Founding Companies.
In July 1996, the Commission issued Staff Accounting Bulletin No. 97 ("SAB
97") relating to business combinations immediately prior to an initial public
offering. SAB 97 requires that these combinations be accounted for using the
purchase method of acquisition accounting. Under SAB 97, the Founding Company
receiving the largest voting position from the shares issued in connection with
the Combination must be designated as the "accounting acquirer." Accordingly,
GRI is the Founding Company that has been
28
<PAGE> 30
designated as the "accounting acquirer" in the Combination. As a result of the
Combination, the excess 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 non-deductible for tax purposes, is expected to be approximately $1.6 million
per year. See "Certain Transactions."
The Company's balance sheet immediately following the Offering and
consummation of the acquisition of the Founding Companies will include an amount
designated as "goodwill" that represents 49% of assets and 67% of stockholders'
equity. Goodwill arises when an acquirer pays more for a business than the fair
value of the tangible and separately measurable intangible net assets. Generally
accepted accounting principles require that this and all other intangible assets
be amortized over the period benefited. Management has determined that period is
no less than 40 years.
If the Company were to assign a shorter life to a material portion of the
goodwill, earnings reported in periods immediately following the acquisition of
the Founding Companies would be reduced. Earnings in later years could be
significantly affected if management determined then that the remaining balance
of goodwill was impaired. Management has reviewed with its independent
accountants all of the factors and related future cash flows which it considered
in arriving at the amount incurred to acquire each of the Founding Companies.
Management concluded that the anticipated future cash flows associated with
intangible assets recognized in the acquisitions will continue indefinitely, and
there is no persuasive evidence that any material portion will dissipate over a
period shorter than 40 years.
SEASONAL AND CYCLICAL NATURE OF THE COMMERCIAL ROOFING INDUSTRY
The construction industry is cyclical and is influenced by seasonal
factors, as construction activities are usually lower during winter months than
other periods. Accordingly, the Company expects its revenues and operating
results generally will be lower in the first and fourth quarters. The Founding
Companies individually have a relatively narrow geographic and customer mix that
can cause significant fluctuations in revenues from period to period based on
weather, timing of customer decisions, age and the condition of its customers'
facilities. After the Combination, the Company will have a broad geographic,
product, and customer mix, which the Company believes will serve to mitigate
cyclical and seasonal trends; however, there can be no assurance that
period-to-period differences will not occur in the future or that cyclical or
seasonal patterns will not emerge. Further, the results of operations for any
interim period (on a combined basis and for each of the Founding Companies) are
not necessarily indicative of the results for a full year.
GRI
RESULTS OF OPERATIONS -- GRI
GRI operates as a provider of comprehensive roofing services to commercial,
construction and government customers. At the present time, approximately all of
the company's revenues are generated in Florida.
The following table sets forth the historical results of operations for GRI
($ in thousands).
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED OCTOBER 31, MARCH 31,
--------------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $18,174 100.0% $24,810 100.0% $26,792 100.0% $11,339 100.0% $10,838 100.0%
Cost of Revenues................ 13,559 74.6 17,258 69.6 19,101 71.3 7,738 68.2 8,016 74.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit.................... 4,615 25.4 7,552 30.4 7,691 28.7 3,601 31.8 2,822 26.0
Selling, General and
Administrative Expenses....... 4,955 27.3 6,570 26.5 6,995 26.1 2,557 22.6 3,244 29.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income (Loss)......... $ (340) (1.9%) $ 982 4.0% $ 696 2.6% $ 1,044 9.2% $ (422) (3.9%)
Net Income (Loss)............... $ (413) (2.3%) $ 960 3.9% $ 625 2.3% $ 1,059 9.3% $ (548) (5.1%)
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
29
<PAGE> 31
Five Months Ended March 31, 1998 Compared to the Five Months Ended March 31,
1997
Revenues. Revenues decreased $501,000, or 4.4%, from $11.3 million for the
five months ended March 31, 1997 to $10.8 million for the five months ended
March 31, 1998. This decrease was primarily attributable to the extensive rain
experienced throughout the entire state of Florida adversely affecting the
ability of GRI to provide roofing services.
Gross Profit. Gross profit decreased $779,000, or 21.6%, from $3.6 million
for the five months ended March 31, 1997 to $2.8 million for the five months
ended March 31, 1998. Gross Margin decreased from 31.8% for the five months
ended March 31, 1997 to 26.0% for the five months ended March 31, 1998. This
decrease was primarily attributable to the extensive rain experienced throughout
the entire state of Florida adversely affecting the ability of GRI to provide
roofing services. During periods of rain, measures must be taken to monitor and
secure ongoing roofing projects for leaks which adds to the cost of the project.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $687,000, or 26.9%, from $2.6 million for the
five months ended March 31, 1997 to $3.2 million for the five months ended March
31, 1998. Gross Margin decreased from 31.8% for the five months ended March 31,
1997 to 26.0% for the five months ended March 31, 1998. This increase was
primarily attributable to the enhancement of GRI's infrastructure to facilitate
the Offering and Combination.
Other Expense. Other expense, net of other income, increased $144,000, or
796.1%, from other income of $18,000 for the five months ended March 31, 1997,
to other expense of $126,000 for the five months ended March 31, 1998. This
increase is primarily attributable to increased interest expense of $95,000
incurred on additional borrowings related to the financing of the expenses
associated with the Offering and Combination.
Net Income. Net income decreased $1.6 million, or 151.7%, from net income
of $1.1 million for the five months ended March 31, 1997 to a net loss of
$548,000 for the five months ended March 31, 1998. This decrease is primarily
attributable to a decrease in revenues and gross profit and an increase in
selling, general and administrative expenses and other expense during the
period.
Year Ended October 31, 1997 Compared to the Year Ended October 31, 1996
Revenues. Revenues increased $2.0 million, or 8.1%, from $24.8 million for
the year ended October 31, 1996 to $26.8 million for the year ended October 31,
1997. This increase is primarily attributable to improved sales efforts and the
addition of four new sales associates.
Gross Profit. Gross profit increased $139,000, or 1.8%, from $7.56 million
for the year ended October 31, 1996 to $7.7 million for the year ended October
31, 1997. This increase is primarily attributable to an increase in sales
volume. Gross margin decreased to 28.7% for the year ended October 31, 1997 from
30.4% for the year ended October 31, 1996 as a result of an increase in
competitive market conditions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $425,000, or 6.5%, from $6.6 million for the
year ended October 31, 1996 to $7.0 million for the year ended October 31, 1997.
The increase was primarily attributable to the enhancement of GRI's
infrastructure, primarily in the form of executive staff, to facilitate the
Offering and the Combination. In addition, four sales associates were added to
facilitate revenues growth.
Other Expense. Other expense, net of other income, increased $49,000, or
224.9%, from $28,000 for the year ended October 31, 1996, to $71,000 for the
year ended October 31, 1997. This increase is primarily attributable to
increased interest expense incurred on additional borrowings related to the
financing of the expenses associated with the Offering and Combination.
Year Ended October 31, 1996 Compared to the Year Ended October 31, 1995
Revenues. Revenues increased $6.6 million, or 36.5%, from $18.2 million
for the year ended October 31, 1995 to $24.8 million for the year ended October
31, 1996. This increase is primarily attributable to an overall increase in
obtaining new projects as a result of increased sales efforts.
30
<PAGE> 32
Net Income. Net income increased $1.4 million, or 332.5%, from a net loss
of $413,000 for the year ended October 31, 1995 to net income of $960,000 for
the year ended October 31, 1996. This increase is primarily attributable to
revenues and gross profit and a decrease in other expense.
Gross Profit. Gross profit increased $2.9 million, or 63.6%, from $4.6
million for the year ended October 31, 1995 to $7.6 million for the year ended
October 31, 1996. Gross margin increased from 25.4% for the year ended October
31, 1995 to 30.4% for the year ended October 31, 1996. The increase in gross
profit and gross margin is primarily attributable to a change in the combination
of work from new construction to re-roofing and repairs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 32.6% from $5.0 million for the year ended
October 31, 1995 to $6.6 million for the year ended October 31, 1996. The
increase was primarily attributable to the addition of three administrative
personnel to manage the additional volume of projects obtained, and costs
associated with the development and installation of a networked enterprise
information system developed to facilitate the increased revenue volume of GRI.
Selling, general and administrative expenses as a percentage of revenues
remained the same for the year ended October 31, 1995 as compared to the year
ended October 31, 1996.
Other Expense. Other expense, net of other income decreased $51,000, or
70.0%, from $73,000 for the year ended October 31, 1995, to $22,000 for the year
ended October 31, 1996. This decrease is primarily attributable to other income
generated from proceeds received from an insurance settlement.
Net Income Net income decreased $335,000, or 34.9%, from $960,000 for the
year ended October 31, 1996 to $625,000 for the year ended October 31, 1997.
This decrease is primarily attributable to an increase in selling, general and
administrative expenses and other expense.
LIQUIDITY AND CAPITAL RESOURCES -- GRI
Five Months Ended March 31, 1998
GRI used $1.4 million of net cash from operating activities for the five
months ended March 31, 1998 as a result of the following: decreases resulting
from (i) a decrease in net costs of $1.1 million resulting from changes in
operating assets and liabilities and a net loss of $548,000, including $194,000
of depreciation and amortization. Net cash used in investing activities of $1.1
million resulted primarily from deferred costs of the Combination and the
Offering of $808,000 and purchases of property and equipment of $303,000. Net
cash generated by financing activities of $2.4 million resulted primarily from
$5.4 million in borrowings of long-term debt, offset by repayments of $2.9
million. At March 31, 1998, GRI had working capital of $1.8 million and total
debt of $4.7 million. No shareholder distributions were made during the five
months ended March 31, 1998.
Year Ended October 31, 1997
GRI had cash flows from operating activities of $581,000 for the year ended
October 31, 1997 as a result of a decrease of $400,000 resulting from the net
change in operating assets and liabilities and net income of $625,000, including
$380,000 of depreciation and amortization. Net cash used in investing activities
of $1.2 million resulted primarily from the following: (i) the purchases of
property and equipment of $651,000, (ii) deferred costs of the Combination and
the Offering of $484,000 and (iii) advances to a shareholder of $154,000. Net
cash generated by financing activities of $802,000 resulted primarily from $3.6
million in borrowings of long-term debt, offset by repayments of $2.9 million.
At October 31, 1997, GRI had working capital of $447,433 and total debt of $2.1
million.
Year Ended October 31, 1996
GRI had cash flows from operating activities of $655,000 for the year ended
October 31, 1996 as a result of a decrease of $525,000 resulting from the net
change in operating assets and liabilities and net income of $960,000, including
$214,000 of depreciation and amortization. Net cash used in investing activities
of $463,000 resulted primarily from the purchases of property and equipment of
$404,000 and advances to a
31
<PAGE> 33
shareholder of $59,000. Net cash used in financing activities of $518,000
resulted primarily from borrowings of long-term debt of $1.6 million, offset by
repayments of $2.0 million and contributions from a shareholder of $200,000,
offset by distributions to a shareholder of $291,000. At October 31, 1996, GRI
had working capital of $1.1 million and total debt of $909,000.
Year Ended October 31, 1995
GRI had cash flows from operating activities of $401,000 for the year ended
October 31, 1995 as a result of an increase of $647,000 resulting from the net
change in operating assets and liabilities and a net loss of $413,000, including
$175,000 of depreciation and amortization. Net cash used in investing activities
of $109,000 resulted primarily from proceeds from sale of property and equipment
of $146,000, offset by purchases of property and equipment of $49,000 and
advances to a shareholder of $205,000. Net cash used in financing activities of
$60,000 resulted primarily from borrowings of long-term debt of $1.0 million,
offset by repayments of $1.1 million and contributions from a shareholder of
$175,000, offset by distributions to a shareholder of $175,000. At October 31,
1995, GRI had working capital of $616,000 and total debt of $1.1 million.
PRO FORMA COMBINED INFORMATION (SEE PAGES F-3 THROUGH F-10)
RESULTS OF OPERATIONS -- PRO FORMA COMBINED
Pro Forma Combined Results of Operations for the Three Months Ended March 31,
1998
Pro forma combined quarterly revenues were approximately $39.6 million for
the three months ended March 31, 1998, with related pro forma combined gross
profit of approximately $7.9 million and a gross margin of approximately 19%.
Pro forma combined selling, general and administrative expenses were
approximately $7.7 million for the three months ended March 31, 1998. These
expenses, together with goodwill amortization of approximately $0.4 million and
interest and other expenses of $0.1 million resulted in a pro forma net loss of
approximately $0.4 million, or $0.03 per share, for the three months ended March
31, 1998.
Pro Forma Combined Results of Operations for 1997
Pro forma combined revenues were approximately $195.9 million for the year
ended December 31, 1997, with related pro forma combined gross profit of
approximately $42.5 million and a gross margin of approximately 21%. Pro forma
combined selling, general and administrative expenses were approximately $27.5
million for the year ended December 31, 1997. These expenses, together with
goodwill amortization of approximately $1.6 million, interest and other expenses
of $0.5 million and an income tax provision of approximately $5.7 million
resulted in a pro forma net income of approximately $7.2 million, or $0.70 per
share, for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES -- PRO FORMA COMBINED
The Company's working capital would be $18.9 million as of March 31, 1998,
after the Combination and adjustment for the sale of the 4,000,000 shares of
Common Stock in the Offering. The anticipated cash flows subsequent to the
Combination, together with the net proceeds of the Offering, are expected to be
sufficient to satisfy the Company's anticipated cash requirements for the 12
month period following the Offering.
The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering are expected to be $48.1 million. The Company intends to use
$25.7 million to pay the cash portion of the purchase price for the Founding
Companies, and $9.7 million to repay certain outstanding indebtedness of the
Founding Companies, with the remaining proceeds of $12.7 million available for
general corporate purposes, including working capital and future acquisitions.
The Company expects to refinance the $12.1 million of debt assumed from the
Founding Companies. All other debt of the Founding Companies is expected to be
paid. Pending application of the net proceeds as described herein, the Company
intends to invest the net proceeds in short-term investment grade or U.S.
government interest bearing securities.
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<PAGE> 34
The Company has received a commitment letter from Bank of America to
provide a credit facility (the "Credit Facility") to the Company upon completion
of the Offering. According to the terms of the commitment letter, the Credit
Facility will be a three-year revolving credit facility of up to $50.0 million
to be used for working capital, acquisitions, capital expenditures and general
corporate purposes. The amounts borrowed under the Credit Facility will bear
interest at an annual rate, at the Company's option, of either (i) the Base Rate
(which is equal to the greater of the Federal Funds Rate plus .5% or the bank's
published Reference Rate (as defined in the credit agreement)) plus a margin of
(.25%) to .125%, as determined by the ratio of the Company's total debt to
EBITDA (as defined in the credit agreement) or (ii) the London interbank offered
rate ("LIBOR") plus 1.125% to 1.875%, as determined based upon the ratio of the
Company's total debt to EBITDA. A Facility Fee of .25% per annum will be due
quarterly on the average unused portion of the Credit Facility. The Credit
Facility will require that acquisitions exceeding a certain level of cash
consideration be approved by the lender while the total debt to EBITDA ratio is
greater than 2.5, and will restrict the incurrence of additional indebtedness,
restrict the payment of cash dividends and require the Company to comply with
certain financial covenants.
Certain of the stock purchase agreements entered into in connection with
the Combination provide for contingent consideration. During the 24 month period
following the Offering, additional consideration of up to $7.6 million in cash
or shares of Common Stock may be required to be paid to the stockholders of the
Founding Companies. See footnotes (3) - (7) and (8) of "The Combination." The
Company expects to have available amounts under the Credit Facility to fund such
cash consideration, if earned.
Prior to the Combination, certain Founding Companies which are S
Corporations will make distributions to their owners totaling $15.3 million,
representing substantially all of their previously taxed undistributed earnings
("S Corporation Distributions"). The S Corporation Distributions may be funded
from available cash, certain non-operating assets or borrowings by the Founding
Companies. Such borrowings will be refinanced by the Company under the Credit
Facility.
Certain of the Founding Companies have funded their operations and growth
through borrowings under various bank loans and credit facilities. The Company
intends to repay the indebtedness under such loans and credit facilities from
the proceeds of the Offering and to terminate such arrangements promptly
following the Offering. See "Use of Proceeds."
The Company intends to pursue acquisition opportunities on an ongoing
basis. The Company expects to fund future acquisitions through the issuance of
additional Common Stock and borrowings. The Company does not currently have any
plans, arrangements or understandings with respect to any particular
acquisition, other than the Founding Companies. 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 equipment.
Retention is typically required by roofing contracts for new commercial
construction. Retention (defined as amounts withheld from progress billings
until final and satisfactory contract completion) is typical on new construction
commercial work for both the sheet metal and roofing operations. Retention
typically ranges from 5% to 10% of the contract, and may be reduced at the time
of final billing of the Company's portion of the contract. The balance may be
held until final close-out of the project, including the work of other
subcontractors. The amount of retention will vary based upon the mix and timing
of contract completion.
SUPPLEMENTAL HISTORICAL COMBINED INFORMATION
SUPPLEMENTAL HISTORICAL COMBINED OPERATING DATA
RESULTS OF OPERATIONS -- COMBINED
The following supplemental unaudited combined operating data of the
Founding Companies for the periods presented do not purport to represent
combined operating activity presented in accordance with generally accepted
accounting principles, but are only a summation of the revenues, cost of
revenues, and selling, general and administrative expenses of the individual
Founding Companies on a historical basis. The combined operating activity
assumes that each of the Founding Companies was combined from the beginning
33
<PAGE> 35
of each period presented. The combined operating activity also excludes the
effect of pro forma adjustments and, therefore, may not be indicative of the
Company's post-Combination operating activity for a number of reasons during the
periods presented, including the following: (i) the Founding Companies were not
under common control or management, (ii) the Founding Companies were S
Corporations or C Corporations, (iii) the Company incurred incremental costs
related to its new corporate management and the costs of being a public company,
(iv) the Company used the purchase method of accounting to record the
Combination, resulting in the recording and amortization of goodwill, and (v)
the combined data has not reflected the reductions in compensation paid to the
owners and key employees of the Founding Companies, or the potential benefits
and cost savings to the Company for operating as a combined entity.
The following table sets forth the combined operating activity of the
Founding Companies on a historical basis ($ in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR(1) MARCH 31,
------------------------------------------------------ -----------------------------------
1995 1996 1997 1997 1998
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL COMBINED:
Revenues....................... $152,184 100.0% $171,510 100.0% $201,220 100.0% $ 40,682 100.0% $ 40,746 100.0%
Cost of Revenues............... 122,726 80.6 135,876 79.2 158,534 78.8 33,106 81.4 32,853 80.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross Profit................... 29,458 19.4 35,634 20.8 42,686 21.2 7,576 18.6 7,893 19.4
Selling, General and
Administrative Expenses...... 24,329 16.0 28,690 16.7 31,194 15.5 7,229 17.8 7,929 19.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess (deficiency) of Gross
Profit over Selling, General
and Administrative
Expenses..................... $ 5,129 3.4% $ 6,944 4.0% $ 11,492 5.7% $ 347 0.9% $ (36) (0.1%)
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- ---------------
(1) The fiscal years presented above are the years ended December 31, 1995, 1996
and 1997, except for (i) GRI for which the fiscal years presented are the
years ended October 31, 1995, 1996 and 1997; (ii) Anthony Roofing for which
the fiscal years presented are October 31, 1995, and December 31, 1996 and
1997; (iii) Specialty Associates for which the fiscal years presented are
the year ended June 30, 1995 and the 53-week period ended February 2, 1997
and the 52-week period ended February 1, 1998; (iv) Slavik Butcher for which
the fiscal years presented are the years ended June 30, 1995, 1996 and 1997;
(v) Five-K for which the fiscal years presented are the years ended March
31, 1996, 1997 and 1998; and (vi) Register Roofing for which the fiscal
years presented are the years ended September 30, 1995, 1996 and 1997.
Supplemental Combined Operating Activity for the Three Months Ended March 31,
1998 Compared to Combined Operating Activity for the Three Months Ended
March 31, 1997
Revenues. Although the quarterly operating activity for the three months
ended March 31, 1998 remained relatively constant when compared to the three
months ended March 31, 1997, the following fluctuations principally contributed
to the net $0.1 million increase in revenues: (i) a $0.4 million increase in
revenues at C.E.I. primarily attributable to improved sales efforts in the
fourth quarter of 1997 and a mild winter in Colorado in 1998; (ii) a $0.3
million increase at Register attributable to contracts with industrial clients;
and (iii) combined increases in revenues of $1.7 million at GRI, Wright-Brown
and Advanced Roofing as a result of increased volume and marketing efforts
during the fourth quarter of 1997, all of which were offset by (i) a decrease of
$1.2 million at Specialty Associates resulting primarily from reduced demand by
certain of the Company's customers and greater than normal activity during the
1997 period; and (ii) a combined $0.6 million decrease at Cyclone Roofing and
Harrington-Scanlon due to the effects of unusually adverse weather conditions in
Kansas, Missouri, North Carolina and South Carolina. Revenues of certain other
Founding Companies were adversely affected by severe weather conditions in
numerous locations from the effect of the climatic condition known as El Nino.
As a result of these weather conditions, the Company experienced delays in
completing scheduled work.
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<PAGE> 36
Gross Profit. Supplemental combined gross profit remained relatively
constant during the three months ended March 31, 1998 when compared to the three
months ended March 31, 1997, increasing by approximately $0.3 million. Although
a portion of this increase is attributable to the slight increase in revenues,
additional increases were realized as a result of higher gross margin work,
offset by decreases resulting from severe weather conditions which seriously
impacted the productivity of the field workforce.
Selling, General and Administrative Expenses. Supplemental combined
selling, general and administrative expenses increased approximately $0.7
million from approximately $7.2 million for the three months ended March 31,
1997 to approximately $7.9 million for the three months ended March 31, 1998.
This increase is primarily attributable to an increase in expenditures related
to the Combination and the Offering. The Founding Companies incurred substantial
costs during 1998 for professional service fees, additional key executive
personnel, and expanded facilities to accommodate the Company's intended
expansion in connection with the Combination.
Supplemental Combined Operating Activity for 1997 Compared to Combined
Operating Activity for 1996
Revenues. Supplemental combined revenues increased approximately $29.7
million, or 17.3%, from $171.5 million in 1996 to $201.2 million in 1997. This
increase is attributable to the following: (i) a $2.0 million increase in
revenues at GRI as a result of improved sales efforts and the addition of new
sales personnel; (ii) a $2.6 million increase in revenues at the C.E.I.
Companies attributable to improved economic conditions and new construction
trends throughout all markets; (iii) a $7.5 million increase in revenues at
Anthony Roofing resulting from the expansion of the sales and work force, local
school renovation projects, growth in service and repair work, continued
expansion of the sheet metal division, and some individually significant
projects; (iv) a $1.9 million increase in revenues at Specialty Associates
primarily as a result of increased volume; (v) a $5.8 million increase in
revenues at Cyclone Roofing attributable to greater bonding availability,
increased estimating capability and awards of higher margin commercial
contracts; (vi) a $2.5 million increase in revenues at Wright-Brown due to an
increase in volume primarily as a result of competitive bidding; (vii) a $1.5
million increase in revenues at Harrington-Scanlon resulting from expansion of
its Arizona and sheet metal operations; (viii) an increase in revenues of $1.9
million at Slavik Butcher resulting from favorable pricing and increased demand;
(ix) a $1.7 million increase in revenues at Five-K attributable to the hiring of
additional personnel and the pursuit of new business; (x) a $1.5 million
increase in revenues at Advanced Roofing resulting from revenues generated by a
subsidiary formed in 1996, a partnership agreement with a supermarket chain and
increased volume resulting from expanded marketing efforts, and (xi) an increase
in revenues of $0.6 million at Register Roofing due to an agreement to be the
preferred provider to a major Florida corporation.
Gross Profit. Supplemental combined gross profit increased approximately
$7.1 million, or 19.8%, from $35.6 million in 1996 to approximately $42.7
million in 1997. This increase is attributable to the following: (i) a $0.2
million increase in gross profit at GRI as a result of an increase sales volume;
(ii) a $0.7 million increase in gross profit attributable to a continuing effort
to shift more of the C.E.I. Companies' work to re-roofing, service and repair
contracts which generally result in higher gross profit margins than new
construction contracts; (iii) a $2.6 million increase in gross profit at Anthony
resulting from the sales expansion discussed above with a proportionately lower
increase in costs; (iv) a $0.6 million increase in gross profit at Specialty
Associates primarily as a result of increased profitability on certain
contracts; (v) a $1.8 million increase in gross profit at Cyclone Roofing
attributable to increased volume of higher margin commercial contracts; (vi) a
$0.3 million increase in gross profit at Wright-Brown primarily as a result of
the increase in sales, but slightly offset by a decrease in margins due to
competitive bidding; (vii) a $0.3 million increase in gross profit at Slavik
Butcher resulting from favorable pricing related to the increased demand as well
as a significant loss contract included in the 1996 results; (viii) a $0.4
million increase in gross profit at Five-K, consistent with the increase in
sales; (ix) a $0.5 million increase in gross profit at Advanced Roofing as a
result of the sales increase, coupled with an increase in gross margins
resulting from higher margin jobs obtained through marketing efforts and
efficiencies in field operations, and (x) no change in Register Roofing's gross
profit despite the increase in sales, as lower margins were realized due to
three projects, one of which was underestimated, and two of which experienced
unanticipated difficulties that resulted in losses. These
35
<PAGE> 37
increases were offset by a decrease in gross profit of $0.3 million at Blackmore
& Buckner primarily as a result of an increase in material cost which was not
passed onto the customer as well as increased projects from public bids which
realize lower margins than negotiated contracts.
Selling, General and Administrative Expenses. Supplemental combined
selling, general and administrative expenses increased approximately $2.5
million, or 8.7%, from $28.7 million in 1996 to approximately $31.2 million in
1997. This increase is attributable to the following: (i) a $0.4 million
increase at GRI as a result of additional staff hired to enhance GRI's
infrastructure and facilitate the industry consolidation strategy; (ii) a $0.3
million increase at the C.E.I. Companies attributable principally to variable
costs associated with increasing revenues; (iii) a $0.8 million increase at
Anthony Roofing resulting from increased owner compensation and additional costs
associated with the increase in business volume; (iv) a $0.3 million increase at
Specialty Associates primarily as a result of increased discretionary bonuses
and additional costs consistent with the increase in revenue; (v) a slight
increase of $0.1 million at each of Wright-Brown and Five-K, both attributable
to an increase in compensation; (vi) a $0.2 million increase at Slavik Butcher
resulting from increased activity and volume; (vii) a $0.3 million increase at
Advanced Roofing as a result of increased marketing efforts and staffing levels,
and (viii) an increase of $0.2 million at Register Roofing due to the addition
of a key level accounting position and a warehouse/materials coordinator. These
increases were offset by (i) a slight decrease of $0.1 million at each of
Cyclone Roofing and Blackmore & Buckner attributable to decreased payroll costs.
Supplemental Combined Operating Activity for 1996 Compared to Combined
Operating Activity for 1995
Revenues. Supplemental combined revenues increased approximately $19.3
million, or 12.7%, from $152.2 million in 1995 to $171.5 million in 1996. This
increase is attributable to the following: (i) a $6.6 million increase in
revenues at GRI as a result of improved sales efforts and additional projects;
(ii) a $2.8 million increase in revenues at C.E.I. primarily attributable to a
maturation of the operations in Michigan and improved economic conditions at all
locations; (iii) a $2.0 million increase in revenues at Specialty Associates
primarily as a result of increased demand; (iv) a $1.0 million increase in
revenues at Cyclone Roofing attributable to an increase in bonding availability;
(v) a $1.9 million increase in revenues at Wright-Brown due to increased demand
and competitive bidding; (vi) a $5.2 million increase in revenues at
Harrington-Scanlon resulting from increased new construction activity, and
expansion in Arizona where it began operations in 1995; (vii) a $2.0 million
increase in revenues at Slavik Butcher principally resulting from the general
contracting business which is excluded from GRI, and (viii) a $0.5 million
increase in revenues at Blackmore and Buckner due to an increase in volume.
These increases were offset by (i) a $1.0 million decrease in revenues at Five-K
attributable to more selective competitive bidding, (ii) a $1.4 million decrease
in revenues at Advanced Roofing as a result of decreased volume, coupled with
management attention being diverted to the move to new facilities in late 1995
and (iii) a decrease in revenues of $0.3 million at Register Roofing due to a
decline in the re-roofing market in northeast Florida and the entrance into the
metal roofing market.
Gross Profit. Supplemental combined gross profit increased approximately
$6.1 million, or 21.0%, from $29.5 million in 1995 to approximately $35.6
million in 1996. This increase is attributable to the following: (i) a $2.9
million increase in gross profit at GRI as a result of the increase in sales, as
well as an increase in margins attributable to a change in the revenue mix from
new construction to re-roofing and repairs, which generate higher margins; (ii)
a $1.2 million increase in gross profit at C.E.I. primarily attributable to an
effort by management to concentrate on higher margin re-roofing and repair work,
coupled with several large new construction contracts in 1995 that were
completed with little or no gross profit; (iii) a $0.1 million increase in gross
profit at Specialty Associates primarily as a result of increased revenues; (iv)
a $0.8 million increase in gross profit at Wright-Brown due to increased volume
at improved margins; (v) a $0.6 million increase in gross profit at
Harrington-Scanlon resulting from increased revenues; (vi) a $0.5 million
increase in gross profit at Five-K resulting from several highly profitable
jobs; (vii) a $0.1 million increase in gross profit at Advanced Roofing, despite
the decrease in revenues, as a result of abnormally low margins attained in 1995
due to the loss of certain personnel and the move to new facilities in 1995;
(viii) a $0.3 million increase in gross profit at Blackmore and Buckner due to
an increase in volume coupled with improved gross margins and (ix) an increase
in gross profit of $0.4 million at Register Roofing due to management's
concentration on
36
<PAGE> 38
fewer projects with higher margins. These increases were offset by a $0.7
million decrease in gross profit at Anthony Roofing primarily resulting from
lower margin projects in 1996.
Selling, General and Administrative Expenses. Supplemental combined
selling, general and administrative expenses increased approximately $4.4
million, or 17.9%, from $24.3 million in 1995 to approximately $28.7 million in
1996. This increase is attributable to the following: (i) a $1.6 million
increase at GRI as a result of additional staff hired to manage the increased
volume of projects, as well as costs associated with the development and
installation of a networked enterprise information system developed to
facilitate this increased volume; (ii) a $0.4 million increase at C.E.I.
attributable principally to variable costs associated with increasing revenues;
(iii) a $0.1 million increase at each of Anthony Roofing, Slavik Butcher, and
Advanced Roofing resulting primarily from increased compensation; (iv) an
increase of $0.5 million at Cyclone Roofing attributable to an increase in the
bonus paid to the president and employment of additional estimators and
salesmen; (v) an increase of $0.3 million at Wright-Brown consistent with the
increase in revenues; (vi) a $0.7 million increase at Harrington-Scanlon due to
expansion in Arizona and increased volume in the Kansas City area; (vii) a $0.4
million increase at Five-K attributable to an additional compensation; (viii) a
$0.2 million increase at Blackmore & Buckner attributable to increased
commissions and (ix) a $0.2 million increase in gross profit at Register Roofing
primarily resulting from the addition of a new project manager. These increases
were offset by a $0.2 million decrease at Specialty Associates primarily as a
result of increased revenues and lower costs, including reduced owner's
compensation.
LIQUIDITY AND CAPITAL RESOURCES -- SUPPLEMENTAL COMBINED HISTORICAL DATA
On a supplemental combined basis, the Founding Companies generated $9.4
million of net cash from operating activities for the year ended December 31,
1997, primarily as a result of $10.6 million in net income during the period.
Net cash used in investing activities was $4.3 million primarily for equipment
purchases. Net cash used in financing activities was $2.9 million and consisted
of increases in long-term debt of $6.6 million offset by $6.2 million of debt
repayments and $3.3 million of distributions to stockholders.
FOUNDING COMPANIES OTHER THAN GRI
Note: The following pages discuss the operating results of the Founding
Companies other than GRI, the accounting acquirer. All of the outstanding debt
of the Founding Companies will be repaid and most excess cash and investments
and incidental assets will be withdrawn in connection with the Combination.
Also, several of the Founding Companies are not subject to corporate income
taxes but such earnings will be subject to corporate income taxes following the
Combination. Due to the nature of these changes, the following discussion does
not address interest income and expense, non-operating income and expense or
income tax expense of the Founding Companies.
C.E.I.
OPERATING RESULTS -- C.E.I.
C.E.I. has facilities and operations in Texas, Florida, Colorado, Michigan
and California. C.E.I.'s revenues are derived from providing maintenance, repair
and restoration, re-roofing and new roof construction services for commercial
customers.
The following table sets forth selected statements of operations data as a
percentage of revenues for C.E.I. ($ in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $39,694 100.0% $42,525 100.0% $45,163 100.0% $ 9,653 100.0% $10,025 100.0%
Cost of Revenues................. 31,189 78.6 32,852 77.3 34,899 77.3 7,742 80.2 7,733 77.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross Profit..................... 8,505 21.4 9,673 22.7 10,264 22.7 1,911 19.8 2,292 22.9
Selling, General and
Administrative Expenses........ 7,289 18.4 7,699 18.1 8,018 17.8 1,933 20.0 2,105 21.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating Income (Loss).......... $ 1,216 3.1% $ 1,974 4.6% $ 2,246 5.0% $ (22) (0.2)% $ 187 1.9%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
37
<PAGE> 39
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997
Revenues. Revenues increased $372,000, or 3.9%, from $9.7 million for the
three months ended March 31, 1997 to $10.0 million for the three months ended
March 31, 1998. This increase is primarily attributable to a significant
increase in sales from the Colorado operations due primarily to increased sales
efforts in the fourth quarter of 1997 and a mild winter in Colorado in 1998. The
revenue gains in Colorado were offset by revenue declines in Texas and Florida
due principally to record amounts of rainfall in these locations.
Gross Profit. Gross profit increased $381,000, or 20.0%, from $1.9 million
for the three months ended March 31, 1997 to $2.3 million for the three months
ended March 31, 1998. This increase is primarily attributable to increased
revenues from higher gross profit repair work due principally to the record
amounts of rainfall in Texas and Florida. In addition, management has
implemented procedures to more closely monitor jobs in process to control costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $172,000, or 8.9%, from $1.9 million for the
three months ended March 31, 1997 to $2.2 million for the three months ended
March 31, 1998. This increase is primarily attributable to salary increases and
variable cost increases associated with increasing revenues.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Revenues increased $2.6 million, or 6.2%, from $42.5 million for
the year ended December 31, 1996 to $45.2 million for the year ended December
31, 1997, primarily in the Colorado, Michigan and California operations. This
increase is primarily attributable to improved economic conditions and new
construction trends.
Gross Profit. Gross profit increased $591,000, or 6.1% from $9.7 million
for the year ended December 31, 1996 to $10.3 million for the year ended
December 31, 1997. This increase was primarily attributable to a continuing
effort to shift more of C.E.I.'s work to re-roofing, service and repair
contracts which generally result in higher gross profit margins than new roof
construction contracts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $319,000, or 4.1%, from $7.7 million for the
year ended December 31, 1996 to $8.0 million for the year ended December 31,
1997. This increase was primarily attributable to variable costs increases
associated with increasing revenues.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues. Revenues increased $2.8 million, or 7.1%, from $39.7 million for
the year ended December 31, 1995 to $42.5 million for the year ended December
31, 1996. This increase was primarily attributable to a maturation of the
operations in Michigan and improved economic conditions in all locations.
Gross Profit. Gross profit increased $1.2 million, or 13.7%, from $8.5
million for the year ended December 31, 1995 to $9.7 million for the year ended
December 31, 1996. This increase was primarily attributable to an effort by
management to concentrate on higher margin re-roofing and repair work.
Additionally, in 1995, the Colorado operation had several large new roof
construction contracts that were completed with little or no gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $410,000, or 5.6%, from $7.3 million for the
year ended December 31, 1995 to $7.7 million for the year ended December 31,
1996. The increase was primarily attributable to variable costs increases
associated with increasing revenues.
LIQUIDITY AND CAPITAL RESOURCES -- C.E.I.
C.E.I. generated approximately $300,000 of net cash from operating
activities for each of the three months ended March 31, 1997 and 1998. Net cash
used in financing activities was $515,000 which was used
38
<PAGE> 40
principally for the payment of dividends to stockholders in the three months
ended March 31, 1998. C.E.I. had various lines of credit allowing for borrowings
up to $1.3 million, of which $300,000 was drawn at March 31, 1998. C.E.I.'s
working capital was $1.3 million at March 31, 1998.
C.E.I. generated approximately $1.8 million in cash from operations for the
year ended December 31, 1997. This increase was primarily attributable to an
increase in contract billings and retainage. Net cash used by investing
activities was $374,000 as a result of purchases of property and equipment. Net
cash used in financing activities of $1.5 million as a result of paying
dividends to stockholders during the year. C.E.I.'s working capital was $3.3
million, including $0.3 million drawn under its $1.3 million line of credit at
December 31, 1997.
C.E.I.'s working capital was $1.0 million, including $0.03 million drawn
under its $0.9 million line of credit at December 31, 1996.
ANTHONY ROOFING
OPERATING RESULTS -- ANTHONY ROOFING
Anthony Roofing was founded in 1979 and is headquartered in Aurora,
Illinois. Anthony operates primarily in Illinois; however, approximately 20% of
its projects were located in other geographic regions of the United States.
Anthony Roofing operates as a provider of comprehensive roofing services to
commercial, construction, and government customers.
The following table sets forth selected statements of operations data as a
percentage of revenues for Anthony Roofing ($ in thousands).
<TABLE>
<CAPTION>
FOURTEEN MONTH THREE MONTHS ENDED
PERIOD ENDED YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------------- -------------------------------
1995 1996 1997 1997 1998
------------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $13,310 100.0% $12,226 100.0% $19,778 100.0% $2,524 100.0% $2,489 100.0%
Cost of Revenues.............. 9,916 74.5 9,507 77.8 14,441 73.0 2,242 88.8 2,132 85.7
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Gross Profit.................. 3,394 25.5 2,719 22.2 5,337 27.0 282 11.2 357 14.3
Selling, General and
Administrative Expenses..... 1,915 14.4 2,086 17.1 2,870 14.5 372 14.7 445 17.9
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Operating Income (Loss)....... $ 1,479 11.1% $ 633 5.2% $ 2,467 12.5% $ (90) (3.6%) $ (88) (3.5%)
======= ===== ======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997
Revenues. Revenues of $2.5 million for the three months ended March 31,
1998 were essentially unchanged from the three months ended March 31, 1997.
Gross Profit. Gross profit increased $75,000, or 26.6%, from $282,000 for
the three months ended March 31, 1997 to $357,000 for the three months ended
March 31, 1998. Gross profit margin increased from 11.2% in the three months
ended March 31, 1997 to 14.3% for the three months ended March 31, 1998. These
increases were primarily attributable to improved profit margins on contracts
during the first quarter of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $73,000, or 19.6%, from $372,000 for the three
months ended March 31, 1997 to $445,000 for the three months ended March 31,
1998. This increase is primarily attributable to increased salaries for
employees, the addition of sales and executive personnel as part of Anthony
Roofing's growth plan and variable cost increases associated with increasing
revenues.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Revenues increased $7.6 million, or 61.8%, from $12.2 million
for the year ended December 31, 1996 to $19.8 million for the year ended
December 31, 1997. This increase was primarily attributable to the expansion of
the sales and work force, local school renovation projects, growth in service
and repair work and the continued expansion of the sheet metal division and
certain significant projects. Anthony Roofing had
39
<PAGE> 41
three projects in 1997 with revenues in excess of $1.0 million and had a series
of contracts with one customer that resulted in revenues of $2.7 million in
1997. This activity increased significantly from 1996.
Gross Profit. Gross profit increased $2.6 million, or 96.3%, from $2.7
million for the year ended December 31, 1996 to $5.3 million for the year ended
December 31, 1997. This increase was primarily attributable to some large
contracts being more profitable than expected and increases in revenue with
proportionately smaller increases in variable costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $784,000, or 37.6%, from $2.1 million for the
year ended December 31, 1996 to $2.9 million for the year ended December 31,
1997. The increase was primarily attributable to increases in compensation and
variable cost increases associated with increasing revenues.
Year Ended December 31, 1996 Compared to the Fourteen Month Period Ended
December 31, 1995
Anthony Roofing changed its fiscal year end in 1995 from October 31 to
December 31. Consequently, the financial results for the period ended December
31, 1995 represent a 14-month period ended December 31, 1995.
Revenues. Revenues for the unaudited twelve-month period ended October 31,
1995 were $13.3 million. Adjusting for the fiscal year-end change, revenues for
the fourteen month period ended December 31, 1995 were approximately the same as
revenues for the fourteen month period ended December 31, 1996.
Gross Profit. Gross profit decreased $675,000, or 3.2%, from $3.4 million
in 1995 to $2.7 million in 1996. Gross profit margin declined from 25.5% for the
year ended December 31, 1995 to 22.2% for the year ended December 31, 1996. This
decrease is primarily attributable to lower margin projects in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $171,000, or 8.9%, from $1.9 million in 1995
to $2.1 million. This increase is primarily attributable to increases in
compensation. Excluding compensation and a $60,000 increase in bad debts,
selling, general and administrative expenses would have decreased 11% during the
year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES -- ANTHONY ROOFING
Anthony Roofing generated approximately $661,000 of net cash from operating
activities for the three months ended March 31, 1998. Net cash used in investing
activities was approximately $68,000, and was used primarily for the purchase of
equipment. Net cash used in financing activities was nominal as essentially no
shareholder distributions were made. At March 31, 1998, Anthony Roofing had
working capital of $4.7 million. At March 31, 1998, Anthony Roofing had a line
of credit in the amount of $1.5 million available for liquidity needs. There
were no amounts outstanding under this line at March 31, 1998.
Anthony Roofing generated $2.2 million from operating activities for the
year ended December 31, 1997. Net cash used in investing activities was
approximately $158,000, and was used primarily for additions to property and
equipment. Net cash used in financing activities of $976,000 resulted from
repayment of bank borrowings of $803,000 and distribution to shareholders of
$173,000. At December 31, 1997, Anthony Roofing had no debt outstanding.
Retention is typically required by roofing contracts for new commercial
construction. Retention is typically 10% of the contract amount and is generally
reduced to 5% at time of final billing of the company's portion of the contract.
The final 5% is generally held until final close-out of the project which can be
30 to 120 days after completion of the sheet metal and roofing portion of the
contract, and in some cases the time frame can be longer. The amount of
retention outstanding at any one time is affected by a number of factors
including amount of new work being done, stage of the projects as well as time
of the year. Retention on average is between $300,000 and $800,000. Retention
was $605,000 and $608,000 at December 31, 1997 and March 31, 1998, respectively.
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<PAGE> 42
SPECIALTY ASSOCIATES AND AFFILIATE
OPERATING RESULTS -- SPECIALTY ASSOCIATES AND AFFILIATE
Specialty Associates and its affiliate, SAI Wholesale Distributors, Inc.,
were founded in 1975 and 1977, respectively, and are headquartered in West
Allis, Wisconsin. The companies have common management and facilities. The
companies hereinafter are referred to collectively as Specialty Associates.
Specialty Associates operates primarily in southeastern Wisconsin and northern
Illinois. Specialty Associates has also performed work throughout the
continental United States. Specialty Associates is a construction contractor
whose principal business is commercial roofing, architectural sheet metal
fabrication and residential roofing.
The following table sets forth selected statements of operations data as a
percentage of revenues for Specialty Associates ($ in thousands).
<TABLE>
<CAPTION>
NINE WEEKS ENDED
53-WEEK 52-WEEK --------------------------------
PERIOD ENDED PERIOD ENDED APRIL 6, APRIL 5,
FEB 2, 1997 FEB 1, 1998 1997 1998
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $15,306 100.0% $17,197 100.0% $2,394 100.0% $1,541 100.0%
Cost of Revenues.......... 13,659 89.2 14,957 87.0 2,213 92.4 1,439 93.4
------- ----- ------- ----- ------ ----- ------ -----
Gross Profit.............. 1,647 10.8 2,240 13.0 181 7.6 102 6.6
Selling, General and
Administrative
Expenses............... 1,236 8.1 1,486 8.6 188 7.9 212 13.8
------- ----- ------- ----- ------ ----- ------ -----
Operating Income (Loss)... $ 411 2.7% $ 754 4.4% $ (7) (0.3)% $ (110) (7.1)%
======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
Nine Weeks Ended April 5, 1998 Compared to the Nine Weeks Ended April 6, 1997
Revenues. Revenues decreased $853,000, or 35.6%, from $2.4 million for the
nine weeks ended April 6, 1997 to $1.5 million for the nine weeks ended April 5,
1998. This decrease was primarily attributable to reduced demand by certain of
the companies' customers. Revenues have historically been lower during the first
nine weeks of the fiscal year. Management expects revenues to return to normal
levels for the remainder of the fiscal year.
Gross Profit. Gross profit decreased $79,000, or 43.6%, from $181,000
during the nine weeks ended April 5, 1997 to $102,000 for the nine weeks ended
April 5, 1998. Gross profit margin decreased to 6.6% in the nine week period
ended April 5, 1998 from 7.6% in the nine week period ended April 6, 1997. This
decrease is primarily attributable to lower demand and decreased profit on
contracts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $24,000, or, 12.8%, from $188,000 for the nine
weeks ended April 5, 1997 to $212,000 for the nine weeks ended April 5, 1998.
This increase is primarily attributable to an increase in salaries for employees
and an increase in professional fees.
52-Week Period Ended February 1, 1998 Compared to the 53-Week Period Ended
February 2, 1997
Revenues. Revenues increased $1.9 million, or 12.4%, from $15.3 million
for the 53-week period ended February 2, 1997 to $17.2 million for the 52-week
year ended February 1, 1998. This increase is primarily attributable to
increased demand and was partially offset by the length of the 1998 period being
one week less than the 1997 period.
Gross Profit. Gross profit increased $593,000, or 36.0%, from $1.6 million
for the 53-week period ended February 2, 1997 to $2.2 million for the 52-week
period ended February 1, 1998. This increase is primarily attributable to
increased profitability on certain contracts with customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $250,000, or 20.2%, from $1.2 million during
the 53-week period ended February 2, 1997 to $1.5 million for the 52 week period
ended February 1, 1998. The increase was primarily attributable to increased
discretionary bonuses, including bonuses to owner-managers and additional costs
associated with increased business volume.
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<PAGE> 43
LIQUIDITY AND CAPITAL RESOURCES -- SPECIALTY ASSOCIATES
Specialty Associates used approximately $143,000 of net cash from operating
activities for the nine-week period ended April 5, 1998, primarily for working
capital. Net cash used in investing activities was approximately $12,000 during
this period. Net cash provided from financing activities was $50,000 during this
period, primarily from net borrowings on Specialty Associates' line of credit.
No stockholder distributions were made during this period. Specialty Associates
had working capital of $219,000, including $800,000 drawn under its credit and
$671,000 of long-term debt, including current maturities of $202,000 at April 5,
1998.
Specialty Associates generated $777,000 in net cash from operating
activities for the 52-week period ended February 1, 1998. Net cash used in
investing activities was approximately $607,000 during this period, primarily
for additions to property and equipment. Net cash used in financing activities
was approximately $43,000 during this period, primarily from the purchase of
treasury stock of $46,000. No stockholder distributions were made during this
period. Specialty Associates had $700,000 drawn under its line of credit and
long-term debt of $721,000, including current maturities of $202,000 at February
1, 1998.
Retention typically ranges from $300,000 to $500,000, but will vary based
on the mix and timing of completion of contracts. Retention was $549,000 and
$489,000 at February 1, 1998 and April 5, 1998, respectively.
CYCLONE ROOFING
OPERATING RESULTS -- CYCLONE ROOFING
Cyclone Roofing operates as a provider of comprehensive roofing services to
commercial, industrial, manufacturing, construction and government customers.
The following table sets forth selected statements of operations data as a
percentage of revenues for Cyclone Roofing ($ in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
-------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $9,243 100.0% $10,254 100.0% $16,057 100.0% $3,085 100.0% $2,829 100.0%
Cost of Revenues.................. 7,618 82.4 8,538 83.3 12,523 78.0 2,584 83.8 2,457 86.9
------ ----- ------- ----- ------- ----- ------ ----- ------ -----
Gross Profit...................... 1,625 17.6 1,716 16.7 3,534 22.0 501 16.2 372 13.1
Selling, General and
Administrative Expenses......... 683 7.4 1,157 11.3 1,099 6.8 227 7.4 227 8.0
------ ----- ------- ----- ------- ----- ------ ----- ------ -----
Operating Income.................. $ 942 10.2% $ 559 5.5% $ 2,435 15.2% $ 274 8.9% $ 145 5.1%
====== ===== ======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997
Revenues. Revenues decreased $256,000, or 8.3%, from $3.1 million for the
three months ended March 31, 1997, to $2.8 million for the three months ended
March 31, 1998. This decrease was primarily attributable to the effects of
unusually rainy weather in North and South Carolina.
Gross Profit. Gross profit decreased $129,000, or 25.7%, from $501,000 for
the three months ended March 31, 1997 to $372,000 for the three months ended
March 31, 1998. This decrease is consistent with the decrease in revenues and a
decrease in the amount of higher margin commercial contracts in relation to the
total work performed by the company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained constant at $227,000, or 7.4% and 8.0% of
revenues, for the three months ended March 31, 1997 and March 31, 1998,
respectively.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Revenues increased $5.8 million, or 56.6%, from $10.3 million
for the year ended December 31, 1996 to $16.1 million for the year ended
December 31, 1997. This increase was primarily attributable
42
<PAGE> 44
to the company's ability to increase the amount of its bonding availability, an
increase in the company's estimating capacity and increased customer demand for
higher margin commercial projects.
Gross Profit. Gross profit increased $1.8 million, or 105.9%, from $1.7
million for the year ended December 31, 1996 to $3.5 million for the year ended
December 31, 1997. Gross profit margin increased from 16.7% to 22.0% over these
periods. This increase is consistent with the increase in revenues and the
increased demand for the higher margin commercial contracts. In addition, the
company was able to obtain contracts on several large and complex commercial
projects with gross profit margins ranging up to 50%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $58,000, or 5.0%, from $1.2 million for the
year ended December 31, 1996 to $1.1 million for the year ended December 31,
1997. The decrease was primarily attributable to a decrease in the bonus paid to
the company's president. Selling, general and administrative expenses as a
percentage of revenues decreased from 11.3% for the year ended December 31, 1996
to 6.8% for the year ended December 31, 1997. Excluding the bonus paid to the
president, selling, general and administrative expenses as a percentage of
revenues would have been 8% for the year ended December 31, 1996.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues. Revenues increased $1.0 million, or 10.9%, from $9.2 million for
the year ended December 31, 1995, to $10.3 million for the year ended December
31, 1996. This increase was primarily attributable to the company's ability to
increase the amount of its bonding availability.
Gross Profit. Gross profit increased $91,000, or 5.6%, from $1.6 million
for the year ended December 31, 1995 to $1.7 million for the year ended December
31, 1996. Gross profit margin decreased from 17.6% to 16.7% over these periods.
The fluctuation in gross profit and gross margin is consistent with the increase
in revenues and the mix of commercial contracts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $474,000, or 69.4%, from $683,000 for the year
ended December 31, 1995 to $1.2 million for the year ended December 31, 1996.
This increase was primarily attributable to an increase in the bonus paid to the
company's president and the hiring of additional estimators and salesmen.
Selling, general and administrative expenses as a percentage of revenues
increased from 7.4% for the year ended December 31, 1995 to 11.3% for the year
ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES -- CYCLONE ROOFING
Cyclone Roofing generated $88,000 of net cash from operating activities for
the three months ended March 31, 1998, which was an increase compared to the
three months ended March 31, 1997. This increase was primarily attributable to
an increase in net income, a decrease in contract receivables and decreases in
accounts payable and accrued expenses. This increase was partly offset by
increases in costs and estimated earnings in excess of billings on contracts in
progress and a decrease in billings in excess of costs and estimated earnings.
Net cash used in investing activities was $125,000 and $163,000 for the three
months ended March 31, 1998 and March 31, 1997, respectively. Net cash used in
investing activities was primarily used for the purchase of fixed assets. Net
cash used in financing activities of $413,000 for the three months ended March
31, 1998 resulted primarily from distributions to the sole stockholder of
Cyclone Roofing. Net cash provided by financing activities of $76,000 for the
three months ended March 31, 1997 resulted primarily from advances on the line
of credit. Cyclone Roofing had a $250,000 revolving demand line of credit as of
March 31, 1998 and no amounts were outstanding under its line of credit.
Cyclone Roofing had working capital of $3.1 million and total debt and
capitalized lease obligations of $322,000 at March 31, 1998.
Cyclone Roofing generated $814,000 of net cash from operating activities
for the year ended December 31, 1997, which increased from $241,000 for the year
ended December 31, 1996. Increased cash flows from operating activities for 1997
resulted primarily from significantly greater net income with offsetting
increases in contract receivables and costs and estimated earnings in excess of
billings on contracts in progress
43
<PAGE> 45
and a decrease in accounts payable. Net cash used in investing activities was
$255,000 and $294,000 for the years ended December 31, 1997 and December 31,
1996, respectively. This cash was primarily used for the purchase of fixed
assets. Net cash used in financing activities of $56,000 for the year ended
December 31, 1997 resulted primarily from repayments of long-term debt, which
were offset by advances on the line of credit. No stockholder distributions were
made during this period. Net cash used in financing activities of $115,000 for
the year ended December 31, 1996 resulted primarily from distributions to
stockholders and repayments of long-term debt. Cyclone Roofing had a $250,000
revolving line of credit as of December 31, 1997 that is due on demand. At
December 31, 1997, Cyclone Roofing had no amounts outstanding under its line of
credit.
At December 31, 1997 and December 31, 1996, Cyclone Roofing had working
capital of $3.6 million and $1.3 million, respectively, and total debt and
capitalized lease obligations of $352,000 and $407,000, respectively.
Retention is typical for new construction commercial contracts. However,
certain of the company's larger new commercial contracts have no retention.
There is no retention on the residential business. Retentions are usually 10% of
contract revenues and may be reduced to 5% at time of final billing of the
company's portion of the contract. However, retention on commercial contracts
with the State of North Carolina are 5% of the contract amount. The final
retention is generally held until final close-out of the project which can be
30-120 days after completion of the contract and in some cases the time frame
can be longer. The amount of retention outstanding at any one time is affected
by a number of factors including amount of new work being done, stage of the
projects as well as time of the year. Retention on average can run in the
$250,000-$450,000 range. At December 31, 1997 and December 31, 1996, the amount
of retention was $733,000 and $336,000, respectively.
WRIGHT-BROWN
OPERATING RESULTS -- WRIGHT-BROWN
Wright-Brown was founded in 1951 and is located in Detroit, Michigan. It
operates exclusively in Michigan. Wright-Brown operates as a provider of
comprehensive roofing services to commercial, construction and government
customers.
The following table sets forth selected statements of operations data as a
percentage of revenue for Wright-Brown ($ in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------- -------------------------------
1996 1997 1997 1998
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $12,820 100.0% $15,316 100.0% $2,135 100.0% $2,447 100.0%
Cost of Revenues..................... 10,630 82.9 12,820 83.7 1,788 83.7 2,113 86.4
------- ----- ------- ----- ------ ----- ------ -----
Gross Profit......................... 2,190 17.1 2,496 16.3 347 16.3 334 13.6
Selling, General and Administrative
Expenses........................... 1,285 10.0 1,393 9.1 393 18.4 307 12.5
------- ----- ------- ----- ------ ----- ------ -----
Operating Income (Loss).............. $ 905 7.1% $ 1,103 7.2% $ (46) (2.1)% $ 27 1.1%
======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997
Revenues. Contract revenues increased $312,000, or 14.6%, from $2.1
million for the three months ended March 31, 1997 to $2.4 million for the three
months ended March 31, 1998. This increase is primarily attributable to
increased demand.
Gross Profit. Gross profit decreased $13,000, or 3.7%, from $347,000 for
the three months ended March 31, 1997 to $334,000 for the three months ended
March 31, 1998. Gross profit as a percentage of contract revenues decreased to
13.6% for the three months ended March 31, 1998 from 16.3% for the three months
ended March 31, 1997 as a result of increased labor costs and the use of
subcontractors to meet the increased operations.
44
<PAGE> 46
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $86,000, or 21.9%, from $393,000 for the three
months ended March 31, 1997 to $307,000 for the three months ended March 31,
1998. This decrease was primarily attributable to reductions in insurance costs.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Contract revenues earned increased $2.5 million, or 19.5%, from
$12.8 million for the year ended December 31, 1996 to $15.3 million for the year
ended December 31, 1997. This increase was primarily due to an increase in
demand and competitive bidding.
Gross Profit. Gross profit increased $306,000, or 14.0%, from $2.2 million
for the year ended December 31, 1996 to $2.5 million for the year ended December
31, 1997. Gross profit as a percentage of contract revenues earned decreased to
16.3% for the year ended December 31, 1997 from 17.1% for the year ended
December 31, 1996. This decrease was primarily a result of competitive bidding
to generate the increase in contract revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $108,000, or 8.4%, from $1.3 million for the
year ended December 31, 1996 to $1.4 million for the year ended December 31,
1997. The increase was primarily attributable to an increase in office salaries
due to the addition of two positions.
LIQUIDITY AND CAPITAL RESOURCES -- WRIGHT-BROWN
Wright-Brown generated $397,000 of net cash in operating activities for the
three months ended March 31, 1998. Net cash used in investing activities was
approximately $44,000. This cash was used primarily for the purchase of property
and equipment. Net cash used in financing activities of $285,000 was primarily
attributable to distributions to stockholders. At March 31, 1998, Wright-Brown
had working capital of $808,000 and total debt of $169,000. Additionally, the
company had a total of $500,000 available on a line of credit with no amounts
outstanding at March 31, 1998.
Wright-Brown generated $854,000 of net cash in operating activities for the
year ended December 31, 1997. Net cash used in investing activities was
approximately $161,000. This cash was used primarily for purchases of property
and equipment. Net cash used in financing activities of $950,000 resulted
primarily from distributions to stockholders. At December 31, 1997, Wright-Brown
had working capital of $1.1 million and total debt of $197,000. In addition, at
December 31, 1997, there were no amounts outstanding on the line of credit.
HARRINGTON-SCANLON
OPERATING RESULTS -- HARRINGTON-SCANLON
Harrington-Scanlon was founded in 1983 in Kansas City, Kansas. In 1993, a
subsidiary of Harrington-Scanlon opened with locations in Tucson and Phoenix,
Arizona. Harrington-Scanlon operates as a provider of comprehensive roofing
services to commercial, construction and government customers, as well as sheet
metal operations. The majority of Harrington-Scanlon's operations are conducted
in Kansas, Missouri, and Arizona.
45
<PAGE> 47
The following table sets forth selected statements of operations data as a
percentage of revenue for Harrington-Scanlon ($ in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------------------
1997 1997 1998
--------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues....................................... $11,816 100.0% $2,654 100.0% $2,369 100.0%
Cost of Revenues............................... 10,046 85.0 2,186 82.4 2,185 92.2
------- ----- ------ ----- ------ -----
Gross Profit................................... 1,770 15.0 468 17.6 184 7.8
Selling, General and Administrative Expenses... 1,550 13.1 329 12.4 377 15.9
------- ----- ------ ----- ------ -----
Operating Income (Loss)........................ $ 220 1.9% $ 139 5.2% $ (193) (8.1)%
======= ===== ====== ===== ====== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997
Revenues. Revenues decreased $285,000, or 10.7%, from $2.7 million for the
three months ended March 31, 1998 to $2.4 million for the three months ended
March 31, 1997. This is primarily attributable to adverse weather conditions in
Kansas and Missouri during early 1998.
Gross Profit. Gross profit decreased $284,000, or 60.7%, from $468,000 for
the three months ended March 31, 1997 to $184,000 for the three months ended
March 31, 1998. This decrease is due to adverse weather conditions in early 1998
which resulted in non-productive time.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $48,000 or 14.6% from $329,000 for the three
months ended March 31, 1997 to $377,000 for the three months ended March 31,
1998. This increase is primarily the result of increases in salaries.
LIQUIDITY AND CAPITAL RESOURCES -- HARRINGTON-SCANLON
Harrington-Scanlon generated $6,000 net cash from operating activities
during the three months ended March 31, 1998. Net cash used in investing
activities was $42,000. This cash was primarily used for the purchases of
property and equipment. Net cash provided by financing activities of $7,000 was
a result of net borrowings. No stockholder distributions were made during this
period. Net working capital at March 31, 1998 was $49,000. Total debt
outstanding at March 31, 1998 was $1.5 million, including current maturities of
$573,000. The company has a line of credit in the amount of $500,000. At March
31, 1998, $75,000 was available under this line of credit.
Net cash provided by operations during 1997 was $289,000. Net cash used in
investing activities was $369,000. This cash was primarily used for purchases of
property and equipment. Net cash provided by financing activities of $105,000
was primarily a result of net borrowings and $57,000 of stockholder
distributions. Net working capital at December 31, 1997 was $185,000. Total debt
outstanding at December 31, 1997 was $1.5 million including current maturities
of $543,000. Harrington-Scanlon had a line of credit in the amount of $350,000
of which $342,000 had been borrowed at December 31, 1997.
SLAVIK BUTCHER
OPERATING RESULTS -- SLAVIK BUTCHER
Slavik Butcher, was founded in 1977 and is located in Rochester Hills,
Michigan. It operates primarily in southern Michigan with some operations in
Indiana and Ohio, and operates as a provider of comprehensive roofing services
to commercial, construction, and government customers. Slavik Butcher also
provides residential roofing and remodeling services.
46
<PAGE> 48
The following table sets forth selected statements of operations data as a
percentage of revenue for Slavik Butcher ($ in thousands).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31,
JUNE 30, -------------------------------
1997 1997 1998
--------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues....................................... $11,265 100.0% $8,495 100.0% $9,492 100.0%
Cost of Revenues............................... 9,928 88.1 7,477 88.0 7,744 81.6
------- ----- ------ ----- ------ -----
Gross Profit................................... 1,337 11.9 1,018 12.0 1,748 18.4
Selling, General and Administrative Expenses... 1,215 10.8 897 10.6 1,075 11.3
------- ----- ------ ----- ------ -----
Operating Income............................... $ 122 1.1% $ 121 1.4% $ 673 7.1%
======= ===== ====== ===== ====== =====
</TABLE>
Nine Months Ended March 31, 1998 Compared to the Nine Months Ended March 31,
1997
Revenues. Contract revenues increased $997,000, or 11.7%, from $8.5
million for the nine months ended March 31, 1997 to $9.5 million for the nine
months ended March 31, 1998. This increase was primarily due to favorable
pricing and an increase in demand. Included in Slavik Butcher's operations is a
general contracting business which will be retained by Slavik Butcher's owners.
The general contracting business is excluded from the Combination. See Unaudited
Pro Forma Combined Financial Statements for the elimination of this activity.
Gross Profit. Gross profit increased $730,000, or 71.7%, from $1 million
for nine months ended March 31, 1997 to $1.7 million for the nine months ended
March 31, 1998. Gross profit percentage of contract revenues increased to 18.4%
in the nine months ended March 31, 1998 from 12.0% in the nine months ended
March 31, 1997. These increases were a result of favorable pricing related to
the increased demand and a significant loss contract included in the results for
the first nine months of fiscal year 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $178,000, or, 19.8% from $897,000 for the nine
months ended March 31, 1997 to $1.1 million for the nine months ended March 31,
1998. The increase is primarily attributable to an increase in office salaries
and related benefits and insurance costs.
LIQUIDITY AND CAPITAL RESOURCES -- SLAVIK BUTCHER
Slavik Butcher generated $345,000 of net cash from operating activities for
the nine months ended March 31, 1998. Net cash used in investing activities was
approximately $227,000. The cash was used primarily for the purchase of property
and equipment and an advance to a stockholder. Net cash provided by financing
activities of $5,000 resulted from net borrowings. No stockholder distributions
were made during this period. Slavik Butcher had a total of $350,000 available
under lines of credit with $35,000 outstanding at March 31, 1998. The lines of
credit are due on demand. At March 31, 1998, Slavik Butcher had working capital
of $523,000 and total debt of $224,000 including current maturities of $106,000.
Slavik Butcher generated $74,000 of net cash from operating activities for
the year ended June 30, 1997. Net cash used in investing activities was
approximately $83,000. The cash was used primarily for the purchase of property
and equipment. Net cash provided by financing activities of $2,000 resulted from
net borrowings. No stockholder distributions were made during this period. At
June 30, 1997 Slavik Butcher had a total of $350,000 available under lines of
credit with $75,000 outstanding. At June 30, 1997, Slavik Butcher had working
capital of $90,000 and total debt of $218,000, including current maturities of
$127,000.
FIVE-K
OPERATING RESULTS -- FIVE-K
Five-K (Therrel-Kizer) was founded in 1942 and operates as a provider of
comprehensive roofing services to commercial, construction, and government
customers. The company's principal offices are located in Smyrna, Georgia and
the majority of the company's business is transacted with customers in Georgia.
47
<PAGE> 49
The following table sets forth selected statements of operations data as a
percentage of revenue for Five-K Industries, Inc. ($ in thousands).
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1996 1997 1998
--------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................................... $10,402 100.0% $9,361 100.0% $11,091 100.0%
Cost of Revenues.............................. 8,053 77.4 6,521 69.7 7,879 71.0
------- ----- ------ ----- ------- -----
Gross Profit.................................. 2,349 22.6 2,840 30.3 3,212 29.0
Selling, General and Administrative
Expenses.................................... 2,226 21.4 2,652 28.3 2,775 25.0
------- ----- ------ ----- ------- -----
Operating Income.............................. $ 123 1.2% $ 188 2.0% $ 437 3.9%
======= ===== ====== ===== ======= =====
</TABLE>
Year Ended March 31, 1998 Compared to the Year Ended March 31, 1997
Revenues. Revenues increased $1.7 million, or 18.5%, from $9.4 million for
the year ended March 31, 1997 to $11.0 million for the year ended March 31,
1998. This increase is primarily attributable to the company hiring an
additional salesman during the year and aggressive pursuit of new business.
Gross Profit. Gross profit increased $372,000, or 13.1%, from $2.8 million
for the year ended March 31, 1997 to $3.2 million for the year ended March 31,
1998. Gross profit as a percentage of sales was consistent between the year
ended March 31, 1997 and the year ended March 31, 1998.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses increased $123,000, or 4.6%, from $2.7 million for the
year ended March 31, 1997 to $2.8 million for the year ended March 31, 1998.
This increase was primarily due to increased compensation.
Year Ended March 31, 1997 Compared to the Year Ended March 31, 1996
Revenues. Revenues decreased $1.0 million, or 10.0%, from $10.4 million
for the year ended March 31, 1996 to $9.4 million for the year ended March 31,
1997. This decrease was primarily the result of more selective competitive
bidding.
Gross Profit. Gross profit increased by $491,000, or 20.9%, from $2.3
million for the year ended March 31, 1996 to $2.8 million for the year ended
March 31, 1997. This increase was primarily attributable several highly
profitable jobs the company completed during 1997.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses increased $426,000, or 19.1%, from $2.2 million for the
year ended March 31, 1996 to $2.7 million for the year ended March 31, 1997.
This increase was primarily due to increased compensation.
LIQUIDITY AND CAPITAL RESOURCES -- FIVE-K
Cash provided by operating activities in 1998 was $542,000. Cash used in
investing activities totaled $219,000 and was used for purchases of property and
equipment. Net cash provided by financing activities was $61,000 which consisted
of net borrowings partially offset by shareholder distributions of $25,000.
Working capital at March 31, 1998 totaled $946,000. Total borrowings at March
31, 1998 were $86,000 including current maturities of $40,000. Five-K has a line
of credit in the amount of $200,000. There were no borrowings outstanding under
this line of credit at March 31, 1998.
Retention of 10% is generally required on all construction contracts.
Certain contractors reduce retention to 5% when the contract is considered
substantially complete. Retention held at March 31, 1998 was $589,803, and the
average for the twelve months was $444,188.
48
<PAGE> 50
ADVANCED ROOFING
OPERATING RESULTS -- ADVANCED ROOFING
Advanced Roofing was founded in 1983 and is headquartered in Fort
Lauderdale, Florida. It operates primarily in Florida, but has completed
projects in Guantanamo Bay, Cuba and the U.S. Virgin Islands. Advanced Roofing
operates as a provider of comprehensive roofing services to commercial,
construction, and government customers.
The following table sets forth selected statements of operations data as a
percentage of revenue for Advanced Roofing ($ in thousands).
<TABLE>
<CAPTION>
TEN TWO
MONTHS MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED DECEMBER 31,
----------------------------------- OCTOBER 31, DECEMBER 31, ----------------
1995 1996 1997 1997 1997
---------------- ---------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $12,078 100.0% $10,682 100.0% $10,203 $1,971 $12,174 100.0%
Cost of Revenues..... 10,338 85.6 8,843 82.8 8,312 1,515 9,827 80.7
------- ------ ------- ------ ------- ------ ------- ------
Gross Profit......... 1,740 14.4 1,839 17.2 1,891 456 2,347 19.3
Selling, General and
Administrative
Expenses........... 1,219 10.1 1,317 12.3 1,206 365 1,571 12.9
------- ------ ------- ------ ------- ------ ------- ------
Operating Income..... $ 521 4.3% $ 522 4.9% $ 685 $ 91 $ 776 6.4%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
MARCH 31,
--------------------------------
1997 1998
-------------- --------------
<S> <C> <C> <C> <C>
Revenues.................................................... $4,933 100.0% $5,068 100.0%
Cost of Revenues............................................ 4,201 85.2 3,982 78.6
------ ----- ------ -----
Gross Profit................................................ 732 14.8 1,086 21.4
Selling, General and Administrative Expenses................ 676 13.7 756 14.9
------ ----- ------ -----
Operating Income............................................ $ 56 1.1% $ 330 6.5%
====== ===== ====== =====
</TABLE>
Five Months Ended March 31, 1998 Compared to the Five Months Ended March 31,
1997
Revenues. Revenues increased $135,000, or 2.7%, from $4.9 million for the
five months ended March 31, 1997 to $5.1 million for the five months ended March
31, 1998. This increase is primarily attributable to increased marketing efforts
toward the end of 1997 along with an increase in demand for roofing services.
Gross Profit. Gross profit increased $354,000 or 48.4%, from $732,000 for
the five months ended March 31, 1997 to $1.1 million for the five months ended
March 31, 1998. Gross profit margin increased from 14.8% for the five months
ended March 31, 1997 to 21.4% for the five months ended March 31, 1998. This is
primarily due to (i) a non-recurring workers' compensation claim of
approximately $100,000 that occurred in December 1996 which resulted in lower
than expected margins during that period, (ii) operations of an affiliate were
commenced during the five-month period ended March 31, 1997, and (iii) start-up
losses were incurred during this period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $80,000, or 11.8%, from $676,000 for the five
months ended March 31, 1997 to $756,000 for the five months ended March 31,
1998. The increase was attributable to an increase in marketing efforts and
increased administrative staffing.
49
<PAGE> 51
Ten Months Ended October 31, 1997 and the Year Ended December 31, 1997
Compared to the Year Ended December 31, 1996
Revenues. Revenues increased $1.5 million, or 14.0%, from $10.7 million
for the year ended December 31, 1996 to $12.2 million for the year ended
December 31, 1997. This increase was primarily attributable to increased demand,
revenue generated by an affiliate formed in 1996, expanded marketing efforts and
a preferred provider agreement with a supermarket chain. Revenues decreased
$479,000 or 4.5% from $10.7 million for the year ended December 31, 1996 to
$10.2 million for the ten months ended October 31, 1997. This decrease was due
primarily to October 31, 1997 being a shorter period.
Gross Profit. Gross profit increased $508,000 or 27.6% from $1.8 million
for the year ended December 31, 1996 to $2.3 million for the year ended December
31, 1997. This increase was the result of higher margin jobs obtained through
marketing efforts and efficiencies in field operations. Gross profit margin
increased $52,000 from the year ended December 31, 1996 to the ten months ended
October 31, 1997. This increase was primarily due to higher margin jobs and
efficiencies as discussed above.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses increased $254,000, or 19.3%, from $1.3 million for the
year ended December 31, 1996 to $1.6 million for the year ended December 31,
1997. The increase was attributable to an increase in marketing efforts, and
increased staffing levels. Increases were also attributable to the start-up of
an affiliate and certain new divisions. Selling, general, and administrative
expenses decreased $111,000 in the ten months ended October 31, 1997 as compared
to the year ended December 31, 1996 due primarily to being a shorter period.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues. Revenues decreased $1.4 million, or 11.6%, from $12.1 million
for the year ended December 31, 1995 to $10.7 million for the year ended
December 31, 1996. This decrease is primarily attributable to decreased demand,
coupled with the company's move to new facilities in late 1995 which negatively
affected revenues in early 1996.
Gross Profit. Gross profit increased $99,000 or 5.7%, from $1.7 million
for the year ended December 31, 1995 to $1.8 million for the year ended December
31, 1996. Gross margin increased to 17.2% during the year ended December 31,
1996 from 14.4% during the year ended December 31, 1995. The increase is
attributable to abnormally low margins attained in 1995 due to loss of certain
personnel and the move to new facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $98,000, or 8.0%, from $1.2 million during the
year ended December 31, 1995 to $1.3 million during the year ended December 31,
1996. The increase was attributable to increased staffing levels and increases
in salaries.
LIQUIDITY AND CAPITAL RESOURCES -- ADVANCED ROOFING
Advanced Roofing generated $105,000 of net cash from operating activities
for the five months ended March 31, 1998. Cash used in investing activities of
$34,000 relates to purchases of property and equipment. Net cash used in
financing activities of $73,000 resulted primarily from repayments of long-term
debt. Minimal stockholder distributions of $17,000 were made during this period.
At March 31, 1998, Advanced Roofing had working capital of $409,000 and total
debt of $1.3 million including current maturities of $728,000. The company
maintains a $500,000 line of credit, of which $400,000 was outstanding at March
31, 1998. The line of credit expires in June 1998.
At October 31, 1997, the company had working capital of $122,000 and total
debt was $1.3 million, including current maturities of $696,000. The company had
a $500,000 line of credit under which $400,000 was outstanding. Advanced Roofing
has renewed the line of credit with the same financial institution through
August 24, 1998.
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BLACKMORE & BUCKNER
OPERATING RESULTS -- BLACKMORE & BUCKNER
Blackmore & Buckner was founded in 1919 and is headquartered in
Indianapolis, Indiana. The principal activities of the company include
installing commercial and residential roofing, repair work on existing and newly
constructed buildings, and metal fabrication. The company performs these
construction activities primarily in Indiana for commercial enterprises.
The following table sets forth selected statements of operations data as a
percentage of revenue for Blackmore & Buckner ($ in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $7,210 100.0% $7,704 100.0% $7,739 100.0% $1,401 100.0% $1,061 100.0%
Cost of Revenues.................... 5,795 80.4 5,948 77.2 6,321 81.7 1,273 90.9 896 84.4
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross Profit........................ 1,415 19.6 1,756 22.8 1,418 18.3 128 9.1 165 15.6
Selling, General and Administrative
Expenses.......................... 1,161 16.1 1,326 17.2 1,220 15.8 206 14.7 215 20.3
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating Income (Loss)............. $ 254 3.5% $ 430 5.6% $ 198 2.6% $ (78) (5.6)% $ (50) (4.7)%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Three Months Ending March 31, 1997 Compared to the Three Months Ending
March 31, 1998
Revenues. Revenues decreased $340,000 or 24.3% from $1.4 million for the
three months ended March 31, 1997 to $1.0 million for the three months ended
March 31, 1998. This decrease is primarily due to the extensive amount of rain
during the month of March 1998.
Gross Profit. Gross profit increased $37,000, or 28.9%, from $128,000 for
the three months ended March 31, 1997 to $165,000 for the three months ended
March 31, 1998. Gross profit margin increased to 15.6% in 1998 from 9.1% in
1997. This increase was due to higher margin work during 1998 offset partially
by a lower volume of work.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses remained relatively constant for the three months ended
March 31, 1997 and 1998.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Revenues increased less than 1.0% from the year ended December
31, 1996 to the year ended December 31, 1997. However, cost of revenues sold
increased 6.3%, primarily due to an increase in material cost which was not
passed onto the customer, and increased revenues from work which had lower
margins than typically realized on negotiated contracts.
Gross Profit. Gross profit decreased $338,000 or 25.5% from $1.3 million
for the three months ended March 31, 1996 to $1.2 million for the three months
ended March 31, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $106,000, or 8.0% from $1.3 million for the
year ended December 31, 1996 to $1.2 million for the year ended December 31,
1997. This decrease was due primarily to a decrease in commissions paid to
salesmen. Operating income decreased in 1997 due to the lower gross margin
realized on contracts.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues. Revenues increased $494,000, or 6.9%, from $7.2 million for the
year ended December 31, 1995 to $7.7 million for the year ended December 31,
1996. This increase was primarily due to an increase in the amount of negotiated
contracts completed during 1996 and resulted in an increase in gross profit for
1996 of 24.1% from 1995.
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<PAGE> 53
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $165,000 or 14.2%, from $1.2 million for
the year ended December 31, 1996 to $1.3 million for the year ended December 31,
1997. This increase was primarily due to an increase in commissions paid to
salesmen.
LIQUIDITY AND CAPITAL RESOURCES -- BLACKMORE & BUCKNER
Blackmore & Buckner generated $187,000 of net cash from operating
activities for the three months ended March 31, 1998. Cash used in investing
activities was nominal and cash used in financing activities of $176,000 was
primarily related to distributions to stockholders. At March 31, 1998, the
company had working capital of $706,000 and a total debt of $99,000, including
current maturities of $22,000. Blackmore & Buckner has a $500,000 line of credit
with a bank, which is available for its current working capital needs and an
$85,000 line of credit to be used for capital expenditures. The company had no
borrowings against the working capital line at March 31, 1998 or December 31,
1997.
During 1997, the company generated $567,000 of cash from operating
activities. Cash used in investing activities of $127,000 was primarily related
to purchases of property and equipment and cash used in financing activities of
$269,000 was primarily related to distributions to stockholders. Working capital
at December 31, 1997 was $919,000 and total debt was $108,000 including current
maturities of $23,000. The company had outstanding borrowings of $27,000 under
the equipment line of credit at December 31, 1997.
REGISTER ROOFING
OPERATING RESULTS -- REGISTER ROOFING
Register Roofing was founded in 1981 and is headquartered in Jacksonville,
Florida. Register Roofing is engaged in the business of general contracting and
commercial roofing throughout the southeastern United States with the majority
of contracts in Florida.
The following table sets forth selected statements of operations data as a
percentage of revenue for Register Roofing ($ in thousands).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------------ -------------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $6,533 100.0% $6,187 100.0% $6,832 100.0% 3,044 100.0% $4,169 100.0%
Cost of Revenues............ 5,871 89.9 5,174 83.6 5,792 84.8 2,537 83.3 3,443 82.6
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross Profit................ 662 10.1 1,013 16.4 1,040 15.2 507 16.7 726 17.4
Selling, General and
Administrative Expenses... 592 9.1 804 13.0 1,002 14.7 431 14.2 517 12.4
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating Income............ $ 70 1.1% $ 209 3.4% $ 38 0.6% $ 76 2.5% $ 209 5.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended March 31, 1998 Compared to the Six Months Ended March 31,
1997
Revenues. Contract revenues earned increased $1.1 million, or 37.0%, from
$3.0 million for the six months ended March 31, 1997 to $4.2 million for the six
months ended March 31, 1998. This increase was primarily due to contracting with
industrial clients which reduced competition and provided the company
substantial revenue increases.
Gross Profit. Gross profit increased $219,000, or 43.2%, from $507,000 for
the six months ended March 31, 1997 to $726,000 for the six months ended March
31, 1998. This increase was primarily attributable to the fact that the
contracts with industrial clients provided higher markups, resulting in higher
gross profits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $86,000, or 20.0%, from $431,000 for the six
months ended March 31, 1997 to $517,000 for the six months ended March 31, 1998.
This increase correlates with the overall increase in volume.
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<PAGE> 54
Fiscal Year Ended September 30, 1997 Compared to the Fiscal Year Ended
September 30, 1996
Revenues. Contract revenues earned increased $645,000, or 10.4%, from $6.2
million for the fiscal year ended September 30, 1996 to $6.8 million for the
fiscal year ended September 30, 1997. Register Roofing had a strong movement
into the industrial re-roofing market in fiscal 1997. Register started long-term
relationships with key industrial clients which resulted in larger contracts in
1997.
Gross Profit. Gross profit increased $27,000, or 2.7% for the fiscal year
ended September 30, 1997 as compared to the fiscal year ended September 30,
1996. Register Roofing had one large project which had a loss because costs had
been underestimated, and two smaller projects in central Florida with
unanticipated difficulties that caused a loss. These jobs had an overall affect
of substantially reducing gross profits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $198,000 or 24.6% from $0.8 million for the
year ended September 30, 1996 to $1.0 million for the year ended September 30,
1995. The increase was primarily due to the addition of a key level accounting
position and a warehouse/materials coordinator.
Year Ended September 30, 1996 Compared to the Year Ended September 30, 1995
Revenues. Contract revenues earned decreased $346,000, or 5.3%, from $6.5
million for the fiscal year ended September 30, 1995 to $6.2 million for the
fiscal year ended September 30, 1996. In the first half of fiscal 1996, Register
Roofing experienced a decline in the re-roofing market in northeast Florida.
Register Roofing chose not to increase or hold its present volume by contracting
out of town projects, which usually result in higher costs and lower profit
margins. Register Roofing also entered into the metal roofing market during this
time period. In the last half of fiscal 1996, the re-roofing market in northeast
Florida began to rebound.
Gross Profit. Gross profit increased $351,000, or 53.0%, from $662,000 for
the fiscal year ended September 30, 1995 to $1.0 million for the fiscal year
ended September 30, 1996. This increase was primarily attributable to management
concentrating on fewer projects with higher margins. This initiative coupled
with a stronger roofing market helped to increase profitability.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $212,000, or 35.8% from $0.6 million for the
year ended September 30, 1995 to $0.8 million for the year ended September 30,
1996. The addition of a manager accounted for a significant portion of this
increase.
LIQUIDITY AND CAPITAL RESOURCES -- REGISTER ROOFING
During the six months ended March 31, 1998, Register Roofing used $61,000
of cash in operating activities. Cash used in investing activities of $122,000
was for purchases of property and equipment. Cash provided by financing
activities was $78,000 primarily from net borrowings under the company's credit
facilities. Working capital at March 31, 1998 totaled $692,000 and total debt
was $177,000 including current maturities.
During the year ended September 30, 1997, Register Roofing generated
$103,000 of cash in operating activities. Cash used in investing activities was
$50,000 and was primarily related to net property and equipment purchases and
deposits made during the year. Cash used in financing activities totaled $9,000
and was related to repayments of debt net of amounts received for stock
issuances. Working capital at September 30, 1997 was $536,000 and total debt was
$99,000, including current maturities. At September 30, 1997, the Company had
$1,000 outstanding under a $250,000 line of credit which matured in December
1997.
SEASONAL AND CYCLICAL NATURE OF THE COMMERCIAL ROOFING INDUSTRY
The construction industry is cyclical and is influenced by seasonal
factors, as construction activities are usually lower during winter months than
other periods. Accordingly, the Company expects its revenues and operating
results generally will be lower in the first and fourth quarters. The Founding
Companies individually
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<PAGE> 55
have a relatively narrow geographic, product and customer mix that caused
significant fluctuations in revenues from period to period based on weather,
timing of customer decisions, age and the condition of its customers'
facilities. After the Combination, the Company will have a broad geographic,
product, and customer mix, which the Company believes will serve to mitigate
cyclical and seasonal trends; however, there can be no assurance that
period-to-period differences will not occur in the future or that cyclical or
seasonal patterns will not emerge. Further, the results of operations for any
interim period (on a combined basis and for each of the Founding Companies) are
not necessarily indicative of the results for a full year.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. All statements other
than statements of historical facts included in this Prospectus, including,
without limitation, statements regarding the Company's competitive strengths,
business strategy, expected benefits of any acquisition, future financial
position, budgets, projected costs and plans and objectives of management for
future operations, are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "should," "intend," "estimate," "anticipate,"
"believe," or "continue" or the negative thereof or variations thereon or
similar terminology. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations ("cautionary statements") are disclosed under "Risk Factors" and
elsewhere in this Prospectus, including, without limitation, in conjunction with
the forward-looking statements included in this Prospectus. All subsequent
written and oral forward-looking statements attributable to the Company, or
persons acting on its behalf, are expressly qualified in their entirety by the
cautionary statements. The Company undertakes no obligation to update publicly
or revise any forward-looking statements.
YEAR 2000 ISSUE
Several of the Founding Companies are not year 2000-compliant. The Company
has plans to prepare its computer systems and related software to accommodate
sensitive information relating to the year 2000. The Company intends for the
Founding Companies to convert their computer systems as part of its program to
adopt best practices and leverage its propriety information systems. The Company
expects that any additional costs related to ensuring that such systems and
software will be ready for the year 2000 will not be material to the financial
condition or results of operations of the Company. In addition, the Company is
discussing with its vendors and customers the possibility of any difficulties
which may affect the Company as a result of its vendors and customers ensuring
that their computer systems and software are year 2000-compliant. To date, no
significant concerns have been identified. However, there can be no assurance
that no year 2000-related computer operating problems or expenses will arise
with the Company's computer systems and software or in the computer systems and
software of the Company's vendors and customers.
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<PAGE> 56
BUSINESS
GENERAL
The Company was founded in 1998 to become the leading nationwide provider
of commercial roofing services. Concurrently with, and as a condition to, the
Offering, GRS plans to acquire 18 Founding Companies. The Founding Companies,
which have been in business for an average of approximately 28 years, had pro
forma combined 1997 revenues and income from operations of $195.9 million and
$13.4 million, respectively. Following the Combination and the Offering, the
Company will have operations in 20 cities in 12 states, and will be one of the
largest providers of commercial roofing services in the United States. Combined
historical revenues of the Founding Companies grew at a compound annual growth
rate of 14.7% from 1995 through 1997. Management believes that the Company will
have certain competitive advantages as the first public company seeking to
consolidate the commercial roofing industry.
The Company offers a broad range of comprehensive roofing services, which
include re-roofing, restoration and repair, and new roof construction.
Approximately 65% of the Company's 1997 pro forma revenues were derived from
re-roofing, restoration and repair services, and 35% were derived from new roof
construction. The Company also offers maintenance services, which provide
recurring revenues and ongoing interaction with its customers. The Company
provides services to customers in a broad range of industries, including the
industrial, office, retail, hospitality, government, educational and
entertainment industries. The Company has performed services for a broad range
of companies, including Home Depot, Inc., The Walt Disney Company, United States
Postal Service, NationsBank, N.A., Bass Hotels & Resorts (Holiday Inn Hotels),
Sea World, AMC Entertainment Inc., General Motors Corporation, Rockwell
International Corp., Ford Motor Company, Chrysler Corporation, The Coca-Cola
Company, U.S. Army, U.S. Navy, Simon DeBartolo Group, Inc., Wal-Mart Stores,
Inc., Sears Roebuck & Company, Abbott Laboratories, Trammel Crow Company, Arvida
Company, Cushman & Wakefield, Inc., Columbia/HCA Healthcare Corporation and
University of Michigan.
INDUSTRY OVERVIEW
According to a market survey conducted by the NRCA, total expenditures for
roofing services in the United States in 1997 were approximately $20.0 billion,
of which approximately $14.5 billion were for commercial roofing services. The
roofing industry is highly fragmented, and is estimated to be comprised of more
than 25,000 companies, most of which are small, owner-operated, independent
contractors serving a local customer base, with limited access to capital for
investment in infrastructure, technology and expansion. The Company believes
that no single company accounted for more than 1% of total expenditures for
roofing services in the United States. According to the NRCA market survey,
approximately 75% of roofing expenditures in 1997 were attributable to
re-roofing, restoration and repair, with the balance attributable to new roof
construction.
The Company believes significant opportunities are available to a
well-capitalized, national company employing professionally trained,
customer-oriented roofing personnel and providing a full complement of high
quality commercial services. The commercial roofing industry as a whole has been
characterized by low barriers to entry that result from relatively constant
technology and methods, stable construction practices and pricing and
inconsistent quality and reliability. For this reason, the Company believes that
only those companies which are able to differentiate themselves through quality,
scope and consistency of service will be able to maintain a competitive
advantage. In addition, the relatively large expenditures associated with
roofing systems have led to an increased need for qualified personnel to
install, monitor and service these systems. The cost of recruiting, training and
retaining a sufficient number of qualified roofing personnel makes it more
difficult for small commercial roofing companies to expand their businesses. The
Company also believes the highly fragmented nature of the commercial roofing
industry will provide it with significant opportunities to consolidate a large
number of existing commercial roofing businesses nationwide.
The average useful life of a commercial roof is estimated to be
approximately 14 years. Due to a lack of customer awareness of the savings that
can result from a long-term, consistent roof maintenance program, customers and
competitors have traditionally taken an all-or-nothing approach to roofing
expenditures. By
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<PAGE> 57
taking a maintenance-oriented approach to customer service, the Company will
seek to create a more consistent revenue stream, while providing cost-effective
solutions to its customers.
STRATEGY
The Company believes that its size, geographic diversity of operations,
knowledge of local markets and industry relationships will give the Company
significant competitive advantages. Through increased size, the Company believes
that it will have a greater ability to (i) provide services to customers with
locations in multiple markets, (ii) more effectively allocate resources in
serving customers in each of its markets, (iii) attract, train and retain
skilled roofing labor and (iv) achieve economies of scale in the purchase of
roofing material. The Company also believes that increased size will provide
operating and cost efficiencies by allowing it to perform a wide range of
functions on a centralized basis, including administrative functions, such as
those relating to human resources, employee benefits and insurance, as well as
purchasing, accounting and bonding. The Company intends to share best practices
among the Founding Companies and with other companies to be acquired. The
Company believes that the geographic diversity of its operations will diminish
the effects of local market downturns, offer opportunities to pursue growth in
its existing markets and create a base of expertise and relationships to expand
into new markets. In anticipation of the Combination, one of the Founding
Companies has made a substantial investment in a scalable, advanced enterprise
information system to be utilized by the Company, which will provide critical
project status and cost information to all employees on a daily basis and will
provide management with comprehensive reports on substantially all aspects of
the Company's operations.
The Company plans to leverage its experienced management and extensive
relationships within the commercial roofing industry to increase its revenues
through internal growth as well as through the acquisition of additional
commercial roofing companies. The Company has extensive relationships within the
industry, in part through the Founding Companies, all of which are members of
the NRCA, the largest roofing trade organization with approximately 3,200
commercial roofing companies as members. Gregg E. Wallick, the Company's
Chairman of the Board, President and Chief Executive Officer, with more than 18
years of experience in the commercial roofing industry, is a member of the Board
of Directors of the NRCA. Mr. Wallick is also a member of the Board of Governors
of the Alliance for Progress and is a member of its Steering Committee. The
Alliance for Progress is an industry organization that invests funds contributed
by its membership in certain programs, such as special training programs, for
the benefit of the roofing industry and the organization's membership.
Operating Strategy. The Company believes there are significant
opportunities to increase revenues and profitability of the Founding Companies
and subsequently acquired businesses. The key elements of the Company's
operating strategy are:
Focus on Commercial Roofing Market. The Company intends to continue
to focus on the commercial roofing market because of its size, the
magnitude of individual projects, the diverse and multiple-location
customer base, the trend of consolidation in commercial real estate,
recurring revenue opportunities and the potential for long-term
relationships with building owners, property managers, general contractors
and roof consultants.
Establish Regional and National Market Coverage. The Company believes
that the growth of many of the Founding Companies has been restricted due
to the geographic limitations of their existing operations and that the
Company's broad geographic coverage will increase internal growth
opportunities. The Company intends to leverage its geographic diversity to
solicit additional business from existing customers and new business from
new customers that operate on a regional and national basis, such as REITs,
contractors, owners of national chains and roof consultants. The Company
believes that significant demand exists from such companies to utilize the
services of a single commercial roofing service provider and that existing
local and regional relationships can be expanded as the Company develops a
nationwide network.
Expand Maintenance Services. The Company intends to further develop
its maintenance service operations, which generally provide higher gross
margins, recurring revenues and ongoing interaction with
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<PAGE> 58
customers. The Company has adopted a maintenance-oriented approach, whereby
it performs regularly-scheduled maintenance checks and focuses on
increasing customer awareness of the cost-effectiveness of preventive
maintenance and the available repair and restoration services that can most
efficiently prolong the life of a roof. The Company believes that this
approach builds long-term relationships with customers and encourages them
to turn to the Company for all of their roofing needs.
Apply Certain Functions and Technology to Achieve Operating and Cost
Efficiencies. The Company believes that it will achieve operating and cost
efficiencies by performing a wide range of functions on a centralized
basis, including administrative functions, such as those relating to human
resources, employee benefits and insurance, as well as purchasing,
accounting and bonding. The Company also intends to leverage its
proprietary, scalable advanced enterprise informations system, which will
provide management on a daily basis information regarding project
estimates, materials and labor cost, accounts receivable and accounts
payable tracking, project progress and sales, as well as comprehensive
reports on substantially all aspects of the Company's operations.
Management believes that this system, which was developed by one of the
Founding Companies over a five-year period, will provide the Company with
significant competitive advantages through more accurate job estimates,
enhanced cost awareness and uniform control procedures through the timely
flow of comprehensive project information. Management believes that this
advanced enterprise information system will be fully implemented and
accessible on a Company-wide basis by the end of 1999.
Adopt Best Practices. The Company believes that it will be able to
increase operating efficiencies and enhance internal growth by identifying
and incorporating the operational and marketing strengths of individual
Founding Companies. The Company intends to institute a "best practices"
program, which will evaluate and implement on a Company-wide basis selected
policies, practices and procedures of the Founding Companies and other
companies to be acquired, with the goal of maximizing service levels and
profitability. In order to ensure that best practices are shared among each
of the individual Founding Companies, the Company has created a Presidents'
Council composed of the president or senior executive of each of the
Founding Companies. The Council has begun meeting on a regular basis as a
group and through smaller working committees, to share operating practices
and to develop additional methods to improve the overall performance of the
Company and the individual operating companies. Best practices that result
from the work of the Council will be included in the training and
monitoring programs developed and disseminated to the respective operating
companies.
Operate on a Decentralized Basis. The Company believes that, while
maintaining strong operating and financial controls, a decentralized
operating structure will retain the entrepreneurial spirit present in each
of the Founding Companies. The Company's decentralized operating structure
will allow it to capitalize on the considerable local and regional market
knowledge and customer relationships possessed by each Founding Company, as
well as by companies that may be acquired in the future.
Acquisition Strategy. The Company believes that, due to the highly
fragmented nature of the commercial roofing services industry, it has
significant opportunities to pursue an acquisition strategy and expand in
targeted geographic markets. The Company intends to focus on acquiring
profitable companies with an established customer base and a reputation for
quality that will serve as a platform for the acquisition and integration of
smaller companies. The Company will also seek to acquire companies with
entrepreneurial management philosophies and a willingness to learn and share
improved business practices through open communication. The Company believes
that many commercial roofing businesses that lack the capital necessary to
expand their operations will become acquisition candidates. The Company believes
that it will be attractive to these acquisition candidates because it will
provide (i) information on best practices, (ii) expertise to expand in
specialized markets, (iii) the opportunity to focus on customers rather than
administration, (iv) national name recognition, (v) increased financial
flexibility, (vi) the opportunity for existing management to have a continuing
role with the Company and (vii) the opportunity to provide services to the
Company's customers in their respective geographic markets. All of the Founding
Companies participate in professional associations, including the NRCA. The
Company intends to capitalize on the relationships created within these
professional associations and the combined industry reputation of the Founding
Companies to pursue its acquisition strategy. Through these and other resources,
the Company
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<PAGE> 59
believes it will be able to identify and attract acquisition candidates that
meet the Company's criteria. Key elements of the Company's acquisition strategy
are:
Enter New Geographic Markets. The Company will pursue acquisitions of
companies that are located in new geographic markets, are financially
stable and have the customer base necessary to integrate with or complement
the Company's existing business. The Company also expects that increasing
its geographic presence will allow it to better serve a growing nationwide
base of customers and further reduce the impact on the Company of local and
regional economic cycles, as well as weather-related or seasonal variations
in business.
Expand within Existing Markets. Once the Company has entered a new
market, it will seek to acquire other well-established commercial roofing
businesses operating within that region, including "tuck-in" acquisitions
of smaller companies. The Company believes that tuck-in acquisitions afford
the opportunity to improve its overall cost structure through the
integration of such acquisitions into existing operations as well as to
increase revenues through access to additional specialized markets. Despite
the integration opportunities afforded by such tuck-in acquisitions, the
Company intends to maintain existing business names and identities for
marketing purposes.
The Company reviews on an ongoing basis suitable acquisition opportunities.
However, the Company does not currently have any plans, arrangements or
understandings with respect to any particular acquisition, except for the
Founding Companies.
SERVICES
The Company provides a comprehensive range of commercial roofing services.
The Company employs a knowledgeable and skilled workforce that utilizes
standardized techniques and practices to determine a customer's optimal roofing
solution. These solutions are designed to maximize the 14 average year life of a
new roofing system. Annual maintenance services, which can result in the
identification at an early stage of problems within a roofing system, can add as
many as 10 years to the useful life of a roof through repair and restoration.
The following is a description of the Company's services:
Maintenance. Maintenance involves the physical inspection of an
existing roofing system to determine its current condition, detect
weaknesses and failures and identify any potential future problems. Through
a program of regularly-scheduled annual or semi-annual inspections, the
Company's technicians assist owners in protecting their roofing investments
by seeking to identify damage in its early stages. Early detection of leaks
and roofing system failures makes it possible for the Company to repair and
extend the life of a roofing system through repair or restoration, which is
significantly less expensive and time consuming than re-roofing. The
Company also intends to offer its customers a facility management program
to coordinate maintenance, repair, restoration and re-roofing as needed.
Although direct revenues from these preventive maintenance programs are
relatively minor, the Company believes that these services enable it to
cultivate strong relationships with its customers and establish a basis for
recurring revenues.
Repair. Repair is a process where an existing roofing system has
additions and adjustments made to it, such as caulking, re-coating and
repairing penetrations to fix leaks in the roofing system.
Restoration. Restoration involves the major repair of the roofing
system, including the repair of all penetrations and re-surfacing of the
roof to restore it to serviceable condition. The Company is able to inform
building owners when a roof is approaching the end of its 14 year average
life cycle through its regularly-scheduled maintenance and repair program.
The opportunity to perform restoration work normally exists two or three
years prior to the end of a roof's life cycle and before significant damage
occurs. As many as 10 years can be added to the useful life of the roof
through restoration and the cost of restoration is typically one-half the
cost of re-roofing.
Re-Roofing. Re-roofing is the process of installing a new roof when a
roofing system fails. Roofing system failure can be caused by a number of
factors, including age, severe weather, poor workmanship, defective
materials, improper specification of a roofing system, abuse and failure to
maintain the roof
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through inspections. The Company performs re-roofing only when all repair
and restoration alternatives are deemed incapable of bringing a roof back
to serviceable condition, or at the specific request of a customer.
New Construction. New roof construction involves the construction of
a variety of roofing systems, including metal roofing systems, built-up
roofing membranes and single ply roofing systems. New roof construction
coincides with the construction of a new building.
New commercial roofing work usually begins with either a proposal request
from the building owner, property manager, general contractor or roof
consultant. Initial meetings with the parties allow the roofing contractor to
prepare preliminary and then more detailed design and product specifications,
drawings and cost estimates. Once a project is awarded, it is conducted in
scheduled phases, and progress billings are rendered to the owner of the
building prior to payment, less a retention (defined as amounts withheld from
progress billings until final and satisfactory contract completion) of 5% to 10%
of the construction cost of the project. Actual field work (ordering of
equipment and materials, fabrication or assembly of certain components, delivery
of materials and components to the job site, scheduling of work crews and
inspection and quality control) is coordinated during these phases. The Company
generally provides the materials to be installed as a part of these contracts.
CUSTOMERS
In 1997, the Founding Companies provided commercial roofing services to
more than 5,000 customers, with no one customer accounting for more than 2% of
the Founding Companies' total revenues, and the ten largest customers
representing less than 10% of total revenues. The Founding Companies provide
roofing services to customers having a local, regional and national presence in
a broad range of industries, some of which are listed below:
<TABLE>
<CAPTION>
INDUSTRIAL OFFICE RETAIL HOSPITALITY GOVERNMENT EDUCATIONAL ENTERTAINMENT
- --------------------- ------------------ --------------- -------------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Abbot Laboratories, Arvida Company Barnes & Noble, Bass Hotels & Army Corp. of Dade County AMC Entertainment
Inc. Inc. Resorts Engineers Public Schools Inc.
(Holiday Inn
Hotels)
Anheuser-Busch Bell South Eckerds Best Western U. S. Postal Georgia Institute Harrah's
Companies, Inc. Telecommunications, Corporation International, Service of Technology Entertainment, Inc.
Inc. Inc.
Chrysler Corporation CB Commercial/ Federated Embassy U. S. Air University of Metro-Goldwyn-Mayer
Koll Management Department Suites, Inc. Force Central Florida Studios, Inc.
Services Stores, Inc.
Ford Motor Company Cushman & Home Depot, Hilton Hotels U.S. Army University of Planet Hollywood
Wakefield, Inc. Inc. Corp. Colorado International, Inc.
General Motors Grubb & Ellis Co. Publix Marriott U.S. Navy University of Sea World
Corporation Supermarkets, International, Miami
Inc. Inc.
Lucent Technologies, Lincoln Properties Sears Roebuck & Ramada Inc. University of United Artists
Inc. Company Co. Michigan Corporation
The Coca-Cola Company NationsBank, N.A. Simon-DeBartolo University of Universal Studios,
Group, Inc. South Florida Inc.
SunTrust Bank, Wal-Mart The Walt Disney
N.A. Stores, Inc. Company
Trammel Crow Winn Dixie
Company Stores, Inc.
</TABLE>
The Company intends to continue its emphasis on developing and maintaining
successful long-term relationships with its customers by providing superior,
high-quality service in a professional manner. The Founding Companies currently
serve customers through 22 offices. The Company believes that there are
opportunities to expand its services in other locations through the selective
acquisition of commercial roofing companies and that there is demand for the
Company to provide services to existing customers in other locations where they
are conducting business.
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ENTERPRISE INFORMATION SYSTEMS
In anticipation of the Combination, one of the Founding Companies has made
a substantial investment in a scalable, advanced enterprise information system
to be utilized by the Company, which will provide critical project status and
cost information to all employees on a daily basis and will provide management
with comprehensive reports on substantially all aspects of the Company's
operations. The Company's enterprise information system, which has been
developed over a five-year period and has been operational since 1996, is run in
tandem with the Company's accounting system. Each of the Company's current
locations will be networked with a commonly configured work station
electronically linked to all other Company locations and the Company's central
databases, resulting in a centrally managed wide area network. The Company has
developed a comprehensive set of management information databases covering
financial performance, roofing projects budgets, employee productivity, sales
and labor and material costs. Company management can access these databases 24
hours-a-day at all locations via the Internet to analyze substantially all
aspects of the Company's operations, including the performance of acquired
businesses. In addition, the job cost and productivity reports generated by the
project management system are posted on bulletin boards at the Company's
headquarters and locations for all personnel to evaluate. Set forth below is a
description of the job cost and productivity reports.
Job Cost Reports. Job cost reports convey the status of a roofing
project and are updated daily. These reports provide feedback to
management, project managers, and personnel on project budgets and enable
them to manage and control material, equipment and labor costs and other
project expenses. These reports also include information on total committed
costs (costs recognized from purchase orders and unposted time cards),
budgeted costs and costs incurred to date. Each cost category in the
summary report is shown in bar graph format and detailed cost reports
specify individual cost items as a line item and highlight the variance
between budgeted and actual costs.
Productivity Reports (Score Cards). These reports offer a consistent,
accurate and fair method of comparing employees, measured by the gross
profit attributable to each employee for a reporting period. Employees are
compared by profit center, division and job classification. These reports
may be generated on a monthly, quarterly and annual basis.
With limited exceptions, in the initial integration stage following the
Combination the Company intends to continue to operate with the existing
accounting and other computer systems currently in place at the various Founding
Companies. The Company has developed regular financial and operational "flash
reports" and other mechanisms to allow for timely management control and
oversight. The Company will utilize this information to establish and monitor
performance of individual Founding Companies against operating benchmarks and
ratios. The Company will, however, cause each of the Founding Companies to adopt
a uniform chart of accounts and to standardize its budgeting process and reports
so that results among the Founding Companies more easily can be compared and
integrated. The Company believes that its substantial investment in advanced
information technology is unique in the commercial roofing industry and will
continue to create profit improvement opportunities. In addition, where a
Founding 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). Management believes that the
Company's enterprise information system will be fully implemented and accessible
on a Company-wide basis by the end of 1999. See "Risk Factors -- Dependence on
Enterprise Information Systems."
SALES AND MARKETING
The Company believes that the reputation of the Founding Companies for
providing high-quality services has enabled them to obtain recurring business
through customer referrals and new business. The Company intends to further
develop its maintenance services, which provide higher margins and ongoing
interaction with customers. 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 commercial roofing services. The
Company intends to leverage the diverse technical and marketing strengths of
individual
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<PAGE> 62
Founding Companies to expand the overall penetration of services within those
local markets in which two or more Founding Companies are located. Eventually,
the Company intends to offer comprehensive services from all of its operating
locations.
The Founding Companies use their direct sales force to market their
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 Founding Companies. The
GRS logo and identifying marks will be featured on service trucks, marketing
materials and advertising of the Founding Companies, but in a manner that does
not detract from the local brand. The Company proposes to develop market-leading
warranty and service programs for the commercial markets, as well as an
aggressive national account sales program focused on national and major
corporations, governmental and private institutions, REITs, real estate
management firms and other multi-location commercial property owners and
managers. The Company has also created a National Accounts Group, which will be
responsible for developing and managing the Company's relationship with
customers having a regional or national presence. The Company will supplement
its sales and marketing activities through participation in industry trade shows
and conferences, direct mail, its Internet website and advertising in local
industry publications and the yellow pages in the markets it serves.
PERSONNEL, TRAINING AND SAFETY
The Company intends to adopt a comprehensive training program, which
provides extensive classroom and on-the-job training programs for its personnel
based on the NRCA's model training program, and provide immediate training to
roof laborers in the Company's methods, procedures and standards with an
emphasis on high quality service. These programs will be presented by a special
training team consisting of senior personnel of the Company and the laborers
will be continuously informed of advances in roofing system technology and
techniques and product selection. The Company's training program will also be
designed to ensure that all of its roofing laborers meet safety standards
established by the Company, its insurance carriers and federal, state and local
laws and regulations. The Company has safety supervisors who conduct initial and
continuous comprehensive training classes for all personnel in safety and risk
management. In addition, the safety supervisors work with senior management to
observe and evaluate safety procedures in an effort to constantly improve the
effectiveness of the Company's safety programs. The Company also maintains a
safety report database allowing senior management to oversee safety practices on
a Company-wide level. The Company seeks to have all of its roofing laborers
participate in on-going training seminars and professional education classes.
At March 31, 1998, the Founding Companies had 1,960 full-time employees,
including 1,666 employees in field operations and 294 managers and
administrative employees. Approximately 600 employees in seven of the Founding
Companies are members of unions and work under collective bargaining agreements
which are subject to renegotiation from time to time. The range of expiration
dates for the various collective bargaining agreements to which the Founding
Companies are a party is from May 13, 1996 through May 31, 2001. The agreements
that have expired contain an "evergreen" clause which provides that upon the
expiration of the agreement termination date, the agreement will continue in
force until it is terminated and/or superseded by a new agreement. The purpose
of an "evergreen" clause is to prevent a disruption in an employer's operations
and to preserve the continuity of the terms of the agreement. The Founding
Companies have not experienced any labor-related work stoppage and considers its
relations with its employees to be good.
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) commercial roofing materials and supplies, (ii) purchase or lease and
maintenance of equipment including service vehicles, (iii) casualty, liability
and health insurance and related benefits and (iv) accounting and legal
services. Each Founding 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.
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<PAGE> 63
COMPETITION
The commercial roofing industry is highly fragmented with many roofing
contractors competing intensely with the Company on a local basis. In the
future, competition may be encountered from new entrants on a regional or
national level. The Company believes that purchasing decisions in this industry
are based on (i) price, (ii) reputation for reliability and quality of services
provided, (iii) long-term customer relationships, and (iv) range of services
provided. The Company believes that its strategy of becoming a leading national
provider of commercial roofing services will enhance its competitive position.
In addition, the Company believes that its enterprise information systems and
standardized operating procedures provide the Company with a distinct
competitive advantage. The Company believes that the market for its services
will expand as it selectively acquires other roofing businesses.
GOVERNMENT REGULATION
The Company's business and the activities of its roofing contractors are
subject to various federal, state, and local laws, regulations and ordinances
relating to, among other things, the licensing and certification of roofing
contractors, OSHA standards, advertising, building and zoning regulations and
environmental laws and regulations relating to the disposal of demolition debris
and other solid wastes. In certain jurisdictions, the Company or one of its
employees is required to be a licensed contractor. In addition, certain
jurisdictions require the Company to obtain a building permit for each roofing
project. The Company is also subject to certain federal, state and local laws
and regulations, which, among other things, regulate the Company's advertising,
warranties and disclosures to customers. Although the Company believes that it
has been and is currently in compliance in all material respects with such laws
and regulations, there can be no assurance that in the future the Company's
results of operations will not be materially adversely affected by existing or
new laws or regulations applicable to the Company's business.
INSURANCE
Upon completion of the Combination, the Company intends to consolidate
insurance policies covering general liability, comprehensive property damage,
workers' compensation, automobile and other risks. The Company believes that
these coverages will be consistent with industry standards and adequate to
insure against the various liability risks of its business. There can be no
assurance, however, that the coverage limits of such insurance policy will be
adequate. A successful claim against the Company in excess of its insurance
coverage could have a material adverse affect on the Company and its financial
condition.
FACILITIES AND VEHICLES
The following table sets forth the principal operating facilities of the
Company:
<TABLE>
<CAPTION>
OWNED/ LEASE
LOCATION SQ. FOOTAGE LEASED EXPIRATION DATE
- -------- ----------- ------ ---------------
<S> <C> <C> <C>
Tempe, AZ......................................... 4,800 Leased March 2000
Tucson, AZ........................................ 4,500 Leased December 1998
Sacramento, CA.................................... 10,000 Leased August 2002
Denver, CO........................................ 7,000 Owned --
DeBary, FL........................................ 10,300 Leased August 1999
Ft. Lauderdale, FL................................ 10,500 Leased December 2001
Jacksonville, FL.................................. 6,000 Owned --
Jacksonville, FL.................................. 5,000 Leased August 1999
Jacksonville, FL.................................. 2,000 Leased December 1999
Orlando, FL....................................... 16,000 Leased December 2005
</TABLE>
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<PAGE> 64
<TABLE>
<CAPTION>
OWNED/ LEASE
LOCATION SQ. FOOTAGE LEASED EXPIRATION DATE
- -------- ----------- ------ ---------------
<S> <C> <C> <C>
Pompano Beach, FL................................. 17,000 Leased December 2008
Pompano Beach, FL................................. 6,000 Leased December 2008
Tampa, FL......................................... 13,000 Leased December 2005
Smyrna, GA........................................ 7,500 Leased December 2003
Aurora, IL........................................ 26,000 Leased December 2001
Indianapolis, IN.................................. 5,200 Owned --
Kansas City, KS................................... 12,500 Owned --
Detroit, MI....................................... 26,000 Owned --
Howell, MI........................................ 10,400 Leased August 2000
Rochester Hills, MI............................... 13,000 Leased December 2000
Indian Trail, NC.................................. 12,000 Owned --
Dallas, TX........................................ 11,500 Leased June 2000
West Allis, WI.................................... 24,300 Owned --
</TABLE>
The Company operates a fleet of approximately 530 trucks, vans and other
vehicles. A portion of the Company's fleet consists of rebuilt used vehicles.
The Company retrofits these vehicles by increasing the passenger and cargo space
which allows the Company to minimize the number of vehicles which are required
on roofing jobs.
The Company believes that its facilities and vehicles are generally
well-maintained and adequate for the Company's current operations. See "Certain
Transactions."
LEGAL PROCEEDINGS
The Company and its subsidiaries are, from time to time, parties to various
litigation matters arising in the normal course of its business, most of which
involve claims for personal injury and property damage incurred in connection
with its operations. The Company is not currently involved in any litigation
that the Company believes, based on its examination of such matters, is likely
to have a material adverse effect on its financial condition or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company and those persons who will
become directors, executive officers and key employees of the Company prior to
or upon the consummation of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gregg E. Wallick............ 43 Chairman of the Board, President and Chief Executive
Officer
Eric B. Levine.............. 61 Senior Vice President of Corporate Development
William A. Abberger III..... 41 Senior Vice President of Operations
Dale E. Eby................. 46 Senior Vice President, Chief Financial Officer and
Treasurer
Robert Brooker.............. 34 Vice President of Technology
Angela Pettus............... 31 Vice President of Human Resources Administration
John C. Cook................ 53 President and Chief Executive Officer of C.E.I.
Florida and Director Nominee
Joel A. Thompson............ 45 President and Chief Executive Officer of Anthony
Roofing and Director Nominee
Thomas E. Brown, Jr......... 51 Chairman and Chief Executive Officer of Wright-Brown
and Director Nominee
J. Patrick Millinor, Jr..... 52 Director Nominee
Francis X. Maguire.......... 65 Director Nominee
Charles "Red" Scott......... 70 Director Nominee
David C. Willis............. 66 Director Nominee
Robert G. Shuler............ 34 Director Nominee
</TABLE>
GREGG E. WALLICK has served as the Chairman of the Board, President and
Chief Executive Officer and a member of the Board of Directors of the Company
since its inception. From 1988 until the Company's inception, Mr. Wallick served
as the President and Chief Executive Officer of GRI, one of the Founding
Companies. Mr. Wallick has spearheaded the Company's consolidation effort. Mr.
Wallick has more than 18 years of experience in the commercial roofing industry.
Mr. Wallick is a director of the NRCA and a member of the Board of Governors of
the Alliance for Progress and is a member of its Steering Committee. Mr. Wallick
holds a BBA and a Masters of Business Administration from the University of
Miami and is a former captain of the University of Miami Hurricanes football
team.
ERIC B. LEVINE has served as the Senior Vice President of Corporate
Development of the Company's since its inception. From June 1997 until the
Company's inception, Mr. Levine served as the Senior Vice President of GRI, one
of the Founding Companies. From June 1990 until he joined the Company, Mr.
Levine served as the President of the Chief Executives Organization, an
international business development and strategic planning consulting firm which
he founded. From 1985 to 1989, Mr. Levine served as the Vice President of
Cincinnati Bell Information Systems. From 1981 to 1985, Mr. Levine served as the
President of Vorwerk USA, a division of Vorwerk AG, a $2 billion computer
products conglomerate engaged in manufacturing and marketing, and as a director
for 12 years. Mr. Levine was the founder and President of Metlec Sales, Inc., a
franchisee of Vorwerk AG, from 1970 to 1981.
WILLIAM A. ABBERGER III has served as the Senior Vice President of
Operations of the Company since its inception. From November 1997 until the
Company's inception, Mr. Abberger served as the Senior Vice President of
Operations of GRI, one of the Founding Companies. From 1981 to 1997, Mr.
Abberger served as the Vice President of the Quality and Productivity
Improvement Group of FMI Corporation, a company
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which has provided construction consulting services since 1954, where his
responsibilities included providing management consulting and education services
in the construction industry. Mr. Abberger served as a director of FMI
Corporation from 1987 to 1997. Mr. Abberger also currently serves as a member of
the Board of Directors of American General Contractors Association. Mr. Abberger
holds a Bachelor of Science degree from Clarkson College and a Masters of
Business Administration from Dartmouth College.
DALE E. EBY has served as the Senior Vice President, Chief Financial
Officer and Treasurer of the Company since its inception. From July 1997 until
the Company's inception, Mr. Eby served as the Chief Financial Officer and
Treasurer of GRI, one of the Founding Companies. From December 1995 until July
1997, Mr. Eby served as the Chief Financial Officer of Gold Coast Media Inc., a
direct marketing company. From April 1987 until May 1995, Mr. Eby served as
Chief Financial Officer and in other financial management positions with
Attwoods Incorporated, a waste management company which was a wholly-owned
subsidiary of Attwoods PLC, a NYSE company, and a company whose securities
traded on the London Stock Exchange. From June 1995 until December 1995, Mr. Eby
served as a consultant to Browning-Ferris Industries, Inc., a NYSE company,
which acquired Attwoods PLC in December 1994. Mr. Eby is a certified public
accountant.
ROBERT BROOKER has served as the Vice President of Technology of the
Company since its inception. From February 1993 until the Company's inception,
Mr. Brooker served as the Vice President of Technology of GRI, one of the
Founding Companies. From 1988 until February 1993, Mr. Brooker served as the
Assistant Supervisor of Administration for the Palm Beach School District in
south Florida, where he developed a computerized maintenance management system.
From 1981 to 1988, Mr. Brooker served as the General Manager of ABA Roofing &
Sheetmetal. Mr. Brooker designed and implemented the Company's enterprise
information system.
ANGELA PETTUS has served as the Vice President of Human Resources
Administration of the Company since its inception. From 1995 until the Company's
inception, Ms. Pettus served as the Vice President of Human Resources
Administration of GRI, one of the Founding Companies. Since 1987, Ms. Pettus has
served in various positions with GRI involving its administrative functions. Ms.
Pettus has management and administrative expertise in resolving roofing
contractors' workers compensation claims and related medical benefits issues.
Ms. Pettus has expertise in resolving worker's compensation issues.
JOHN C. COOK will become a Director of the Company and continue in his
present position as the president and chief executive officer of C.E.I. Florida,
one of the Founding Companies, upon the consummation of the Offering. Mr. Cook
is a co-founder of Cook Enterprises and has served as the President and Chief
Executive Officer of C.E.I. Florida for more than five years prior to the date
hereof. From 1982 to 1992, Mr. Cook served as a member of the Board of Directors
of First America Bank.
JOEL A. THOMPSON will become a Director of the Company and continue in his
present position as the President and Chief Executive Officer of Anthony
Roofing, one of the Founding Companies, upon the consummation of the Offering.
Mr. Thompson is the founder of Anthony Roofing. Mr. Thompson has over 27 years
of experience in the roofing industry, and has actively participated in several
industry organizations throughout his career, including the NRCA, the Midwest
Roofing Contractors Association and the Chicago Roofing Contractors Association.
THOMAS E. BROWN, JR. will become a Director of the Company and continue in
his present position as the Chairman and Chief Executive Officer of
Wright-Brown, one of the Founding Companies which is one of the oldest
commercial/industrial roofing contractors in Detroit, Michigan. Mr. Brown has
served as a member of the Board of Directors of the NRCA. Mr. Brown has also
served as Chairman and Trustee, and as a member of the Board of Directors of the
Sheetmetal Industry Promotion Fund. Mr. Brown has also served as President of
the Southeast Michigan Roofing Contractors Association.
J. PATRICK MILLINOR, JR. will become a Director of the Company upon the
consummation of the Offering. Since October 1996, Mr. Millinor has served as the
Chief Executive Officer and a Director of Group Maintenance America Corp., a
company listed on the NYSE. From September 1994 to October 1996, Mr. Millinor
assisted in the formation and management of Agennix Incorporated and Lexicon
Genetics, two
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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 and Haelan Health(R) Corporation.
FRANCIS X. MAGUIRE will become a Director of the Board of the Company upon
the consummation of the Offering. Since 1985, Mr. Maguire has served as the
Chairman and Chief Executive Officer of Hearth Communication Group and is a key
note speaker, trainer and consultant providing services to Fortune 500
companies. From 1974 to 1984, Mr. Maguire served as the Senior Vice President of
Industrial Relations at Federal Express. Mr. Maguire has previously served as
the Senior Vice President of Kentucky Fried Chicken, Director of Marketing and
Public Relations of American Airlines, Director of Program Development at the
American Broadcasting Company and as one of the task force members of the "War
on Poverty" initiative during the Kennedy-Johnson administration.
CHARLES "RED" SCOTT will become a Director of the Company upon the
consummation of the Offering. Mr. Scott has served as the Chairman and Chief
Executive Officer of TEC Florida, Inc., a leadership training organization, for
more than five years prior to the date hereof. From 1991 to December 1994, Mr.
Scott served as the President and Chief Executive Officer of Actava Group, Inc.,
a NYSE company. From 1970 until 1991, Mr. Scott served as the President and
Chief Executive Officer of Intermark, a NYSE company. In 1984, Mr. Scott was the
recipient of the Horatio Alger Award of Distinguished Americans. Mr. Scott
currently serves on the Board of Directors of Pier I Imports, a NYSE company,
Union Bank of California and PSS World Medical, Inc., a company whose securities
are on the Nasdaq Stock Market.
DAVID C. WILLIS will become a Director of the Company upon the consummation
of the Offering. Mr. Willis is a Co-Founder and has served as a Senior
Consultant of FMI Corporation. From 1954 to 1997, Mr. Willis served as a partner
of FMI Corporation. While at FMI Corporation, Mr. Willis developed a "zero
injury" improvement process, which is a worker safety program taught by FMI
Corporation's consultants, and co-developed the total quality management program
for the construction industry which consists of numerous quality procedures,
including inspection procedures, training and supervision of personal and
ongoing quality oversight by management. Prior to joining FMI Corporation, Mr.
Willis was a professor for 17 years at North Carolina State University. He
earned a Bachelor of Science at Tennessee Polytechnic Institute and a Master of
Science at North Carolina State University.
ROBERT G. SHULER will become a Director of the Company upon the
consummation of the Offering. Mr. Shuler is a co-founder of Petra Capital, LLC,
an investment firm, and since 1996, has served as its co-Managing Partner and a
member of its Advisory Board, mostly recently as its President, Chief Executive
Officer and a Director. From 1993 to 1996, Mr. Shuler was a Vice President and a
Principal at Sirrom Capital Corporation, a NYSE company. From 1991 to 1993, Mr.
Shuler served as an investment banker at Equitable Securities Corporation. From
1987 to 1989, Mr. Shuler was a corporate finance professional at The Robinson-
Humphrey Company, LLC.
Effective upon the consummation of the Offering, the Board of Directors of
the Company will consist of nine members divided into three classes consisting
of one class of one director, one class of three directors and one class of five
directors serving staggered three-year terms expiring at the annual meeting of
shareholders in 1999, 2000, and 2001, 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.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established six committees -- the Executive
Committee, Nominating Committee, Audit Committee, Compensation Committee,
Finance Committee and Acquisition Committee. Pursuant to resolutions of the
Board of Directors, these committees have the responsibilities and authority
described below.
Executive Committee. The Executive Committee is authorized, subject to
Florida law, to exercise the power and authority of the Board of Directors in
the management of the business and affairs of the Company between meetings of
the full Board of Directors. The members of the Executive Committee are Messrs.
Wallick and Cook.
Nominating Committee. The Nominating Committee has the responsibility to
propose nominees to the Board of Directors. The members of the Nominating
Committee are Messrs. Maguire, Shuler, Scott and Willis.
Audit Committee. The Audit Committee has the responsibility 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
the Company's independent public accountants the adequacy of the Company's
accounting system and the effectiveness of the Company's internal audit plan and
activities, (iv) reviewing with management and the Company's 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. The members of the Audit Committee are Messrs. Maguire,
Millinor, Shuler, Scott and Willis.
Compensation Committee. The Compensation Committee has the responsibility
of (i) establishing the salary rates of officers and employees of the Company
and its subsidiaries, (ii) approving the issuance of stock options under the
Company's 1998 Stock Option and Restricted Stock Purchase Plan, as well as any
issuance of securities to management and its affiliates other than pursuant to
such stock option plan, (iii) examining periodically the compensation structure
of the Company and (iv) supervising the welfare and pension plans and
compensation plans of the Company. Any options or other securities to be issued
to members of the Compensation Committee or their respective affiliates must be
approved by a majority of the members of the Company's Board of Directors who do
not have an interest in such transaction. The members of the Compensation
Committee are Messrs. Maguire, Shuler, Scott and Willis.
Finance Committee. The Finance Committee has the responsibility of (i)
monitoring the financial performance of the Company and (ii) reviewing and
making recommendations to the Board of Directors for the Company's annual budget
and financial policies. The members of the Finance Committee are Messrs.
Wallick, Thompson, Brown, and Cook.
Acquisition Committee. The Acquisition Committee has the responsibility of
establishing the profile of the types of companies, geographic area and
valuation formula for the roofing companies to be acquired by the Company. The
members of the Acquisition Committee are Messrs. Cook, Thompson, and Brown.
DIRECTOR COMPENSATION
The Company intends to grant to each director of the Company who is not an
employee of the Company or its subsidiaries options to purchase 15,000 shares of
Common Stock at a purchase price per share equal to the fair market value of the
Common Stock on the date of grant. Such options will remain in effect for ten
years after the date of grant and will become exercisable in equal amounts over
a three year period. If a director ceases to serve in such capacity because of
his death, disability or retirement, the options granted to that director will
remain exercisable for the ten year period. Each outside director also will be
paid $1,500 and reimbursed for travel expenses incurred for each Board meeting
attended. Members of committees of the Board of Directors of the Company will be
compensated $1,000 for each Committee meeting attended.
67
<PAGE> 69
EXECUTIVE COMPENSATION
The Company was incorporated in May 1998 and, prior to the Offering, has
not conducted any operations other than activities related to the Combination
and the Offering. During 1998, the annualized base salaries of its most highly
compensated executive officers will be: Gregg E. Wallick -- $200,000; Dale E.
Eby -- $120,000; Eric B. Levine -- $120,000; and William A. Abberger III --
$120,000 (collectively, the "Named Executive Officers").
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with uniform terms for
each of the Named Executive Officers. Each of the agreements has an initial term
of three years, and is terminable after the first year of the term by either
party without cause upon 180 days' prior written notice. The employment
agreements provide for annual compensation payable to the Named Executive
Officers as follows: Gregg E. Wallick -- $200,000; Dale E. Eby -- $120,000; Eric
B. Levine -- $120,000; and William A. Abberger III -- $120,000. The Named
Executive Officers are also eligible for bonus compensation and are entitled to
participate in the Company's 1998 Stock Option and Restricted Stock Purchase
Plan. The agreements also generally restrict certain of the Company's executive
officers and members of management from competing with the Company for a period
of two years after the date of termination of employment with the Company, and
prohibit such officers and members of management from disclosing the Company's
confidential information and soliciting employees and former employees of the
Company for employment in another company for a period of one year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee's function is to recommend to the Board of
Directors compensation decisions for the Company's executive officers and to
administer the Company's 1998 Stock Option and Restricted Stock Purchase Plan.
See "Management -- Committees of The Board of Directors."
1998 STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
The Company has adopted a 1998 Stock Option and Restricted Stock Purchase
Plan (the "Plan"). An aggregate of 1,500,000 shares of Common Stock are
authorized for issuance under the Plan. After giving effect to the Combination
(pursuant to which options to purchase shares of capital stock of GRI will be
converted into options to purchase 216,300 shares of Common Stock), the Company
will grant options to purchase approximately 560,000 shares of Common Stock to
employees and directors of the Company immediately following the Offering. The
purpose of the Plan is to attract and retain qualified personnel, to provide
additional incentives to employees, officers and directors of the Company and to
promote the success of the Company's business. In furtherance of this purpose,
the Plan authorizes (i) the granting of incentive and non-statutory stock
options to purchase shares of Common Stock to employees, officers and directors
of the Company, and (ii) the granting of rights to purchase shares of Common
Stock on a "restricted stock" basis (the "Awards") to employees, officers and
directors of the Company. Incentive stock options may only be granted to
full-time employees of the Company or its subsidiaries. Non-statutory stock
options and Awards may be granted to directors of the Company and any person
employed by the Company or its subsidiaries. The Plan is administered by the
Compensation Committee of the Board. The Compensation Committee has complete
discretion to determine which eligible individuals are to receive option or
Award grants, the number of shares subject to each such grant, the status of any
granted option as either an incentive stock option or a non-statutory option,
the vesting schedule to be in effect for the option or Award grant and the
maximum term for which any granted option or Award is to remain outstanding.
Each option granted under the Plan has a maximum term of ten years (five
years with respect to incentive stock options granted to holders of more than
10% of the voting power of the Company's outstanding stock), subject to earlier
termination following the optionee's cessation of service with the Company.
Options granted under the Plan may be exercised only for fully vested shares.
The exercise price of incentive stock options and non-statutory stock options
granted under the Plan must be at least 100% and 85% of the fair
68
<PAGE> 70
market value of the stock subject to the option on the date of grant,
respectively (or 110% with respect to incentive stock options granted to holders
of more than 10% of the voting power of the Company's outstanding stock). The
purchase price is payable immediately upon the exercise of the option. Such
payment may be made in cash, in outstanding shares of Common Stock held by the
participant, through a promissory note payable in installments over a period of
years or any combination of the foregoing.
The Board may amend or modify the Plan at any time, provided that no such
amendment or modification may adversely affect the rights and obligations of the
participants with respect to their outstanding options, Awards or vested shares
without their consent. In addition, no amendment of the Plan may, without the
approval of the Company's shareholders: (i) modify the class of individuals
eligible for participation; (ii) increase the number of shares available for
issuance, except in the event of certain changes to the Company's capital
structure; or (iii) extend the term of the Plan.
Options granted under the Plan have been structured to provide incentive to
achieve the Company's financial goals and enhance shareholder value. In general,
options granted under the Plan vest ratably over a four year period commencing
one year from the date of grant.
CERTAIN TRANSACTIONS
Individuals who are or will become executive officers or directors of the
Company will receive the following portions of the Acquisition Consideration in
the Combination for their interests in the Founding Companies.
<TABLE>
<CAPTION>
SHARES OF
COMPANY CASH COMMON STOCK
- ------- ---------- ------------
<S> <C> <C>
Gregg E. Wallick(1)......................................... $ -- 2,067,596
John C. Cook(2)............................................. 2,725,978 237,981
Joel A. Thompson(3)......................................... 7,514,439 1,022,357
Thomas E. Brown, Jr.(4)..................................... 3,634,064 317,259
</TABLE>
- ---------------
(1) Mr. Wallick is the sole stockholder of GRI. See "The Combination."
(2) Mr. Cook is a stockholder of each of the C.E.I. Companies. See "The
Combination."
(3) Mr. Thompson and his wife are the sole stockholders of Anthony Roofing. See
"The Combination."
(4) Mr. Brown is the principal stockholder of Wright-Brown. See "The
Combination."
The Company leases its headquarters offices and operating facilities in
Pompano Beach, Tampa and Orlando, Florida from entities controlled by Gregg E.
Wallick or members of Mr. Wallick's family. None of these leases expire prior to
2008. The aggregate annual base rent to be paid under these leases is
approximately $260,000 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.
General Roofing Industries has from time to time made loans (the "GRI
Loans") to Gregg E. Wallick. As of March 31, 1998, the aggregate amount of the
GRI Loans was $332,286. The GRI Loans are non-interest bearing and are due and
payable upon demand by GRI. Mr. Wallick intends to repay the GRI Loans upon
consummation of the Offering.
Anthony Roofing leases certain office facilities from Molitor, Inc., a
company which is wholly owned by Joel A. Thompson. Lease payments made by
Anthony Roofing to Molitor, Inc. were $195,677 and $135,741 for the years ended
December 31, 1997 and 1996, respectively. The term of the lease expires in 2001
and is subject to a five year renewal option. The minimum annual payments for
the years ended 1998, 1999, 2000 and 2001 are $163,800, $172,000, $180,600 and
$189,700, respectively. 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.
69
<PAGE> 71
From time to time, Anthony Roofing hires as a subcontractor Uni-Craft,
Inc., a company specializing in interior protection work which is owned by Joel
A. Thompson's brother. Payments to this company for work performed were
approximately $164,000 and $202,000 for the years ended December 31, 1997 and
1996, respectively. Payments to this company through June 30, 1998 were
approximately $41,000. There are no existing contracts or commitments for
additional payments at the present time.
C.E.I. Roofing leases certain office space in Michigan and Texas from
Wheelock & Associates, a partnership owned by Doug Reader, George Cook and John
Cook. Lease payments made by C.E.I. Roofing to Wheelock & Associates were
$164,199 and $148,599 for the years ended December 31, 1997 and 1996. The term
of the leases expire in 2000. The minimum annual payments for the years ending
1998, 1999 and 2000 are $120,000, $120,000 and $60,000, respectively. 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. C.E.I. Roofing also has granted a corporate guarantee to secure
$500,000 of indebtedness of Wheelock & Associates. The loans comprising this
guaranteed indebtedness are due in monthly installments of approximately $8,200,
but vary based upon the prime rate. The loans are collateralized by real estate
and are due at maturity in September 1998 and July 2002. The largest aggregate
balance of the indebtedness during 1997 was $525,396.
C.E.I. Roofing hires certain employees and laborers from CJRFG, Inc. and
Chris Jon Roofing, Inc., Texas corporations owned by certain children of Doug
Reader. The aggregate amounts paid by C.E.I. Roofing to these companies were
$4.4 and $3.7 million for the years ended December 31, 1997 and 1996,
respectively. Payments to these companies through June 30, 1998 totalled
$2,052,192, and an additional $2,025,000 is expected to be incurred during the
remainder of 1998. CJRFG, Inc. and Chris Jon Roofing, Inc. lease the employees
and laborers at cost with no markup. As such, C.E.I. Roofing believes these
leasing arrangements are no less favorable than could have been negotiated by
C.E.I. Roofing with unaffiliated third parties.
General Roofing Industries paid the Chief Executive Officers Organization,
a consulting company wholly owned by Eric B. Levine, $126,716 and $75,633 during
the fiscal years ended October 31, 1997 and 1996, respectively, for certain
consulting services. Since October 31, 1997 payments totaling $78,461 have been
made to this company and another $13,842 are expected to be made through the
date of the Offering.
In January 1998, Petra Capital, LLC ("Petra") loaned an aggregate of
$3,000,000 to General Roofing Industries, Inc. (n/k/a General Roofing
Acquisition Corp., GRI of South Florida, Inc., GRI of Orlando, Inc., GRI of West
Florida, Inc. and Dakota Leasing, each of which are Founding Companies and
wholly-owned by Gregg E. Wallick, the Chairman of the Board of the Company. The
entire amount of this loan (the "Petra Loan") is currently outstanding.
Indebtedness under the Petra Loan bears interest at an annual rate of 13% and is
due in January 2003. In consideration of the Petra Loan, Petra received warrants
to purchase common stock of General Roofing Industries. Upon completion of the
Combination, such warrants will represent the right to purchase 65,922 shares of
Common Stock of the Company at a nominal exercise price. Robert G. Shuler, who
will become a director of the Company upon the consummation of the Offering, is
a co-founder of Petra and is Petra's co-managing partner. The Petra Loan will be
repaid upon the closing of the Offering.
Following consummation of the Offering, the Company will not enter into any
material transaction with officers or directors, or their family members,
without the approval of a majority of the directors who do not have an interest
in such transaction.
70
<PAGE> 72
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. Each person's address is c/o the Company's
principal executive offices at 951 South Andrews Avenue, Pompano Beach, Florida
33069.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL OUTSTANDING
OWNERSHIP OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) AFTER OFFERING(2)
- ------------------------------------ --------------- -----------------
<S> <C> <C>
Gregg E. Wallick............................................ 2,067,596 20.15%
Joel A. Thompson(3)......................................... 1,022,357 9.97
Thomas E. Brown, Jr.(4)..................................... 317,259 3.09
R. Wayne Cooke.............................................. 603,013 5.88
John C. Cook................................................ 237,981 2.32
Francis X. Maguire.......................................... 0 *
Robert G. Shuler............................................ 0 *
David C. Willis............................................. 0 *
Charles "Red" Scott......................................... 0 *
J. Patrick Millinor, Jr..................................... 0 *
Dale E. Eby................................................. 0 *
Eric B. Levine.............................................. 0 *
William A. Abberger III..................................... 0 *
--------- -----
All executive officers and directors of the Company as a
group (12 persons)........................................ %
========= =====
</TABLE>
- ---------------
* Less than 1%.
(1) The shares of Common Stock will be issued to such persons upon consummation
of the Offering.
(2) The above amounts do not include options to purchase shares of Common Stock
held by such individuals which are not exercisable within 60 days of the
date of this Prospectus.
(3) Includes 511,187 shares of Common Stock owned by Joel A. Thompson's wife.
(4) Such shares of Common Stock are held by the Thomas E. Brown, Jr. Revocable
Trust U/T/A September 16, 1980 for the benefit of such shareholder.
71
<PAGE> 73
THE COMBINATION
In May 1998, the Company entered into separate agreements to acquire the
Founding Companies in exchange for cash, Common Stock or a combination thereof.
The Combination will be effective concurrently with the consummation of the
Offering, and the stockholders of the Founding Companies will receive an
aggregate of 6,258,667 shares of Common Stock and an aggregate of approximately
$25.7 million in cash from the net proceeds of the Offering. The Company's
existing shareholder (the "Existing Shareholder") will receive the difference
between (i) the 6,258,667 shares of Common Stock to be outstanding after the
Combination, exclusive of the shares sold in the Offering, and (ii) the total
number of shares issued to the shareholders of the Founding Companies other than
the Existing Shareholder in consideration for his ownership interest in GRI, the
accounting acquirer. The specific number of shares of Common Stock to be issued
in the Combination to the stockholders of the Founding Companies other than the
Existing Shareholder (the "Stock Consideration") will be determined by dividing
approximately $58.7 million by the initial public offering price of the Common
Stock. The table below illustrates the aggregate number of shares of Common
Stock and the percentage of the total number of shares of Common Stock after the
Offering that will be (i) issued to new investors in the Offering, (ii) issued
to the shareholders of the Founding Companies in the Combination and (iii) held
by the Existing Shareholder in connection with the Combination if the initial
public offering price of the Common Stock is, alternatively, $13.00, $14.00 or
$15.00.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK IF
PRICE TO PUBLIC IS:
------------------------------------------------------------
$13.00 $14.00 $15.00
------------------ ------------------ ------------------
SHARES % SHARES % SHARES %
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
New investors........................ 4,000,000 39.0 4,000,000 39.0 4,000,000 39.0
Existing Shareholder................. 1,745,206 17.0 2,067,596 20.2 2,347,001 22.9
Other Founding Companies............. 4,513,461 44.0 4,191,071 40.8 3,911,666 38.1
---------- ----- ---------- ----- ---------- -----
Total(1)................... 10,258,667 100.0% 10,258,667 100.0% 10,258,667 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
- ---------------
(1) Excludes 1,500,000 shares of Common Stock reserved for issuance under the
Company's 1998 Stock Option and Restricted Stock Purchase Plan of which
options to purchase approximately 560,000 shares of Common Stock will be
granted to directors and employees of the Company immediately following the
Offering. In addition, options and warrants to purchase 282,222 shares of
Common Stock are expected to be issued upon the conversion of outstanding
options and warrants of GRI in the Combination. The options and warrants
will be converted based upon the conversion ratio of GRI for shares of the
Company's Common Stock, and will contain an equivalent exercise price
adjusted to reflect such ratio. See "Management -- 1998 Stock Option and
Restricted Stock Purchase Plan."
The consideration for the Combination was negotiated by the parties and was
based primarily upon the historical earnings before interest and taxes of each
Founding Company. In addition, the Company intends to repay approximately $9.7
million of existing indebtedness of the Founding Companies with proceeds from
the Offering.
The consummation of each acquisition is subject to customary conditions.
These conditions include, among others, the accuracy of the representations and
warranties by the Founding Companies, their stockholders and the Company; the
performance by each of the parties of their respective covenants; and the
nonexistence of a material adverse change in the financial condition or business
of each Founding Company. There can be no assurance that the conditions to the
closing of each acquisition will be satisfied or waived or that the acquisition
agreements will not be terminated.
72
<PAGE> 74
The following table sets forth for each Founding Company (i) the
approximate portion of the Acquisition Consideration to be paid to the
stockholders of each of the Founding Companies in cash and in shares of Common
Stock (based upon an assumed initial public offering price of $14.00 per share),
which number of shares is subject to adjustment based on the initial public
offering price of the Common Stock offered hereby and (ii) the total debt which
would have been assumed by the Company as of March 31, 1998, which represents
historical indebtedness, excluding indebtedness transferred to owners of the
Founding Companies. The Combination excludes certain assets and operations of
the Founding Companies with a net book value of $1.0 million not required for
the ongoing operations of the Company.
<TABLE>
<CAPTION>
CASH AND SHARES OF
S CORPORATION COMMON ASSUMED
FOUNDING COMPANIES DISTRIBUTIONS(1) STOCK INDEBTEDNESS
- ------------------ ---------------- --------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
General Roofing Industries Companies(2)................. $ 732 2,067,596 $ 4,651
The C.E.I. Companies:
C.E.I. Roofing, Inc. ................................. 3,190 278,500 305
C.E.I. West Roofing Company, Inc. .................... 3,460 302,000 512
C.E.I. Florida, Inc. ................................. 4,085 356,643 331
Blackmore and Buckner Roofing, Inc.(4)(8)............... 1,481 129,286 100
Cyclone Roofing Company................................. 3,800 603,000 323
Anthony Roofing, Ltd.................................... 7,514 1,022,357 --
Slavik, Butcher & Baecker Construction Company,
Inc.(4)(8)............................................ 900 192,857 170
Advanced Roofing, Inc. and Affiliates................... 3,596 268,143 660
Five-K Industries, Inc. and Subsidiary.................. 4,747 414,357 87
Wright-Brown Roofing Company............................ 3,825 334,000 168
Register Contracting Company, Inc.(5)(8)................ 3,210 -- 177
Harrington-Scanlon Roofing Company, Inc. and
Affiliates(6)(8)...................................... 360 31,428 1,393
Specialty Associates, Inc. and Affiliate(7)(8).......... 1,206 258,500 1,471
------- --------- -------
Total......................................... $42,106 6,258,667 $10,348
======= ========= =======
</TABLE>
- ---------------
(1) In lieu of the cash consideration, certain Founding Companies may distribute
cash or certain assets (principally cash surrender value of life insurance)
to owners prior to the Combination. The Combination excludes certain assets
and operations of the Founding Companies. Slavik Butcher has a general
contracting business that will be retained by Slavik Butcher's stockholders
prior to the Combination and Advanced Roofing has a business that leases
equipment to third parties and an airplane that will be retained by the
stockholders of Advanced Roofing prior to the Combination.
(2) Consists of (i) GRI of South Florida, Inc., (ii) GRI of West Florida, Inc.,
(iii) GRI of Orlando, Inc. and (iv) Dakota Leasing, Inc.
(3) An additional cash payment of up to $192,000 may be made to the stockholders
of Blackmore & Buckner based on a multiple of six of (i) the excess of its
earnings before interest and taxes ("EBIT") in the year following the
Combination over (ii) $435,586.
(4) An additional cash payment of up to $161,000 may be made to the stockholders
of Slavik Butcher, based on a multiple of seven of (i) the excess of its
EBIT in the year following the Combination over (ii) $497,000. The
consideration is payable in cash or Common Stock at the average market price
for the last five business days of the earn-out period, at the election of
the stockholders of Slavik Butcher. Slavik Butcher has also warranted that
its earnings for the year ended June 30, 1998 will be at least a specified
amount.
(5) An additional cash payment of up to $1,019,340 may be made to the
stockholders of Register Roofing based on a multiple of seven of (i) the
excess of its average annual EBIT in the two years following the Combination
over (ii) $458,571.
(6) An additional cash payment of up to $5,820,000 may be made to the
stockholders of Harrington-Scanlon based on (i) its EBIT in each of two
years following the Combination multiplied by (ii) two.
(7) An additional cash payment of up to $420,000 may be made to the stockholders
of Specialty Associates based on a multiple of seven of (i) the excess of
its EBIT in the year following the Combination over (ii) $600,000.
(8) All earn-out payments are required to be made within 60 days following the
end of the applicable EBIT measurement period.
73
<PAGE> 75
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 90,000,000 shares
of Common Stock, $0.01 par value, and 10,000,000 shares of Preferred Stock, $.01
par value. As of the date hereof, after giving effect to the Combination there
are 10,258,667 shares of Common Stock outstanding. No shares of Preferred Stock
have been issued or are currently outstanding.
The following description of the capital stock of the Company and certain
provisions of the Company's Articles and Bylaws is a summary and is qualified in
its entirety by the provisions of the Articles and Bylaws which have been filed
as exhibits to the Company's Registration Statement, of which this Prospectus is
a part.
COMMON STOCK
All shares of Common Stock have one vote on all matters to be voted upon by
the shareholders. Subject to preferences that may be applicable to any
outstanding Preferred Stock, the holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board out of funds legally available therefor. Holders of Common Stock have no
preemptive, conversion or other registration or subscription rights. There are
no redemption or sinking fund provisions available to the Common Stock. In the
event of liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to the prior distribution rights of Preferred Stock, if
any, then outstanding.
PREFERRED STOCK
The Board has the authority without further action by the shareholders to
issue up to 10,000,000 shares of Preferred Stock in one or more series and to
fix the number of shares constituting any such series, the voting powers,
designations, preferences and relative participation, optional or other special
rights and qualifications, limitations or restrictions thereof, including the
dividend rights and dividend rate, terms of redemption (including sinking fund
provisions), redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without further vote or
action by the shareholders. The issuance of Preferred Stock by the Board could
adversely effect the rights of the holders of Common Stock. For example, such
issuance could result in a class of securities outstanding that would have
preferences with respect to voting rights and dividends, and in liquidation,
over the Common Stock, and could (upon conversion) enjoy all of the rights of
the Common Stock.
The authority possessed by the Board to issue Preferred Stock could
potentially be used to discourage attempts by others to obtain control of the
Company through merger, tender offer, proxy contest or otherwise by making such
attempts more difficult to achieve or more costly. The Board may issue Preferred
Stock with voting or conversion rights that could adversely affect the voting
power of the holders of Common Stock. There are no agreements or understandings
for the issuance of Preferred Stock and the Board has no present intention to
issue Preferred Stock.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to (i) the Florida Control Share Act, which
generally provides that shares acquired in excess of thresholds equaling 20%,
33% and 55% of a corporation's voting power will not possess any voting rights
unless such voting rights are approved by a majority vote of the Company's
disinterested shareholders and (ii) the Florida Fair Price Act which generally
requires approval by the disinterested directors or supermajority approval by
shareholders for certain specified transactions between a corporation and a
holder of more than 10% of the outstanding shares of the corporation (or their
affiliates). These provisions could prohibit or delay the accomplishment of
mergers or other takeover or change in control attempts with respect to the
Company and, accordingly, may discourage attempts to acquire the Company.
74
<PAGE> 76
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES AND BYLAWS
Certain provisions of the Articles and Bylaws summarized in the following
paragraphs, may be deemed to have an anti-takeover effect and may delay, defer
or prevent a tender offer or takeover attempt that a shareholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by shareholders.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for election
as directors at an annual meeting of shareholders, must provide timely notice
thereof in writing. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company, not less
than 120 days nor more than 150 days prior to the first anniversary of the date
of the Company's notice of annual meeting provided with respect to the previous
year's annual meeting; provided, that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed to be more than
30 calendar days earlier than or 60 calendar days after such anniversary, notice
by the shareholder, to be timely, must be so received not more than 90 days nor
later than the later of (i) 60 days prior to the annual meeting or (ii) the
close of business on the 10th day following the date on which notice of the date
of the meeting is given to shareholders or made public, whichever first occurs.
The Bylaws also specify certain requirements for a shareholder's notice to be in
proper written form. These provisions may preclude shareholders from bringing
matters before the shareholders at an annual meeting or from making nominations
for directors at an annual meeting.
Authorized but Unissued Shares. The authorized but unissued shares of
Common Stock and Preferred Stock are available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate combinations and employee benefit plans. The existence of
authorized but unissued and unreserved Common Stock and Preferred Stock may
enable the Board to issue shares to persons friendly to current management which
could render more difficult or discourage an attempt to obtain control of the
Company by means of a proxy contest, tender offer, merger or otherwise, and
thereby protect the continuity of the Company's management.
Classification of the Board of Directors. The Articles classify the Board
of Directors into three classes of directors serving staggered three-year terms.
Under a three-class structure, at least two annual shareholder meetings, instead
of one, would generally be required for a shareholder of the Company holding a
substantial amount of Common Stock to obtain control of the Board of Directors
by electing a majority of such shareholder's representatives to the Board of
Directors. As a result, it will be more time-consuming for such a shareholder to
obtain majority control of the Board of Directors without the consent of the
Board of Directors. The Company believes that a three-class structure will serve
to encourage any person or entity intending to effect a takeover of the Company,
restructuring or sale of all or part of the Company or any other extraordinary
transaction to negotiate with, and to seek to obtain the approval of, the
existing Board of Directors.
LIMITED LIABILITY AND INDEMNIFICATION
Under the Florida Business Corporation Act ("FBCA"), a director is not
personally liable for monetary damages to the corporation or any other person
for any statement, vote, decision, or failure to act unless (i) the director
breached or failed to perform his duties as a director and (ii) a director's
breach of, or failure to perform, those duties constitutes (1) a violation of
the criminal law, unless the director had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct was
unlawful, (2) a transaction from which the director derived an improper personal
benefit, either directly or indirectly, (3) a circumstance under which an
unlawful distribution is made, (4) in a proceeding by or in the right of the
corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety,
75
<PAGE> 77
or property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the FBCA.
The Articles and Bylaws of the Company provide that the Company shall, to
the fullest extent permitted by applicable law, as amended from time to time,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification.
Prior to this Offering, the Company will enter into separate
indemnification agreements with its directors and certain of its officers
containing provisions which are in some respects broader than the specific
indemnification provisions contained in the Company's Bylaws. The
indemnification agreements may require the Company, among other things, to
indemnify such directors and officers against certain liabilities, including
liabilities under the federal securities laws, that may arise by reason of their
status as directors and officers (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
provide directors' and officers' insurance, if available on reasonable terms.
The Company believes these agreements are necessary to attract and retain
qualified persons as executive officers and directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
10,258,667 shares of Common Stock (10,858,667 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 4,000,000
shares (4,600,000 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 2,067,596 shares of Common Stock held by Existing Shareholder of the Company
immediately prior to the Offering and the 4,191,071 shares of Common Stock to be
issued in connection with the acquisition of the Founding Companies will be
"restricted securities" within the meaning of Rule 144.
In addition, certain of the Company's directors, executive officers and
principal shareholders, who hold an aggregate of 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 Robinson-
Humphrey Company, LLC. Based upon the relevant circumstances of the individual
request, The Robinson-Humphrey Company, LLC may, in its sole and absolute
discretion, grant exceptions to these lock-up agreements. All such
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. Furthermore, the shareholders of the
Founding Companies, who collectively will hold 6,258,667 shares of Common Stock,
have entered or will enter into Stock Transfer Restriction Agreements that
impose restrictions of the transferability of their shares. See "-- Transfer
Restrictions."
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 at
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
76
<PAGE> 78
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.
At the date of this Prospectus, 6,258,667 "restricted" shares of Common Stock
will be eligible for resale within one year of the date of this Prospectus
pursuant to Rule 144, subject to the volume, manner of sale and other
limitations thereof.
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.
TRANSFER RESTRICTIONS
All of the purchasers of Common Stock in the Combination of the Founding
Companies have agreed that they will not offer, sell, contract to sell, announce
their intention to sell, pledge or otherwise dispose of, directly or indirectly,
without the prior written consent of the Company and the Underwriters for a
period of two years after the date of this Prospectus.
In the event that after the Offering the Company files a registration
statement under the Securities Act with respect to a subsequent public offering
of its Common Stock, and any shareholders of the Company participate in such
offering, the Company has agreed to register under the Securities Act a portion
of the shares of Common Stock received by the stockholders of the Founding
Companies in the Combination in connection with, and as part of, the
Combination.
77
<PAGE> 79
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, BancAmerica Robertson Stephens and Raymond James & Associates,
Inc. 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..........................
BancAmerica Robertson Stephens..............................
Raymond James & Associates, Inc.............................
--------
Total.............................................
========
</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 600,000 additional shares of Common Stock at
the initial public offering price less the underwriting discount. Such option,
which expires 30 days after the date of this Prospectus, may be exercised solely
to cover over-allotments. To the extent the Representatives exercise such
option, each of the Underwriters will be obligated, subject to certain
conditions, to purchase approximately the same percentage of the option shares
as the number of shares to be purchased initially by that Underwriter bears to
the total number of shares to be purchased initially by the Underwriters.
Prior to this Offering, there has been no established trading market for
the Common Stock. The initial price to the public for the Common Stock offered
hereby was determined by negotiations among the Company and the Representatives.
Among the factors considered in determining the initial price to the public were
the history of and the prospects for the industry in which the Company competes,
the past and present operations of the Company and the historical results of
operations of the Company, the prospects for future earnings of the Company, the
general condition of the securities markets at the time of the Offering, and the
recent market prices of securities of generally comparable companies. There can
be no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to the
Offering at or above the initial public offering price.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange
78
<PAGE> 80
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
Nasdaq Stock Market or otherwise and, if commenced, may be discontinued at any
time.
In connection with the Offering, the Company's 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 Robinson-Humphrey Company, LLC, 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 a cashless exercise
of stock options or a bona fide gift provided that the donee agrees to be bound
by the terms of the donor's lockup agreement. 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 Robinson-Humphrey
Company, LLC, 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 in the Offering,
in connection with acquisitions generally, and upon the exercise of the stock
options which are either (i) outstanding on the date of this Prospectus or (ii)
issued under the Plan. Based upon the relevant circumstances of the individual
request, The Robinson-Humphrey Company, LLC may, in its sole and absolute
discretion, grant exceptions to these lock-up agreements.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Baker & McKenzie, Miami, Florida, and for the Underwriters by King &
Spalding, Atlanta, Georgia.
EXPERTS
The financial statements of General Roofing Services, Inc., the combined
financial statements of GRI of South Florida, Inc., GRI of Orlando, Inc., GRI of
West Florida, Inc. and Dakota Leasing, Inc., the combined financial statements
of Advanced Roofing, Inc., Advanced Leasing, Inc., K&M Warehouse, Inc. and
Hi-Rise Crane, Inc., the combined financial statements of Harrington-Scanlon
Roofing Company, Inc. and Affiliates, the combined financial statements of
Specialty Associates, Inc. and Affiliate, the financial statements of Register
Contracting Company, Inc. and Slavik, Butcher and Baecker Construction Company,
Inc., Wright-Brown Roofing Company, Cyclone Roofing Company, Anthony Roofing,
Ltd. as of December 31, 1997 and for the year then ended, and Blackmore and
Buckner Roofing, Inc. as of December 31, 1997 and for the year then ended, and
the consolidated financial statements of Five-K Industries, Inc. and Subsidiary
as of March 31, 1998 and for the year then ended included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
The combined financial statements of C.E.I. Roofing, Inc., C.E.I. Florida,
Inc. and C.E.I. West Roofing Company, Inc., included in this Prospectus have
been audited by Belew Averitt LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of Anthony Roofing, Ltd. as of December 31, 1996
and for the fourteen month period ended December 31, 1995 and the year ended
December 31, 1996 included in this Prospectus have been audited by Dugan &
Lopatka CPAs, PC, independent auditors, as stated in their reports appearing
79
<PAGE> 81
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
Scott & Stringfellow, Inc. has acted as independent appraisers in
connection with the valuation of General Roofing Industries, Inc. and its
affiliates.
The financial statements of Blackmore and Buckner Roofing, Inc. as of
December 31, 1996 and for the two years in the period ended December 31, 1996
included in this Prospectus have been audited by Blue & Co. LLC, independent
auditors, as stated in their reports appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Five-K Industries, Inc. and
Subsidiary as of March 31, 1997 and for each of the two years in the period
ended March 31, 1997 included in this Prospectus have been audited by Bearden &
Smith PC, independent auditors, as stated in their reports appearing herein, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Form S-1 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 quotation on Nasdaq, and reports, proxy statements and other information
concerning the Company can be inspected and copied at Nasdaq Stock Market, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
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.
80
<PAGE> 82
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
General Roofing Services, Inc. (Unaudited) Pro Forma
Combined Financial Statements
Introduction to Unaudited Pro Forma Combined Financial
Statements............................................. F-3
Unaudited Pro Forma Combined Balance Sheet................ F-4
Unaudited Pro Forma Combined Statements of Operations..... F-5
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-7
General Roofing Services, Inc.
Independent Auditors' Report.............................. F-11
Balance Sheet............................................. F-12
Notes to Financial Statement.............................. F-13
Founding Companies Historical Financial Statements
General Roofing Industries
Independent Auditors' Report.............................. F-15
Combined Balance Sheets................................... F-16
Combined Statements of Operations......................... F-17
Combined Statements of Stockholder's Equity............... F-18
Combined Statements of Cash Flows......................... F-19
Notes to Combined Financial Statements.................... F-20
CEI Roofing, Inc., CEI Florida, Inc., and CEI West Roofing
Company, Inc. (The C.E.I. Companies)
Independent Auditors' Report.............................. F-28
Combined Balance Sheets................................... F-29
Combined Statements of Income............................. F-30
Combined Statements of Stockholders' Equity............... F-31
Combined Statements of Cash Flows......................... F-32
Notes to Combined Financial Statements.................... F-33
Anthony Roofing, Ltd.
Independent Auditors' Report.............................. F-39
Balance Sheets............................................ F-41
Statements of Operations.................................. F-42
Statements of Stockholders' Equity........................ F-43
Statements of Cash Flows.................................. F-44
Notes to Financial Statements............................. F-45
Specialty Associates, Inc. and Affiliate
Independent Auditors' Report.............................. F-50
Combined Balance Sheets................................... F-51
Combined Statements of Operations......................... F-52
Combined Statements of Stockholders' Equity............... F-53
Combined Statements of Cash Flows......................... F-54
Notes to Combined Financial Statements.................... F-55
Cyclone Roofing Company
Independent Auditors' Report.............................. F-61
Balance Sheets............................................ F-62
Statements of Operations.................................. F-63
Statements of Stockholders' Equity........................ F-64
Statements of Cash Flows.................................. F-65
Notes to Financial Statements............................. F-66
</TABLE>
F-1
<PAGE> 83
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Wright-Brown Roofing Company
Independent Auditors' Report.............................. F-72
Balance Sheets............................................ F-73
Statements of Operations.................................. F-74
Statements of Stockholder's Equity........................ F-75
Statements of Cash Flows.................................. F-76
Notes to Financial Statements............................. F-77
Harrington -- Scanlon Roofing Company, Inc. and Affiliates
Independent Auditors' Report.............................. F-83
Combined Balance Sheets................................... F-84
Combined Statements of Operations......................... F-85
Combined Statements of Stockholders' Equity............... F-86
Combined Statements of Cash Flows......................... F-87
Notes to Combined Financial Statements.................... F-88
Slavik, Butcher & Baecker Construction Company, Inc.
Independent Auditors' Report.............................. F-95
Balance Sheets............................................ F-96
Statements of Operations.................................. F-97
Statements of Stockholders' Equity........................ F-98
Statements of Cash Flows.................................. F-99
Notes to Financial Statements............................. F-100
Five-K Industries, Inc. and Subsidiary
Independent Auditors' Report.............................. F-106
Consolidated Balance Sheets............................... F-108
Consolidated Statements of Operations..................... F-109
Consolidated Statements of Stockholder's Equity........... F-110
Consolidated Statements of Cash Flows..................... F-111
Notes to Consolidated Financial Statements................ F-112
Advanced Roofing, Inc. and Affiliates
Independent Auditors' Report.............................. F-118
Combined Balance Sheets................................... F-119
Combined Statements of Operations......................... F-120
Combined Statements of Stockholders' Equity............... F-121
Combined Statements of Cash Flows......................... F-122
Notes to Combined Financial Statements.................... F-123
Blackmore and Buckner Roofing, Inc.
Independent Auditors' Report.............................. F-129
Balance Sheets............................................ F-131
Statements of Operations.................................. F-132
Statements of Stockholders' Equity........................ F-133
Statements of Cash Flows.................................. F-134
Notes to Financial Statements............................. F-135
Register Contracting Company, Inc.
Independent Auditors' Report.............................. F-141
Combined Balance Sheets................................... F-142
Combined Statements of Operations......................... F-143
Combined Statements of Stockholders' Equity............... F-144
Combined Statements of Cash Flows......................... F-145
Notes to Combined Financial Statements.................... F-146
</TABLE>
F-2
<PAGE> 84
GENERAL ROOFING SERVICES AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to (i) the acquisitions by General Roofing Services, Inc. ("GRS") (the
"Combination"), of the outstanding capital stock and other equity interests of
GRI, Advanced Roofing, Anthony Roofing, Blackmore & Buckner, The C.E.I.
Companies, Cyclone Roofing, Five-K, Harrington-Scanlon, Register Roofing,
Slavik-Butcher, Specialty Associates, and Wright-Brown (together, the "Founding
Companies"), and related transactions, and (ii) GRS' initial public offering.
The Combination will occur concurrently with the closing of the Offering and
will be accounted for using the purchase method of accounting. GRI has been
reflected as the accounting acquirer for financial statement presentation
purposes.
The unaudited pro forma combined balance sheet gives effect to the
Combination and related transactions, and the Offering, as if they had occurred
on March 31, 1998. The unaudited pro forma combined statements of operations
give effect to these transactions as if they had occurred on January 1, 1997.
GRS has preliminarily analyzed the savings that it expects to be realized
from reductions in salaries, bonuses and certain benefits to the owners. To the
extent the owners of the Founding Companies have contractually agreed to
prospective changes in salary, bonuses, benefits and lease payments, these
changes have been reflected in the unaudited pro forma combined statements of
operations. With respect to other anticipated cost savings, GRS will not be able
to accurately quantify these savings until completion of the Combination. It is
expected that these savings will be partially offset by costs related to GRS'
new corporate management and by the costs associated with being a public
company. However, because these costs cannot be quantified at this time, they
have not been included in the pro forma combined financial information of GRS.
The estimated excess of the cost of the acquisitions over the sum of the
fair values of tangible and identifiable intangible assets less liabilities
assumed (goodwill) may be revised for changes in assets and liabilities to date
of closing as well as changes in fair value of assets acquired and liabilities
assumed based upon conditions existing at date of closing. However, it is not
expected that the revisions, if any, will be significant.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate
and may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what GRS' combined financial position
or results of operations would actually have been if such transactions in fact
had occurred on those dates and are not necessarily representative of GRS'
combined financial position or combined results of operations for any future
period. Since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Prospectus. See also "Risk Factors" included
elsewhere herein.
F-3
<PAGE> 85
GENERAL ROOFING SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
WRIGHT- ANTHONY SPECIALTY
GRI CEI BROWN ROOFING ASSOCIATES
------ ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Cash.................................... $ 156 $ 294 $ 253 $2,531 $ 31
Receivables, net........................ 5,548 9,549 2,239 2,736 1,753
Inventories............................. 347 370 198 107 800
Prepaid Expenses........................ 241 77 -- 28 24
Deferred Tax Assets..................... -- -- -- -- 31
------ ------- ------ ------ ------
Total Current Assets.............. 6,292 10,290 2,690 5,402 2,639
Property and Equipment, net............. 1,754 2,008 790 696 1,565
Goodwill................................ -- -- -- -- --
Life Insurance -- CSV................... -- 420 56 -- --
Other Noncurrent Assets................. 1,348 -- 162 -- 162
------ ------- ------ ------ ------
Total Assets...................... $9,394 $12,718 $3,698 $6,098 $4,366
====== ======= ====== ====== ======
Accounts Payable........................ $2,329 $ 4,560 $1,087 $ 449 $ 824
Accrued Expenses........................ 692 564 610 174 389
Billings in Excess of Costs and
Profit................................. 494 744 98 50 205
Distributions Payable and Accrued....... -- 434 -- -- --
Deferred Income Taxes................... -- -- -- -- --
Notes Payable........................... -- 328 -- -- 800
Current Portion of Long-Term Debt....... 774 387 33 -- 202
Current Portion of Capitalized Leases... 157 -- 55 -- --
Due to Related Parties.................. -- -- -- -- --
------ ------- ------ ------ ------
Total Current Liabilities......... 4,446 7,017 1,883 673 2,420
Long-Term Debt.......................... 3,445 433 58 -- 469
Long-Term Capitalized Leases............ 275 -- 22 -- --
Deferred Income Taxes................... -- -- -- -- 139
Other Non-Current Liabilities........... 150 -- -- -- --
Stockholders' Equity:
Common Stock........................... 1 335 5 1 34
Additional Paid In Capital............. 629 85 24 -- 216
Retained Earnings...................... 448 4,848 1,706 5,424 1,246
Treasury Stock......................... -- -- -- -- (158)
------ ------- ------ ------ ------
Total Stockholders' Equity........ 1,078 5,268 1,735 5,425 1,338
------ ------- ------ ------ ------
Total Liabilities and
Stockholders' Equity............. $9,394 $12,718 $3,698 $6,098 $4,366
====== ======= ====== ====== ======
<CAPTION>
CYCLONE ADVANCED REGISTER SLAVIK HARRINGTON- BLACKMORE
ROOFING ROOFING ROOFING BUTCHER SCANLON FIVE-K & BUCKNER
------- -------- -------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................................... $ 487 $ 210 $ 489 $ 186 $ 1 $ 696 $ 247
Receivables, net........................ 3,514 2,436 1,545 1,861 2,495 1,769 1,050
Inventories............................. 12 95 88 -- 242 36 76
Prepaid Expenses........................ -- 23 34 18 -- -- 24
Deferred Tax Assets..................... -- -- -- -- 38 -- --
------ ------ ------ ------ ------ ------ ------
Total Current Assets.............. 4,013 2,764 2,156 2,065 2,776 2,501 1,397
Property and Equipment, net............. 837 2,063 549 366 1,057 374 343
Goodwill................................ -- -- -- -- -- -- --
Life Insurance -- CSV................... -- -- -- -- -- -- 85
Other Noncurrent Assets................. 37 -- 46 31 80 97 5
------ ------ ------ ------ ------ ------ ------
Total Assets...................... $4,887 $4,827 $2,751 $2,462 $3,913 $2,972 $1,830
====== ====== ====== ====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable........................ $ 281 $ 713 $ 590 $ 817 $1,342 $ 428 $ 291
Accrued Expenses........................ 173 565 504 309 227 605 255
Billings in Excess of Costs and
Profit................................. 236 249 256 194 586 121 122
Distributions Payable and Accrued....... -- -- -- -- -- -- --
Deferred Income Taxes................... -- -- -- 69 117 -- 360
Notes Payable........................... -- -- -- -- -- -- --
Current Portion of Long-Term Debt....... 185 828 45 105 543 40 23
Current Portion of Capitalized Leases... 26 -- -- -- 30 -- --
Due to Related Parties.................. -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total Current Liabilities......... 901 2,355 1,464 1,542 2,728 1,554 691
Long-Term Debt.......................... 78 563 132 118 834 47 77
Long-Term Capitalized Leases............ 34 -- -- -- 79 -- --
Deferred Income Taxes................... -- -- 22 9 -- 15 --
Other Non-Current Liabilities........... -- -- -- -- -- -- --
Stockholders' Equity:
Common Stock........................... 25 1 20 10 2 8 29
Additional Paid In Capital............. -- 673 73 -- 19 30 370
Retained Earnings...................... 3,849 1,340 1,040 783 251 1,318 663
Treasury Stock......................... -- (105) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total Stockholders' Equity........ 3,874 1,909 1,133 793 272 1,356 1,062
------ ------ ------ ------ ------ ------ ------
Total Liabilities and
Stockholders' Equity............. $4,887 $4,827 $2,751 $2,462 $3,913 $2,972 $1,830
====== ====== ====== ====== ====== ====== ======
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA OFFERING COMBINED
COMBINED ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
-------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash.................................... $5 ,581 $ (3,176) $ 2,405 $ 12,724 $ 15,129
Receivables, net........................ 36,495 (820) 35,675 -- 35,675
Inventories............................. 2,371 -- 2,371 -- 2,371
Prepaid Expenses........................ 469 (13) 456 -- 456
Deferred Tax Assets..................... 69 -- 69 -- 69
------- -------- -------- -------- --------
Total Current Assets.............. 44,985 (4,009) 40,976 12,724 53,700
Property and Equipment, net............. 12,402 (1,315) 11,087 -- 11,087
Goodwill................................ -- 64,298 64,298 -- 64,298
Life Insurance -- CSV................... 561 (561) -- -- --
Other Noncurrent Assets................. 1,968 (148) 1,820 -- 1,820
------- -------- -------- -------- --------
Total Assets...................... $59,916 $ 58,265 $118,181 $ 12,724 $130,905
======= ======== ======== ======== ========
Accounts Payable........................ $13,711 $ (434) $ 13,277 $ -- $ 13,277
Accrued Expenses........................ 5,067 (181) 4,886 -- 4,886
Billings in Excess of Costs and
Profit................................. 3,355 (64) 3,291 -- 3,291
Distributions Payable and Accrued....... 434 (434) -- -- --
Deferred Income Taxes................... 546 430 976 -- 976
Notes Payable........................... 1,128 12,096 13,224 (1,128) 12,096
Current Portion of Long-Term Debt....... 3,165 (267) 2,898 (2,898) --
Current Portion of Capitalized Leases... 268 -- 268 -- 268
Due to Related Parties.................. -- 25,686 25,686 (25,686) --
------- -------- -------- -------- --------
Total Current Liabilities......... 27,674 36,832 64,506 (29,712) 34,794
Long-Term Debt.......................... 6,254 (610) 5,644 (5,644) --
Long-Term Capitalized Leases............ 410 -- 410 -- 410
Deferred Income Taxes................... 185 -- 185 -- 185
Other Non-Current Liabilities........... 150 -- 150 -- 150
Stockholders' Equity:
Common Stock........................... 471 (408) 63 40 103
Additional Paid In Capital............. 2,119 45,104 47,223 48,040 95,263
Retained Earnings...................... 22,916 (22,916) -- -- --
Treasury Stock......................... (263) 263 -- -- --
------- -------- -------- -------- --------
Total Stockholders' Equity........ 25,243 22,043 47,286 48,080 95,366
------- -------- -------- -------- --------
Total Liabilities and
Stockholders' Equity............. $59,916 $ 58,265 $118,181 $ 12,724 $130,905
======= ======== ======== ======== ========
</TABLE>
F-4
<PAGE> 86
GENERAL ROOFING SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
OTHER PRO FORMA
WRIGHT- ANTHONY SPECIALTY CYCLONE FOUNDING PRO FORMA COMBINED
GRI CEI BROWN ROOFING ASSOCIATES ROOFING COMPANIES ADJUSTMENTS AS ADJUSTED
------ ------- ------- ------- ---------- ------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $7,135 $10,025 $2,447 $2,489 $2,300 $2,829 $13,521 $(1,162) $ 39,584
Cost of Revenues....... 5,308 7,733 2,113 2,132 2,286 2,457 10,824 (1,152) 31,701
------ ------- ------ ------ ------ ------ ------- ------- -----------
Gross Profit........... 1,827 2,292 334 357 14 372 2,697 (10) 7,883
SG&A Expenses.......... 2,049 2,105 306 445 317 227 2,479 61 7,990
------ ------- ------ ------ ------ ------ ------- ------- -----------
Income (Loss) From
Operations........... (222) 187 28 (88) (303) 145 218 (71) (107)
Other Income
(Expense)............ (97) (58) (17) 56 (32) 7 (43) 50 (133)
------ ------- ------ ------ ------ ------ ------- ------- -----------
Income (Loss) before
Taxes................ (319) 129 11 (32) (335) 152 175 (21) (240)
Income Tax (Provision)
Benefit.............. -- (3) -- -- 131 -- 24 (216) (64)
------ ------- ------ ------ ------ ------ ------- ------- -----------
Net Income (Loss)...... $ (319) $ 126 $ 11 $ (32) $ (204) $ 152 $ 199 $ (237) $ (304)
====== ======= ====== ====== ====== ====== ======= ======= ===========
Basic and Diluted Loss
Per Share............ $ (0.03)
===========
Shares Used in
Computing Pro Forma
Net Loss Per Share... 10,258,667
===========
</TABLE>
<TABLE>
<CAPTION>
OTHER FOUNDING COMPANIES TOTAL
----------------------------------------------------------------- OTHER
ADVANCED REGISTER SLAVIK HARRINGTON- BLACKMORE FOUNDING
ROOFING ROOFING BUTCHER SCANLON FIVE-K & BUCKNER COMPANIES
-------- -------- ------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................... $3,097 $1,964 $2,858 $2,369 $2,172 $1,061 $13,521
Cost of Revenues........................... 2,467 1,660 2,303 2,185 1,313 896 10,824
------ ------ ------ ------ ------ ------ -------
Gross Profit............................... 630 304 555 184 859 165 2,697
SG&A Expenses.............................. 400 258 347 377 882 215 2,479
------ ------ ------ ------ ------ ------ -------
Income (Loss) From Operations.............. 230 46 208 (193) (23) (50) 218
Other Income (Expense)..................... (31) 8 (1) (27) 8 -- (43)
------ ------ ------ ------ ------ ------ -------
Income (Loss) before Taxes................. 199 54 207 (220) (15) (50) 175
Income Tax (Provision) Benefit............. -- (17) (59) 94 6 -- 24
------ ------ ------ ------ ------ ------ -------
Net Income (Loss).......................... $ 199 $ 37 $ 148 $ (126) $ (9) $ (50) $ 199
====== ====== ====== ====== ====== ====== =======
</TABLE>
F-5
<PAGE> 87
GENERAL ROOFING SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
OTHER PRO FORMA
WRIGHT- ANTHONY SPECIALTY CYCLONE FOUNDING PRO FORMA COMBINED
GRI CEI BROWN ROOFING ASSOCIATES ROOFING COMPANIES ADJUSTMENTS AS ADJUSTED
------- ------- -------- -------- ---------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $26,792 $45,163 $15,316 $19,778 $17,198 $16,058 $61,865 $(6,261) $ 195,909
Cost of Revenues....... 19,101 34,899 12,820 14,441 14,957 12,524 50,311 (5,663) 153,390
------- ------- ------- ------- ------- ------- ------- ------- -----------
Gross Profit........... 7,691 10,264 2,496 5,337 2,241 3,534 11,554 (598) 42,519
SG&A Expenses.......... 6,995 8,018 1,393 2,870 1,487 1,099 9,431 (2,189) 29,104
------- ------- ------- ------- ------- ------- ------- ------- -----------
Income From
Operations........... 696 2,246 1,103 2,467 754 2,435 2,123 1,591 13,415
Other Income
(Expense)............ (71) 7 (147) 103 (134) (13) (106) (170) (531)
------- ------- ------- ------- ------- ------- ------- ------- -----------
Income Before Taxes.... 625 2,253 956 2,570 620 2,422 2,017 1,421 12,884
Income Tax (Provision)
Benefit.............. -- (27) -- (50) (285) -- (467) (4,823) (5,652)
------- ------- ------- ------- ------- ------- ------- ------- -----------
Net Income..... $ 625 $ 2,226 $ 956 $ 2,520 $ 335 $ 2,422 $ 1,550 $(3,402) $ 7,232
======= ======= ======= ======= ======= ======= ======= ======= ===========
Basic and Diluted
Earnings Per Share... $ 0.70
===========
Shares Used in
Computing Pro Forma
Earnings Per Share... 10,258,667
===========
</TABLE>
<TABLE>
<CAPTION>
OTHER FOUNDING COMPANIES TOTAL
------------------------------------------------------------------ OTHER
ADVANCED REGISTER SLAVIK HARRINGTON- BLACKMORE FOUNDING
ROOFING ROOFING BUTCHER SCANLON FIVE-K & BUCKNER COMPANIES
-------- -------- -------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................... $12,174 $6,832 $12,213 $11,816 $11,091 $7,739 $61,865
Cost of Revenues........................... 9,827 5,792 10,446 10,046 7,879 6,321 50,311
------- ------ ------- ------- ------- ------ -------
Gross Profit............................... 2,347 1,040 1,767 1,770 3,212 1,418 11,554
SG&A Expenses.............................. 1,571 1,002 1,314 1,549 2,775 1,220 9,431
------- ------ ------- ------- ------- ------ -------
Income From Operations..................... 776 38 453 221 437 198 2,123
Other Income (Expense)..................... (124) 90 (19) (102) 32 17 (106)
------- ------ ------- ------- ------- ------ -------
Income Before Taxes........................ 652 128 434 119 469 215 2,017
Income Tax (Provision) Benefit............. -- (82) (147) (28) (210) -- (467)
------- ------ ------- ------- ------- ------ -------
Net Income......................... $ 652 $ 46 $ 287 $ 91 $ 259 $ 215 $ 1,550
======= ====== ======= ======= ======= ====== =======
</TABLE>
F-6
<PAGE> 88
GENERAL ROOFING SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL
General Roofing Services, Inc. (GRS), was founded to create a leading
national provider of roofing contracting and maintenance services to the
commercial, government and new construction markets. GRS has conducted no
operations to date and will acquire the Founding Companies (the Combination)
concurrently with and as a condition to the closing of the Offering.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements. The periods included in
these financial statements for the individual Founding Companies are as of and
for the year ended December 31, 1997, except for GRI for which the period is for
the year ended October 31, 1997, Register Roofing, for which the period is for
the year ended September 30 1997, Specialty Associates, for which the period is
for the year ended February 2, 1998, and Five-K for which the period is for the
year ended March 31, 1998. The audited historical financial statements included
elsewhere herein have been included in accordance with Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES
Concurrently with and as a condition to the closing of the Offering, GRS
will acquire all of the outstanding capital stock and other equity interests of
the Founding Companies. The Combination will be accounted for using the purchase
method of accounting with GRI being reflected as the accounting acquirer.
The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of Common Stock to the common stockholders of each of the Founding
Companies, other than the accounting acquirer (GRI). For purposes of computing
the estimated purchase price for accounting purposes, the value of the shares
was determined using an estimated fair value of $11.20 per share (or $46.9
million), which is less than the initial public offering price of $14.00 per
share due primarily to restrictions on the sale and transferability of the
shares issued. This discount represents a 20% reduction from the Offering price.
The Company is currently in process of obtaining a valuation which management
believes will support this discount. The total purchase price, including cash
consideration of $41.3 million, is $88.2 million (without giving effect to
certain earn out provision and S-Corporation distributions to be made by certain
Founding Companies prior to the consummation of the Offering). The following
table is reflected net of estimated purchase price adjustments of $799,000 and
net transfers of $14.6 million which represents previously undistributed
earnings of the Founding Companies other than GRI (dollars in thousands):
<TABLE>
<CAPTION>
SHARES OF ASSUMED
CASH COMMON STOCK INDEBTEDNESS
------- ------------ ------------
<S> <C> <C> <C>
CEI................................................. $ 8,630 937,143 $ 3,267
Wright-Brown........................................ 1,440 334,000 2,065
Anthony Roofing..................................... 2,466 1,022,357 2,717
Specialty Associates................................ 1,068 258,500 1,471
Cyclone Roofing..................................... (268) 603,000 3,836
Advanced Roofing.................................... 2,596 268,143 1,660
Register Roofing.................................... 3,210 -- 177
Slavik Butcher...................................... 820 192,857 170
Harrington-Scanlon.................................. 360 31,428 1,393
Five-K.............................................. 4,747 414,357 87
Blackmore & Buckner................................. 848 129,286 550
------- --------- -------
$25,917 4,191,071 $17,393
======= ========= =======
</TABLE>
F-7
<PAGE> 89
GENERAL ROOFING SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The above table differs from the schedule at "The Combination" because it
excludes GRI, the accounting acquirer, and it assumes that the S Corporation
distributions were made prior to the date of the Combination. Certain of the
Founding Companies will incur debt to fund the S Corporation distributions.
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(A) Records the S Corporation Distributions of $15.3 million, of which $2.7
million is expected to be paid using cash on hand and $0.5 million using other
net assets of the applicable company and the incurrence of debt in the amount of
$12.1 million.
(B) 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 Internal Revenue
Code.
(C) Records the payment of S Corporation Distributions established above in
adjustment A through borrowings.
(D) Records the elimination of all non-operating assets and liabilities to
be retained by the owners of the Founding Companies as well as affiliated
businesses to be retained by the owners of the Founding Companies.
(E) Records the elimination of the historical equity accounts of the
Founding Companies.
(F) Records the acquisition of the Founding Companies, including the cash
and common stock due to those companies, and records all fair value adjustments
necessary in purchase accounting. In connection with the combination of certain
of the Founding 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 and shares of Common Stock. Amounts earned under these
terms will be recorded as additional goodwill at the time the amounts are known
and will be amortized over the remaining amortization period.
(G) The Company periodically reviews the carrying value of goodwill
(whenever events or circumstances indicate that the carrying amount of the asset
may not be recoverable), along with other long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long Lived Assets to be Disposed Of, and
impairments, if any, are recognized when the expected net future undiscounted
cash flows derived from such assets are less than their carrying value.
(H) Records net proceeds from the issuance of 4,000,000 shares of General
Roofing Services' Common Stock at $14.00 per share, net of estimated offering
costs of $7.9 million. Offering costs consist primarily of underwriting
discounts and commissions, accounting fees, legal fees, and printing expenses.
F-8
<PAGE> 90
GENERAL ROOFING SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL OFFERING
-------------------------------------------------------- PRO FORMA ADJUSTMENT
(A) (B) (C) (D) (E) (F) ADJUSTMENTS (G)
------- ---- -------- ------- -------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash............................ $(2,718) $ -- $ -- $ (458) $ -- $ -- $(3,176) $12,724
Receivables, net................ (332) -- -- (488) -- -- (820) --
Prepaid Expenses................ -- -- -- (13) -- -- (13) --
Property and Equipment, net..... -- -- -- (1,815) -- 500 (1,315) --
Goodwill........................ -- 300 -- -- (8,554) 72,552 64,298 --
Cash Surrender Value of Life
Insurance..................... -- -- -- (561) -- -- (561) --
Other Noncurrent Assets......... -- -- -- (148) -- -- (148) --
Accounts Payable................ -- -- -- (434) -- -- (434) --
Accrued Expenses................ -- -- -- (181) -- -- (181) --
Billings in Excess of Costs and
Estimated Profit.............. -- -- -- (64) -- -- (64) --
Distributions Payable and
Accrued....................... (434) -- -- -- -- -- (434) --
Deferred Income Taxes........... -- 300 -- (65) -- 195 430 --
Notes Payable................... -- -- 12,694 (598) -- -- 12,096 (1,128)
Current Portion of Long-Term
Debt.......................... -- -- -- (267) -- -- (267) (2,898)
Due to Related Parties.......... 12,694 -- (12,694) (231) -- 25,917 25,686 (25,686)
Long-Term Debt.................. -- -- -- (610) -- -- (610) (5,644)
Common Stock.................... -- -- -- (5) (465) 62 (408) 40
Additional Paid In Capital...... (14,862) -- -- (667) 13,755 46,878 45,104 48,040
Retained Earnings............... (448) -- -- (361) (22,107) -- (22,916) --
Treasury Stock.................. -- -- -- -- 263 -- 263 --
------- ---- -------- ------- -------- ------- ------- -------
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ==== ======== ======= ======== ======= ======= =======
</TABLE>
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(A) Records the prospective reduction in salaries, bonuses, and benefits to
the owners of the Founding Companies to which they have agreed. These reductions
in salaries, bonuses, and benefits are in accordance with the terms of
employment agreements. Such employment agreements are generally for two years,
contain restrictions related to competition and provide severance for
termination of employment in certain circumstances.
The salaries, bonuses, and benefits and other compensation items recorded
in the individual financial statements of each of the Founding Companies
amounted to $5.9 million and $1.0 million in the twelve month period ended at or
near December 31, 1997 and the three month period ended March 31, 1998,
respectively. The contractually agreed upon compensation and benefits for these
same companies, on a going forward basis, amount to $2.6 million and $0.7
million for the twelve month period ended at or near December 31, 1997 and the
three month period ended March 31, 1998. The differences between these amounts
for the periods noted herein equate to $3.3 million and $0.3 million,
respectively, and are reflected as pro forma adjustments.
(B) Records reductions in historical interest expense of the Founding
Companies related to debt paid with proceeds of the Offering.
(C) Records interest expense incurred on borrowings used to fund the S
Corporation Distributions.
(D) Records statement of operations effect of the elimination of all
non-operating assets and liabilities to be retained by the owners of the
Founding Companies as well as affiliated businesses to be retained by the owners
of the Founding Companies.
(E) Records amortization of goodwill to be recorded as a result of the
Combination over an estimated life of 40 years.
(F) Records the incremental provision for federal and state income taxes
related to pro forma adjustments as well as income taxes on S Corporation
earnings.
F-9
<PAGE> 91
GENERAL ROOFING SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize unaudited pro forma combined statements of
operations adjustments at March 31, 1998:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------------------
TOTAL
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
----- ---- ----- ------- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $ -- $ -- $ -- $(1,162) $ -- $ -- $(1,162)
Cost of Revenues........................ -- -- -- (1,152) -- -- (1,152)
----- ---- ----- ------- ----- ----- -------
Gross Profit............................ -- -- -- (10) -- -- (10)
Selling, General and Administrative..... (317) -- -- (24) 402 -- 61
----- ---- ----- ------- ----- ----- -------
Income From Operations.................. 317 -- -- 14 (402) -- (71)
Other Income (Expense).................. -- 272 (242) 20 -- -- 50
----- ---- ----- ------- ----- ----- -------
Income before Taxes..................... 317 272 (242) 34 (402) -- (21)
Income Tax (Provision) Benefit.......... -- -- -- (1) -- (215) (216)
----- ---- ----- ------- ----- ----- -------
Net Income..................... $ 317 $272 $(242) $ 33 $(402) $(215) $ (237)
===== ==== ===== ======= ===== ===== =======
</TABLE>
The following tables summarize unaudited pro forma combined statements of
operations adjustments at December 31, 1997:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------------------------
TOTAL
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
------- ---- ----- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $ -- $ -- $ -- $(6,261) $ -- $ -- $(6,261)
Cost of Revenues................... -- -- -- (5,663) -- -- (5,663)
------- ---- ----- ------- ------- ------- -------
Gross Profit....................... -- -- -- (598) -- -- (598)
Selling, General and
Administrative................... (3,262) -- -- (534) 1,607 -- (2,189)
------- ---- ----- ------- ------- ------- -------
Income From Operations............. 3,262 -- -- (64) (1,607) -- 1,591
Other Income (Expense)............. -- 711 (968) 87 -- -- (170)
------- ---- ----- ------- ------- ------- -------
Income before Taxes................ 3,262 711 (968) 23 (1,607) -- 1,421
Income Tax (Provision) Benefit..... -- -- -- 44 -- (4,867) (4,823)
------- ---- ----- ------- ------- ------- -------
Net Income................ $ 3,262 $711 $(968) $ 67 $(1,607) $(4,867) $(3,402)
======= ==== ===== ======= ======= ======= =======
</TABLE>
F-10
<PAGE> 92
INDEPENDENT AUDITORS' REPORT
To the Stockholder of General Roofing Services, Inc.:
We have audited the accompanying balance sheet of General Roofing Services,
Inc. (the "Company") as of May 8, 1998 (date of formation). This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company as of May 8, 1998 (date of
formation) in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
May 26, 1998
F-11
<PAGE> 93
GENERAL ROOFING SERVICES, INC.
BALANCE SHEET
MAY 8, 1998 (DATE OF FORMATION)
<TABLE>
<S> <C>
TOTAL ASSETS................................................ $ --
--------
LIABILITIES................................................. --
STOCKHOLDER'S EQUITY:
Common stock, 90,000,000 shares authorized, no shares
issued or outstanding; $0.01 par value................. --
Preferred stock, no shares issued or outstanding.......... --
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $ --
--------
</TABLE>
F-12
<PAGE> 94
GENERAL ROOFING SERVICES, INC.
NOTES TO BALANCE SHEET
MAY 8, 1998 (DATE OF FORMATION)
1. BUSINESS AND ORGANIZATION
General Roofing Services, Inc. (referred to herein as "GRS" or the
"Company") was formed on May 8, 1998 to become a holding company of entities
that provide commercial roofing services. GRS intends to acquire a number of
such companies (the "Combination"), complete an initial public offering (the
"Offering") of its common stock and, subsequent to the Offering, continue to
acquire through merger or purchase, similar companies to expand its operations
on a national basis. GRS has not conducted any operations to date and has not
yet been capitalized.
GRS has signed a definitive agreement to acquire by Combination certain
companies that are wholly-owned by GRS' stockholder (the "General Roofing
Industries"). These acquisitions will be accounted for as a reorganization of
entities under common control which is similar to the pooling of interests
method of accounting for business combinations. The General Roofing Industries
has been identified as the accounting acquirer of the unrelated entities
described below for financial statement presentation purposes.
GRS has signed definitive agreements to acquire by Combination certain
unrelated companies. The acquisition of these unrelated companies will be
accounted for under the purchase method of accounting for business combinations.
GRS is dependent upon the Offering to execute the pending Combination.
There is no assurance that the pending Offering or Combination will be
completed.
2. STOCK OPTION PLAN
1998 STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN -- The Company has
adopted a 1998 Stock Option and Restricted Stock Purchase Plan (the "Plan"). As
of May 26, 1998, no options have been granted. After the Combination with
General Roofing Industries is consummated, GRS expects to convert options issued
by General Roofing Industries into options to purchase shares of GRS' common
stock. The number of GRS options that are to be outstanding as a result of the
conversion will be in direct proportion to the number of shares of GRS that will
be issued to the General Roofing Industries' stockholder in the reorganization.
It is anticipated to amount to options to acquire approximately 216,300 shares
of GRS common stock. The aggregate exercise price of the options to acquire
these shares of GRS will be approximately $1.4 million. Such is the same
aggregate exercise price of the General Roofing Industries options that were
previously granted and that are expected to be converted after the
reorganization. The conversion of the General Roofing Industries options into
GRS options is expected to occur upon the reorganization and merger of these
related entities. As such, it is not considered to be a new issuance or
modification (and thus not a new measurement date) of the original grant by
General Roofing Industries. Further it is anticipated that an additional 560,000
options will be granted at the date of the Offering at the initial public
offering price. A reserve of 1,500,000 shares of the Company's common stock has
been established for issuance under the Option Plan.
The purpose of the Plan is to attract and retain qualified personnel, to
provide additional incentives to employees, officers and directors of the
Company and to promote the success of the Company's business. In furtherance of
this purpose, the Plan authorizes (i) the granting of incentive and
non-statutory stock options to purchase shares of Common Stock to employees,
officers and directors of the Company, and (ii) the granting of rights to
purchase shares of Common Stock on a "restricted stock" basis (the "Awards") to
employees, officers and directors of the Company. Incentive stock options may
only be granted to full-time employees of the Company or its subsidiaries.
Non-statutory stock options and Awards may be granted to directors of the
Company and any person employed by the Company or its subsidiaries. The Plan is
administered by the Compensation Committee of the Board. The Compensation
Committee has complete discretion to determine which eligible individuals are to
receive option or Award grants, the number of shares subject to each such
F-13
<PAGE> 95
GENERAL ROOFING SERVICES, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
grant, the status of any granted option as either an incentive stock option or a
non-statutory option, the vesting schedule to be in effect for the option or
Award grant and the maximum term for which any granted option or Award is to
remain outstanding.
Each option granted under the Plan has a maximum term of 10 years (except
incentive stock options granted to holders of more than 10% of the voting power
of the Company's outstanding stock which has a maximum term of five years),
subject to earlier termination following the optionee's cessation of service
with the Company. Options granted under the Plan may be exercised only for fully
vested shares. The exercise price of incentive stock options and non-statutory
stock option's granted under the Plan must be at least 100% and 85% of the fair
market value of the stock subject to the option on the date of grant,
respectively (or 110% with respect to incentive stock options granted to holders
of more than 10% of the voting power of the Company's outstanding stock). The
Board or the Compensation Committee has the authority to determine the fair
market value of the stock. The purchase price is payable immediately upon the
exercise of the option.
Options granted under the Plan have been structured to provide incentive to
achieve the Company's financial goals. In general, options granted under the
Plan will vest ratably over a four-year period commencing one year from the date
of grant.
F-14
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
GRi of South Florida, Inc.,
GRi of Orlando, Inc.,
GRi of West Florida, Inc. and
Dakota Leasing, Inc.:
We have audited the accompanying combined balance sheets of GRi of South
Florida, Inc., GRi of Orlando, Inc., GRi of West Florida, Inc. and Dakota
Leasing, Inc., all of which are under common ownership and common management, as
of October 31, 1996 and 1997, and the related combined statements of operations,
stockholder's equity and cash flows for each of the three years in the period
ended October 31, 1997. These financial statements are the responsibility of the
companies' 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 combined financial position of GRi of South Florida, Inc., GRi of
Orlando, Inc., GRi of West Florida, Inc. and Dakota Leasing, Inc. as of October
31, 1996 and 1997, and the combined results of their operations and their
combined cash flows for each of the three years in the period ended October 31,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
December 12, 1997,
(January 20, 1998 as to the final paragraph of Note 6)
(February 16, 1998 as to Note 11)
F-15
<PAGE> 97
GENERAL ROOFING INDUSTRIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 106,783 $ 240,679 $ 155,634
Contract receivables, net of an allowance for doubtful
accounts of $7,054, $36,345 and $36,345,
respectively.......................................... 4,580,183 4,011,561 4,924,733
Due from stockholder..................................... 172,317 326,679 332,286
Costs and estimated earnings in excess of billings....... 264,573 428,791 290,957
Inventory................................................ 304,742 320,889 347,285
Other current assets..................................... 51,327 104,645 240,515
---------- ---------- ----------
Total current assets............................. 5,479,925 5,433,244 6,291,410
Property and Equipment -- net.............................. 1,111,263 1,605,369 1,754,506
Deferred Costs............................................. 483,972 1,348,466
---------- ---------- ----------
Total............................................ $6,591,188 $7,522,585 $9,394,382
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable......................................... $2,986,574 $2,693,636 $2,328,722
Accrued workers' compensation............................ 265,000 409,782 354,822
Accrued payroll.......................................... 166,771 266,637 294,898
Other accrued expenses and current liabilities........... 6,113 42,319
Billings in excess of costs and estimated earnings....... 718,171 237,316 493,660
Current portion of long-term debt........................ 157,739 1,227,326 774,270
Current portion of capitalized lease obligations......... 86,627 151,114 157,499
---------- ---------- ----------
Total current liabilities........................ 4,386,995 4,985,811 4,446,190
Long-Term Debt, net of current portion..................... 420,725 485,429 3,445,463
Capitalized Lease Obligations, net of current portion...... 243,895 281,659 274,594
Other Liabilities.......................................... 400,000 200,000 150,000
---------- ---------- ----------
Total............................................ 5,451,615 5,952,899 8,316,247
---------- ---------- ----------
Commitments and Contingencies (Note 11)
Stockholder's Equity:
Common stock............................................. 1,200 1,200 1,200
Additional paid-in capital............................... 572,825 572,825 628,967
Retained earnings........................................ 565,548 995,661 447,968
---------- ---------- ----------
Total............................................ 1,139,573 1,569,686 1,078,135
---------- ---------- ----------
Total............................................ $6,591,188 $7,522,585 $9,394,382
========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-16
<PAGE> 98
GENERAL ROOFING INDUSTRIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED OCTOBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract Revenues Earned........ $18,174,012 $24,810,346 $26,792,268 $11,338,671 $10,838,123
Costs of Contract Revenues
Earned........................ 13,559,134 17,258,133 19,100,850 7,737,795 8,015,732
----------- ----------- ----------- ----------- -----------
Gross Profit.................... 4,614,878 7,552,213 7,691,418 3,600,876 2,822,391
Selling, General and
Administrative Expenses....... 4,954,614 6,570,209 6,995,095 2,556,510 3,244,448
----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations... (339,736) 982,004 696,323 1,044,366 (422,057)
Other Income (Expense):
Interest and Other Income..... 26,184 81,216 81,338 69,690 24,280
Interest Expense.............. (99,332) (103,134) (152,548) (54,641) (149,916)
----------- ----------- ----------- ----------- -----------
Net Income (Loss)..... $ (412,884) $ 960,086 $ 625,113 $ 1,059,415 $ (547,693)
=========== =========== =========== =========== ===========
</TABLE>
See notes to combined financial statements.
F-17
<PAGE> 99
GENERAL ROOFING INDUSTRIES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ---------- --------- ----------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1994........................... $1,200 $197,825 $ 483,949 $ 682,974
Net loss.......................................... (412,884) (412,884)
Contribution from stockholder..................... 175,000 175,000
Distributions to stockholder...................... (175,000) (175,000)
------ -------- --------- ----------
BALANCE, OCTOBER 31, 1995........................... 1,200 372,825 (103,935) 270,090
Net income........................................ 960,086 960,086
Contribution from stockholder..................... 200,000 200,000
Distributions to stockholder...................... (290,603) (290,603)
------ -------- --------- ----------
BALANCE, OCTOBER 31, 1996........................... 1,200 572,825 565,548 1,139,573
Net income........................................ 625,113 625,113
Distributions to stockholder...................... (195,000) (195,000)
------ -------- --------- ----------
BALANCE, OCTOBER 31, 1997........................... 1,200 572,825 995,661 1,569,686
Net loss (unaudited).............................. (547,693) (547,693)
Issuance of warrants (unaudited).................. 56,142 56,142
------ -------- --------- ----------
BALANCE, MARCH 31, 1998 (unaudited)................. $1,200 $628,967 $ 447,968 $1,078,135
====== ======== ========= ==========
</TABLE>
See notes to combined financial statements.
F-18
<PAGE> 100
GENERAL ROOFING INDUSTRIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED OCTOBER 31, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss)........................ $ (412,884) $ 960,086 $ 625,113 $1,059,415 $ (547,693)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used) by
Operating Activities:
Depreciation and Amortization.......... 175,356 214,319 380,010 161,357 194,467
Loss (Gain) on Disposal of Assets...... (9,001) 5,747 (23,667) (7,554)
Changes in Operating Assets and
Liabilities:
Contract Receivables, Net............ (452,728) (958,375) 568,622 (265,330) (913,172)
Costs and Estimated Earnings in
Excess of Billings................ (134,699) (38,407) (164,218) 114,771 137,834
Inventory............................ (1,042) (68,576) (16,147) 33,049 (26,396)
Other Current Assets................. 36,752 (49,765) (53,318) (166,166) (135,870)
Accounts Payable..................... 1,025,163 509,524 (292,938) (942,348) (364,914)
Accrued Workers' Compensation,
Payroll and Other................. (119,340) 193,151 238,535 500,326 15,620
Billings in Excess of Costs and
Estimated Earnings................ 93,180 (12,975) (480,855) (204,831) 256,344
Other Liabilities.................... 200,000 (100,000) $ (200,000) (50,000)
----------- ----------- ----------- ---------- -----------
Net Cash Provided by (Used in)
Operating Activities............ 400,757 654,729 581,137 290,243 (1,441,334)
----------- ----------- ----------- ---------- -----------
Cash Flows from Investing Activities:
Purchases of Property and Equipment...... (49,391) (404,319) (651,248) (436,754) (302,679)
Proceeds from Sale of Property and
Equipment.............................. 145,821 40,000 23,616 34,566
Advances to Stockholder.................. (205,252) (58,613) (154,362) (5,607)
Deferred Costs Incurred.................. (483,972) (808,350)
----------- ----------- ----------- ---------- -----------
Net Cash Used in Investing
Activities...................... (108,822) (462,932) (1,249,582) (413,138) (1,082,070)
----------- ----------- ----------- ---------- -----------
Cash Flows from Financing Activities:
Proceeds From the Issuance of Long-Term
Debt................................... 1,049,287 1,594,597 3,570,043 625,300 5,433,895
Repayment of Long-Term Debt.............. (1,098,897) (1,953,863) (2,435,752) (68,616) (2,926,915)
Principal Payments Under Capital Lease
Obligations............................ (10,857) (68,387) (136,950) (40,760) (68,617)
Contributions from Stockholder........... 175,000 200,000
Distributions to Stockholder............. (175,000) (290,603) (195,000) (88,660)
----------- ----------- ----------- ---------- -----------
Net Cash (Used in) Provided by
Financing Activities............ (60,467) (518,256) 802,341 427,264 2,438,363
----------- ----------- ----------- ---------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents.............................. 231,468 (326,459) 133,896 304,369 (85,041)
Cash and Cash Equivalents, Beginning of
Period................................... 201,774 433,242 106,783 106,783 240,679
----------- ----------- ----------- ---------- -----------
Cash and Cash Equivalents, End of Period... $ 433,242 $ 106,783 $ 240,679 $ 411,152 $ 155,638
=========== =========== =========== ========== ===========
Supplemental Schedule of Non-Cash Financing
and Investing Activities:
Equipment Acquired Through Capital
Leases, Net of Disposals............... $ 130,289 $ 279,477 $ 239,201 $ 201,218 $ 67,937
=========== =========== =========== ========== ===========
</TABLE>
See notes to combined financial statements.
F-19
<PAGE> 101
GENERAL ROOFING INDUSTRIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- GRI of South Florida, Inc., GRI of Orlando, Inc., GRI of West
Florida, Inc., and Dakota Leasing, Inc. (collectively referred to herein as
"General Roofing Industries," "GRI" or the "Company"), all of which are S
Corporations wholly-owned by the same stockholder and are under common
management. The Company operates in one segment as a provider of comprehensive
roofing services to commercial, construction and government customers. At the
present time, primarily all of the Company's revenues are generated in Florida.
The capital structure of each entity as of October 31, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
------- ----------
<S> <C> <C>
GRI of South Florida, Inc.
(500 Shares Authorized, 100 Shares
Issued and Outstanding; $1 Par Value)..................... $ 100 $371,925
GRI of Orlando, Inc.
(100 Shares Authorized, Issued
and Outstanding; $1 Par Value)............................ 100 400
GRI of West Florida, Inc.
(500 Shares Authorized, Issued
and Outstanding; $1 Par Value)............................ 500 200,500
Dakota Leasing, Inc.
(500 Shares Authorized, Issued
and Outstanding; $1 Par Value)............................ 500
------ --------
$1,200 $572,825
====== ========
</TABLE>
Principles of Combination -- The combined financial statements include all
of the accounts of GRi of South Florida, Inc., GRI of Orlando, Inc., GRi of West
Florida, Inc. and Dakota Leasing, Inc. All significant intercompany balances and
transactions have been eliminated in combination.
Interim Financial Information -- The interim financial statements and
information as of March 31, 1998 and for the five months ended March 31, 1997
and 1998 are unaudited and certain information and footnote disclosures normally
included in annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollecti-
F-20
<PAGE> 102
GENERAL ROOFING INDUSTRIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ble based on management's best estimates. Recoveries are recognized in the
period they are received. The ultimate amount of contract receivables that
become uncollectible could differ from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and well
known local companies whose reputation is known to the Company. Advance payments
and progress payments are generally required for significant projects. Credit
checks are performed for significant new customers that are not known to the
Company. The Company generally has the ability to file liens against the
property if it is not paid on a timely basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of first-in, first-out cost or market.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision recorded, if necessary, whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost.
Depreciation is recorded using accelerated and straight-line methods over the
estimated useful lives of the related assets. Depreciation and amortization is
provided over the following estimated useful lives.
<TABLE>
<S> <C>
Service equipment........................................... 5 to 7 years
Capitalized leased equipment................................ 3 to 5 years
Leasehold improvements...................................... 3 to 31 years
Machinery and equipment..................................... 3 to 10 years
Computer equipment.......................................... 5 to 10 years
</TABLE>
Leases that transfer substantially all the benefits and risks of ownership
to the Company are accounted for as an acquisition of assets and incurrence of
obligations. Accordingly, capitalized leased assets are recorded as property and
equipment and the present value of the future minimum lease payments are
recorded as capitalized lease obligations. Amortization of such assets is
computed using the straight-line method over the shorter of the estimated useful
lives of the respective assets or the lease agreement.
Warranties -- The Company provides for future estimated warranty
obligations in the period in which the related revenue is recognized.
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
and tools. Selling, general, and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project which are
not reflective of effort are excluded from the percentage of completion
calculation for purposes of determining profits earned on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecasted for a contract, the full amount of the anticipated
loss is recognized in the period in which it is determined that a loss will
occur, regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings" on
uncompleted contracts, represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings" on
uncompleted contracts, represents billings in excess of revenues recognized.
F-21
<PAGE> 103
GENERAL ROOFING INDUSTRIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Costs -- Included in deferred costs are certain costs incurred in
connection with the Company's proposed mergers and acquisitions described in
Note 13 and certain costs incurred in connection with obtaining related debt or
equity financing. The deferred acquisition costs will become part of the
Company's basis of the acquired businesses and the deferred financing and
offering costs will be either amortized as interest expense over the term of
debt instruments or charged as a cost of raising capital as appropriate. Should
the transactions not be consummated, the amounts will be charged to operations.
Income Taxes -- The Company is an S Corporation for federal income tax
purposes. As such, the income tax effects of the results of operations of the
Company accrue directly to the Shareholder. Accordingly, the accompanying
combined balance sheets do not include a provision for income taxes.
Long-Lived Assets -- In March 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of ("SFAS No. 121"). This statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. SFAS
No. 121 requires that long-lived assets to be held and used by the Company be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment is recognized
to the extent that the sum of undiscounted estimated future cash flows expected
to result from the assets used is less than the carrying value. The Company has
evaluated its asset base, and determined that no impairment was required.
Stock Options -- Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock Based Compensation" encourages but does not require
companies to record compensation cost for stock based compensation plans at fair
value. The Company has chosen to account for stock based compensation using the
intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured based on the
excess, if any, of the fair value of the Company's stock at the date of the
grant over the exercise price of the option.
New Accounting Pronouncement -- In June 1997, SFAS No. 130, Reporting
Comprehensive Income, was issued. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 requires that a company (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the balance sheet. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company has not determined
the effects, if any, that SFAS No. 130 will have on its combined financial
statements.
F-22
<PAGE> 104
GENERAL ROOFING INDUSTRIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. CONTRACT RECEIVABLES
Contract receivables consisted of the following as of October 31, 1996 and
1997:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Completed contracts:
Current accounts.......................................... $1,273,283 $1,806,993
Retention................................................. 563,481 418,943
---------- ----------
Subtotal.......................................... 1,836,764 2,225,936
---------- ----------
Contracts in progress:
Current accounts.......................................... 2,440,096 1,579,273
Retention................................................. 310,377 242,697
---------- ----------
Subtotal.......................................... 2,750,473 1,821,970
---------- ----------
4,587,237 4,047,906
Less: allowance for doubtful accounts....................... (7,054) (36,345)
---------- ----------
Contract receivables, net......................... $4,580,183 $4,011,561
========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of October 31, 1996 and
1997:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Service equipment........................................... $ 543,753 $ 826,809
Capitalized leased equipment................................ 409,766 648,967
Leasehold improvements...................................... 249,164 251,227
Machinery and equipment..................................... 295,946 459,057
Computer equipment.......................................... 96,341 279,360
---------- ----------
Subtotal.......................................... 1,594,970 2,465,420
Less accumulated depreciation (including $68,387 and
$122,599 on capital leased equipment)..................... (483,707) (860,051)
---------- ----------
Property and equipment, net................................. $1,111,263 $1,605,369
========== ==========
</TABLE>
4. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $6,458,979 $5,211,664
Estimated earnings.......................................... 2,178,635 1,259,043
---------- ----------
Total............................................. 8,637,614 6,470,707
Less billings to date....................................... 9,091,212 6,279,232
---------- ----------
Net (over) under billings......................... $ (453,598) $ 191,475
========== ==========
</TABLE>
F-23
<PAGE> 105
GENERAL ROOFING INDUSTRIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1996 1997
--------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $ 264,573 $428,791
Billings in excess of costs and estimated earnings.......... 718,171 237,316
--------- --------
Total............................................. $(453,598) $191,475
========= ========
</TABLE>
5. CAPITALIZED LEASE OBLIGATIONS
The Company has entered into lease arrangements which expire through the
year 2002 and accrue interest on a monthly basis using a variable rate of
interest which is based on the prime interest rate for certain vehicles (see
Note 3). Such arrangements transfer to the Company substantially all of the
risks and benefits of ownership of the related assets. The assets have been
capitalized and the obligations have been recorded as capitalized lease
obligations. As of October 31, 1997, approximate future minimum lease payments
(excluding interest) under capitalized lease obligations were as follows for the
year ended October 31:
<TABLE>
<S> <C>
1998........................................................ $ 151,114
1999........................................................ 150,740
2000........................................................ 90,455
2001........................................................ 37,640
2002........................................................ 2,824
---------
Present value of net future minimum lease payments.......... 432,773
Less current portion of capitalized lease obligations....... (151,114)
---------
Long-term portion of capitalized lease obligations.......... $ 281,659
=========
</TABLE>
6. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- -----------
<S> <C> <C>
Note payable due on April 21, 2000, bearing interest at a
variable rate based on the lender's index rate (9.5% and
9% at October 31, 1996 and 1997, respectively). Note is
payable in monthly payments of $10,537 of principal and
interest. Secured by contract receivables and equipment... $374,403 $ 275,983
Various loans payable due through the year 2001, bearing
interest rates ranging from 9.0% to 9.75%. Secured by
service and other equipment............................... 204,061 440,786
Revolving credit lines due on demand, bearing interest at a
variable rate based on the lender's index rate (9% at
October 31, 1997). Secured by contract receivables and
equipment................................................. 995,986
-------- -----------
Total............................................. 578,464 1,712,755
Less current portion........................................ (157,739) (1,227,326)
-------- -----------
Total long term portion........................... $420,725 $ 485,429
======== ===========
</TABLE>
F-24
<PAGE> 106
GENERAL ROOFING INDUSTRIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt are as follows at October 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $1,227,326
1999........................................................ 258,646
2000........................................................ 198,785
2001........................................................ 27,998
----------
Total............................................. $1,712,755
==========
</TABLE>
On January 20, 1998, the Company obtained a subordinated loan in the amount
of $3 million. Proceeds from the loan are to be used for general working capital
needs and to complete the transactions described in Note 12. The subordinated
loan is payable on or before January 20, 2003 with interest payable monthly at
the rate of 13% per year. In accordance with the terms of the subordinated loan,
the Company issued warrants at fair value which are convertible at a nominal
amount into an initial 3.183% of the Company's fully diluted ownership with
annual increases of 2%, as the loan remains outstanding, up to an aggregate of
10.75% of the Company's fully diluted ownership. The loan is subordinate to
other bank financing and is secured by a second lien on the assets of the
Company. The balance due under the subordinated loan at March 31, 1998 amounted
to $3 million.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable, debt and capitalized lease
obligations. The carrying value of these financial instruments approximates fair
value because of their short duration or current interest rates. The Company
places its temporary cash investments with financial institutions and limits the
amount of credit exposure with any one financial institution. The carrying value
of debt and capitalized lease obligations approximates their fair value based on
current rates for borrowings of similar quality and terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the Florida market. The
Company believes this concentration of credit risk is mitigated by the diversity
of industries represented by the Company's customer base.
8. 401(K) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan covering substantially all
employees. Each year, participants may contribute up to 15% of pretax annual
compensation, not to exceed $9,500, as defined in the plan. The Company shall
contribute and allocate to each participant's account an amount equal to the
amount withheld from the compensation of such participant pursuant to his or her
salary savings agreement. Discretionary matching amounts may be contributed at
the Company's option, not to exceed 6% of the participant's compensation. During
the year ended October 31, 1997, the Company contributed $22,763. No amounts
were contributed by the Company during the year ended October 31, 1996.
F-25
<PAGE> 107
GENERAL ROOFING INDUSTRIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS
The Company has entered into long-term lease arrangements (expiring through
2004) with entities controlled by and related to the Company's stockholder. The
following are the Company's commitments with respect to these leases:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
OCTOBER 31,
-----------
<S> <C>
1998........................................................ $ 293,548
1999........................................................ 314,319
2000........................................................ 334,495
2001........................................................ 201,151
2002........................................................ 120,964
2003 and thereafter......................................... 335,249
----------
Total............................................. $1,599,726
==========
</TABLE>
Rent expense related to these arrangements were $216,756, $219,509 and
$261,091 during the years ended October 31, 1995, 1996 and 1997, respectively.
In addition, the Company has entered into a long-term consulting agreement
(expiring through 2003) with a party related to the Company's stockholder. The
following are the Company's commitments with respect to this agreement.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
OCTOBER 31,
------------
<S> <C>
1998........................................................ $ 97,024
1999........................................................ 91,256
2000........................................................ 85,487
2001........................................................ 79,718
2002........................................................ 73,950
2003 and thereafter......................................... 78,984
--------
Total............................................. $506,419
========
</TABLE>
The Company paid consulting fees related to this arrangement of $54,187,
$75,633 and $126,715 during the years ended October 31, 1995, 1996 and 1997,
respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome cannot
presently be determined with certainty, the Company believes, with advice from
its legal counsel, that the ultimate liability associated with such claims, if
any, will not have a material adverse effect on the Company's financial position
or results of operations.
11. STOCK OPTIONS
The Company issued options to purchase an aggregate of approximately 10.5%
of the Company's outstanding common stock to certain key employees. The options
were issued on February 16, 1998 at an aggregate exercise price of approximately
$1.4 million. Based in part on the results of an independent appraisal, the
Company's management believes such exercise price to approximate the fair value
on the date of grant of the shares issuable upon exercise of the options.
F-26
<PAGE> 108
GENERAL ROOFING INDUSTRIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENT
The Company expects to sign a stock purchase agreement with General Roofing
Services, Inc. ("GRS"). GRS is a newly-formed holding company and is presently
wholly-owned by the Company's shareholder. Therefore the acquisition of the
Company will be accounted for as a reorganization of entities under common
control which is similar to a pooling of interests business combination. GRS
plans to acquire a number of unrelated commercial roofing companies and complete
an initial public offering of a portion of its shares of common stock to effect
these acquisitions. GRS is dependent upon the initial public offering to execute
the acquisitions and the Company will be reflected as the accounting acquirer
for financial reporting purposes.
* * * * * *
F-27
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
CEI Roofing, Inc., CEI Florida, Inc. and CEI West Roofing Company, Inc.:
We have audited the accompanying combined balance sheets of CEI Roofing,
Inc., CEI Florida, Inc. and CEI West Roofing Company, Inc. (collectively, the
Companies) as of December 31, 1996 and 1997, and the related combined statements
of income, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These combined financial statements
are the responsibility of the Companies' 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 our audits provide a reasonable basis for our
opinion.
In our opinion, based on our audits the combined financial statements
referred to above present fairly, in all material respects, the combined
financial position of CEI Roofing, Inc., CEI Florida, Inc. and CEI West Roofing
Company, Inc. as of December 31, 1996 and 1997, and the results of their
combined operations and cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
BELEW AVERITT LLP
Dallas, Texas
February 18, 1998, except for
Note 13, as to which the date
is May 13, 1998
F-28
<PAGE> 110
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................. $ 617,173 $ 539,852 $ 293,589
Accounts receivable (Notes 4 and 5):
Contract billings.................................... 5,252,952 5,934,232 5,376,629
Contract retainage................................... 2,114,346 2,751,702 2,852,934
Other................................................ 36,656 34,333 91,832
----------- ----------- ------------
7,403,954 8,720,267 8,321,395
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 2).................... 748,584 791,908 1,227,407
Inventory (Notes 4 and 5)............................ 686,955 521,629 370,656
Prepaid expenses and other current assets............ 118,464 137,206 76,619
----------- ----------- ------------
Total current assets......................... 9,575,130 10,710,862 10,289,666
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization
(Notes 3, 4 and 5)................................... 1,922,458 2,054,701 2,008,508
OTHER ASSETS........................................... 395,559 429,124 419,475
----------- ----------- ------------
$11,893,147 $13,194,687 $ 12,717,649
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Lines-of-credit (Note 4)............................. $ 80,000 $ 300,000 $ 327,615
Accounts payable, trade.............................. 3,241,044 4,209,856 4,560,085
Accrued payroll...................................... 474,551 433,881 245,732
Accrued insurance.................................... 502,420 157,495 151,615
Other accrued liabilities............................ 73,691 144,888 166,333
Distributions payable (Note 6)....................... 328,126 797,651 434,482
Billings in excess of costs and estimated earnings on
uncompleted contracts (Note 2).................... 1,333,731 1,010,559 744,478
Current portion of long-term (Note 5)................ 395,079 399,393 387,040
----------- ----------- ------------
Total current liabilities.................... 6,428,642 7,453,723 7,017,380
LONG-TERM DEBT, net of current portion (Note 5)........ 520,519 535,474 433,424
COMMITMENTS AND CONTINGENCIES
(Notes 8 and 9)...................................... -- -- --
STOCKHOLDERS' EQUITY (Notes 9 and 10)
Common stock, voting................................. 3,315 3,315 3,315
Common stock, nonvoting.............................. 331,346 331,346 331,346
Paid-in capital...................................... 84,499 84,499 84,499
Retained earnings.................................... 4,524,826 4,786,330 4,847,685
----------- ----------- ------------
Total stockholders' equity................... 4,943,986 5,205,490 5,266,845
----------- ----------- ------------
$11,893,147 $13,194,687 $ 12,717,649
=========== =========== ============
</TABLE>
See accompanying notes to combined financial statements.
F-29
<PAGE> 111
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONTACT REVENUE.................. $39,693,912 $42,525,236 $45,163,485 $9,652,618 $10,025,121
DIRECT CONTRACT COSTS............ 31,188,523 32,851,735 34,899,406 7,741,858 7,733,485
----------- ----------- ----------- ---------- -----------
GROSS PROFIT..................... 8,505,389 9,673,501 10,264,079 1,910,760 2,291,636
GENERAL AND ADMINISTRATIVE
EXPENSES (Note 11)............. 7,289,281 7,699,302 8,018,064 1,932,600 2,105,173
----------- ----------- ----------- ---------- -----------
INCOME FROM OPERATIONS........... 1,216,108 1,974,199 2,246,015 (21,840) 186,463
OTHER INCOME (EXPENSE) Interest
income......................... 2,286 14,507 12,885 417 1,101
Interest expense............... (112,674) (102,341) (131,289) (24,341) (66,421)
Gain (loss) on sale of
assets...................... (6,772) 3,388 18,109 (2,493) (1,254)
Miscellaneous.................. 198,161 97,213 107,384 20,720 9,222
----------- ----------- ----------- ---------- -----------
81,001 12,767 7,089 (5,697) (57,352)
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... 1,297,109 1,986,966 2,253,104 (27,537) 129,111
STATE INCOME TAXES (Note 7)...... 12,668 31,243 27,195 853 2,729
----------- ----------- ----------- ---------- -----------
NET INCOME (LOSS)...... $ 1,284,441 $ 1,955,723 $ 2,225,909 $ (28,390) $ 126,382
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE> 112
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
OUTSTANDING SHARES AMOUNT ADDITIONAL
------------------- ------------------- PAID-IN RETAINED
VOTING NON-VOTING VOTING NON-VOTING CAPITAL EARNINGS TOTAL
------ ---------- ------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994... 3,315 338,416 $3,315 $338,416 $84,499 $ 3,372,963 $ 3,799,193
Stock Redemption (Note
9)....................... -- (7,070) -- (7,070) -- (269,734) (276,804)
Distributions.............. -- -- -- -- -- (640,500) (640,500)
Net income................. -- -- -- -- -- 1,284,441 1,284,441
----- ------- ------ -------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 1995... 3,315 331,346 3,315 331,346 84,499 3,747,170 4,166,330
Distributions.............. -- -- -- -- -- (1,178,067) (1,178,067)
Net income................. -- -- -- -- -- 1,955,723 1,955,723
----- ------- ------ -------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 1996... 3,315 331,346 3,315 331,346 84,499 4,524,826 4,943,986
Distributions.............. -- -- -- -- -- (1,964,405) (1,964,405)
Net income................. -- -- -- -- -- 2,225,909 2,225,909
----- ------- ------ -------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 1997... 3,315 331,346 3,315 331,346 84,499 4,786,330 5,205,490
Distributions(Unaudited)... -- -- -- -- -- (65,027) (65,027)
Net income (Unaudited)..... -- -- -- -- -- 126,382 126,382
----- ------- ------ -------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 1998... 3,315 331,346 $3,315 $331,346 $84,499 $ 4,847,685 $ 5,266,845
===== ======= ====== ======== ======= =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE> 113
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................... $ 1,284,441 $ 1,955,723 $ 2,225,909 $ (28,390) $ 126,382
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 436,366 432,447 486,063 105,431 107,945
(Gain) loss on sale of assets............ 6,772 (3,388) (18,109) 2,493 1,254
Net (increase) decrease in:
Contract billings and retainage........ 931,198 (925,593) (1,318,636) (44,013) 456,371
Accounts receivable, other............. 132,273 13,875 2,323 (30,114) (57,499)
Costs and estimated earnings in excess
of billings on uncompleted
contracts........................... 375,350 (314,971) (43,324) (178,636) (435,499)
Inventory.............................. (129,183) (143,762) 165,326 240,592 150,973
Prepaid expenses and other current
assets.............................. 55,230 (30,321) (18,742) 107,081 60,587
Net increase (decrease) in:
Accounts payable and accrued
liabilities......................... (538,015) (465,727) 654,414 215,363 177,645
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 117,597 579,270 (323,172) (87,707) (266,081)
----------- ----------- ----------- --------- ---------
Net cash provided by operating
activities........................ 2,672,029 1,097,553 1,812,052 302,100 322,078
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in other assets................... (53,554) (51,661) (33,565) (7,927) 9,649
Proceeds from sale of equipment............ 44,350 18,343 49,717 -- --
Purchases of property and equipment........ (314,790) (338,565) (390,090) (93,128) (63,006)
----------- ----------- ----------- --------- ---------
Net cash used in investing
activities........................ (323,994) (371,883) (373,938) (101,055) (53,357)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lines-of-credit and long-term
debt..................................... 217,709 426,852 1,202,665 464,381 596,878
Payments on lines-of-credit................ (366,700) -- -- (265,000) (635,000)
Principal payments on long-term debt....... (720,028) (576,152) (1,223,220) (61,009) (48,666)
Distributions paid......................... (590,607) (1,069,541) (1,494,880) (458,545) (428,196)
Redemption of stock........................ (100,000) -- -- -- --
----------- ----------- ----------- --------- ---------
Net cash used in financing
activities........................ (1,559,626) (1,218,841) (1,515,435) (320,173) (514,984)
----------- ----------- ----------- --------- ---------
NET INCREASE (DECREASE) IN CASH..... 788,409 (493,171) (77,321) (119,128) (246,263)
CASH AT BEGINNING OF YEAR.................... 321,935 1,110,344 617,173 617,173 539,852
----------- ----------- ----------- --------- ---------
CASH AT END OF YEAR.......................... $ 1,110,344 $ 617,173 $ 539,852 $ 498,045 $ 293,589
=========== =========== =========== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid.............................. $ 110,223 $ 91,842 $ 141,126 $ 24,341 $ 66,421
=========== =========== =========== ========= =========
State income taxes paid.................... $ 38,281 $ 25,142 $ 18,892 $ -- $ --
=========== =========== =========== ========= =========
SUMMARY OF NON-CASH TRANSACTIONS
Redemption of stock:
For note payable......................... $ 165,000 $ -- $ -- $ -- $ --
=========== =========== =========== ========= =========
For insurance policy..................... $ 11,804 $ -- $ -- $ -- $ --
=========== =========== =========== ========= =========
Financed equipment purchases................. $ 221,708 $ 166,443 $ 259,824 $ -- $ --
=========== =========== =========== ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE> 114
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
CEI Roofing, Inc. (CEI), was incorporated in Texas on May 14, 1981, and
operates as a roofing and sheet metal contractor engaged in the installation of
new roofs and reroofing of existing commercial, industrial and residential
buildings. CEI has offices in Dallas, Texas and Howell, Michigan.
CEI Florida, Inc. (Florida), was incorporated in Florida on May 10, 1982,
and operates as a roofing contractor engaged in the installation of new roofs
and reroofing of existing commercial, industrial and residential buildings,
primarily in the southern United States. Florida has an office located in
DeBary, Florida.
CEI West Roofing Company, Inc. (West), was incorporated in Colorado on
August 24, 1977, and operates as a roofing contractor engaged in the
installation of new roofs and reroofing of existing commercial, industrial and
residential buildings, primarily in the western United States. West has offices
located in Denver, Colorado and Sacramento, California.
COMBINATION POLICY
The accompanying combined financial statements include the accounts of CEI
Roofing, Inc., CEI Florida, Inc. and CEI West Roofing Company, Inc.
(collectively, the Companies), all of which have some common ownership. All
significant intercompany transactions and balances have been eliminated in
combination.
INTERIM FINANCIAL INFORMATION
The interim financial statements, as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998, 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
items, 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 an entire fiscal year.
ACCOUNTING 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, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
management's estimates.
CASH AND CASH EQUIVALENTS
The Companies consider all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
INVENTORY
Inventory of construction materials is carried at the lower of cost or
market value under the first-in, first-out method.
F-33
<PAGE> 115
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are depreciated using the straight-line and
accelerated methods for financial statement purposes and accelerated methods for
Federal income tax purposes over estimated useful lives ranging from 3 to 39
years.
Maintenance and repairs of a routine nature are expensed as incurred.
Renewals and betterments, which substantially extend the useful life of an
existing asset, are capitalized and depreciated over the asset's estimated
useful life.
RECOGNITION OF CONTRACT REVENUE
Generally, the work performed by CEI, Florida and West is done so under
fixed-price contracts of durations less than one year.
Contract revenue is recognized using the percentage-of-completion method.
Under this method, the percentage of contract revenue to be recognized currently
is computed as the percentage of estimated total revenue that incurred costs to
date bear to total estimated costs, after giving effect to the most recent
estimate of costs to complete.
Revisions in costs and revenue estimates are reflected in the period in
which the facts requiring revision become known. When revised cost estimates
indicate a loss on an individual contract, the total estimated loss is provided
for currently without regard to the percentage-of-completion. Revenues
recognized in excess of amounts billed are classified under current assets as
costs and estimated earnings in excess of billings on uncompleted contracts.
Amounts billed in excess of revenue recognized to date on contracts are
classified under current liabilities as contract billings in excess of costs and
estimated earnings on uncompleted contracts.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Companies to
concentrations of credit risk, consist principally of cash, contract billings
and retainage. The Companies deposit cash with reliable financial institutions
which management considers to be of high credit quality. Concentration of credit
risk with respect to contract billings and retainage is limited due to the large
number of customers comprising the Companies' customer bases. In addition, the
Companies review a customer's credit history before extending credit and
generally obtain liens to ensure payment. Management of the Companies does not
anticipate significant credit losses from such financial instruments.
ADVERTISING
The Companies expense the costs of advertising as the costs are incurred.
Advertising expense was approximately $50,300, $74,200 and $62,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
F-34
<PAGE> 116
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts at December 31, 1996
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts................... $ 20,780,460 $ 24,133,642
Estimated earnings........................................ 4,710,518 6,416,367
------------ ------------
25,490,978 30,550,009
Less billings to date..................................... (26,076,125) (30,768,660)
------------ ------------
$ (585,147) $ (218,651)
============ ============
</TABLE>
Included in the accompanying balance sheets at December 31, 1996 and 1997
are the following captions and amounts:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 748,584 $ 791,908
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (1,333,731) (1,010,559)
----------- -----------
$ (585,147) $ (218,651)
=========== ===========
</TABLE>
The Companies' backlog of signed contracts at December 31, 1996 and 1997,
amounted to $12,205,250 and $11,414,215, respectively, which represented work
not yet commenced and uncompleted construction in progress.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Leasehold improvements...................................... $ 308,758 $ 368,620
Building and improvements................................... 437,019 439,268
Land........................................................ 141,724 141,724
Land improvements........................................... 87,749 89,048
Equipment................................................... 1,540,200 1,409,748
Autos and trucks............................................ 2,651,253 2,884,473
Furniture and fixtures...................................... 810,842 708,158
----------- -----------
5,977,545 6,041,039
Less accumulated depreciation and amortization.............. (4,055,087) (3,986,338)
----------- -----------
$ 1,922,458 $ 2,054,701
=========== ===========
</TABLE>
4. LINES-OF-CREDIT
The Companies have various lines-of-credit which allow for combined
borrowings, at December 31, 1997, of up to $1,325,000 with interest at the
bank's prime rate plus 1%. The lines-of-credit are collateralized by accounts
receivable, inventory, property and equipment, and limited personal guarantees
of certain stockholders. The lines-of-credit mature during the first six months
of 1998. At December 31, 1996 and 1997, the Companies had been advanced $80,000
and $300,000, respectively, under the lines-of-credit. The bank's prime rate at
December 31, 1996 and 1997 was 8.25% and 8.5%, respectively. The Companies had
$845,000 and $1,025,000 available under the lines-of-credit at December 31, 1996
and 1997, respectively.
F-35
<PAGE> 117
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Equipment loans, due in monthly installments ranging from
$293 to $2,479 including interest at rates ranging from
2.9% to 12.5%, maturing on various dates through May 2002;
collateralized by equipment and vehicles.................. $568,000 $ 643,106
Mortgage note payable, due in monthly installments of
$1,600, including interest at 8.75%, with a balloon
payment due at maturity in June 1999; collateralized by
real property............................................. 146,102 139,144
Note payable to former stockholder, payable in five annual
installments of $33,000, plus interest at 6.0%, commencing
June 1996 (see Note 9).................................... 132,000 99,000
Notes payable, due in monthly installments ranging from
$1,308 to $12,349, including interest at 7.5%, unsecured,
paid-in full subsequent to December 31, 1997.............. 50,097 50,075
Note payable to bank, due on demand, but if no demand is
made, then due in monthly installments of $2,500, plus
interest at the bank's base lending rate plus 2% (10.5% at
December 31, 1997), maturing in October 1998;
collateralized by inventory, equipment and accounts
receivable................................................ 7,369 3,542
Note payable to insurance company, due in monthly
installments of $1,135, non-interest bearing and
unsecured, paid-in full subsequent to December 31, 1996... 3,987 --
Notes payable to stockholder, due in monthly installments of
$410 to $759, including interest at 7.0%, maturing in
December 1997, collateralized by insurance policy......... 8,043 --
-------- ---------
915,598 934,867
Less current portion...................................... (395,079) (399,393)
-------- ---------
$520,519 $ 535,474
======== =========
</TABLE>
Scheduled maturities of long-term debt as of December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998................................................. $399,393
1999................................................. 340,880
2000................................................. 134,188
2001................................................. 48,303
2002................................................. 12,103
--------
$934,867
========
</TABLE>
6. DISTRIBUTIONS TO STOCKHOLDERS
The Companies' declared distributions to stockholders of $1,178,067 and
$1,964,405 during 1996 and 1997, respectively, of which $328,126 and $797,651
were payable at December 31, 1996 and 1997, respectively.
F-36
<PAGE> 118
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The Companies have elected S Corporation status and as a result, the
Companies' taxable income is included in the Federal income tax returns of the
stockholders. Accordingly, no provision has been made for Federal income taxes.
The Companies are obligated to pay state income taxes to certain states in
which they do business. Provisions for state income taxes are computed at
statutory rates for each state in which a return is filed.
8. COMMITMENTS AND CONTINGENCIES
The Companies lease office space and operating equipment under agreements
which are accounted for as operating leases. The leases require monthly payments
ranging from approximately $43 to $4,700 and expire on various dates through
December 2002.
Approximate minimum rental commitments for operating leases in effect at
December 31, 1997, with initial or remaining lease terms in excess of one year,
were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998................................................. $346,014
1999................................................. 315,153
2000................................................. 160,612
2001................................................. 99,132
2002................................................. 70,512
--------
$991,423
========
</TABLE>
Rent expense for office facilities and operating equipment for the years
ended December 31, 1995, 1996 and 1997 was approximately $411,991, $438,439 and
$499,115, respectively.
CEI has guaranteed two bank loans of a partnership owned by the
stockholders of CEI. The loans are due in monthly installments of approximately
$8,200, but vary based upon the prime rate. The remaining principal and interest
are due at maturity in September 1998 and July 2002. CEI was contingently liable
for $501,013 as guarantor of the indebtedness at December 31, 1997. The loans
are collateralized by real estate.
Approximately 12% of CEI's non-management employees are covered by
collective bargaining agreements, which expire within the next year. If CEI and
the unions representing such workers are unable to agree on a new contract prior
to the expiration of the current contract, a work stoppage may occur which could
adversely affect the results of operations. Management anticipates successful
renegotiations of the contracts.
9. STOCK PURCHASE AND OTHER AGREEMENTS
The individual companies have agreements with the stockholders to provide
for the acquisition of stock in the event of the death, disability or withdrawal
of a stockholder. The Companies have obtained life insurance to fund all or part
of the redemption. The purchase price of the stock is to be determined by the
net book value of the individual companies at a designated date.
Effective May 1, 1995, West agreed to purchase all of the non-voting common
stock (7,070 shares) held by a stockholder for $276,804. The redemption of the
stock was paid by the transfer of a life insurance policy with a value of
$11,804, cash payments in 1995 totaling $100,000 and the issuance of a
promissory note for $165,000 (see Note 5).
The Companies have consulting and non-compete agreements with a former
stockholder. Terms of the agreements call for monthly payments of $6,400 through
December 1999 for specific services to be performed.
F-37
<PAGE> 119
CEI ROOFING, INC., CEI FLORIDA, INC. AND
CEI WEST ROOFING COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMON STOCK
Common stock of the Companies consisted of the following:
<TABLE>
<S> <C>
CEI:
Common Stock -- Voting............... $1 par value, 10,000 shares
authorized; 750 shares issued and
outstanding.
Common Stock -- Nonvoting............ $1 par value; 150,000 shares
authorized; 132,416 shares issued and
outstanding.
FLORIDA:
Common Stock -- Voting............... $1 par value; 10,000 shares
authorized; 2,250 shares issued and
outstanding.
Common Stock -- Nonvoting............ $1 par value; 250,000 shares
authorized; 174,500 shares issued and
outstanding.
WEST:
Common Stock -- Voting............... $1 par value; 10,000 shares
authorized; 315 shares issued and
outstanding.
Common Stock -- Nonvoting............ $1 par value; 50,000 shares
authorized; 24,430 shares issued and
outstanding.
</TABLE>
11. RELATED PARTY TRANSACTIONS
CEI and Florida lease office space from two different partnerships owned by
stockholders of CEI and Florida, respectively. The lease agreements require
combined monthly payments of approximately $14,000 through June 2000. Total rent
paid to the related partnerships for the years ended December 31, 1995, 1996 and
1997 was $152,524, $148,599 and $164,199, respectively.
The Companies use numerous labor and material subcontractors on an ongoing
basis, as needed. Two such labor providers are companies owned by trusts whose
beneficiaries are children of one of the company's stockholders. Amounts paid to
the related company during 1995, 1996 and 1997 were approximately $3,140,000,
$3,681,000 and $4,388,000, respectively.
12. EMPLOYEE BENEFIT PLANS
The Companies have retirement plans (Plans) for all employees meeting
certain eligibility requirements. The Plans qualify under Section 401(k) of the
Internal Revenue Code. The Plans allow employee contributions of agreed-upon
salary reductions equal to a percentage of the employees' annual compensation,
subject to limitations. Employer contributions may be made at the discretion of
the employer in each year the Companies have accumulated earnings. The Companies
contributed $104,361, $122,650 and $57,265 to the Plans for the years ended
December 31, 1995, 1996 and 1997, respectively.
13. SUBSEQUENT EVENT
Effective May 13, 1998, the stockholders of the Companies executed a stock
purchase agreement to sell all of their outstanding common stock to General
Roofing Services, Inc. (GRS) for cash and common shares of GRS.
F-38
<PAGE> 120
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Anthony Roofing Ltd.:
We have audited the accompanying balance sheet of Anthony Roofing Ltd. (the
"Company") as of December 31, 1997, and the related statements of operations,
stockholder's 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, such financial statements present fairly, in all material
respects, the financial position of Anthony Roofing Ltd. as of December 31, 1997
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 23, 1998
(May 13, 1998 as to Note 11)
F-39
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Anthony Roofing Ltd.:
We have audited the accompanying balance sheet of Anthony Roofing Ltd. as
of December 31, 1996 and the related statements of operations, stockholder's
equity and cash flows for the fourteen month period ended December 31, 1995 and
the year ended December 31, 1996. 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 Anthony Roofing Ltd. and the results of its
operations and its cash flows for the fourteen month period ended December 31,
1995 and the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
DUGAN & LOPATKA CPA'S, P.C.
Wheaton, Illinois
May 22, 1998
F-40
<PAGE> 122
ANTHONY ROOFING LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 922,347 $1,939,026 $2,531,185
Contract receivables..................................... 2,732,086 3,499,477 1,815,320
Costs and estimated earnings in excess of billings....... 583,485 460,548 920,018
Other receivables........................................ 4,084 16,265 796
Due from related parties................................. 273,868
Inventories.............................................. 68,713 46,369 106,881
Prepaid expenses and other current assets................ 61,068 22,365 27,687
Refundable income taxes.................................. 33,933
---------- ---------- ----------
Total current assets............................. 4,679,584 5,984,050 5,401,887
PROPERTY AND EQUIPMENT, net................................ 416,255 683,677 695,897
---------- ---------- ----------
TOTAL............................................ $5,095,839 $6,667,727 $6,097,784
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable............................................ $ 803,086 $ $
Accounts payable......................................... 814,339 445,406 449,016
Accrued salaries and wages............................... 136,434 222,620 76,355
Accrued pension.......................................... 40,872 63,322 23,669
Accrued expenses and other current liabilities........... 57,328 98,483 73,633
Billings in excess of costs and estimated earnings....... 133,922 381,066 50,388
---------- ---------- ----------
Total current liabilities........................ 1,985,981 1,210,897 673,061
COMMITMENTS (Note 11)
STOCKHOLDER'S EQUITY:
Common stock............................................. 1,000 1,000 1,000
Retained earnings........................................ 3,108,858 5,455,830 5,423,723
---------- ---------- ----------
Total............................................ 3,109,858 5,456,830 5,424,723
---------- ---------- ----------
TOTAL............................................ $5,095,839 $6,667,727 $6,097,784
========== ========== ==========
</TABLE>
See notes to financial statements.
F-41
<PAGE> 123
ANTHONY ROOFING LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
NOVEMBER 1, THREE MONTHS ENDED
1994 TO YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------- -----------------------
1995 1996 1997 1997 1998
------------ ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONTRACT REVENUES EARNED.......... $13,310,048 $12,226,082 $19,777,750 $2,523,732 $2,488,841
COSTS OF CONTRACT REVENUES
EARNED.......................... 9,916,484 9,507,011 14,440,829 2,242,095 2,132,006
----------- ----------- ----------- ---------- ----------
GROSS PROFIT...................... 3,393,564 2,719,071 5,336,921 281,637 356,835
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES......... 1,915,034 2,086,484 2,869,800 371,818 444,744
----------- ----------- ----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS..... 1,478,530 632,587 2,467,121 (90,181) (87,909)
----------- ----------- ----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income................. 47,916 30,922 32,912 27,181
Interest expense................ (5,371) (35,591) (10,452) (3,598) (1,676)
Other income (expense), net..... (5,133) (17,279) 79,979 1,500 30,873
----------- ----------- ----------- ---------- ----------
37,412 (21,948) 102,439 (2,098) 56,378
INCOME (LOSS) BEFORE INCOME
TAXES........................... 1,515,942 610,639 2,569,560 (92,279) (31,531)
INCOME TAX PROVISION.............. (5,200) (10,400) (50,000)
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)....... $ 1,510,742 $ 600,239 $ 2,519,560 $ (92,279) $ (31,531)
=========== =========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-42
<PAGE> 124
ANTHONY ROOFING LTD.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
SHARES STATED RETAINED
VALUE $10 AMOUNT EARNINGS TOTAL
---------------- ------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1994...................... 100 $1,000 $2,864,110 $ 2,865,110
Net income................................... 1,510,742 1,510,742
Distribution to stockholder.................. (614,164) (614,164)
--- ------ ---------- -----------
BALANCE, DECEMBER 31, 1995..................... 100 1,000 3,760,688 3,761,688
Net income................................... 600,239 600,239
Distributions to stockholder................. (1,252,069) (1,252,069)
--- ------ ---------- -----------
BALANCE, DECEMBER 31, 1996..................... 100 1,000 3,108,858 3,109,858
Net income................................... 2,519,560 2,519,560
Distributions to stockholder................. (172,588) (172,588)
--- ------ ---------- -----------
BALANCE, DECEMBER 31, 1997..................... 100 1,000 5,455,830 5,456,830
Net loss (unaudited)......................... (31,531) (31,531)
Distributions to stockholder (unaudited)..... (576) (576)
--- ------ ---------- -----------
BALANCE, MARCH 31, 1998
(unaudited).................................. 100 $1,000 $5,423,723 $ 5,424,723
=== ====== ========== ===========
</TABLE>
See notes to financial statements.
F-43
<PAGE> 125
ANTHONY ROOFING LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
NOVEMBER 1, YEARS ENDED THREE MONTHS ENDED
1994 TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ ----------------------
1995 1996 1997 1997 1998
------------ ----------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 1,510,742 $ 600,239 $2,519,560 $ (92,279) $ (31,531)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 188,417 165,177 219,578 42,939 57,000
Loss (gain) on disposal of assets................... 5,133 24,539 (55,534) (740)
Changes in operating assets and liabilities:
Contract receivables, net......................... 763,867 (257,545) (767,391) 706,571 1,684,157
Costs and estimated earnings in excess of
billings........................................ 254,581 35,634 122,937 (292,407) (459,470)
Inventories....................................... (68,713) 22,344 (36,258) (60,512)
Other current assets.............................. (58,577) 79,930 60,455 10,059 10,147
Accounts payable and accrued expenses............. (570,645) 664,182 (219,142) (327,447) (207,158)
Billings in excess of costs and estimated
earnings........................................ (335,587) (112,227) 247,144 (85,095) (330,678)
----------- ----------- ---------- --------- ----------
Net cash provided by (used in) operating
activities.................................... 1,757,931 1,131,216 2,149,951 (73,917) 661,215
----------- ----------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (217,615) (260,869) (506,197) (23,579) (69,997)
Due from related parties.............................. (273,868) 273,868 273,868
Proceeds from sale of property and equipment.......... 12,086 14,500 74,731 1,517
Other................................................. 1,370
----------- ----------- ---------- --------- ----------
Net cash provided by (used in) investing
activities.................................... (204,159) (520,237) (157,598) 250,289 (68,480)
----------- ----------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on notes payable to bank................. (450,000) 803,086 (803,086) (803,086)
Distributions to stockholder.......................... (614,164) (1,152,069) (172,588) (576)
----------- ----------- ---------- --------- ----------
Net cash used in financing activities........... (1,064,164) (348,983) (975,674) (803,086) (576)
----------- ----------- ---------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 489,608 261,996 1,016,679 (626,714) 592,159
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......... 170,743 660,351 922,347 922,347 1,939,026
----------- ----------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $ 660,351 $ 922,347 $1,939,026 $ 295,633 $2,531,185
=========== =========== ========== ========= ==========
CASH PAYMENTS FOR:
Interest.............................................. $ 5,371 $ 35,591 $ 5,613 $ 3,356 $ 168
Taxes................................................. 31,365 22,449 35,100 25,532 47,000
NONCASH FINANCING ACTIVITY -- Note receivable
distributed to shareholder............................ $ 100,000
</TABLE>
See notes to financial statements.
F-44
<PAGE> 126
ANTHONY ROOFING LTD.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Anthony Roofing Ltd. (the "Company") operates as a provider of
comprehensive roofing services to commercial, construction and government
customers. The work is generally performed under fixed-price contracts. The
lengths of the Company's contracts vary, but generally are less than one year.
The Company's offices are located in Aurora, Illinois and the majority of the
Company's business is transacted with customers in Illinois. A majority of the
Company's employees are covered by collective bargaining agreements.
Change in Fiscal Year -- Prior to 1995, the Company had a fiscal year of
October 31. In 1995, the year-end was changed to December 31, and the Company's
financial statements include the fourteen-month period ended December 31, 1995.
On an unaudited basis, for the months of November and December 1995, revenues
were $1,019,845, loss from operations was ($5,898) and net loss was ($8,476).
Interim Financial Information -- The interim financial statements as of
March 31, 1998 and for the three months ended March 31, 1997 and 1998 are
unaudited, and certain information and footnote disclosures normally included in
annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amounts of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and
local companies whose reputation is known to the Company. The Company generally
has the ability to file liens against the property if it is not paid on a timely
basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of first-in, first-out cost or market.
F-45
<PAGE> 127
ANTHONY ROOFING LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision recorded, if necessary, whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost and
are amortized over the remaining useful life of the related asset. Depreciation
is recorded using accelerated and straight-line methods over the estimated
useful lives of the related assets. Depreciation and amortization are provided
over the following estimated useful lives:
<TABLE>
<S> <C>
Leasehold improvements.................................... 7 to 39 years
Machinery and equipment................................... 3 to 7 years
Computer equipment........................................ 3 to 7 years
</TABLE>
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies
and tools. Selling, general and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project which are
not reflective of effort are excluded from the percentage of completion
calculation for purposes of determining profits earned on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings" on
uncompleted contracts, represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings" on
uncompleted contracts, represents billings in excess of revenues recognized.
Income Taxes -- The Company is an S Corporation for federal income tax
purposes. Accordingly, the current taxable income of the Company is taxable to
the shareholder, who is responsible for the payment of taxes thereon. The income
tax provision and related deferred income tax balances are for state income and
franchise taxes. The tax basis of assets and liabilities of the Company differs
from the financial statement basis principally due to the use of the completed
contract method of reporting revenues for income tax purposes and due to
accelerated depreciation of assets for tax purposes.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. There are no
differences between comprehensive income and net income as reported in the
statement of operations.
Reclassification -- Certain amounts in the 1995 and 1996 financial
statements have been reclassified to conform to the 1997 presentation.
F-46
<PAGE> 128
ANTHONY ROOFING LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Completed contracts:
Current accounts.......................................... $1,265,792 $1,192,346
Retention................................................. 18,923 205,904
Contracts in progress:
Current accounts.......................................... 1,165,709 1,701,751
Retention................................................. 281,662 399,476
---------- ----------
Contract receivables, net......................... $2,732,086 $3,499,477
========== ==========
</TABLE>
There is no allowance for doubtful accounts recorded at December 31, 1997
and 1996; management believes all amounts are collectible.
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $3,284,673 $6,367,687
Estimated earnings.......................................... 1,199,215 2,274,900
---------- ----------
4,483,888 8,642,587
Activity in prior years on contracts in progress............ 447,380
---------- ----------
Total....................................................... 4,483,888 9,089,967
Less: billings to date...................................... (4,034,325) (9,010,485)
---------- ----------
Net under billings................................ $ 449,563 $ 79,482
========== ==========
</TABLE>
The foregoing is included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $ 583,485 $ 460,548
Billings in excess of costs and estimated earnings.......... (133,922) (381,066)
--------- ---------
Total............................................. $ 449,563 $ 79,482
========= =========
</TABLE>
F-47
<PAGE> 129
ANTHONY ROOFING LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Leasehold improvements...................................... $ 42,112 $ 69,614
Machinery and equipment..................................... 1,474,459 1,853,457
Computer equipment.......................................... 162,279 181,238
----------- -----------
Subtotal.................................................... 1,678,850 2,104,309
Less: accumulated depreciation.............................. (1,262,595) (1,420,632)
----------- -----------
Property and equipment, net....................... $ 416,255 $ 683,677
=========== ===========
</TABLE>
5. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
-------- ----
<S> <C> <C>
$1,250,000 revolving line of credit due May 31, 1998,
bearing Interest at a variable rate based on the LIBOR
rate plus 2.75% (8.5% and 8.25% at December 31, 1996 and
1997, respectively). Secured by contract receivables,
inventories and equipment. The Company must retain a
compensating Balance of $70,000 in the bank at all
times..................................................... $803,086 $0
$200,000 revolving line of credit due May 31, 1998, bearing
interest at a variable rate based on the LIBOR rate plus
2.75%. Secured by contract receivables, inventories and
equipment.................................................
-------- --
$803,086 $0
======== ==
</TABLE>
At December 31, 1997, the Company had unused lines of credit totalling
$1,450,000 to provide for additional borrowings.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable, and debt. The carrying value
of these financial instruments approximates fair value because of their short
duration or current interest rates. The Company places its temporary cash
investments with financial institutions and limits the amount of credit exposure
with any one financial institution.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the Illinois market.
The Company believes this concentration of credit risk is mitigated by the
diversity of industries represented by the Company's customer base.
7. MAJOR CUSTOMERS
Sales to three customers were 18%, 13% and 10% of total sales,
respectively, for the fourteen month period ended December 31, 1995. Sales to
two customers were 16% and 12% of total sales, respectively, for the year ended
December 31, 1996, and sales to one customer was 14% of total sales for the year
ended December 31, 1997.
F-48
<PAGE> 130
ANTHONY ROOFING LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. MAJOR SUPPLIERS
Purchases from each of two suppliers exceeded 10% of materials purchased
for the fourteen month period ended December 31, 1995, aggregating 26%,
purchases from each of three suppliers exceeded 10% of materials purchased for
the year ended December 31, 1996 aggregating 48% and purchases from each of four
suppliers exceeded 10% of materials purchased for the year ended December 31,
1997, aggregating 64%.
9. EMPLOYEE BENEFIT PLANS
The Company has A defined contribution money purchase plan covering
substantially all full-time, nonunion employees who have completed at least one
year of service. Participants vest 20% per year over a five-year period until
100% vested. The plan requires the Company to contribute 10% of an employee's
compensation to the plan annually. The Company's contribution to the plan for
the fourteen month period ended December 31, 1995 and the years ended December
31, 1996 and 1997 was $61,598, $40,872 and $63,322, respectively.
The Company contributes monthly to multi-employer defined benefit union
plans based upon hours worked by each eligible employee. Pension expense for
these plans was approximately $429,000, $209,000 and $340,000 for the fourteen
month period ended December 31, 1995 and the years ended December 31, 1996 and
1997, respectively.
10. RELATED PARTY TRANSACTIONS
The Company has entered into a long-term lease arrangement (with an initial
term expiring in December 2001 and options to extend through 2016) with an
entity controlled by and related to the Company's stockholder. The following are
the Company's commitments with respect to the lease for the years ending
December 31:
<TABLE>
<S> <C>
1998........................................................ $164,000
1999........................................................ 172,000
2000........................................................ 181,000
2001........................................................ 190,000
--------
Total............................................. $707,000
========
</TABLE>
Total rent expense with related entities was $140,182, $135,741 and
$195,677 during the fourteen month period ended December 31, 1995 and the years
ended December 31, 1996 and 1997, respectively.
During the fourteen month period ended December 31, 1995 and the years
ended December 31, 1996 and 1997, the Company purchased $74,000, $200,000 and
$164,000, respectively, of subcontractor services from a company owned by a
relative of the Company's stockholder.
The Company has entered into an employment agreement with the
officer/shareholder which includes a nonqualified deferred compensation program.
There was no deferral required under the plan at December 31, 1996 and 1997. A
deduction for income tax purposes is allowed at the time the deferred
compensation is paid to the employee.
11. SUBSEQUENT EVENT
On May 13, 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. ("GRS") whereby GRS will acquire the Company for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including the approval by Directors of both companies.
* * * * * *
F-49
<PAGE> 131
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Specialty Associates, Inc.
and to the Stockholder of
SAI Wholesale Distributors, Inc.
We have audited the accompanying combined balance sheets of Specialty
Associates, Inc. and Affiliate both of which are under common ownership and
common management (the "Company") as of February 1, 1998 and February 2, 1997,
and the related combined statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended February 1, 1998. The
combined financial statements include the accounts of Specialty Associates, Inc.
and SAI Wholesale Distributors, Inc., which are affiliates under common
ownership and common management. 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 combined financial position of Specialty Associates, Inc. and
Affiliate as of February 1, 1998 and February 2, 1997, and the combined results
of operations and combined cash flows for the years then ended in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 27, 1998
(May 12,1998 as to Note 12)
F-50
<PAGE> 132
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1, APRIL 5,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 9,318 $ 135,781 $ 30,544
Contract receivables, net of an allowance for doubtful
accounts of $25,000, $25,000 and $26,000,
respectively.......................................... 2,058,528 1,877,343 1,699,082
Costs and estimated earnings in excess of billings....... 45,677 49,524 53,835
Inventories.............................................. 708,430 657,131 800,374
Prepaid expenses and other current assets................ 14,623 24,382
Deferred income taxes.................................... 31,000 31,000 31,000
---------- ---------- ----------
Total current assets............................. 2,867,576 2,750,779 2,639,217
PROPERTY AND EQUIPMENT, net...................... 1,279,129 1,599,824 1,564,724
OTHER ASSETS............................................... 85,127 149,823 161,823
---------- ---------- ----------
TOTAL............................................ $4,231,832 $4,500,426 $4,365,764
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit........................................... $ 700,000 $ 700,000 $ 800,000
Accounts payable......................................... 1,115,813 906,488 824,074
Accrued expenses and other current liabilities........... 233,752 453,362 389,240
Billings in excess of costs and estimated earnings....... 261,994 162,254 204,717
Current portion of long-term debt........................ 183,736 202,000 202,000
---------- ---------- ----------
Total current liabilities........................ 2,495,295 2,424,104 2,420,031
LONG-TERM DEBT, net of current portion..................... 533,297 518,696 468,933
DEFERRED INCOME TAXES...................................... 73,000 139,000 139,000
---------- ---------- ----------
Total............................................ 3,101,592 3,081,800 3,027,964
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 10, 11)
STOCKHOLDERS' EQUITY:
Common stock............................................. 34,488 34,488 34,488
Additional paid-in capital............................... 216,175 216,175 216,175
Retained earnings........................................ 991,379 1,326,245 1,245,419
Treasury stock........................................... (111,802) (158,282) (158,282)
---------- ---------- ----------
Total............................................ 1,130,240 1,418,626 1,337,800
---------- ---------- ----------
TOTAL............................................ $4,231,832 $4,500,426 $4,365,764
========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-51
<PAGE> 133
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE WEEK
PERIOD ENDED
FEBRUARY 2, FEBRUARY 1, -----------------------
1997 1998 APRIL 6, APRIL 5,
(53 WEEKS) (52 WEEKS) 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Construction revenues....................... $14,211,377 $16,148,375 $2,336,771 $1,486,539
Product sales............................... 1,095,261 1,049,214 57,415 54,885
COSTS OF SALES AND CONSTRUCTION:
Cost of construction........................ 12,919,520 14,276,016 2,177,734 1,400,766
Cost of product sold........................ 740,117 680,965 34,623 38,240
----------- ----------- ---------- ----------
GROSS PROFIT.................................. 1,647,001 2,240,608 181,829 102,418
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES..................... 1,235,738 1,486,581 188,739 212,371
----------- ----------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS............................... 411,263 754,027 (6,910) (109,953)
OTHER INCOME (EXPENSE):
Interest expense............................ (144,817) (136,428) (23,776) (22,358)
Other income, net........................... 2,195 2,267 303 485
----------- ----------- ---------- ----------
(142,622) (134,161) (23,473) (21,873)
INCOME (LOSS) BEFORE
INCOME TAXES................................ 268,641 619,866 (30,383) (131,826)
INCOME TAX (PROVISION) BENEFIT................ (132,000) (285,000) 12,000 51,000
----------- ----------- ---------- ----------
NET INCOME (LOSS)................... $ 136,641 $ 334,866 $ (18,383) $ (80,826)
=========== =========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-52
<PAGE> 134
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN TREASURY RETAINED
AMOUNT CAPITAL STOCK EARNINGS TOTAL
------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 28, 1996................ $34,488 $216,175 $(109,960) $ 854,738 $ 995,441
Net income............................. 136,641 136,641
Stock repurchase (100 shares).......... (1,842) (1,842)
------- -------- --------- ---------- ----------
BALANCE, FEBRUARY 2, 1997................ 34,488 216,175 (111,802) 991,379 1,130,240
Net income............................. 334,866 334,866
Stock repurchase (1,495 shares)........ (46,480) (46,480)
------- -------- --------- ---------- ----------
BALANCE, FEBRUARY 1, 1998................ 34,488 216,175 (158,282) 1,326,245 1,418,626
Net loss (unaudited)................... (80,826) (80,826)
------- -------- --------- ---------- ----------
BALANCE, APRIL 5, 1998
(unaudited)............................ $34,488 $216,175 $(158,282) $1,245,419 $1,337,800
======= ======== ========= ========== ==========
</TABLE>
See notes to combined financial statements.
F-53
<PAGE> 135
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE WEEK PERIOD ENDED
------------------------- ----------------------
FEBRUARY 2, FEBRUARY 1, APRIL 6, APRIL 5,
1997 1998 1997 1998
----------- ----------- ---------- ---------
(53 WEEKS) (52 WEEKS) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $136,641 $334,866 $ (18,383) $(80,826)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization................. 202,457 222,072 37,235 35,100
Deferred income taxes......................... 29,000 66,000
Changes in operating assets and liabilities:
Contract receivables, net................... (496,309) 181,185 147,393 178,261
Costs and estimated earnings in excess of
billings................................. (13,625) (3,847) (27,517) (4,311)
Inventories................................. (72,260) 51,299 9,262 (143,243)
Prepaid expenses and other current assets... (5,352) 14,623 (13,406) (24,382)
Accounts payable and accrued expenses....... 353,268 10,285 113,178 (146,536)
Billings in excess of costs and estimated
earnings................................. 119,532 (99,740) (41,622) 42,463
-------- -------- --------- --------
Net cash provided by (used in) operating
activities............................. 253,352 776,743 206,140 (143,474)
-------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............. (183,926) (536,363) (135,245)
Other............................................ 1,032 (71,100) (10,000) (12,000)
-------- -------- --------- --------
Net cash used in investing activities.... (182,894) (607,463) (145,245) (12,000)
-------- -------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury shares...................... (1,842) (46,480)
Net proceeds from (payments on) line of credit... (100,000) 100,000
Proceeds from the issuance of long-term debt..... 498,170 247,037 106,449
Repayments of long-term debt..................... (580,968) (243,374) (32,183) (49,763)
-------- -------- --------- --------
Net cash (used in) provided by financing
activities............................. (84,640) (42,817) (25,734) 50,237
-------- -------- --------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS...................................... (14,182) 126,463 35,161 (105,237)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..... 23,500 9,318 9,318 135,781
-------- -------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 9,318 $135,781 $ 44,479 $ 30,544
======== ======== ========= ========
CASH PAYMENTS FOR:
Interest......................................... $147,436 $135,469 $ 24,768 $ 22,358
Taxes............................................ 42,302 103,680
</TABLE>
See notes to combined financial statements.
F-54
<PAGE> 136
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Specialty Associates, Inc. is a construction contractor whose
principal business is commercial and residential roofing, including
architectural sheet metal fabrication, primarily in the Midwest United States.
SAI Wholesale Distributors, Inc. distributes roofing material primarily to
Specialty Associates, Inc. and other roofing contractors. The Company has
general office facilities in West Allis, Wisconsin.
Fiscal Year -- The Company operates on a 52-53 week fiscal year ending on
the Sunday nearest to January 31.
Basis of Presentation -- The combined financial statements include the
accounts of Specialty Associates, Inc. and SAI Wholesale Distributors, Inc.
(collectively, the "Company"). The companies have common ownership, share
management and facilities, and accordingly, the financial statements have been
combined. Significant intercompany transactions have been eliminated in the
accompanying combined financial statements.
The capital structure of each entity as of February 1, 1998 and February 2,
1997 is as follows:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
------- ----------
<S> <C> <C>
SAI Wholesale Distributors, Inc., 2,200 shares authorized,
1,000 issued and outstanding no par value common stock.... $ 2,288
Specialty Associates, Inc., 100,000 shares authorized and no
par value common stock, and outstanding 91,304 shares in
1998 and 92,799 shares in 1997............................ 32,200 $216,175
------- --------
$34,488 $216,175
======= ========
</TABLE>
Interim Financial Information -- The interim financial statements as of
April 5, 1998 and for the nine week period ended April 6, 1997 and April 5, 1998
are unaudited, and certain information and footnote disclosures normally
included in annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amounts of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and
local companies whose reputation is known to the Company. Advance payments and
progress payments are generally required for significant projects. Credit checks
are performed for significant
F-55
<PAGE> 137
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
new customers that are not known to the Company. The Company generally has the
ability to file liens against the property if it is not paid on a timely basis.
Inventories -- Inventories are valued at the lower of first-in, first-out
cost or market.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision recorded, if necessary, whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost and
are amortized over the remaining useful life of the related asset. Depreciation
is recorded using accelerated and straight-line methods over the estimated
useful lives of the related assets. Depreciation and amortization are provided
over the following estimated useful lives:
<TABLE>
<S> <C>
Building and improvements................................... 5 to 39 years
Machinery and equipment..................................... 4 to 10 years
Furniture and fixtures...................................... 10 years
</TABLE>
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs related to
contract performance. Indirect costs are included in total construction costs
but are not allocated to specific contracts. Selling, general and administrative
costs are charged to expense as incurred. Costs for materials incurred at the
inception of a project which are not reflective of effort are excluded from
costs incurred for purposes of increasing revenue recognition and profits.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings" on
uncompleted contracts, represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings" on
uncompleted contracts, represents billings in excess of revenues recognized.
Income Taxes -- The Company reports income taxes pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes related to certain income and expenses recognized in
different periods for financial and income tax reporting purposes. Deferred tax
assets and liabilities represent the future tax consequences of those
differences. Deferred taxes are also recognized for operating losses and tax
credits that are available to offset future taxable income and income taxes,
respectively. A valuation allowance is provided if it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
New Accounting Pronouncements -- Effective February 2, 1998, the Company
adopted Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income. There are no significant differences between comprehensive
income and net income as reported in the Company's statements of operations.
F-56
<PAGE> 138
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1,
1997 1998
----------- -----------
<S> <C> <C>
Trade....................................................... $1,590,632 $1,352,844
Retention................................................... 492,896 549,499
---------- ----------
Subtotal.................................................... 2,083,528 1,902,343
Less: allowance for doubtful accounts....................... (25,000) (25,000)
---------- ----------
Contract receivables, net......................... $2,058,528 $1,877,343
========== ==========
</TABLE>
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1,
1997 1998
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $2,174,756 $1,511,001
Estimated earnings.......................................... 556,235 437,097
---------- ----------
Total....................................................... 2,730,991 1,948,098
Less: billings to date...................................... (2,947,308) (2,060,828)
---------- ----------
Net over billings................................. $ (216,317) $ (112,730)
========== ==========
</TABLE>
The foregoing is included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1,
1997 1998
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $ 45,677 $ 49,524
Billings in excess of costs and estimated earnings.......... (261,994) (162,254)
--------- ---------
Total............................................. $(216,317) $(112,730)
========= =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1,
1997 1998
----------- -----------
<S> <C> <C>
Land........................................................ $ 125,000 $ 125,000
Building and improvements................................... 616,145 659,445
Machinery and equipment..................................... 2,155,729 2,648,792
----------- -----------
Subtotal.................................................... 2,896,874 3,433,237
Less: accumulated depreciation.............................. (1,617,745) (1,833,413)
----------- -----------
Property and equipment, net....................... $ 1,279,129 $ 1,599,824
=========== ===========
</TABLE>
F-57
<PAGE> 139
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. LINE OF CREDIT, LONG-TERM DEBT AND NOTES PAYABLE
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1,
1997 1998
----------- -----------
<S> <C> <C>
Mortgage note payable to bank, due in monthly installments
of $5,297, including interest at prime plus 1.5% (10% at
February 1, 1998) to September 2001 when the unpaid
balance is due............................................ $447,318 $407,831
Notes payable collateralized by equipment and vehicles,
payable in monthly installments ranging from $322 to
$3,896, including interest ranging from 8.50% to 12.25% to
various dates through 2002................................ 269,715 312,865
-------- --------
Total debt........................................ 717,033 720,696
Less: current maturities.................................... 183,736 202,000
-------- --------
Total long-term debt.............................. $533,297 $518,696
======== ========
</TABLE>
At February 1, 1998, the Company has a $1,000,000 revolving credit
agreement with a bank which expires June 1, 1998. Advances on the credit
agreement bear interest at the prime rate plus .75% (9.25% at February 1, 1998),
are due on demand, and are secured by a General Business Security Agreement
covering substantially all assets of the Company and by a second mortgage on
real estate owned by the Company. The agreement is further secured by a guaranty
of the majority stockholder. In addition, the agreement requires the Company to
meet certain financial covenants. Advances may not exceed 80% of qualified
receivables and 50% of qualified inventory. As of February 1, 1998 and February
2, 1997, $700,000 was drawn on the line.
Aggregate maturities of long-term debt for years ending February 1 are as
follows:
<TABLE>
<S> <C>
1999........................................................ $202,000
2000........................................................ 111,563
2001........................................................ 72,900
2002........................................................ 334,233
--------
Total............................................. $720,696
========
</TABLE>
6. INCOME TAXES
The Company's provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1,
1997 1998
----------- -----------
<S> <C> <C>
Current:
Federal................................................... $ 92,000 $176,000
State..................................................... 11,000 43,000
-------- --------
103,000 219,000
-------- --------
Deferred:
Federal................................................... 29,000 66,000
-------- --------
$132,000 $285,000
======== ========
</TABLE>
F-58
<PAGE> 140
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1,
1997 1998
----------- -----------
<S> <C> <C>
Statutory federal tax rate.................................. 34.0% 34.0%
State tax, net of federal benefit........................... 5.1 5.1
Other....................................................... 9.9 6.9
---- ----
Effective rate.............................................. 49.0% 46.0%
==== ====
</TABLE>
During 1997 and 1998, the Company increased the estimated effective rate
for temporary differences as a result of increased taxable income.
Components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1,
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 10,000 $ 10,000
Accrual for unpaid self-insurance claims.................. 10,000 10,000
Impact on gross profit for uninstalled contract
materials.............................................. 16,000 8,000
Other temporary differences, net.......................... 3,000 3,000
-------- ---------
39,000 31,000
-------- ---------
Deferred tax liabilities:
Accelerated depreciation for income tax purposes.......... (73,000) (139,000)
Prepaid expenses.......................................... (8,000) 0
-------- ---------
(81,000) (139,000)
-------- ---------
Net deferred income tax liability................. $(42,000) $(108,000)
======== =========
</TABLE>
The components of deferred income taxes included in the February 2, 1997
and February 1, 1998 balance sheet are as follows:
<TABLE>
<S> <C> <C>
Net current assets.......................................... $ 31,000 $ 31,000
Net non-current liabilities................................. (73,000) (139,000)
-------- ---------
$(42,000) $(108,000)
======== =========
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, and accounts and notes payable. The carrying value of
these financial instruments approximates fair value because of their short
duration or current interest rates. The Company places its temporary cash
investments with financial institutions and limits the amount of credit exposure
with any one financial institution. The carrying value of debt approximates fair
value based on current rates for borrowings of similar quality and terms.
8. PENSION AND PROFIT SHARING/401(K) PLANS
The Company contributes to various union-sponsored, multi-employer pension
and benefit plans and trust funds on behalf of the union employees. The total
amount contributed to these union plans and trusts was approximately $429,000
and $476,000 in fiscal 1997 and 1998, respectively. If the Company's employees
were to vote to withdraw from the union, certain amounts may be due for
under-funded pension obligations.
F-59
<PAGE> 141
SPECIALTY ASSOCIATES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has two profit sharing/401(k) plans covering eligible
employees. One plan is for non-union employees and one is for union employees.
Contributions to these plans are discretionary based on approval of the Board of
Directors. Currently, the Company is matching 30% of the first 6% of
compensation contributed by the employees for the non-union plan, and 10% of the
first 6% of compensation for union employees. In addition, certain non-union
employees receive an additional $1.45 per hour worked as a contribution from the
Company. Contributions made by the Company for the years ended February 2, 1997
and February 1, 1998 to the plans were approximately $26,000 and $48,000,
respectively.
9. SELF-INSURANCE PLAN
The Company, in an effort to reduce health and dental insurance premiums,
participates in a partial self-funding insurance program. The maximum annual
liability of the Company under this plan is $30,000 per employee for the years
ended February 2, 1997 and February 1, 1998. The Company has purchased insurance
to cover claims in excess of this amount.
Total expenses under this plan, including insurance premiums and
administration costs, aggregated approximately $187,000 and $155,000 for the
years ended February 2, 1997 and February 1, 1998, respectively. Approximately
$25,000 had been recorded as an accrued liability for claims incurred but
unpaid.
10. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome cannot
presently be determined with certainty, the Company believes, with advice from
its legal counsel, that the ultimate liability associated with such claims, if
any, will not have a material adverse effect on the Company's financial position
or results of operations.
11. MAJOR MATERIAL SUPPLIER
Purchases from one material supplier comprised approximately 33% and 31% of
material purchases in fiscal years 1997 and 1998. Amounts due to this supplier
represented approximately 35% and 20% of outstanding accounts payable at
February 2, 1997 and February 1, 1998, respectively.
12. SUBSEQUENT EVENT
On May 12, 1998, the Company signed a merger agreement with General Roofing
Services, Inc. ("GRS") whereby GRS will acquire the Company in a merger for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including the approval by Directors of both companies.
* * * * * *
F-60
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Cyclone Roofing Company:
We have audited the accompanying balance sheets of Cyclone Roofing Company
(the "Company") as of December 31, 1996 and 1997, and the related statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 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 Cyclone Roofing Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
May 19, 1998
F-61
<PAGE> 143
CYCLONE ROOFING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 432,718 $ 935,952 $ 486,531
Contract receivables, net of an allowance for doubtful
accounts of $5,000.................................... 1,408,108 2,179,878 2,020,074
Costs and estimated earnings in excess of billings....... 419,247 1,190,001 1,377,515
Other receivables from stockholder and employees......... 98,114 126,909 116,670
Inventories.............................................. 12,247 9,691 12,003
Prepaid expenses and other current assets................ 39,889 675
---------- ---------- ----------
Total current assets............................. 2,410,323 4,443,106 4,012,793
PROPERTY AND EQUIPMENT, net................................ 664,056 754,585 837,179
OTHER ASSETS............................................... 37,006 37,006 37,006
---------- ---------- ----------
TOTAL............................................ $3,111,385 $5,234,697 $4,886,978
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 583,445 $ 251,797 $ 281,427
Accrued payroll and payroll taxes........................ 48,212 81,950 125,672
Accrued workmen's compensation........................... 37,793 14,546 45,904
Accrued interest......................................... 42,400 1,389 1,325
Billings in excess of costs and estimated earnings....... 307,844 427,354 236,330
Current portion of long-term debt........................ 103,736 48,822 184,473
Current portion of capitalized lease obligations......... 32,299 29,596 26,128
---------- ---------- ----------
Total current liabilities........................ 1,155,729 855,454 901,259
LONG-TERM DEBT, net of current portion..................... 203,163 235,450 77,964
CAPITALIZED LEASE OBLIGATIONS, net of current portion...... 68,216 37,691 33,619
---------- ---------- ----------
Total............................................ 1,427,108 1,128,595 1,012,842
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 100,000 shares authorized;
25,000 shares issued and outstanding.................. 25,000 25,000 25,000
Retained earnings........................................ 1,659,277 4,081,102 3,849,136
---------- ---------- ----------
Total............................................ 1,684,277 4,106,102 3,874,136
---------- ---------- ----------
TOTAL............................................ $3,111,385 $5,234,697 $4,886,978
========== ========== ==========
</TABLE>
See notes to financial statements.
F-62
<PAGE> 144
CYCLONE ROOFING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONTRACT REVENUES EARNED........... $9,242,737 $10,254,249 $16,057,460 $3,084,923 $2,828,887
COSTS OF CONTRACT REVENUES
EARNED........................... 7,618,135 8,537,692 12,523,599 2,583,706 2,457,334
---------- ----------- ----------- ---------- ----------
GROSS PROFIT....................... 1,624,602 1,716,557 3,533,861 501,217 371,553
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................... 682,572 1,157,109 1,099,068 226,520 227,397
---------- ----------- ----------- ---------- ----------
INCOME FROM OPERATIONS............. 942,030 559,448 2,434,793 274,697 144,156
OTHER INCOME (EXPENSE):
Interest income.................. 4,448 16,200 2,576 6,709
Interest expense................. (29,161) (32,789) (40,847) (8,136) (5,799)
Other income, net................ 11,208 94,005 11,679 1,122 6,968
---------- ----------- ----------- ---------- ----------
NET INCOME............... $ 924,077 $ 625,112 $ 2,421,825 $ 270,259 $ 152,034
========== =========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-63
<PAGE> 145
CYCLONE ROOFING COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995.............................. 25,000 $25,000 $ 450,088 $ 475,088
Net income.......................................... 924,077 924,077
Distributions to stockholder........................ (250,000) (250,000)
------ ------- ---------- ----------
BALANCE, DECEMBER 31, 1995............................ 25,000 25,000 1,124,165 1,149,165
Net income.......................................... 625,112 625,112
Distributions to stockholder........................ (90,000) (90,000)
------ ------- ---------- ----------
BALANCE, DECEMBER 31, 1996............................ 25,000 25,000 1,659,277 1,684,277
Net income.......................................... 2,421,825 2,421,825
------ ------- ---------- ----------
BALANCE, DECEMBER 31, 1997............................ 25,000 25,000 4,081,102 4,106,102
Net income (unaudited).............................. 152,034 152,034
Distributions to stockholder (unaudited)............ (384,000) (384,000)
------ ------- ---------- ----------
BALANCE, MARCH 31, 1998
(Unaudited)......................................... 25,000 $25,000 $3,849,136 $3,874,136
====== ======= ========== ==========
</TABLE>
See notes to financial statements.
F-64
<PAGE> 146
CYCLONE ROOFING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 924,077 $ 625,112 $2,421,825 $ 270,259 $ 152,034
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 76,774 120,582 154,225 38,077 41,944
Loss (gain) on disposal of assets............ 10,602 (1,077)
Changes in operating assets and liabilities:
Contract receivables, net.................. (25,579) (588,273) (771,770) (566,163) 159,804
Costs and estimated earnings in excess of
billings................................ (235,517) (115,695) (770,754) 66,573 (187,514)
Other receivables from stockholder and
employees............................... (95,960) 2,831 (28,795) (16,875) 10,239
Inventories................................ 3,889 392 2,556 (10,080) (2,312)
Prepaid expenses and other current
assets.................................. 10,597 (19,496) 39,214 28,492 675
Accounts payable........................... (117,499) 395,358 (331,648) 266,375 29,630
Accrued expenses........................... 24,892 48,327 (30,520) (34,084) 75,016
Billings in excess of costs and estimated
earnings................................ 116,273 (228,095) 119,510 (139,251) (191,024)
--------- --------- ---------- --------- ---------
Net cash provided by (used in) operating
activities............................ 681,947 241,043 814,445 (97,754) 88,492
--------- --------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (191,889) (293,896) (296,094) (179,092) (124,538)
Proceeds from sale of property and equipment... 40,738 16,500
--------- --------- ---------- --------- ---------
Net cash used in investing activities... (191,889) (293,896) (255,356) (162,592) (124,538)
--------- --------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt... 40,000 23,177 590,000 120,000
Repayments of long-term debt................... (31,085) (42,787) (613,556) (36,561) (21,835)
Principal payments under capital lease
obligations.................................. (5,314) (32,299) (7,933) (7,540)
Distributions to stockholder................... (250,000) (90,000) (384,000)
--------- --------- ---------- --------- ---------
Net cash provided by (used in) financing
activities............................ (241,085) (114,924) (55,855) 75,506 (413,375)
--------- --------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 248,973 (167,777) 503,234 (184,840) (449,421)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 351,522 600,495 432,718 432,718 935,952
--------- --------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......... $ 600,495 $ 432,718 $ 935,952 $ 247,878 $ 486,531
========= ========= ========== ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND
INVESTING ACTIVITIES:
Equipment acquired through capital leases...... $ 111,646
=========
CASH PAYMENTS FOR:
Interest....................................... $ 19,391 $ 22,052 $ 81,858 $ 48,404 $ 5,863
========= ========= ========== ========= =========
</TABLE>
See notes to financial statements.
F-65
<PAGE> 147
CYCLONE ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Cyclone Roofing Company (the "Company") operates as a provider
of comprehensive roofing services to commercial, industrial, manufacturing,
construction and government customers. The Company also provides residential
roofing and remodeling services. The work is generally performed under
fixed-price contracts. The length of the Company's contracts varies, but
generally are less than one year. The Company's principal offices are located in
Matthews, North Carolina and the majority of the Company's business is
transacted with customers in North Carolina and South Carolina.
Interim Financial Information -- The interim financial statements as of
March 31, 1998 and for the three months ended March 31, 1997 and 1998 are
unaudited and certain information and footnote disclosures normally included in
annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and well
known local companies whose reputation is known to the Company. Advance payments
and progress payments are generally required for significant projects. Credit
checks are performed for significant new customers that are not known to the
Company. The Company generally has the ability to file liens against the
property if it is not paid on a timely basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of cost, using the first-in, first-out method, or
market.
F-66
<PAGE> 148
CYCLONE ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision recorded, if necessary, whenever events or circumstances indicate
that the carrying amounts of an asset may not be recoverable. Routine repairs
and maintenance are expensed as incurred; improvements are capitalized at cost
and are amortized over the remaining useful life of the related asset.
Depreciation is recorded using straight-line methods over the estimated useful
lives of the related assets. Amortization of assets under capitalized leases is
computed using the straight-line method over the shorter of the estimated useful
lives of the respective assets or the lease agreement. Depreciation and
amortization is provided over the following estimated useful lives:
<TABLE>
<S> <C>
Building and improvements................................... 25 years
Service equipment........................................... 5 years
Machinery and equipment..................................... 5 to 7 years
Furniture and fixtures...................................... 5 years
Computer equipment.......................................... 5 to 7 years
Equipment under capitalized leases.......................... 7 years
</TABLE>
Warranties -- The Company provides for future estimated warranty
obligations in the period in which the related revenue is recognized.
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
and tools. Selling, general, and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project which are
not reflective of effort are excluded from the percentage of completion
calculation for purposes of determining profits earned on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings" on
uncompleted contracts, represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings" on
uncompleted contracts, represents billings in excess of revenues recognized.
Income Taxes -- The Company is an S Corporation for federal and state
income tax purposes. 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, 1998, the Company
adopted Statement of Financial Accounting Standard No. 130, Reporting
Comprehensive Income. There are no significant differences between comprehensive
income and net income as reported in the Company's Statements of Operations.
F-67
<PAGE> 149
CYCLONE ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Completed contracts:
Retention................................................. $ 194,254 $ 134,094
Contracts in progress:
Current accounts.......................................... 1,076,720 1,451,861
Retention................................................. 142,134 598,923
---------- ----------
Subtotal.................................................. 1,413,108 2,184,878
Less: allowance for doubtful accounts..................... 5,000 5,000
---------- ----------
Contract receivables, net......................... $1,408,108 $2,179,878
========== ==========
</TABLE>
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $5,223,203 $10,257,311
Estimated earnings.......................................... 2,109,782 3,662,170
---------- -----------
Total............................................. 7,332,985 13,919,481
Less: billings to date.................................... 7,221,582 13,156,834
---------- -----------
Net under billings................................ $ 111,403 $ 762,647
========== ===========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $ 419,247 $1,190,001
Billings in excess of costs and estimated earnings.......... (307,844) (427,354)
--------- ----------
Total............................................. $ 111,403 $ 762,647
========= ==========
</TABLE>
F-68
<PAGE> 150
CYCLONE ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Land........................................................ $ 40,000 $ 40,000
Building and improvements................................... 154,702 154,702
Service equipment........................................... 544,384 608,089
Machinery and equipment..................................... 525,544 706,056
Furniture and fixtures...................................... 18,871 18,871
Computer equipment.......................................... 29,288 29,288
---------- ----------
Subtotal.................................................... 1,312,789 1,557,006
Less: accumulated depreciation............................ 648,733 802,421
---------- ----------
Property and equipment, net....................... $ 664,056 $ 754,585
========== ==========
</TABLE>
Included in property and equipment are the following assets under
capitalized leases:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Equipment................................................... $104,900 $104,900
Less: accumulated depreciation............................ 7,975 23,924
-------- --------
Leased equipment, net............................. $ 96,925 $ 80,976
======== ========
</TABLE>
F-69
<PAGE> 151
CYCLONE ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT AND NOTES PAYABLE
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Mortgage payable due on February 11, 1999, bearing interest
at a fixed rate of 7.25%. Note is payable in monthly
payments of $1,734 of principal and interest and a balloon
payment of $149,468. Secured by land and building......... $167,005 $159,003
Loan payable to stockholder dated June 1992 with annual
interest payments at 10%. Unsecured....................... 75,000 8,746
Note payable due on July 10, 1999, bearing interest at a
fixed rate of 8.5%. Note is payable in monthly payments of
$618 of principal and interest. Secured by equipment...... 17,036 10,828
Note payable due on March 26, 1998, bearing interest at a
fixed rate of 8.99%. Note is payable in monthly payments
of $1,059 of principal and interest. Secured by
vehicle................................................... 14,968 3,129
Note payable due on January 15, 2002, bearing interest at a
fixed rate of 10.49%. Note is payable in monthly payments
of $2,582 of principal and interest. Secured by
equipment................................................. 102,566
Note payable due on May 5, 2000, bearing interest at a fixed
rate of 9.75%. Note is payable in monthly payments of $848
of principal and interest. Secured by vehicle............. 29,971
Note payable due on October 26, 1997, bearing interest at a
fixed rate of 8.79%. Note is payable in monthly payments
of $304 of principal and interest. Secured by vehicle..... 2,919
-------- --------
Total............................................. 306,899 284,272
Less: current portion..................................... 103,736 48,822
-------- --------
Total............................................. $203,163 $235,450
======== ========
Revolving line of credit for $250,000 due on demand,
bearing interest at a variable rate based on the prime
rate plus 0.5% (9.0% at December 31, 1997). Secured by
property and cash balances............................. $ --
========
</TABLE>
Interest accrued and unpaid on the loan payable to stockholder was $41,125
and $474 at December 31, 1996 and 1997, respectively. Interest expense on the
loan payable to stockholder was approximately $9,530, $10,560, and $3,720 for
the years ended December 31, 1995, 1996 and 1997, respectively.
Aggregate maturities of long-term debt for years ending December 31 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 48,822
1999........................................................ 177,683
2000........................................................ 26,163
2001........................................................ 29,044
2002........................................................ 2,560
--------
Total............................................. $284,272
========
</TABLE>
F-70
<PAGE> 152
CYCLONE ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITALIZED LEASE OBLIGATIONS
The Company has entered into lease arrangements for certain equipment which
expire through the year 2000 with interest rates from 6.55% to 7.01%. The assets
have been capitalized and the obligations have been recorded as capitalized
lease obligations. As of December 31, 1997, approximate future minimum lease
payments (excluding interest) under capitalized lease obligations were as
follows for the years ending December 31:
<TABLE>
<S> <C>
1998........................................................ $29,596
1999........................................................ 19,358
2000........................................................ 18,333
-------
Present value of net future minimum lease payments.......... 67,287
Less: current portion of capitalized lease obligations.... 29,596
Long-term portion of capitalized lease obligations.......... $37,691
=======
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts and notes payable, debt, and capitalized lease
obligations. The carrying value of these financial instruments approximates fair
value because of their short duration or current interest rates. The Company
places its temporary cash investments with one financial institution. The
carrying value of debt and capitalized lease obligations approximates their fair
value based on current rates for borrowings of similar quality and terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the North Carolina and
South Carolina markets. The Company believes this concentration of credit risk
is mitigated by the diversity of industries represented by the Company's
customer base.
8. MAJOR CUSTOMERS
At December 31, 1996, $178,223 was due from one customer of the Company. At
December 31, 1997, $69,529, $103,429, and $408,420 was due from three customers
of the Company. For the years ended December 31, 1995 and 1996, sales of 21% and
16%, respectively, of total sales were made to one customer of the Company. For
the year ended December 31, 1997, sales of 12%, 10%, and 13% of total sales were
made to three customers of the Company.
9. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome cannot
presently be determined with certainty, the Company believes, with advice from
its legal counsel, that the ultimate liability associated with such claims, if
any, will not have a material adverse effect on the Company's financial position
or results of operations.
10. SUBSEQUENT EVENT
In May 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. (GRS) whereby GRS will acquire the Company for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including consummation of the offering.
* * * * * *
F-71
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Wright-Brown Roofing Company:
We have audited the accompanying balance sheets of Wright-Brown Roofing
Company as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and
1997, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 29, 1998
(May 13, 1998 as to Note 12)
F-72
<PAGE> 154
WRIGHT-BROWN ROOFING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 441,430 $ 184,424 $ 252,882
Contract receivables, net of an allowance for doubtful
accounts of $13,000, $15,000, and $10,000,
respectively.......................................... 2,119,649 2,803,378 1,945,348
Costs and estimated earnings in excess of billings....... 189,451 367,816 291,221
Other receivables........................................ 3,562 2,500 3,250
Inventories.............................................. 199,725 184,165 198,313
---------- ---------- ----------
Total current assets............................. 2,953,817 3,542,283 2,691,014
PROPERTY AND EQUIPMENT, net................................ 821,755 803,576 789,537
OTHER ASSETS............................................... 162,307 157,069 217,725
---------- ---------- ----------
TOTAL............................................ $3,937,879 $4,502,928 $3,698,276
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $1,179,690 $1,571,688 $1,086,870
Accrued expenses and other current liabilities........... 494,612 630,851 609,873
Billings in excess of costs and estimated earnings....... 123,450 123,316 97,813
Current portion of long-term debt........................ 21,600 34,096 33,657
Current portion of capitalized lease obligations......... 71,748 62,953 54,855
---------- ---------- ----------
Total current liabilities........................ 1,891,100 2,422,904 1,883,068
LONG-TERM DEBT, net of current portion..................... 63,001 66,705 58,339
CAPITALIZED LEASE OBLIGATIONS, net of current portion...... 76,005 33,386 22,025
---------- ---------- ----------
2,030,106 2,522,995 1,963,432
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 50,000 shares authorized,
5,000 shares issued and outstanding................... 5,000 5,000 5,000
Additional paid-in capital............................... 24,470 24,470 24,470
Retained earnings........................................ 1,878,303 1,950,463 1,705,374
---------- ---------- ----------
1,907,773 1,979,933 1,734,844
---------- ---------- ----------
TOTAL............................................ $3,937,879 $4,502,928 $3,698,276
========== ========== ==========
</TABLE>
See notes to financial statements.
F-73
<PAGE> 155
WRIGHT-BROWN ROOFING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1997 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONTRACT REVENUES EARNED...................... $12,819,966 $15,316,153 $2,134,788 $2,446,532
COSTS OF CONTRACT REVENUES EARNED............. 10,629,771 12,820,307 1,787,799 2,112,995
----------- ----------- ---------- ----------
GROSS PROFIT.................................. 2,190,195 2,495,846 346,989 333,537
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................... 1,284,843 1,392,972 393,121 306,439
----------- ----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS................. 905,352 1,102,874 (46,132) 27,098
OTHER INCOME (EXPENSE):
Interest income............................. 495 5,400 463 6
Interest expense............................ (68,383) (76,928) (15,306) (15,923)
Other income (expense), net................. (50,108) (75,678) 2,000
----------- ----------- ---------- ----------
NET INCOME (LOSS)................... $ 787,356 $ 955,668 $ (58,975) $ 11,181
=========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-74
<PAGE> 156
WRIGHT-BROWN ROOFING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996...................... 5,000 $5,000 $24,470 $1,945,088 $1,974,558
Net income.................................. 787,356 787,356
Distributions to stockholders............... (854,141) (854,141)
----- ------ ------- ---------- ----------
BALANCE, DECEMBER 31, 1996.................... 5,000 5,000 24,470 1,878,303 1,907,773
Net income.................................. 955,668 955,668
Distributions to stockholders............... (883,508) (883,508)
----- ------ ------- ---------- ----------
BALANCE, DECEMBER 31, 1997.................... 5,000 5,000 24,470 1,950,463 1,979,933
Net income (Unaudited)...................... 11,181 11,181
Distributions to stockholders (Unaudited)... (256,270) (256,270)
----- ------ ------- ---------- ----------
BALANCE, MARCH 31, 1998 (Unaudited)........... 5,000 $5,000 $24,470 $1,705,374 $1,734,844
===== ====== ======= ========== ==========
</TABLE>
See notes to financial statements.
F-75
<PAGE> 157
WRIGHT-BROWN ROOFING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1997 1997 1998
----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 787,356 $ 955,668 $ (58,975) $ 11,181
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 185,615 206,450 47,880 58,421
Loss (gain) on disposal of assets.......... (800) 4,310 (2,000)
Changes in operating assets and
liabilities:
Contract receivables, net................ 864,820 (683,729) 261,934 858,030
Costs and estimated earnings in excess of
billings.............................. (55,041) (178,365) (73,112) 76,595
Inventories.............................. (27,600) 15,560 3,721 (14,148)
Other receivables........................ (3,562) 1,062 (467) (750)
Other assets............................. (275) 5,238 958 (60,656)
Accounts payable and accrued expenses.... (132,479) 528,237 (191,852) (505,796)
Billings in excess of costs and estimated
earnings.............................. 8,320 (134) (39,559) (25,503)
----------- --------- --------- ---------
Net cash provided by (used in)
operating activities................ 1,626,354 854,297 (51,472) 397,374
----------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (177,476) (178,438) (23,193) (44,382)
Proceeds from sale of property and
equipment.................................. 800 17,036 12,736
----------- --------- --------- ---------
Net cash used in investing
activities.......................... (176,676) (161,402) (10,457) (44,382)
----------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term
debt....................................... 37,800
Repayments of long-term debt.................. (190,177) (21,600) (5,400) (8,805)
Principal payments under capital lease
obligations................................ (70,508) (82,593) (24,813) (19,459)
Distributions to stockholders................. (854,141) (883,508) (109,668) (256,270)
----------- --------- --------- ---------
Net cash used in financing
activities.......................... (1,114,826) (949,901) (139,881) (284,534)
----------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.............................. 334,852 (257,006) (201,810) 68,458
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD........................................ 106,578 441,430 441,430 184,424
----------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........ $ 441,430 $ 184,424 $ 239,620 $ 252,882
=========== ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND
INVESTING ACTIVITIES:
Equipment acquired through capital leases..... $ 81,052 $ 31,179 $ 20,897 $
CASH PAYMENTS FOR:
Interest...................................... $ 68,383 $ 76,928 $ 15,306 $ 16,489
</TABLE>
See notes to financial statements.
F-76
<PAGE> 158
WRIGHT-BROWN ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Wright-Brown Roofing Company (the "Company") operates as a
provider of comprehensive roofing services to commercial, industrial,
manufacturing, construction and government customers. The Company also provides
residential roofing and remodeling services. The work is generally performed
under fixed-price contracts. The lengths of the Company's contracts vary, but
generally are less than one year. The Company's principal offices are located in
Detroit, Michigan and the majority of the Company's business is transacted with
customers in Michigan.
A majority of the Company's hourly employees are covered under a collective
bargaining agreement which expires June 1, 1998.
Interim Financial Information -- The interim financial statements as of
March 31, 1998 and for the three months ended March 31, 1997 and 1998 are
unaudited and certain information and footnote disclosures normally included in
annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and well
known local companies whose reputation is known to the Company. Advance payments
and progress payments are generally required for significant projects. Credit
checks are performed for significant new customers that are not known to the
Company. The Company generally has the ability to file liens against the
property if it is not paid on a timely basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of cost, using the first-in, first-out method, or
market.
F-77
<PAGE> 159
WRIGHT-BROWN ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation. Routine repairs and maintenance are expensed as
incurred. Property and equipment are reviewed for impairment and a provision
recorded, if necessary, whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. Significant improvements are
capitalized at cost and are amortized over the remaining useful life of the
related asset. Depreciation is recorded using the straight-line method over the
estimated useful lives of the related assets. Amortization of assets under
capitalized leases is computed using the straight-line method generally over the
estimated useful lives of the respective assets. Depreciation and amortization
is provided over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................ 15 to 31.5 years
Machinery and equipment.................................. 3 to 7 years
Transportation equipment................................. 5 years
Equipment under capitalized leases....................... 5 years
Office furniture and equipment........................... 5 to 7 years
</TABLE>
Warranties -- The Company provides for future estimated warranty
obligations in the period in which the related revenue is recognized.
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
and tools. Selling, general, and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project which are
not reflective of effort are excluded from the percentage of completion
calculation for purposes of determining profits on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings," represents
revenue recognized in excess of amounts billed. The liability, "Billings in
excess of costs and estimated earnings," represents billings in excess of
revenues recognized.
Income Taxes -- The Company is an S Corporation for federal income tax
purposes. Accordingly, the current taxable income of the Company is taxable to
the shareholders who are responsible for the payment of taxes thereon.
New Accounting Pronouncement -- Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standard No. 130, Reporting
Comprehensive Income. There are no significant differences between comprehensive
income and net income as reported in the Company's statement of operations.
F-78
<PAGE> 160
WRIGHT-BROWN ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Completed contracts:
Current accounts.......................................... $ 844,910 $1,418,118
Retention................................................. 69,576 131,503
Contracts in progress:
Current accounts.......................................... 1,147,061 1,126,041
Retention................................................. 71,102 142,716
---------- ----------
Subtotal.................................................... 2,132,649 2,818,378
Less: allowance for doubtful accounts..................... 13,000 15,000
---------- ----------
Contract receivables, net......................... $2,119,649 $2,803,378
========== ==========
</TABLE>
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $1,613,639 $4,130,038
Estimated earnings.......................................... 313,657 801,315
---------- ----------
Total............................................. 1,927,296 4,931,353
Less: billings to date.................................... 1,861,295 4,686,853
---------- ----------
Net under-billings................................ $ 66,001 $ 244,500
========== ==========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $ 189,451 $ 367,816
Billings in excess of costs and estimated earnings.......... (123,450) (123,316)
--------- ---------
Total............................................. $ 66,001 $ 244,500
========= =========
</TABLE>
F-79
<PAGE> 161
WRIGHT-BROWN ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Land........................................................ $ 34,770 $ 34,770
Buildings................................................... 257,220 257,220
Machinery and equipment..................................... 820,003 665,182
Transportation equipment.................................... 789,384 714,651
Office furniture and equipment.............................. 188,177 136,112
---------- ----------
Subtotal.................................................... 2,089,554 1,807,935
Less: accumulated depreciation............................ 1,267,799 1,004,359
---------- ----------
Property and equipment, net....................... $ 821,755 $ 803,576
========== ==========
</TABLE>
Included in property and equipment are the following assets under
capitalized leases:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Equipment................................................... $254,544 $213,926
Less: accumulated depreciation............................ 77,111 85,033
-------- --------
Leased equipment, net............................. $177,433 $128,893
======== ========
</TABLE>
5. LONG-TERM DEBT AND NOTES PAYABLE
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- --------
<S> <C> <C>
Note payable to a bank due November 2000, bearing interest
at 7.85%. Note is payable in monthly principal payments of
$1,800 plus interest. Secured by any items deposited in
any account with the bank................................. $84,601 $ 63,001
Notes payable to a financial institution due November 2000,
bearing interest at 2.9%. Notes are payable in total
monthly principal and interest payments of $1,118. Secured
by transportation equipment............................... 37,800
------- --------
Total............................................. 84,601 100,801
Less: current portion..................................... 21,600 34,096
------- --------
Long-term debt, net of current portion............ $63,001 $ 66,705
======= ========
</TABLE>
Aggregate maturities of long-term debt for years ending December 31 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 34,096
1999........................................................ 34,464
2000........................................................ 32,241
--------
Total............................................. $100,801
========
</TABLE>
The Company also has a $500,000 revolving line of credit with a bank,
bearing interest at the bank's prime rate. The line is secured by any items
deposited in any account with the bank. At December 31, 1997, no amount was
outstanding under this line of credit.
F-80
<PAGE> 162
WRIGHT-BROWN ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITALIZED LEASE OBLIGATIONS
The Company has entered into lease arrangements for certain transportation
equipment which expire through November 2000 with interest at fixed rates. The
assets have been capitalized and the obligations have been recorded as
capitalized lease obligations. As of December 31, 1997, approximate future
minimum lease payments (excluding interest) under capitalized lease obligations
are as follows for each of the years ending December 31:
<TABLE>
<S> <C>
1998........................................................ $62,953
1999........................................................ 31,710
2000........................................................ 1,676
-------
Present value of net future minimum lease payments.......... 96,339
Less: current portion of capitalized lease obligations.... 62,953
-------
Long-term portion of capitalized lease
obligations...................................... $33,386
=======
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable, debt, and capitalized lease
obligations or current interest rates. The carrying value of these financial
instruments approximates fair value because of their short duration. The Company
places its temporary cash investments with financial institutions and limits the
amount of credit exposure with any one financial institution. The carrying value
of debt and capitalized lease obligations approximates their fair value based on
current rates for borrowings of similar quality and terms.
Other financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist primarily of contract
receivables. The Company's customers are concentrated in the Michigan market.
The Company believes this concentration of credit risk is mitigated by the
diversity of industries represented by the Company's customer base.
8. MAJOR CUSTOMERS
At December 31, 1996, contract receivables of $227,914 and $233,820,
respectively, were due from two customers of the Company. At December 31, 1997,
contract receivables of $351,536 were due from one other customer of the
Company. During the year ended December 31, 1997, sales of 11.5% of total sales
were made to one customer.
9. 401(K) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan covering substantially all
non-union employees. Each year, participants may contribute up to 10% of pretax
annual compensation, not to exceed amounts allowable by the IRS. Discretionary
matching amounts may be contributed at the Company's option. During the years
ended December 31, 1996 and 1997, the Company contributed $10,556 and $19,386,
respectively.
10. EMPLOYMENT AGREEMENT
The Company maintains an employment agreement (the "Agreement") with a
certain officer of the Company. Under the terms of the Agreement, the employee
is entitled to an annual bonus of 5% of the Company's profits, if such profits
are in excess of specified limits, prior to any other employee bonus and prior
to the computation of income taxes, if any.
In addition, the Agreement provides for the awarding and potential
repurchase of Phantom Stock Rights, as defined. Under this provision, as of each
December 1, the employee shall receive common stock rights
F-81
<PAGE> 163
WRIGHT-BROWN ROOFING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
("Phantom Stock") equal to 2 1/2% of the sum of the issued and outstanding
common stock, the Phantom Stock to be awarded and any previously awarded Phantom
Stock. The total aggregate amount of Phantom Stock to be awarded shall not
exceed 25% of the sum of the issued and outstanding common stock and Phantom
Stock. Such shares of Phantom Stock shall be converted to shares of common stock
upon the employee's attainment of the age of 60 or the occurrence of the death
or permanent disability, as defined, of the principle stockholder. The Agreement
also provides for the repurchase of the Phantom Stock in the event of the
employee's death or permanent disability, a change of control, as defined, or
termination of employment, other than termination for cause, as defined. In the
event of repurchase, the purchase price of each share of Phantom Stock is to be
determined by dividing the Net Book Value of the Company, as defined, as of the
last day of the Company's fiscal year immediately prior to any such event, by
the sum of the issued and outstanding common stock and Phantom Stock.
The Company awarded 128 shares and 132 shares of Phantom Stock during the
years ended December 31, 1996 and 1997, respectively. The Company also recorded
compensation expense of $47,694 and $49,498 related to these awards in the years
ended December 31, 1996 and 1997, respectively. Should the Company be required
to repurchase the Phantom Stock prior to December 1, 1998, due to any of the
events described above (see also Note 12), the Company would be potentially
liable for such repurchase in the amount of $97,759.
11. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome cannot
presently be determined with certainty, the Company believes, with advice from
its legal counsel, that the ultimate liability associated with such claims, if
any, will not have a material adverse effect on the Company's financial position
or results of operations.
The Company has entered into long-term operating lease arrangements
(expiring through December 1998) for certain automobiles. Rental expense for the
years ended December 31, 1996 and 1997 was $18,474 and $13,216, respectively.
The total commitment under these leases for the year ending December 31, 1998 is
$8,019.
12. SUBSEQUENT EVENT
On May 13, 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. (GRS) whereby GRS will acquire the Company for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including consummation of the offering.
F-82
<PAGE> 164
INDEPENDENT AUDITORS' REPORT
To the Stockholders of:
Harrington-Scanlon Roofing Company, Inc.
H&S Investments, LLC
Architectural Sheet Metal, Inc.:
We have audited the accompanying combined balance sheet of
Harrington-Scanlon Roofing Company, Inc. and affiliates (the "Company"), as of
December 31, 1997, and the related combined statements of operations, owners'
equity and cash flows for the year ended December 31, 1997. The combined
financial statements include the accounts of Harrington-Scanlon Roofing Company,
Inc. and subsidiary and affiliate companies, H&S Investments, LLC and
Architectural Sheet Metal, Inc., which are under common control and management.
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 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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, such combined financial statements present fairly, in all
material respects, the combined financial position of Harrington-Scanlon Roofing
Company, Inc. and affiliates, and the results of their operations and their cash
flows for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
May 15, 1998
F-83
<PAGE> 165
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 29,838 $ 1,386
Contract receivables, net of an allowance for doubtful
accounts of $45,000 and $45,000, respectively.......... 3,095,651 2,376,687
Costs and estimated earnings in excess of billings........ 42,112 118,537
Inventories............................................... 237,888 241,731
Deferred income tax assets................................ 38,000 38,000
---------- ----------
Total current assets.............................. 3,443,489 2,776,341
PROPERTY AND EQUIPMENT, net................................. 1,074,877 1,057,025
OTHER ASSETS................................................ 73,417 79,795
---------- ----------
TOTAL............................................. $4,591,783 $3,913,161
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $1,664,018 $1,341,597
Accrued expenses and other current liabilities............ 344,528 226,722
Billings in excess of costs and estimated earnings........ 706,601 586,524
Current portion of long-term debt......................... 512,175 542,675
Current portion of capitalized lease obligations.......... 30,904 30,000
---------- ----------
Total current liabilities......................... 3,258,226 2,727,518
LONG-TERM DEBT, net of current portion...................... 848,936 833,867
CAPITALIZED LEASE OBLIGATIONS, net of current portion....... 86,646 79,500
---------- ----------
Total............................................. 4,193,808 3,640,885
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 11)
OWNERS' EQUITY:
Common stock.............................................. 2,000 2,000
Additional paid-in capital................................ 19,000 19,000
Retained earnings and members equity...................... 376,975 251,276
---------- ----------
Total............................................. 397,975 272,276
---------- ----------
TOTAL............................................. $4,591,783 $3,913,161
========== ==========
</TABLE>
See notes to combined financial statements.
F-84
<PAGE> 166
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CONTRACT REVENUES EARNED................................. $11,815,850 $2,653,978 $2,368,456
COSTS OF CONTRACT REVENUES EARNED........................ 10,046,144 2,186,058 2,184,737
----------- ---------- ----------
GROSS PROFIT............................................. 1,769,706 467,920 183,719
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............. 1,549,380 328,809 377,009
----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............................ 220,326 139,111 (193,290)
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income........................................ 3,234
Interest expense....................................... (144,775) (22,007) (29,768)
Other income, net...................................... 40,249 42,154 3,063
----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........................ 119,034 159,258 (219,995)
----------- ---------- ----------
INCOME TAX PROVISION (BENEFIT)........................... 28,553 56,977 (94,296)
----------- ---------- ----------
NET INCOME (LOSS).............................. $ 90,481 $ 102,281 $ (125,699)
=========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-85
<PAGE> 167
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
--------------- PAID-IN AND MEMBERS'
SHARES AMOUNT CAPITAL CAPITAL TOTAL
------ ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997...................... 2,000 $2,000 $19,000 $ 343,863 $364,863
Net income.................................. 90,481 90,481
Distributions to stockholders............... 57,369 57,369
----- ------ ------- --------- --------
BALANCE, DECEMBER 31, 1997.................... 2,000 2,000 19,000 376,975 397,975
Net loss (unaudited)........................ (125,699) (125,699)
----- ------ ------- --------- --------
BALANCE, MARCH 31, 1998
(unaudited)................................. 2,000 $2,000 $19,000 $ 251,276 $272,276
===== ====== ======= ========= ========
</TABLE>
See notes to combined financial statements.
F-86
<PAGE> 168
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 90,481 $ 102,2811 $(125,699)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 253,535 37,900 59,612
Deferred taxes........................................ (38,000) (2,000)
Changes in operating assets and liabilities:
Contract receivables, net........................... (133,884) 503,096 718,964
Costs and estimated earnings in excess billings..... (35,008) (334,458) (76,425)
Inventories......................................... (76,279) 39,003 (3,843)
Other current assets................................ (134) (4,391) (6,378)
Accounts payable and accrued expenses............... (116,387) (207,892) (440,227)
Billings in excess of costs and estimated
earnings......................................... 344,734 (154,919) (120,077)
--------- ---------- ---------
Net cash provided by operating activities........ 289,058 (21,380) 5,927
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchases of property and equipment...................... (369,622) (201,508) (41,760)
--------- ---------- ---------
Net cash used in investing activities............ (369,622) (201,508) (41,760)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt............. 356,490 225,519
Repayments of long-term debt............................. (192,497) (51,591) (67,794)
Principal payments under capital lease obligations....... (43,163) (1,788) (7,500)
Net borrowings under line of credit...................... 42,032 50,000 82,675
Distributions to stockholders............................ (57,369)
--------- ---------- ---------
Net cash provided by financing activities........ 105,493 222,140 7,381
--------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 24,929 (748) (28,452)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 4,909 4,909 29,838
--------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 29,838 $ 4,161 $ 1,386
========= ========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES --
Equipment acquired through capital leases............. $ 148,146 $ 8,884
========= ==========
CASH PAYMENTS FOR:
Interest................................................. $ 125,033 $ 22,007 $ 53,486
Taxes.................................................... 34,738
</TABLE>
See notes to combined financial statements.
F-87
<PAGE> 169
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- The combined financial statements include the consolidated
financial statements of Harrington-Scanlon Roofing Company, Inc. and its
wholly-owned subsidiary Harrington-Nissen Roofing Company, Inc., ("H-S"), H & S
Investments, LLC which is owned by the stockholders in H-S and Architectural
Sheet Metal, Inc. owned by the spouses of the stockholders of H-S (collectively,
the "Company"). The combined Company is under common management. The Company
operates as a provider of comprehensive roofing services to commercial,
construction and government customers. The work is generally performed under
fixed-price contracts. The length of the Company's contracts varies, but
generally are less than one year. The Company's principal offices are located in
Kansas City, Kansas and the majority of the Company's business is transacted
with customers in Missouri, Kansas and Arizona. A majority of the Company's
employees are covered by collective bargaining agreements.
The financial statements of the individual companies are combined for
presentation purposes. The capital structure of each entity as of December 31,
1997 is as follows:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
------ ----------
<S> <C> <C>
Harrington-Scanlon Roofing Company, Inc. and subsidiary
common stock, par value $1: authorized 50,000 shares,
issued and outstanding 1,000 shares....................... $1,000 $10,000
Architectural Sheet Metal, Inc. common stock, par value $1:
authorized 1,000 shares, issued and outstanding 1,000
shares.................................................... 1,000 9,000
------ -------
$2,000 $19,000
====== =======
</TABLE>
Principles of Combination -- The combined financial statements include all
of the accounts of the Company. All significant intercompany balances and
transactions have been eliminated in combination.
Interim Financial Information -- The interim financial statements as of
March 31, 1998 and for the three months ended March 31, 1997 and 1998 are
unaudited and certain information and footnote disclosures normally included in
annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local
F-88
<PAGE> 170
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
governments and well known local companies whose reputation is known to the
Company. Advance payments and progress payments are generally required for
significant projects. The Company generally has the ability to file liens
against the property if it is not paid on a timely basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of cost or market using the first-in, first-out method.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision recorded, if necessary, whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost and
are amortized over the remaining useful life of the related asset. Depreciation
is recorded using accelerated and straight-line methods over the estimated
useful lives of the related assets. Amortization of assets under capitalized
leases is computed using the straight-line method over the shorter of the
estimated useful lives of the respective assets or the lease agreement.
Depreciation and amortization is provided over the following estimated useful
lives:
<TABLE>
<S> <C>
Building and improvements................................... 31.5 years
Vehicles.................................................... 3 to 5 years
Furniture and fixtures...................................... 5 to 7 years
Machinery and equipment..................................... 5 to 7 years
Computer equipment.......................................... 5 years
Equipment under capitalized leases.......................... 3 to 5 years
</TABLE>
Warranties -- The Company provides for future estimated warranty
obligations in the period in which the related revenue is recognized.
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
and tools. Selling, general, and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project which are
not reflective of effort are excluded from costs incurred for purposes of profit
recognition.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings" on
uncompleted contracts, represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings" on
uncompleted contracts, represents billings in excess of revenues recognized.
Income Taxes -- H&S Investments is a limited liability company for federal
income tax purposes. Accordingly, the current taxable income of H&S Investments
is taxable to the shareholders who are responsible for the payment of taxes
thereon.
Harrington-Scanlon, Inc. and subsidiary and Architectural Sheet Metal, Inc.
reports income taxes pursuant to Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes. Under SFAS No. 109, income taxes
are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related to
certain income and expenses recognized in different periods for financial and
income tax reporting purposes. Deferred tax assets and
F-89
<PAGE> 171
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities represent the future tax consequences of those differences. A
valuation allowance is provided if it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
New Accounting Pronouncements -- Effective January 1, 1998 the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income. There are no significant differences between comprehensive
income and net income as reported in the Company's statements of operations.
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Current accounts............................................ $2,309,024
Retention................................................... 831,627
----------
Subtotal.................................................... 3,140,651
Less: allowance for doubtful accounts..................... 45,000
----------
Contract receivables, net......................... $3,095,651
==========
</TABLE>
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Costs incurred on uncompleted contracts..................... $3,365,291
Estimated earnings.......................................... 670,063
----------
Total............................................. 4,035,354
Less: billings to date.................................... 4,699,843
----------
Net over billings................................. $ (664,489)
==========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Costs and estimated earnings in excess of billings.......... $ 42,112
Billings in excess of costs and estimated earnings.......... (706,601)
---------
Total............................................. $(664,489)
=========
</TABLE>
F-90
<PAGE> 172
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Land........................................................ $ 205,997
Building and improvements................................... 304,950
Vehicles.................................................... 793,472
Furniture and fixtures...................................... 62,272
Machinery and equipment..................................... 681,973
Computer equipment.......................................... 57,552
----------
Subtotal.................................................... 2,106,216
Less: accumulated depreciation............................ 1,031,339
----------
Property and equipment, net....................... $1,074,877
==========
</TABLE>
Included in property and equipment are the following assets under
capitalized leases:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Equipment................................................... $155,719
Less: accumulated depreciation............................ 32,652
--------
Leased equipment, net............................. $123,067
========
</TABLE>
Property and equipment are reviewed for impairment and a provision recorded
if necessary whenever events or circumstances indicate that the carrying amount
of an asset may not be recoverable.
5. NOTES PAYABLE
A summary of notes payable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
HARRINGTON-SCANLON
Note payable -- line of credit............................ $ 342,032
Note payable to bank due in June 2001, bearing interest at
8.5% at December 31, 1997. Note is payable in monthly
principal and interest payments of $558 and is secured
by equipment........................................... 20,328
Notes payable to finance institutions due between 1998 and
2001 bearing interest between 2.7% and 8.0%. Notes are
payable in monthly payments of $1,728 of principal and
interest and are secured by property and equipment..... 41,189
Note payable to bank due in March 2000, bearing interest
at 7.9% at December 31, 1997. Note is payable in
monthly principal and interest payments of $7,523 and
is secured by contract receivables, inventory and
equipment.............................................. 179,786
</TABLE>
F-91
<PAGE> 173
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
HARRINGTON-NISSEN
Notes payable to banks due between 2000 and 2001, bearing
interest between 8.5% and 9.5% at December 31, 1997.
Notes are payable in monthly principal and interest
payments of $1,205 and are secured by property and
equipment.............................................. 42,741
Note payable to finance institution due in 2001 bearing
interest at 9.0%. Note is payable in monthly payments
of $351 of principal and interest and is secured by
equipment.............................................. 13,696
H&S INVESTMENTS
Notes payable to banks due between 1999 and 2026, bearing
interest between 7.75% and 9.75% at December 31, 1997.
Notes are payable in monthly principal and interest
payments of $7,456 and are secured by property and
equipment.............................................. 381,063
Notes payable to finance institutions due between 1998 and
2002 bearing interest between 8.75% and 10.5%. Notes
are payable in monthly payments of $2,426 of principal
and interest and are secured by property and
equipment.............................................. 53,062
Note payable -- land contract due in May 2000 bearing
interest at prime plus 2% (10.5% at December 31, 1997).
Note is payable in monthly installments of $5,269 and
is secured by the related land......................... 60,972
ARCHITECTURAL SHEET METAL
Notes payable to banks due between 2001 and 2002, bearing
interest between 7.75% and 10.25% at December 31, 1997.
Notes are payable in monthly principal and interest
payments of $3,268 and are secured by property and
equipment.............................................. 144,497
Note payable to finance institution due in December 2001
bearing interest at 8.5%. Note is payable in monthly
payments of $1,668 of principal and interest and is
secured by equipment................................... 81,745
----------
Total............................................. 1,361,111
Less: current portion..................................... 512,175
----------
Total............................................. $ 848,936
==========
</TABLE>
At December 31, 1997 Harrington-Scanlon had a line of credit for $350,000
bearing interest at Prime plus 2% (10.5% at December 31, 1997) and
collateralized by a first security interest in accounts receivable, a second
security interest in inventory and certain equipment and personal guarantees of
the Company's stockholders. The Small Business Administration ("SBA") guarantees
75% of the loan for an additional 0.25% fee on the outstanding balance.
Borrowings on the line were $342,032 at December 31, 1997.
Aggregate maturities of long-term debt for years ending December 31 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 512,175
1999........................................................ 312,477
2000........................................................ 321,302
2001........................................................ 88,060
2002........................................................ 28,466
Thereafter.................................................. 98,630
----------
Total............................................. $1,361,110
==========
</TABLE>
F-92
<PAGE> 174
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The loan includes certain restrictive covenants including limitations on
dividends, capital stock transactions, affiliated transactions and distributions
of assets, see Note 13 for additional line of credit made available subsequent
to December 31, 1997.
6. CAPITALIZED LEASE OBLIGATIONS
The Company has entered into lease arrangements for certain vehicles which
expire through the year 2002 with interest at variable rates which are based on
changes in the prime interest rate (see Note 4). The assets have been
capitalized and the obligations have been recorded as capitalized lease
obligations. As of December 31, 1997, approximate future minimum lease payments
(excluding interest) under capitalized lease obligations were as follows for the
years ending December 31:
<TABLE>
<S> <C>
1998........................................................ $30,904
1999........................................................ 30,000
2000........................................................ 28,850
2001........................................................ 27,796
-------
Present value of net future minimum lease payments.......... 117,550
Less: current portion of capitalized lease obligations.... 30,904
-------
Long-term portion of capitalized lease obligations.......... $86,646
=======
</TABLE>
7. INCOME TAXES
The Company's provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Current:
Federal................................................... $56,570
State..................................................... 9,983
-------
66,553
-------
Deferred:
Federal................................................... (32,300)
State..................................................... (5,700)
-------
(38,000)
-------
$28,553
=======
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C> <C>
Statutory federal tax rate.................................. $40,460 34%
State tax, net of federal benefit........................... 7,140 6
H&S Investments LLC Tax allocation.......................... (20,843) (18)
Net operating loss utilized................................. (5,909) (5)
Other....................................................... 7,705 7
------- ---
Effective rate.............................................. $28,553 24%
======= ===
</TABLE>
F-93
<PAGE> 175
HARRINGTON-SCANLON ROOFING COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the Company's deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Deferred tax assets:
Warranties................................................ $20,000
Allowance for doubtful accounts........................... 18,000
-------
Total deferred taxes.............................. $38,000
=======
</TABLE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable, and current and long-term
capitalized lease obligations. The carrying value of cash and cash equivalents
approximates fair value because of their short duration. The Company places its
temporary cash investments with financial institutions and limits the amount of
credit exposure with any one financial institution. The carrying value of debt
and capitalized lease obligations approximates their fair value based on current
rates for borrowings of similar quality and terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables The Company's customers are concentrated in the Missouri, Kansas and
Arizona markets. The Company believes this concentration of credit risk is
mitigated by the diversity of industries represented by the Company's customer
base. At December 31, 1997, $519,711 was due from one customer of the Company.
9. PENSION PLAN
The Company has a simplified employee pension plan covering substantially
all non-union employees. Discretionary amounts may be contributed at the
Company's option based on years of service and employee compensation. During the
years ended December 31, 1997, no contributions were made to the plan.
The Company contributes monthly to multi-employer defined benefit union
plans based upon hours worked by each eligible employee. Pension expense for
these plans was approximately 291,575 for the year ended December 31, 1997.
10. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome cannot
presently be determined with certainty, the Company believes, with advice from
its legal counsel, that the ultimate liability associated with such claims, if
any, will not have a material adverse effect on the Company's financial position
or results of operations.
11. SUBSEQUENT EVENTS
In January 1998, the Company obtained an additional line of credit facility
for $150,000 bearing interest at 10%. The facility is secured by accounts
receivable, inventory and certain equipment.
On May 12, 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. (GRS) whereby GRS will acquire the Company for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including consummation of the offering.
* * * * * *
F-94
<PAGE> 176
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Slavik, Butcher & Baecker
Construction Company, Inc.:
We have audited the accompanying balance sheet of Slavik, Butcher & Baecker
Construction Company, Inc. as of June 30, 1997, and the related statements of
operations, stockholders' 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1997, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
May 8, 1998
(May 13, 1998 as to Note 13)
F-95
<PAGE> 177
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 62,697 $ 185,748
Contract receivables, net of an allowance for doubtful
accounts of $33,246 and $34,309, respectively.......... 939,665 1,475,488
Costs and estimated earnings in excess of billings........ 359,624 331,937
Other receivables......................................... 2,609 8,989
Due from stockholder...................................... 45,000
Prepaid expenses and other current assets................. 54,685 18,178
Refundable income taxes................................... 11,530
---------- ----------
Total current assets.............................. 1,430,810 2,065,340
PROPERTY AND EQUIPMENT, net................................. 308,578 365,969
OTHER ASSETS................................................ 29,018 30,793
---------- ----------
TOTAL............................................. $1,768,406 $2,462,102
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 895,668 $ 816,683
Accrued expenses and other current liabilities............ 156,784 291,916
Billings in excess of costs and estimated earnings........ 44,644 194,477
Note payable.............................................. 75,000 35,000
Current portion of long-term debt......................... 31,937 50,406
Current portion of capitalized lease obligation........... 20,124 20,124
Income taxes payable...................................... 16,862
Deferred tax liabilities.................................. 116,955 116,955
---------- ----------
Total current liabilities......................... 1,341,112 1,542,423
LONG-TERM DEBT, net of current portion...................... 36,893 80,615
CAPITALIZED LEASE OBLIGATION, net of current portion........ 54,519 37,374
DEFERRED TAX LIABILITIES.................................... 8,548 8,548
---------- ----------
1,441,072 1,668,960
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 50,000 shares authorized,
10,000 shares issued and outstanding................... 10,000 10,000
Retained earnings......................................... 317,334 783,142
---------- ----------
327,334 793,142
---------- ----------
TOTAL............................................. $1,768,406 $2,462,102
========== ==========
</TABLE>
See notes to financial statements.
F-96
<PAGE> 178
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31,
JUNE 30, ------------------------
1997 1997 1998
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CONTRACT REVENUES EARNED.............................. $11,264,944 $8,494,369 $9,491,802
COSTS OF CONTRACT REVENUES EARNED..................... 9,927,627 7,476,627 7,744,014
----------- ---------- ----------
GROSS PROFIT.......................................... 1,337,317 1,017,742 1,747,788
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 1,215,085 897,177 1,074,936
----------- ---------- ----------
INCOME FROM OPERATIONS................................ 122,232 120,565 672,852
OTHER INCOME (EXPENSE):
Interest income..................................... 507 379 3
Interest expense.................................... (19,856) (14,892) (9,819)
Other income (expense), net......................... (1,338) (1,002) 1,426
----------- ---------- ----------
INCOME BEFORE INCOME TAXES............................ 101,545 105,050 664,462
INCOME TAX PROVISION.................................. 39,958 10,980 198,654
----------- ---------- ----------
NET INCOME.................................. $ 61,587 $ 94,070 $ 465,808
=========== ========== ==========
</TABLE>
See notes to financial statements.
F-97
<PAGE> 179
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- --------- --------
<S> <C> <C> <C> <C>
BALANCE, JULY 1, 1996.................................... 10,000 $10,000 $255,747 $265,747
Net income............................................. 61,587 61,587
------ ------- -------- --------
BALANCE, JUNE 30, 1997................................... 10,000 10,000 317,334 327,334
Net income (unaudited)................................. 465,808 465,808
------ ------- -------- --------
BALANCE, MARCH 31, 1998
(Unaudited)............................................ 10,000 $10,000 $783,142 $793,142
====== ======= ======== ========
</TABLE>
See notes to financial statements.
F-98
<PAGE> 180
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31,
JUNE 30, ---------------------
1997 1997 1998
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 61,587 $ 94,070 $ 465,808
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 101,421 73,720 124,394
Deferred taxes......................................... 39,958 25,673
Changes in operating assets and liabilities:
Contract receivables, net............................ 42,093 (136,297) (535,823)
Costs and estimated earnings in excess of billings... (28,374) 221,085 27,687
Refundable income taxes.............................. 11,530
Other assets......................................... (4,087) 11,718 28,352
Accounts payable and accrued expenses................ (129,384) (179,315) 56,147
Billings in excess of costs and estimated earnings... (9,120) (15,990) 149,833
Income taxes payable................................. 16,862
--------- --------- ---------
Net cash provided by operating activities......... 74,094 94,664 344,790
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (82,693) (80,346) (181,785)
Advance to stockholder.................................... (45,000)
--------- --------- ---------
Net cash used in investing activities............. (82,693) (80,346) (226,785)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit............. 18,550 (21,450) (40,000)
Proceeds from long-term debt.............................. 24,247 24,247 85,549
Repayments of long-term debt.............................. (26,105) (22,332) (23,358)
Principal payments under capital lease obligations........ (15,146) (9,160) (17,145)
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... 1,546 (28,695) 5,046
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (7,053) (14,377) 123,051
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 69,750 69,750 62,697
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 62,697 $ 55,373 $ 185,748
========= ========= =========
CASH PAYMENTS FOR:
Interest.................................................. $ 19,856 $ 14,892 $ 9,819
Taxes..................................................... $ $ $ 170,262
</TABLE>
See notes to financial statements.
F-99
<PAGE> 181
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Slavik, Butcher & Baecker Construction Company, Inc. (the
"Company") operates as a provider of general contractor construction services as
well as comprehensive roofing services to commercial, industrial, manufacturing,
construction and government customers. The Company also provides residential
roofing and remodeling services. The work is generally performed under
fixed-price contracts. The lengths of the Company's contracts vary, but
generally are less than one year. The Company's principal offices are located in
Rochester Hills, Michigan, and the majority of the Company's business is
transacted with customers in Michigan.
Interim Financial Information -- The interim financial statements as of
March 31, 1998 and for the nine months ended March 31, 1997 and 1998 are
unaudited and certain information and footnote disclosures normally included in
annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and well
known local companies whose reputation is known to the Company. Credit checks
are performed periodically on its customers' financial condition. The Company
generally has the ability to file liens against the property if it is not paid
on a timely basis.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision recorded, if necessary, whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Routine repairs and
maintenance are expensed as incurred; significant improvements are capitalized
at cost and are amortized over the remaining useful life of the related asset.
Depreciation is recorded using accelerated and straight-line methods over the
estimated useful lives of the related assets. Amortization of assets under
capitalized leases is computed using the straight-line method over the shorter
of the estimated useful lives of the respective assets or the lease agreement.
Depreciation and amortization is provided over the following estimated useful
lives:
<TABLE>
<S> <C>
Construction equipment...................................... 5 years
Vehicles.................................................... 5 years
Office equipment............................................ 5 years
Leasehold improvements...................................... 31 years
Equipment under capitalized leases.......................... 5 years
</TABLE>
F-100
<PAGE> 182
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
and tools. Selling, general, and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project which are
not reflective of effort are excluded from the percentage of completion
calculation for purposes of determining profits earned on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings," represents
revenue recognized in excess of amounts billed. The liability, "Billings in
excess of costs and estimated earnings," represents billings in excess of
revenues recognized.
Income Taxes -- The Company reports income taxes pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes related to certain income and expenses recognized in
different periods for financial and income tax reporting purposes. Deferred tax
assets and liabilities represent the future tax consequences of those
differences. Deferred taxes are also recognized for operating losses and tax
credits that are available to offset future taxable income and income taxes,
respectively. A valuation allowance is provided if it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
New Accounting Pronouncement -- In June 1997, SFAS No. 130, Reporting
Comprehensive Income, was issued. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. The Company has
not adopted SFAS No. 130, but does not believe that the effects, if any, that
SFAS No. 130 will have on its financial statements would be significant.
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Completed contracts:
Current accounts.......................................... $439,501
Retention................................................. 18,097
Contracts in progress:
Current accounts.......................................... 463,171
Retention................................................. 52,142
--------
Subtotal.................................................... 972,911
Less allowance for doubtful accounts...................... 33,246
--------
Contract receivables, net......................... $939,665
========
</TABLE>
F-101
<PAGE> 183
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
Costs incurred on uncompleted contracts..................... $1,890,329
Estimated earnings.......................................... 146,494
----------
Total............................................. 2,036,823
Less billings to date..................................... 1,721,843
----------
Net underbillings................................. $ 314,980
==========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Costs and estimated earnings in excess of billings.......... $359,624
Billings in excess of costs and estimated earnings.......... (44,644)
--------
Total............................................. $314,980
========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Construction equipment...................................... $221,869
Vehicles.................................................... 400,348
Office equipment............................................ 100,874
Leasehold improvements...................................... 59,671
--------
Subtotal.................................................... 782,762
Less accumulated depreciation............................. 474,184
--------
Property and equipment, net....................... $308,578
========
</TABLE>
Included in property and equipment are the following assets under
capitalized leases:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Equipment................................................... $106,034
Less: accumulated depreciation............................ 57,771
--------
Leased equipment, net............................. $ 48,263
========
</TABLE>
F-102
<PAGE> 184
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT AND NOTES PAYABLE
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Note payable to a financial institution, due April 1999,
bearing interest at 11.5%, with monthly principal and
interest payments of $830. Secured by a vehicle. ......... $14,264
Note payable to a financial institution, due March 2001,
bearing interest at 9.25%, with monthly principal and
interest payments of $606. Secured by a vehicle. ......... 22,983
Various loans payable to a bank, due through fiscal year
2000, bearing interest at rates ranging from 8.75% to
10.25%. Secured by vehicles. ............................. 31,583
-------
Total............................................. 68,830
Less: current portion....................................... 31,937
-------
Long-term debt, net of current portion............ $36,893
=======
</TABLE>
The Company has a revolving line of credit facility from a bank. Borrowings
under this facility are bearing interest at a variable rate based on the
lender's index rate (10% at June 30, 1997). Outstanding borrowings at June 30,
1997 were $75,000 and were secured by contract receivables and equipment. Total
available unused line as of June 30, 1997 was $175,000.
The Company has an additional unused line of credit with a bank of
$100,000, available at 1 3/4% above the lender's prime rate.
Aggregate maturities of long-term debt for years ending June 30 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $31,937
1999........................................................ 23,752
2000........................................................ 11,974
2001........................................................ 1,167
-------
Total............................................. $68,830
=======
</TABLE>
6. CAPITALIZED LEASE OBLIGATION
The Company has entered into a lease arrangement for a certain vehicle
which expires July 31, 2000 with interest at 9.75%. The asset has been
capitalized and the obligation has been recorded as a capitalized lease
obligation. As of June 30, 1997, approximate future minimum lease payments
(excluding interest) under this capitalized lease obligation were as follows for
years ending June 30:
<TABLE>
<S> <C>
1998........................................................ $20,124
1999........................................................ 20,978
2000........................................................ 33,541
-------
Present value of net future minimum lease payments.......... 74,643
Less: current portion of capitalized lease obligations.... 20,124
-------
Long-term portion of capitalized lease obligations.......... $54,519
=======
</TABLE>
7. INCOME TAXES
The Company's provision for income taxes for the year ended June 30, 1997
consists of deferred federal income tax expense of $39,958.
F-103
<PAGE> 185
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Statutory federal tax rate.................................. 34%
Nondeductible meals and entertainment....................... 2
Nondeductible officers' life insurance...................... 2
Other....................................................... 1
--
39%
==
</TABLE>
Components of the Company's deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 21,169
Allowance for doubtful accounts........................... 11,304
Other..................................................... 2,125
--------
Total............................................. 34,598
--------
Deferred tax liabilities:
Contracts in progress..................................... 145,008
Operating versus capital lease treatment.................. 10,673
Other..................................................... 4,420
--------
Total............................................. 160,101
--------
Net deferred tax liability........................ $125,503
========
</TABLE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable, debt and capitalized lease
obligations. The carrying value of these financial instruments approximates fair
value because of their short duration or current interest rates. The Company
places its temporary cash investments with financial institutions and limits the
amount of credit exposure with any one financial institution. The carrying value
of debt and capitalized lease obligations approximates their fair value based on
current rates for borrowings of similar quality and terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the Michigan market.
The Company believes this concentration of credit risk is mitigated by the
diversity of industries represented by the Company's customer base.
9. MAJOR CUSTOMERS
At June 30, 1997, $130,251, $111,462, $134,350 and $164,891, respectively,
were due from four customers of the Company. For the year ended June 30, 1997,
sales of 17% of total sales were made to one customer of the Company.
10. 401(K) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan covering substantially all
employees. Each year, participants may contribute up to 15% of pretax annual
compensation, not to exceed $10,000, as defined in the
F-104
<PAGE> 186
SLAVIK, BUTCHER & BAECKER CONSTRUCTION COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
plan. Discretionary matching amounts may be contributed at the Company's option.
During the year ended June 30, 1997, the Company contributed $28,979.
11. RELATED PARTY TRANSACTIONS
The Company leases its facilities under a long-term lease arrangement
(expiring March 2000) with an entity owned by the Company's stockholders. The
following are the Company's commitments with respect to this lease for the years
ending June 30:
<TABLE>
<S> <C>
1998........................................................ $ 78,000
1999........................................................ 78,000
2000........................................................ 78,000
--------
Total............................................. $234,000
========
</TABLE>
The Company paid rents of $78,000 related to this lease during the year
ended June 30, 1997.
In addition, the Company paid $273,400 in consulting fees during the year
ended June 30, 1997 to its stockholders.
12. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome cannot
presently be determined with certainty, the Company believes, with advice from
its legal counsel, that the ultimate liability associated with such claims, if
any, will not have a material adverse effect on the Company's financial position
or results of operations.
The Company has entered into a long-term lease arrangement (expiring
November 1999) for warehouse facilities. The following are the Company's
commitments with respect to this lease for years ending June 30:
<TABLE>
<S> <C>
1998........................................................ $18,456
1999........................................................ 18,456
2000........................................................ 7,690
-------
Total............................................. $44,602
=======
</TABLE>
13. SUBSEQUENT EVENT
On May 13, 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. (GRS) whereby GRS will acquire the Company for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including consummation of the offering.
F-105
<PAGE> 187
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Five K Industries, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of Five K
Industries, Inc. and subsidiary (the "Company") as of March 31, 1998, and the
related consolidated statements of operations, stockholder's 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, such financial statements present fairly, in all material
respects, the consolidated financial position of Five K Industries, Inc. and
subsidiary as of March 31, 1998 and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 30, 1998
(May 19, 1998 as to Note 12)
F-106
<PAGE> 188
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Five K Industries, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of Five K
Industries, Inc. and subsidiary (the "Company") as of March 31, 1997, and the
related consolidated statements of operations, stockholder's equity and cash
flows for each of the two years in the period ended March 31, 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 consolidated financial position of the Company as of March 31,
1997, and the results of their operations and their cash flows for each of the
two years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
BEARDEN & SMITH, P.C.
Atlanta, Georgia
April 28, 1997
F-107
<PAGE> 189
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 312,292 $ 696,417
Contract receivables, net of an allowance for doubtful
accounts of $29,481 and $18,500, respectively.......... 1,752,465 1,715,404
Costs and estimated earnings in excess of billings........ 57,838 16,850
Other receivables......................................... 28,193 11,236
Due from related parties.................................. -- 25,000
Inventories............................................... 3,694 35,700
Refundable income taxes................................... 217,297 --
---------- ----------
Total current assets.............................. 2,371,779 2,500,607
PROPERTY AND EQUIPMENT, net................................. 287,401 374,120
DEFERRED TAX ASSETS......................................... 5,730 --
OTHER ASSETS................................................ 97,862 97,349
---------- ----------
TOTAL............................................. $2,762,772 $2,972,076
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 563,341 $ 427,628
Accrued expenses and other current liabilities............ 372,361 376,535
Income taxes payable...................................... 228,581
Billings in excess of costs and estimated earnings........ 263,904 121,314
Current portion of long-term debt......................... -- 40,114
Deferred tax liabilities.................................. 441,750 360,346
---------- ----------
Total current liabilities......................... 1,641,356 1,554,518
LONG-TERM DEBT, net of current portion...................... -- 46,378
DEFERRED TAX LIABILITIES.................................... -- 15,334
---------- ----------
Total............................................. 1,641,356 1,616,230
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDER'S EQUITY:
Common stock, 100,000 shares authorized, $1.00 par value,
7,800 shares outstanding............................... 7,800 7,800
Additional paid-in capital................................ 30,031 30,031
Retained earnings......................................... 1,083,585 1,318,015
---------- ----------
Total............................................. 1,121,416 1,355,846
---------- ----------
TOTAL............................................. $2,762,772 $2,972,076
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-108
<PAGE> 190
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
CONTRACT REVENUES EARNED................................. $10,402,374 $9,360,861 $11,091,546
COSTS OF CONTRACT REVENUES EARNED........................ 8,053,314 6,520,807 7,879,086
----------- ---------- -----------
GROSS PROFIT............................................. 2,349,060 2,840,054 3,212,460
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............. 2,225,794 2,652,257 2,775,241
----------- ---------- -----------
INCOME FROM OPERATIONS................................... 123,266 187,797 437,219
OTHER INCOME (EXPENSE):
Interest income........................................ 14,104
Interest expense....................................... (5,149) (3,010) (5,094)
Other income, net...................................... 30,848 16,625 22,650
----------- ---------- -----------
INCOME BEFORE INCOME TAXES............................... 148,965 201,412 468,879
INCOME TAX PROVISION..................................... 44,000 80,000 209,449
----------- ---------- -----------
NET INCOME..................................... $ 104,965 $ 121,412 $ 259,430
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-109
<PAGE> 191
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
AMOUNT SHARES CAPITAL EARNINGS TOTAL
------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1995........................ $7,800 7,800 $30,031 $ 894,708 $ 932,539
Net income.................................. 104,965 104,965
Distributions to owner...................... -- -- -- (6,250) (6,250)
------ ----- ------- ---------- ----------
BALANCE, MARCH 31, 1996....................... 7,800 7,800 30,031 993,423 1,031,254
Net income.................................. 121,412 121,412
Distributions to owner...................... -- -- -- (31,250) (31,250)
------ ----- ------- ---------- ----------
BALANCE, MARCH 31, 1997....................... 7,800 7,800 30,031 1,083,585 1,121,416
Net income.................................. 259,430 259,430
Distributions to owner...................... -- -- -- (25,000) (25,000)
------ ----- ------- ---------- ----------
BALANCE, MARCH 31, 1998....................... $7,800 7,800 $30,031 $1,318,015 $1,355,846
====== ===== ======= ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-110
<PAGE> 192
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------
1996 1997 1998
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 104,965 $ 121,412 $ 259,430
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 72,391 89,552 132,308
Loss (gain) on disposal of assets..................... (14,134) 11,621 --
Deferred taxes........................................ (211,786) 234,296 (60,340)
Changes in operating assets and liabilities:
Contract receivables, net............................. (1,137,937) 464,845 37,061
Costs and estimated earnings in excess of billings.... (6,254) (51,584) 40,988
Due from related parties.............................. (25,000)
Inventories........................................... (6,901) 8,217 (32,006)
Other receivables..................................... (30,156) 39,341 17,470
Accounts payable, accrued expenses, other current
liabilities and income taxes........................ 1,054,345 (995,807) 314,339
Billings in excess of costs and estimated earnings....... 115,271 109,410 (142,590)
----------- --------- ---------
Net cash provided by (used in) operating
activities..................................... (60,196) 31,303 541,660
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................... (118,048) (92,057) (219,027)
Proceeds from sale of property and equipment............. 14,134 19,500 --
Other.................................................... -- (75,000) --
----------- --------- ---------
Net cash used in investing activities............ (103,914) (147,557) (219,027)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt............. 50,569 -- 108,792
Repayments of long-term debt............................. (59,667) (58,996) (22,300)
Distributions to stockholder............................. (6,250) (31,250) (25,000)
----------- --------- ---------
Net cash provided by (used in) financing
activities..................................... (15,348) (90,246) 61,492
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (179,458) (206,500) 384,125
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 698,250 518,792 312,292
----------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 518,792 $ 312,292 $ 696,417
=========== ========= =========
CASH PAYMENTS FOR (RECEIPTS FROM):
Interest................................................. $ 5,149 $ 3,010 $ 6,044
Taxes.................................................... $ 69,740 $ 288,101 $(153,822)
</TABLE>
See notes to consolidated financial statements.
F-111
<PAGE> 193
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Five K Industries, Inc. and subsidiary (collectively, the
"Company") operates as a provider of comprehensive roofing services to
commercial, industrial, manufacturing, construction and government customers.
The work is generally performed under fixed-price contracts. The length of the
Company's contracts varies, but generally are less than one year. The Company's
principal offices are located in Smyrna, Georgia and the majority of the
Company's business is transacted with customers in Georgia. A majority of the
Company's hourly employees are covered by collective bargaining agreements,
which expire June 30, 1998 and July 31, 2000.
Principles of Consolidation -- The consolidated financial statements
include all of the accounts of the Company. All significant intercompany
balances and transactions have been eliminated in consolidation.
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 -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers whose reputation is known to the
Company. Advance payments and progress payments are generally required for
significant projects. The Company generally has the ability to file liens
against the property if it is not paid on a timely basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of cost, using the first-in, first-out method, or
market.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost and are amortized over the
remaining useful life of the related asset. Property and equipment are reviewed
for impairment and a provision recorded, if necessary, whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. Depreciation is recorded using accelerated methods over the
estimated useful lives of the related assets. Depreciation and amortization is
provided over the following estimated useful lives:
<TABLE>
<S> <C>
5 years
Vehicles....................................................
5 to 10 years
Leasehold improvements......................................
5 to 7 years
Machinery and equipment.....................................
5 to 7 years
Furniture and fixtures......................................
</TABLE>
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
and tools. Selling, general, and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project, which are
not reflective of
F-112
<PAGE> 194
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
effort, are excluded from the percentage of completion calculation for purposes
of determining profits on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings," represents
revenue recognized in excess of amounts billed. The liability, "Billings in
excess of costs and estimated earnings," represents billings in excess of
revenues recognized.
Income Taxes -- The Company reports income taxes pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes related to certain income and expenses recognized in
different periods for financial and income tax reporting purposes. Deferred tax
assets and liabilities represent the future tax consequences of those
differences. Deferred taxes are also recognized for operating losses and tax
credits that are available to offset future taxable income and income taxes,
respectively. A valuation allowance is provided if it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Reclassification -- Certain amounts in the 1996 and 1997 financial
statements have been reclassified to conform to the 1998 presentation.
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Completed contracts, including retention.................... $ 200,550 $ 298,075
Contracts in progress:
Current accounts.......................................... 1,070,834 816,724
Retention................................................. 510,562 619,105
---------- ----------
1,781,946 1,733,904
Subtotal
Less: allowance for doubtful accounts....................... 29,481 18,500
---------- ----------
Contract receivables, net......................... $1,752,465 $1,715,404
========== ==========
</TABLE>
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $2,883,371 $3,164,782
Estimated earnings.......................................... 1,469,633 1,082,867
---------- ----------
Total....................................................... 4,353,004 4,247,649
Less: billings to date...................................... 4,559,070 4,352,113
---------- ----------
Net over-billings................................. $ (206,066) $ (104,464)
========== ==========
</TABLE>
F-113
<PAGE> 195
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $ 57,838 $ 16,850
Billings in excess of costs and estimated earnings.......... (263,904) (121,314)
--------- ---------
Total............................................. $(206,066) $(104,464)
========= =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1998
-------- ----------
<S> <C> <C>
Vehicles.................................................... $529,323 $ 712,126
Leasehold improvements...................................... 23,813 23,835
Machinery and equipment..................................... 214,138 250,340
Furniture and fixtures...................................... 33,352 33,352
-------- ----------
Subtotal.................................................... 800,626 1,019,653
Less: accumulated depreciation.............................. 513,225 645,533
-------- ----------
Property and equipment, net....................... $287,401 $ 374,120
======== ==========
</TABLE>
5. LINE OF CREDIT FACILITY AND LONG-TERM DEBT
On October 15, 1996, the Company entered into a line of credit agreement
(the "1996 Line of Credit") with a financial institution, which allowed the
Company to borrow up to $200,000. Interest was payable monthly at prime rate
plus 1% (prime rate at March 31, 1997 was 8.5%). The 1996 Line of Credit was
secured by the Company's accounts receivable. There were no borrowings on the
1996 Line of Credit as of March 31, 1997 and it matured on October 15, 1997.
On October 15, 1997, concurrent with the expiration of the 1996 Line of
Credit, the Company entered into another line of credit agreement (the "1997
Line of Credit") with terms and conditions similar to the 1996 Line of Credit.
There were no borrowings on the 1997 Line of Credit as of March 31, 1998 and it
matures on October 15, 1998.
A summary of the Company's long-term debt is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
Note payable due on April 1, 1999, bearing interest at a
fixed rate of 9.25%. Note is payable in monthly
installments of $1,313 of principal and interest. Secured
by certain fixed assets................................... $16,179
Note payable due on October 15, 2000, bearing interest at a
fixed rate of 9.5%. Note is payable in monthly payments of
$2,567 of principal and interest. Secured by certain fixed
assets.................................................... 70,313
-------
Total............................................. 86,492
Less: current portion....................................... 40,114
-------
Total............................................. $46,378
=======
</TABLE>
F-114
<PAGE> 196
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt for years ending March 31 are as
follows:
<TABLE>
<S> <C>
1999........................................................ $40,114
2000........................................................ 28,978
2001........................................................ 17,400
-------
Total............................................. $86,492
=======
</TABLE>
6. INCOME TAXES
The Company's provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $225,250 $(104,550) $222,005
State............................................... 39,750 (18,450) 47,784
-------- --------- --------
265,000 (123,000) 269,789
-------- --------- --------
Deferred
Federal............................................. (187,850) 172,550 (51,289)
State............................................... (33,150) 30,450 (9,051)
-------- --------- --------
(221,000) 203,000 (60,340)
-------- --------- --------
$ 44,000 $ 80,000 $209,449
======== ========= ========
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statutory federal tax rate.................................. 34.0% 34.0% 34.0%
State tax net of federal benefit............................ 4.0 4.0 4.0
Depreciation adjustment..................................... 0.0 0.0 3.6
Other -- permanent differences.............................. (8.5) 1.7 3.1
---- ---- ----
Effective tax rate.......................................... 29.5% 39.7% 44.7%
==== ==== ====
</TABLE>
F-115
<PAGE> 197
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the Company's deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 11,203 $ 7,030
Alternative minimum tax carryforward...................... 47,282 --
Depreciation.............................................. 5,730 --
Contribution carryforward................................. 6,922 --
-------- --------
Total............................................. 71,137 7,030
-------- --------
Deferred tax liabilities:
Contracts in progress..................................... 507,157 367,376
Depreciation.............................................. -- 15,334
-------- --------
Total............................................. 507,157 382,710
-------- --------
Net deferred tax liability........................ $436,020 $375,680
======== ========
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable and debt. The carrying value of
these financial instruments approximates fair value because of their short
duration. The Company places its temporary cash investments with financial
institutions and limits the amount of credit exposure with any one financial
institution. The carrying value of debt approximates their fair value based on
current rates for borrowings of similar quality and terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the Georgia market. The
Company believes this concentration of credit risk is mitigated by the diversity
of industries represented by the Company's customer base.
8. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan covering substantially all
non-union employees. Each year, participants may contribute up to 15% of pretax
annual compensation as defined in the plan. Discretionary matching amounts may
be contributed at the Company's option. During the years ended March 31, 1996,
1997, and 1998, the Company contributed $49,000, $52,000, and $51,000,
respectively.
The Company contributes monthly to multi-employer defined benefit union
plans based upon hours worked by each eligible employee. Pension expense for
these plans was approximately $73,040, $65,180, and $70,740 for the years ended
March 31, 1996, 1997 and 1998, respectively.
9. RELATED PARTY TRANSACTIONS
The Company's headquarters and warehouse are leased from a relative of the
sole shareholder of the Company on a month-to-month basis. The monthly rental
for this lease is approximately $3,900.
10. COMMITMENTS AND CONTINGENCIES
The Company has entered into a noncancelable lease arrangement for a
certain vehicle. The future minimum lease payments are $22,028 which are due in
the year ending March 31, 1999.
F-116
<PAGE> 198
FIVE K INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. MAJOR CUSTOMERS
At March 31, 1997 and 1998, 12.0% and 26.3% of contracts receivable,
respectively, were due from two customers of the Company. For the years ended
March 31, 1996, 1997, and 1998, sales of 25.6%, 34.4%, and 24.0%, respectively,
of total sales were made to two customers of the Company.
12. SUBSEQUENT EVENT
On May 19, 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. ("GRS") whereby GRS will acquire the Company for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including consummation of the offering.
* * * * *
F-117
<PAGE> 199
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Advanced Roofing, Inc.,
Advanced Leasing, Inc.,
K&M Warehouse, Inc. and
Hi-Rise Crane, Inc.:
We have audited the accompanying combined balance sheets of Advanced
Roofing, Inc., Advanced Leasing, Inc., K & M Warehouse, Inc. and Hi-Rise Crane,
Inc., all of which are under common ownership and common management, as of
December 31, 1996 and October 31, 1997, and the related combined statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1996 and for the ten-month period ended October 31,
1997. These financial statements are the responsibility of the companies'
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 combined financial position of Advanced Roofing, Inc., Advanced
Leasing, Inc., K & M Warehouse, Inc. and Hi-Rise Crane, Inc. as of December 31,
1996 and October 31, 1997, and the results of their combined operations and
their combined cash flows for each of the two years in the period ended December
31, 1996 and for the ten-month period ended October 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
April 10, 1998,
(May 20, 1998 as to the first
paragraph of Note 12)
F-118
<PAGE> 200
ADVANCED ROOFING, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31, MARCH 31,
1996 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 329,926 $ 211,224 $ 209,849
Contract receivables.................................... 1,614,524 1,200,826 1,671,793
Costs and estimated earnings in excess of billings...... 138,836 383,225 551,279
Other current assets, principally supplies.............. 113,233 69,698 118,464
Due from affiliates..................................... -- 181,013 212,812
---------- ---------- ----------
Total current assets............................ 2,196,519 2,045,986 2,764,197
PROPERTY AND EQUIPMENT, net............................... 1,854,496 2,175,025 2,062,833
---------- ---------- ----------
TOTAL........................................... $4,051,015 $4,221,011 $4,827,030
========== ========== ==========
LIABILITIES
CURRENT LIABILITIES:
Accounts payable........................................ $1,042,188 $ 585,693 $ 713,032
Accrued workers' compensation........................... 162,092 105,868 105,868
Other accrued expenses and current liabilities.......... 215,424 279,717 459,039
Billings in excess of costs and estimated earnings...... 165,500 156,100 249,600
Due to related parties.................................. 41,850 100,000 100,000
Note payable to bank.................................... 250,100 400,100 445,100
Current portion of long-term debt....................... 245,225 296,354 282,901
---------- ---------- ----------
Total current liabilities....................... 2,122,379 1,923,832 2,355,540
---------- ---------- ----------
LONG-TERM DEBT, net of current portion.................... 588,465 649,719 562,538
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Common stock............................................ 850 873 873
Additional paid-in capital.............................. 664,203 673,170 673,170
Retained earnings....................................... 780,129 1,078,428 1,339,920
---------- ---------- ----------
1,445,182 1,752,471 2,013,963
Less treasury stock, at cost............................ (105,011) (105,011) (105,011)
---------- ---------- ----------
Total stockholders' equity...................... 1,340,171 1,647,460 1,908,952
---------- ---------- ----------
TOTAL........................................... $4,051,015 $4,221,011 $4,827,030
========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-119
<PAGE> 201
ADVANCED ROOFING, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED TEN-MONTH FOR THE FIVE-MONTH PERIODS
DECEMBER 31, PERIOD ENDED ENDED MARCH 31,
------------------------- OCTOBER 31, ---------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONTRACT REVENUES EARNED.......... $12,077,920 $10,681,751 $10,202,701 $4,933,294 $5,068,342
COSTS OF CONTRACT REVENUES
EARNED.......................... 10,337,731 8,843,162 8,311,953 4,201,115 3,982,463
----------- ----------- ----------- ---------- ----------
GROSS PROFIT...................... 1,740,189 1,838,589 1,890,748 732,179 1,085,879
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES......... 1,218,750 1,316,394 1,205,377 676,401 755,651
----------- ----------- ----------- ---------- ----------
INCOME FROM OPERATIONS............ 521,439 522,195 685,371 55,778 330,228
OTHER (INCOME) EXPENSE:
Interest expense................ 24,052 80,198 99,527 37,093 59,871
Other (income) expense.......... (11,953) 3,172 13,531 17,015 (8,237)
----------- ----------- ----------- ---------- ----------
NET INCOME.............. $ 509,340 $ 438,825 $ 572,313 $ 1,670 $ 278,594
=========== =========== =========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-120
<PAGE> 202
ADVANCED ROOFING, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994................ $850 $ 58,483 $ 530,787 $ 590,120
Net income.............................. 509,340 509,340
Purchase of treasury stock.............. $(105,011) (105,011)
Contributions from stockholders......... 605,720 605,720
Distributions to stockholders........... (470,839) (470,839)
---- -------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1995................ 850 664,203 569,288 (105,011) 1,129,330
Net income.............................. 438,825 438,825
Distributions to stockholders........... (227,984) (227,984)
---- -------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1996................ 850 664,203 780,129 (105,011) 1,340,171
Net income.............................. 572,313 572,313
Issuance of common stock................ 23 427 450
Contributions from stockholders......... 8,540 8,540
Distributions to stockholders........... (274,014) (274,014)
---- -------- ---------- --------- ----------
BALANCE, OCTOBER 31, 1997................. 873 673,170 1,078,428 (105,011) 1,647,460
Net income (unaudited).................. 278,594 278,594
Distributions to stockholders
(unaudited).......................... (17,102) (17,102)
---- -------- ---------- --------- ----------
BALANCE, MARCH 31, 1998 (unaudited)....... $873 $673,170 $1,339,920 $(105,011) $1,908,952
==== ======== ========== ========= ==========
</TABLE>
See notes to combined financial statements.
F-121
<PAGE> 203
ADVANCED ROOFING, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE FIVE-MONTH
FOR THE YEAR TEN-MONTH PERIODS ENDED
ENDED DECEMBER 31, PERIOD ENDED MARCH 31,
--------------------- OCTOBER 31, ---------------------
1995 1996 1997 1997 1998
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 509,340 $ 438,825 $ 572,313 $ 1,670 $ 278,594
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 165,951 261,092 282,161 138,505 146,283
(Gain) loss on disposal of assets...................... (8,482) 19,785 3,994
Changes in assets and liabilities:
Contracts receivable................................. 323,295 (920,195) 413,698 (660,857) (470,967)
Costs and estimated earnings in excess of billings... (670,589) 574,033 (244,389) (40,743) (168,054)
Other current assets................................. 7,499 (72,082) 43,535 28,043 (48,766)
Accounts due from affiliates......................... (181,013) (553) (31,799)
Accounts payable..................................... 372,980 8,655 (456,495) 126,448 127,339
Accrued workers' compensation and other accrued
expenses........................................... 130,336 (32,493) 8,069 339,554 179,320
Billings in excess of costs and estimated earnings... (159,124) 165,500 (9,400) 241,100 93,500
--------- --------- --------- --------- ---------
Net cash provided by operating activities.......... 679,688 414,853 448,264 177,161 105,450
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................... (873,937) (599,376) (625,525) (112,463) (34,091)
Proceeds from the sale of equipment...................... 8,000 3,500
--------- --------- --------- --------- ---------
Net cash used in investing activities.............. (873,937) (591,376) (622,025) (112,463) (34,091)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt............. 434,070 446,191 350,240 44,033
Payments of long-term debt............................... (293,818) (172,464) (237,857) (124,800) (144,665)
Net borrowings on note payable to bank................... 250,000 150,000 45,000
Borrowings from related parties.......................... 100,000
Payments on borrowings from related parties.............. (8,865) (54,296) (41,850)
Contributions from stockholders.......................... 401,220 8,540 8,540
Distributions to stockholders............................ (266,339) (227,984) (274,014) (17,102)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities....................................... 266,268 241,447 55,059 (116,260) (72,734)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 72,019 64,924 (118,702) (51,562) (1,375)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 192,983 265,002 329,926 145,465 211,224
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 265,002 $ 329,926 $ 211,224 $ 93,903 $ 209,849
--------- --------- --------- --------- ---------
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................... $ 24,052 $ 80,198 $ 99,527 $ 37,093 $ 59,871
========= ========= ========= ========= =========
NONCASH FINANCING ACTIVITY:
During 1995, the Company issued notes payable in the
amount of $105,011 in exchange for ten shares of common
stock.
During 1995, the Company distributed property with a book
value of $204,500 to the stockholders.
During 1995, the Company's stockholders contributed
property with a book value of $204,500 to the Company.
</TABLE>
See notes to combined financial statements.
F-122
<PAGE> 204
ADVANCED ROOFING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1996,
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1997,
AND FOR THE FIVE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- The accompanying combined financial statements include the
accounts of Advanced Roofing, Inc., Advanced Leasing, Inc., K&M Warehouse, Inc.
and Hi-Rise Crane, Inc. (collectively referred to herein as the "Company"), all
of which are under common ownership and common management and are presented on a
combined basis since they are managed as one entity. The Company operates as a
provider of comprehensive roofing services to commercial, industrial,
manufacturing, construction and government customers. The work is generally
performed under fixed-price contracts. The length of the Company's contracts
varies, but generally are less than one year. The Company's principal offices
are located in Fort Lauderdale, Florida and the majority of the Company's
business is transacted with customers in Florida.
The following represents the components of the Company's capital accounts
at October 31, 1997:
<TABLE>
<CAPTION>
ADDITIONAL
PAR SHARES COMMON PAID-IN TREASURY
COMPANY NAME VALUE AUTHORIZED STOCK CAPITAL STOCK
- ------------ ----- ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
Advanced Roofing, Inc.................... $ 1 1,000 $100 $ 400 $105,011
Advanced Leasing, Inc.................... 1 1,000 500 499,500
K&M Warehouse, Inc....................... 1 500 250 164,303
Hi-Rise Crane, Inc....................... 0.50 1,000 23 8,967
---- -------- --------
Total at October 31, 1997...... $873 $673,170 $105,011
==== ======== ========
</TABLE>
The Hi-Rise Crane, Inc. shares were issued during the ten-month period
ended October 31, 1997 and were the only shares issued by any of the entities
since December 31, 1994.
Principles of Combination -- The combined financial statements include the
accounts of Advanced Roofing, Inc., Advanced Leasing, Inc., K&M Warehouse, Inc.
and Hi-Rise Crane, Inc. All significant intercompany balances and transactions
have been eliminated in combination.
Interim Financial Information -- The interim financial statements as of
March 31, 1998 and for the five months ended March 31, 1997 and 1998 are
unaudited and certain information and footnote disclosures normally included in
annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of contract receivables that become uncollectible could differ
from those estimated.
F-123
<PAGE> 205
ADVANCED ROOFING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and
local companies whose reputation is known to the Company. Advance payments and
progress payments are generally required for significant projects. Credit checks
are performed for significant new customers that are not known to the Company.
The Company generally has the ability to file liens against the property if it
is not paid on a timely basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of first-in, first-out cost or market.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision recorded, if necessary, whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost and
are amortized over the remaining useful life of the related asset. Depreciation
and amortization are recorded using the straight-line method over the estimated
useful lives of the related assets. Depreciation and amortization are provided
over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements................................. 30 to 39 years
Office equipment........................................... 5 to 7 years
Service equipment and vehicles............................. 5 to 7 years
</TABLE>
Warranties -- The Company provides for future estimated warranty
obligations in the period in which the related revenue is recognized.
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
and tools. Selling, general, and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project which are
not reflective of effort are excluded from the percentage of completion
calculation for purposes of determining profits earned on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings" on
uncompleted contracts, represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings" on
uncompleted contracts, represents billings in excess of revenues recognized.
Income Taxes -- The Company is an S Corporation for federal income tax
purposes. Accordingly, the current taxable income of the Company is taxable to
the shareholders who are responsible for the payment of taxes thereon. The tax
basis of assets and liabilities of the Company differ from the financial
statement basis principally due to the use of the completed contract method of
reporting revenues for income tax purposes and due to accelerated depreciation
of assets for tax purposes.
New Accounting Pronouncements -- In June 1997, SFAS No. 130, Reporting
Comprehensive Income, was issued. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components
F-124
<PAGE> 206
ADVANCED ROOFING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 requires
that a company (a) classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The Company has not determined the effects, if any, that SFAS No. 130
will have on its combined financial statements.
Year-End Change -- During the ten-month period ended October 31, 1997 the
Company changed its year-end to October 31.
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
<S> <C> <C>
Completed contracts:
Current accounts.......................................... $ 708,598 $ 653,726
Retention................................................. 2,500
---------- ----------
711,098 653,726
Contracts in progress:
Current accounts.......................................... 750,326 417,400
Retention................................................. 153,100 129,700
---------- ----------
Subtotal.................................................... 903,426 547,100
---------- ----------
Contract receivables........................................ $1,614,524 $1,200,826
========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property, plant and equipment consist of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
<S> <C> <C>
Land........................................................ $ 151,498 $ 151,498
Buildings and improvements.................................. 677,807 754,438
Office equipment............................................ 132,455 132,455
Service equipment and vehicles.............................. 1,878,035 2,404,094
---------- ----------
2,839,795 3,442,485
Less accumulated depreciation............................... 985,299 1,267,460
---------- ----------
$1,854,496 $2,175,025
========== ==========
</TABLE>
F-125
<PAGE> 207
ADVANCED ROOFING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $2,601,836 $1,759,125
Estimated earnings.......................................... 756,100 558,000
---------- ----------
Total............................................. 3,357,936 2,317,125
Less billings to date....................................... 3,384,600 2,090,000
---------- ----------
Net (over) under billings......................... $ (26,664) $ 227,125
========== ==========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $138,836 $383,225
Billings in excess of costs and estimated earnings.......... 165,500 156,100
-------- --------
Total............................................. $(26,664) $227,125
======== ========
</TABLE>
5. 401(K) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan covering substantially all
employees. Each year, participants may contribute up to 15% of pretax annual
compensation, not to exceed $9,000 and $9,500 in 1996 and 1997, respectively, as
defined in the plan. The Company shall contribute and allocate to each
participant's account an amount equal to the amount withheld from the
compensation of such participant pursuant to his or her salary savings
agreement. Discretionary matching amounts may be contributed at the Company's
option, not to exceed 25% of the participant's contributions. The Company's
contributions were $44,979, $30,839, and $25,931 for the years ended December
31, 1995 and 1996 and the ten-month period ended October 31, 1997, respectively.
6. RELATED PARTY TRANSACTIONS
During 1995, the Company entered into an agreement to purchase ten shares
of issued and outstanding common stock of Advanced Roofing, Inc. from the spouse
of a deceased former shareholder under the terms of a Stockholders' Agreement
dated January 16, 1992. In exchange for the stock, the Company issued notes
payable in the amount of $105,011. The notes bear an interest rate of 10% and
are payable in twenty-four equal monthly installments of $4,846 from 1995
through 1997. The amounts payable under the Stockholders' Agreement was $41,850
at December 31, 1996. No amount was outstanding at October 31, 1997.
During 1997, the Company borrowed $100,000 from a relative of one of the
Company's shareholders. The note bears an interest rate of 10%; interest is
payable monthly with the principal payable in a lump-sum payment in 1998. The
note is secured by an airplane and related equipment owned by one of the
Company's shareholders and guaranteed by that same shareholder.
During the ten-month period ended October 31, 1997, the Company made cash
advances to certain affiliates totaling $181,013. The entire balance was
outstanding at October 31, 1997.
F-126
<PAGE> 208
ADVANCED ROOFING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
<S> <C> <C>
Mortgage note bearing an annual interest rate of 10%,
interest and principal payable in equal monthly
installments of $5,286 from 1995 through 2005; secured by
certain real estate....................................... $362,186 $338,705
Mortgage note bearing an annual interest rate of 9%,
interest and principal payable in equal monthly
installments of $1,282 from 1994 through 2003; secured by
certain real estate....................................... 77,631 70,389
Various equipment and automobile notes bearing interest
rates ranging from 7.75% to 9.00%, interest and principal
payable in equal monthly payments due from 1995 through
2000; secured by certain equipment and automobiles........ 393,873 536,975
-------- --------
Total long-term debt.............................. 833,690 946,069
Less current portion........................................ 245,225 296,354
-------- --------
Long-term debt, net of current portion............ $588,465 $649,715
======== ========
</TABLE>
The annual aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
- -----------
<S> <C>
1998........................................................ $296,354
1999........................................................ 236,167
2000........................................................ 138,197
2001........................................................ 53,989
2002........................................................ 59,508
Thereafter.................................................. 161,854
--------
Total............................................. $946,069
========
</TABLE>
8. NOTE PAYABLE TO BANK
The Company has a revolving credit facility with a financial institution
for direct borrowings, bearing one percentage point above the lender's prime
interest rate (8.5% and 8.25% for 1997 and 1996, respectively) and maturing in
yearly intervals, with the next maturity date of April 26, 1998. The credit
facility is generally renewed annually and is guaranteed by the stockholders and
secured by substantially all of Advanced Roofing, Inc.'s assets. Amounts payable
under the revolving credit facility were $250,100 and $400,100 at December 31,
1996 and October 31, 1997, respectively.
9. MAJOR CUSTOMERS
At October 31, 1997, $89,498 was due from one customer of the Company. For
the ten-month period ended October 31, 1997, sales of 21% of total sales were
made to this customer.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable, debt and capitalized lease
obligations. The carrying value of these financial instruments approximates fair
value because of their short duration or current interest rates. The Company
places its
F-127
<PAGE> 209
ADVANCED ROOFING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
temporary cash investments with financial institutions and limits the amount of
credit exposure with any one financial institution. The carrying value of debt
and capitalized lease obligations approximates their fair value based on current
rates for borrowings of similar quality and terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the Florida market. The
Company believes this concentration of credit risk is mitigated by the diversity
of industries represented by the Company's customer base.
11. COMMITMENTS AND CONTINGENCIES
The Company is party to various litigation matters involving routine claims
incidental to the business of the Company. Although the ultimate outcome cannot
presently be determined with certainty, the Company believes, with advice from
its legal counsel, that the ultimate liability associated with such claims, if
any, will not have a material adverse effect on the Company's financial position
or results of operations.
12. SUBSEQUENT EVENT
On May 20, 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. ("GRS") whereby GRS will acquire the Company for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including the approval by Directors of both companies. The assets and
operations related to K&M Warehouse, Inc. and Hi-Rise Crane, Inc. ("Hi-Rise"),
together with certain portions of Advanced Leasing, Inc. (consisting primarily
of the assets related to Hi-Rise) will not be acquired in connection with the
proposed transaction with GRS.
Additionally, in January 1998, one of the Company's stockholders
relinquished control of Hi-Rise. In connection therewith, 45% of Hi-Rise's stock
was transferred to an unrelated third party and 10% of the stock was transferred
to an officer of the Company.
* * * * * *
F-128
<PAGE> 210
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Blackmore and Buckner Roofing, Inc.:
We have audited the accompanying balance sheet of Blackmore and Buckner
Roofing, Inc. (the "Company") as of December 31, 1997, and the related
statements of operations, stockholders' 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 1997 financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1997,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 23, 1998
(May 12, 1998 as to Note 11)
F-129
<PAGE> 211
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Blackmore and Buckner Roofing, Inc.:
We have audited the accompanying balance sheet of Blackmore and Buckner
Roofing, Inc. (the "Company") as of December 31, 1996, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1996 and December 31, 1995. 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 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 above-mentioned financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1996, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
BLUE & CO., LLC
Indianapolis, Indiana
January 29, 1997
F-130
<PAGE> 212
BLACKMORE AND BUCKNER ROOFING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 66,884 $ 238,524 $ 246,957
Contract receivables.................................... 2,453,687 1,532,800 778,602
Cost and estimated earnings in excess of billings....... 66,993 233,135 271,678
Inventories............................................. 83,327 80,208 75,734
Prepaid expenses and other current assets............... 13,460 20,060 24,480
---------- ---------- ----------
Total current assets............................ 2,684,351 2,104,727 1,397,451
PROPERTY AND EQUIPMENT, NET............................... 334,096 361,396 342,734
OTHER ASSETS.............................................. 72,213 85,250 90,168
---------- ---------- ----------
$3,090,660 $2,551,373 $1,830,353
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 586,427 $ 345,532 $ 291,104
Accrued payroll and withholdings........................ 363,581 323,391 159,644
Accrued expenses........................................ 200,189 131,081 95,332
Billings in excess of costs and estimated earnings...... 497,601 362,752 122,156
Current maturities of long-term debt.................... 19,286 22,645 22,838
---------- ---------- ----------
Total current liabilities....................... 1,667,084 1,185,401 691,074
LONG-TERM DEBT, net of current portion.................... 58,610 85,073 76,912
---------- ---------- ----------
Total liabilities............................... 1,725,694 1,270,474 767,986
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $1 stated value, 40,000 shares authorized,
37,851, 29,014 and 29,014 shares issued,
respectively......................................... 37,851 29,014 29,014
Additional paid-in capital.............................. 501,265 370,352 370,352
Retained earnings....................................... 880,600 881,533 663,001
Treasury stock, 4,716 shares in 1996.................... (54,750)
---------- ---------- ----------
Total stockholders' equity...................... 1,364,966 1,280,899 1,062,367
---------- ---------- ----------
$3,090,660 $2,551,373 $1,830,353
========== ========== ==========
</TABLE>
See notes to financial statements.
F-131
<PAGE> 213
BLACKMORE AND BUCKNER ROOFING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONTRACT AND SERVICE
REVENUES EARNED.................... $7,210,134 $7,704,410 $7,738,719 $1,401,394 $1,061,435
COST OF CONTRACT AND SERVICE REVENUES
EARNED............................. 5,794,958 5,948,466 6,320,994 1,273,060 896,081
---------- ---------- ---------- ---------- ----------
GROSS PROFIT......................... 1,415,176 1,755,944 1,417,725 128,334 165,354
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,161,527 1,326,300 1,219,461 205,840 215,422
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS........ 253,649 429,644 198,264 (77,506) (50,068)
OTHER INCOME (EXPENSE):
Interest income.................... 2,518 11,306 17,331 5,559
Interest expense................... (12,433) (8,438) (6,958) (1,557) (3,108)
Other income (expense), net........ 15,879 (1,025) 6,016 (1,357) (2,646)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......... $ 259,613 $ 431,487 $ 214,653 $ (80,420) $ (50,263)
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-132
<PAGE> 214
BLACKMORE AND BUCKNER ROOFING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------- PAID-IN ----------------- RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TOTAL
------ ------- ---------- ------ -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1995............ 37,851 $37,851 $ 501,265 4,716 $(54,750) $ 404,878 $ 889,244
Distributions to shareholders...... (71,240) (71,240)
Net income......................... 259,613 259,613
------ ------- --------- ------ -------- --------- ----------
BALANCES, DECEMBER 31, 1995.......... 37,851 37,851 501,265 4,716 (54,750) 593,251 1,077,617
Distributions to stockholders...... (144,138) (144,138)
Net income......................... 431,487 431,487
------ ------- --------- ------ -------- --------- ----------
BALANCES, DECEMBER 31, 1996.......... 37,851 37,851 501,265 4,716 (54,750) 880,600 1,364,966
Purchase of treasury stock......... 4,121 (85,000) (85,000)
Distributions to stockholders...... (213,720) (213,720)
Retirement of treasury stock....... (8,837) (8,837) (130,913) (8,837) 139,750
Net income......................... 214,653 214,653
------ ------- --------- ------ -------- --------- ----------
BALANCES, DECEMBER 31, 1997.......... 29,014 29,014 370,352 881,533 1,280,899
Net loss (unaudited)............... (50,263) (50,263)
Distributions to stockholders
(unaudited)...................... (168,269) (168,269)
------ ------- --------- ------ -------- --------- ----------
BALANCES, MARCH 31, 1998
(unaudited)........................ 29,014 $29,014 $ 370,352 $ 663,001 $1,062,367
====== ======= ========= ====== ======== ========= ==========
</TABLE>
See notes to financial statements.
F-133
<PAGE> 215
BLACKMORE AND BUCKNER ROOFING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- ----------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ 259,613 $ 431,487 $ 214,653 $ (80,420) $ (50,263)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation......................... 99,120 82,321 88,776 20,197 18,662
Gain on disposal of assets........... (9,807) (900)
Life insurance premiums paid in
excess of increase in cash
surrender value of officers' life
insurance......................... (576) (2,456) (2,139) (2,273)
Changes in operating assets and
liabilities:
Contract receivables.............. 191,137 (1,275,210) 920,887 1,090,507 754,198
Costs and estimated earnings in
excess of billings.............. 53,936 (47,297) (166,142) (74,990) (38,543)
Inventories....................... 11,425 25,158 3,119 2,532 4,474
Other current assets.............. (16,540) 17,813 (6,600) (3,172) (4,420)
Accounts payable and accrued
expenses........................ (27,979) 360,925 (350,193) (440,773) (253,924)
Billings in excess of costs and
estimated earnings.............. (209,658) 270,778 (134,849) 34,785 (240,596)
--------- ----------- --------- ---------- ---------
Net cash provided by (used in)
operating activities......... 351,247 (135,501) 567,195 546,527 187,315
--------- ----------- --------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (85,519) (19,071) (116,076) (9,849)
Proceeds from sale of property and
equipment............................ 13,473 900
Increase in cash surrender value of
officers' life insurance............. (9,906) (10,581) (10,581) (2,495) (2,645)
--------- ----------- --------- ---------- ---------
Net cash used in investing
activities................... (81,952) (28,752) (126,657) (12,344) (2,645)
--------- ----------- --------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt........... (19,414) (20,222) (20,178) (5,135) (7,968)
Distributions to stockholders.......... (71,240) (144,138) (213,720) (120,396) (168,269)
Purchase of treasury stock............. (35,000)
--------- ----------- --------- ---------- ---------
Net cash used in financing
activities................... (90,654) (164,360) (268,898) (125,531) (176,237)
--------- ----------- --------- ---------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS......... 178,641 (328,613) 171,640 408,652 8,433
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................. 216,856 395,497 66,884 66,884 238,524
--------- ----------- --------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................. $ 395,497 $ 66,884 $ 238,524 $ 475,536 $ 246,957
========= =========== ========= ========== =========
Cash payments for:
Interest............................... $ 12,433 $ 8,438 $ 6,958 $ 1,557 $ 3,108
========= =========== ========= ========== =========
</TABLE>
See notes to financial statements.
F-134
<PAGE> 216
BLACKMORE AND BUCKNER ROOFING, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Blackmore and Buckner Roofing, Inc. (the "Company") is a roofing
contractor headquartered in Indianapolis, Indiana. The principal activities of
the Company include installing commercial and residential roofing, repair work
on existing and newly constructed buildings, and metal fabrication. The Company
performs these construction activities primarily in Indiana for commercial
enterprises.
A majority of the Company's hourly employees are covered by collective
bargaining agreements, which expire May 31, 1998 and May 31, 1999.
Interim Financial Information -- The interim financial statements as of
March 31, 1998 and for the three months ended March 31, 1997 and 1998 are
unaudited and certain information and footnote disclosures normally included in
annual 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 items, 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 period are not necessarily indicative of the results
for an 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 amount 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 -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, local school districts, and
well-known companies whose reputation is known to the Company. Advance payments
and progress payments are generally required for significant projects. Credit
checks are performed for significant new customers that are not known to the
Company. The Company generally has the ability to file liens against the
property if it is not paid on a timely basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of cost, using the first-in, first-out method, or
market.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision is provided, if necessary, whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost and
are amortized over the remaining useful life of the related asset. Depreciation
is recorded using the straight-line method over the estimated useful life of the
related assets. Depreciation is provided over the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings................................................... 10-31 years
Shop and general equipment.................................. 2-7 years
Office equipment............................................ 5-10 years
Trucks, trailers and vehicles............................... 3-5 years
Fabrication equipment....................................... 10 years
</TABLE>
F-135
<PAGE> 217
BLACKMORE AND BUCKNER ROOFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Warranties -- The Company provides for future estimated warranty
obligations in the period in which the related revenue is recognized.
Revenue and Cost Recognition -- The Company performs repair work under
time-and-material contracts and installation work generally under fixed-price
contracts. Revenues from time-and-material contracts are recognized currently as
the work is performed. Revenue from fixed price contracts is recognized under
the percentage-of-completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs relating to contract performance such as indirect labor, supplies
and tools. Selling, general and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project, which are
not reflective of effort, are excluded from the percentage of completion
calculation for purposes of determining profits on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of work are
reflected in the period in which the facts requiring the revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings," represents
revenue recognized in excess of amounts billed. The liability, "Billings in
excess of costs and estimated earnings," represents billings in excess of
revenues recognized on uncompleted contracts.
Income Taxes -- The Company is an S Corporation for federal income tax
purposes. The current taxable income of the Company is taxable to the
shareholders who are responsible for the payment of taxes thereon. Accordingly,
the accompanying financial statements do not include any provision for federal
and state income taxes.
New Accounting Pronouncement -- Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standard No. 130, Reporting
Comprehensive Income. There are no significant differences between comprehensive
income and net income as reported in the Company's Statements of Operations.
Reclassification -- Certain amounts in the 1995 and 1996 financial
statements have been reclassified to conform to the 1997 presentation.
2. CONTRACT RECEIVABLES
Contract receivables include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Completed contracts:
Current accounts.......................................... $ 593,996 $ 851,246
Contracts in progress:
Current accounts.......................................... 1,766,182 526,072
Retention................................................. 93,509 155,482
---------- ----------
$2,453,687 $1,532,800
========== ==========
</TABLE>
F-136
<PAGE> 218
BLACKMORE AND BUCKNER ROOFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress, earnings thereon and related
billings includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 3,103,306 $ 3,563,178
Estimated earnings.......................................... 884,365 477,665
----------- -----------
Total....................................................... 3,987,671 4,040,843
Less: billings to date...................................... (4,418,279) (4,170,460)
----------- -----------
Net over billings................................. $ (430,608) $ (129,617)
=========== ===========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $ 66,993 $ 233,135
Billings in excess of costs and estimated earnings.......... (497,601) (362,752)
--------- ---------
Total............................................. $(430,608) $(129,617)
========= =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Land........................................................ $ 107,381 $ 107,381
Buildings................................................... 351,657 351,657
Shop and general equipment.................................. 431,954 468,685
Office equipment............................................ 114,297 138,841
Trucks, trailers and vehicles............................... 333,967 372,567
Fabrication equipment....................................... 143,459 159,660
----------- -----------
1,482,715 1,598,791
Accumulated depreciation.................................... (1,148,619) (1,237,395)
----------- -----------
$ 334,096 $ 361,396
=========== ===========
</TABLE>
F-137
<PAGE> 219
BLACKMORE AND BUCKNER ROOFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Note payable to bank under equipment line-of-credit due
October 2000 bears interest at prime plus 1 1/4% (9.5% and
9.75% at December 31, 1996 and 1997, respectively) Note is
payable in monthly principal payments of $744 plus
interest.................................................. $ 34,226 $ 27,120
Note payable to U.S. Small Business Administration due
October 2003 bears interest at 5.2%. Note is payable in
monthly payments of $560 of principal and interest........ 38,151 33,313
Note payable to former stockholder due August 2002 bears
interest at 8.5%. Note is payable in monthly payments of
$1,026 of principal and interest.......................... 47,285
Note payable to former stockholder repaid in 1997........... 5,519
----------- -----------
77,896 107,718
Current maturities.......................................... (19,286) (22,645)
----------- -----------
$ 58,610 $ 85,073
=========== ===========
</TABLE>
Aggregate annual maturities of long-term debt for the years ending December
31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 22,645
1999........................................................ 23,679
2000........................................................ 25,130
2001........................................................ 17,075
2002........................................................ 14,253
Thereafter.................................................. 4,936
--------
$107,718
========
</TABLE>
The Company has a $500,000 line-of-credit with a bank which is available
for its current working capital needs, through July 1998, and a $85,000
line-of-credit to be used for capital expenditures. No amounts were outstanding
under the working capital line of credit at December 31, 1996 and 1997. The
Company had outstanding borrowings of $34,226 and $27,120 under the equipment
line of credit at December 31, 1996 and 1997, respectively. These credit
facilities require monthly interest payments at the bank's prime rate (8.25% and
8.5% at December 31, 1996 and December 31, 1997, respectively) plus 3/4% and
1 1/4%, respectively.
The credit facilities are secured by contract receivables, equipment, and
mortgages on certain commercial properties, and are personally guaranteed by
several of the Company's stockholders. The loan agreements place restrictive
covenants on the Company, including maintenance of certain collateral ratios, a
specified minimum amount of working capital and net worth, as defined. The
credit facilities also contain acceleration clauses in the event the Company
enters into a merger agreement or a transfer of ownership occurs. The note
payable to the U.S. Small Business Administration is secured under the same
terms as the line-of-credit facilities.
F-138
<PAGE> 220
BLACKMORE AND BUCKNER ROOFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable and debt. The carrying value of
these financial instruments approximates fair value because of their short
duration or current interest rates. The Company places its temporary cash
investments with financial institutions and limits the amount of credit exposure
with any one financial institution. The carrying value of debt obligations
approximates their fair value based on current rates for borrowings of similar
quality and terms.
Other financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist primarily of contract
receivables. The Company's customers are concentrated in the Indiana market. The
Company believes this concentration of credit risk is mitigated by the diversity
of industries represented by the Company's customer base.
7. MAJOR CUSTOMERS
At December 31, 1996 and 1997, 51% and 28% of contract receivables,
respectively, were due from two customers of the Company. For the years ended
December 31, 1995, 1996 and 1997, sales of 27%, 41% and 26%, respectively, of
total sales were made to two customers of the Company.
8. PENSION PLANS
Substantially all of the Company's nonmanagement employees are covered by
collective bargaining agreements. The Company's contributions to various
union-sponsored multi-employer pension plans were $113,492, $159,631 and
$214,842 in 1995, 1996 and 1997, respectively. Information on the Company's
portion of the accumulated plan benefits and the plans' net assets, if any, is
not determinable. Under the Employee Retirement Income Security Act of 1974, as
amended in 1980, an employer, upon withdrawing from a multi-employer pension
plan, is obligated for its proportionate share of the plan's unfunded vested
benefits. The Company has no intention of withdrawing from the plans.
In 1990, the Company adopted a Simplified Employee Pension ("SEP") plan
which covers all non-union employees who meet certain age and employment
criteria. Contributions to the plan are at the discretion of the Board of
Directors. The Company's liability for benefits is limited to the amount funded
to the plan. Contributions to the SEP plan were $92,371, $99,077 and $112,023 in
1995, 1996 and 1997, respectively.
9. STOCKHOLDERS' EQUITY
Common Stock -- At December 31, 1996 and 1997, the Company's common stock
consists of 40,000 shares authorized ($1 stated value), 37,851 and 29,014 shares
issued and outstanding, respectively, including shares held in treasury. All
common shares have equal voting, dividend, participation and liquidation rights.
Treasury Stock -- The Company purchased 4,121 shares of common stock on
August 1, 1997 for $85,000. The Company paid cash of $35,000 and issued a note
payable to a former stockholder in the amount of $50,000.
On December 31, 1997, the Company retired 8,837 shares of treasury stock at
a cost of $139,750. The shares were originally issued at one dollar per share.
Additional paid-in capital was reduced for the amount in excess of the original
$8,837 purchase price of the common stock, or $130,913.
10. CONTINGENCY
The Company is currently involved in arbitration to recover costs incurred
in connection with a warranty replacement. Although it is not possible to
predict the outcome of the arbitration, in the opinion of
F-139
<PAGE> 221
BLACKMORE AND BUCKNER ROOFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
management, resolution will not have a material effect on the financial
position, results of operations or cash flows of the Company.
11. SUBSEQUENT EVENT
On May 12, 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. ("GRS") whereby GRS will acquire the Company for a
combination of cash and common shares of GRS concurrent with the consummation of
an initial public offering of the common stock of GRS, subject to certain
conditions including consummation of the offering.
F-140
<PAGE> 222
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Register Contracting Company, Inc.:
We have audited the accompanying balance sheets of Register Contracting
Company, Inc. (the "Company"), as of September 30, 1996 and 1997, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended September 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 Register Contracting Company, Inc. as of
September 30, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended September 30, 1997 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
October 31, 1997
(May 8, 1998 as to Note 11)
F-141
<PAGE> 223
REGISTER CONTRACTING COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 549,829 $ 594,137 $ 489,396
Contract receivables, net of an allowance for doubtful
accounts of $20,916, $20,916, and $35,916,
respectively.......................................... 612,910 1,139,133 1,342,682
Costs and estimated earnings in excess of billings....... 109,739 15,352 116,654
Due from related parties................................. 122,619 103,412 85,223
Inventories.............................................. 73,981 71,079 88,165
Prepaid expenses and other current assets................ 20,276 35,670 33,622
Deferred tax assets...................................... 2,862
---------- ---------- ----------
Total current assets............................. 1,498,354 1,961,645 2,155,742
PROPERTY AND EQUIPMENT, net................................ 438,530 476,332 549,253
OTHER ASSETS............................................... 22,000 46,000 46,000
---------- ---------- ----------
TOTAL............................................ $1,949,884 $2,483,977 $2,750,995
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 551,941 $ 540,846 $ 590,038
Accrued expenses......................................... 252,890 344,664 359,160
Billings in excess of costs and estimated earnings....... 94,268 174,671 255,582
Current portion of long-term debt........................ 21,723 44,558 44,895
Accrued bonuses.......................................... 213,684 145,000
Income taxes payable..................................... 5,605 107,441
Deferred tax liabilities................................. 93,929 68,777
---------- ---------- ----------
Total current liabilities........................ 1,020,356 1,425,864 1,463,452
LONG-TERM DEBT, net of current portion..................... 10,406 54,795 132,010
DEFERRED TAX LIABILITIES................................... 12,730 22,739 22,739
---------- ---------- ----------
Total............................................ 1,043,492 1,503,398 1,618,201
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 10,000 shares authorized;
1902, 1992 and 1992 shares issued and outstanding..... 19,020 19,920 19,920
Additional paid-in capital............................... 45,291 72,932 72,932
Retained earnings........................................ 842,081 887,727 1,039,942
---------- ---------- ----------
Total............................................ 906,392 980,579 1,132,794
---------- ---------- ----------
TOTAL............................................ $1,949,884 $2,483,977 $2,750,995
========== ========== ==========
</TABLE>
See notes to financial statements.
F-142
<PAGE> 224
REGISTER CONTRACTING COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONTRACT REVENUES EARNED............. $6,532,709 $6,187,007 $6,831,850 $3,043,586 $4,169,021
COSTS OF CONTRACT REVENUES EARNED.... 5,871,215 5,173,719 5,791,836 2,536,567 3,443,424
---------- ---------- ---------- ---------- ----------
GROSS PROFIT......................... 661,494 1,013,288 1,040,014 507,019 725,597
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 591,763 803,940 1,002,174 431,272 516,888
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS............... 69,731 209,348 37,840 75,747 208,709
OTHER INCOME (EXPENSE):
Interest income.................... 7,531 16,665 26,131 9,046 10,884
Interest expense................... (19,738) (17,083) (9,038) (4,099) (8,014)
Other income....................... 3,100 67,337 73,267 6,872 12,275
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........... 60,624 276,267 128,200 87,566 223,854
INCOME TAX PROVISION................. 18,848 88,730 82,554 56,042 71,639
---------- ---------- ---------- ---------- ----------
NET INCOME................. $ 41,776 $ 187,537 $ 45,646 $ 31,524 $ 152,215
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-143
<PAGE> 225
REGISTER CONTRACTING COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994..................... 1,800 $18,000 $ 612,768 $ 630,768
Issuance of common stock................... 102 1,020 $45,291 46,311
Net income................................. 41,776 41,776
----- ------- ------- ---------- ----------
BALANCE, SEPTEMBER 30, 1995.................. 1,902 19,020 45,291 654,544 718,855
Net income................................. 187,537 187,537
----- ------- ------- ---------- ----------
BALANCE, SEPTEMBER 30, 1996.................. 1,902 19,020 45,291 842,081 906,392
Issuance of common stock................... 90 900 27,641 28,541
Net income................................. 45,646 45,646
----- ------- ------- ---------- ----------
BALANCE, SEPTEMBER 30, 1997.................. 1,992 19,920 72,932 887,727 980,579
Net income (Unaudited)..................... 152,215 152,215
----- ------- ------- ---------- ----------
BALANCE, MARCH 31, 1998
(Unaudited)................................ 1,992 $19,920 $72,932 $1,039,942 $1,132,794
===== ======= ======= ========== ==========
</TABLE>
See notes to financial statements.
F-144
<PAGE> 226
REGISTER CONTRACTING COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
-------------------------------- --------------------
1995 1996 1997 1997 1998
--------- -------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 41,776 $187,537 $ 45,646 $ 31,524 $152,215
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 90,081 92,781 97,405 41,823 48,702
Loss (gain) on disposal of assets....................... 5,803 (48,759) (11,999) (2,690)
Deferred taxes.......................................... 19,442 29,195 (86,782) 12,895 71,640
Changes in operating assets and liabilities:
Contract receivables, net............................. 247,563 145,671 (526,223) (278,859) (203,549)
Costs and estimated earnings in excess billings....... 208,685 (88,686) 94,387 (66,400) (101,302)
Due from related parties.............................. (2,592) (6,587) 26,290 18,268 18,189
Inventories........................................... (44,416) (8,434) 2,902 (3,435) (17,086)
Other current assets.................................. 36,129 (2,618) (15,394) (9,039) 2,048
Accounts payable and accrued expenses................. (345,147) 73,063 80,679 121,467 63,688
Billings in excess of costs and estimated earnings.... 125,032 (150,641) 80,403 36,176 80,911
Accrued bonuses....................................... (29,850) 213,684 (68,684)
Income taxes payable.................................. (1,706) 5,605 101,836 50,437 (107,442)
--------- -------- --------- --------- --------
Net cash provided by (used in) operating
activities........................................ 350,800 228,127 102,834 (47,833) (60,670)
--------- -------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (51,762) (106,760) (60,331) (59,000) (121,623)
Proceeds from sale of property and equipment.............. 56,901 41,833 4,000
Loans to related parties.................................. (100,000) (3,242) (19,377)
Receipts on loans to related parties...................... 7,138 12,294
Deposits.................................................. (24,000)
--------- -------- --------- --------- --------
Net cash used in investing activities............... (144,624) (53,101) (49,581) (55,000) (121,623)
--------- -------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt.............. 1,500 53,740 106,593
Repayments of long-term debt.............................. (76,855) (52,231) (37,486) (22,170) (29,041)
Repayment of loan to stockholders......................... (34,023) (15,318)
Net change in line of credit.............................. 140,750 (140,000)
Proceeds from issuance of stock........................... 46,311 28,541 28,541
--------- -------- --------- --------- --------
Net cash provided by (used in) financing
activities........................................ 77,683 (207,549) (8,945) 60,111 77,552
--------- -------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 283,859 (32,523) 44,308 (42,722) (104,741)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 298,493 582,352 549,829 549,829 594,137
--------- -------- --------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 582,352 $549,829 $ 594,137 $ 507,107 $489,396
========= ======== ========= ========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Equipment acquired through non-cash financing........... $ 25,008 $ 104,710
CASH PAYMENTS FOR:
Interest.................................................. $ 19,738 $ 17,083 $ 9,038 $ 4,098 $ 8,012
Taxes..................................................... $ 55,000 $ 12,500 $ 91,000
</TABLE>
See notes to financial statements.
F-145
<PAGE> 227
REGISTER CONTRACTING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Register Contracting Company, Inc. ("RCCI" or the "Company") was
incorporated on September 15, 1981 and is engaged in the business of general
contracting and commercial roofing throughout the southeastern United States
with the majority of its contracts in Florida. The work is generally performed
under fixed-price contracts. The lengths of the Company's contracts vary, but
are typically less than one year.
Interim Financial Information -- The interim financial statements as of
March 31, 1998 and for the six months ended March 31, 1997 and 1998 are
unaudited and certain information and footnote disclosures normally included in
annual 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 items, 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 period are not necessarily indicative of the results
for an 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.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Contract Receivables -- The Company carries contract receivables at the
amounts it deems to be collectible. Accordingly, the Company provides allowances
for contract receivables it deems to be uncollectible based on management's best
estimates. Recoveries are recognized in the period they are received. The
ultimate amount of contract receivables that become uncollectible could differ
from those estimated.
Credit Policy -- In the normal course of business, the Company provides
credit to its customers and does not generally require collateral. The Company
principally deals with recurring customers, state and local governments and well
known local companies whose reputation is known to the Company. Advance payments
and progress payments are generally required for significant projects. Credit
checks are performed for significant new customers that are not known to the
Company. The Company generally has the ability to file liens against the
property if it is not paid on a timely basis.
Inventories -- Inventories consist primarily of materials and supplies and
are valued at the lower of cost or market using the first-in, first-out method.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation. Property and equipment are reviewed for impairment and
a provision recorded, if necessary, whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost and
are amortized over the remaining useful life of the related asset. Depreciation
is recorded using straight-line methods over the estimated useful lives of the
related assets. Depreciation is provided over the following estimated useful
lives:
<TABLE>
<S> <C>
Building improvements....................................... 15 to 39 years
Service equipment........................................... 5 to 7 years
Furniture and equipment..................................... 5 to 7 years
Computer equipment.......................................... 5 years
Vehicles.................................................... 5 years
</TABLE>
Warranties -- The Company provides for future estimated warranty
obligations in the period in which the related revenue is recognized.
F-146
<PAGE> 228
REGISTER CONTRACTING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue and Cost Recognition -- Revenue from contracts is recognized under
the percentage of completion method measured by the ratio of contract costs
incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
and tools. Selling, general, and administrative costs are charged to expense as
incurred. Costs for materials incurred at the inception of a project which are
not reflective of effort are excluded from the percentage of completion
calculation for purposes of determining profits earned on uncompleted contracts.
Estimates made with respect to uncompleted projects are subject to change
as the project progresses and better estimates of project costs become
available. Revisions in cost and profit estimates during the course of the work
are reflected in the period in which the facts requiring revision become known.
Where a loss is forecast for a contract, the full amount of the anticipated loss
is recognized in the period in which it is determined that a loss will occur,
regardless of the stage of completion.
The asset, "Costs and estimated earnings in excess of billings" on
uncompleted contracts, represents revenue recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings" on
uncompleted contracts, represents billings in excess of revenues recognized.
Income Taxes -- The Company reports income taxes pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes related to certain income and expenses recognized in
different periods for financial and income tax reporting purposes. Deferred tax
assets and liabilities represent the future tax consequences of those
differences. Deferred taxes are also recognized for operating losses and tax
credits that are available to offset future taxable income and income taxes,
respectively. A valuation allowance is provided if it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
New Accounting Pronouncements -- Effective October 1, 1997, the Company
adopted Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income. There are no significant differences between comprehensive
income and net income as reported in the Company's statements of operations.
2. CONTRACT RECEIVABLES
Contract receivables consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1997
-------- ----------
<S> <C> <C>
Completed contracts, including retention.................... $128,183 $ 821,008
Contracts in progress:
Current accounts.......................................... 294,312 234,365
Retention................................................. 211,331 104,676
-------- ----------
Subtotal.................................................... 633,826 1,160,049
Less: allowance for doubtful accounts....................... (20,916) (20,916)
-------- ----------
Contract receivables, net......................... $612,910 $1,139,133
======== ==========
</TABLE>
F-147
<PAGE> 229
REGISTER CONTRACTING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts.................... $ 1,884,145 $ 701,714
Estimated earnings......................................... 321,836 185,726
----------- -----------
Total...................................................... 2,205,981 887,440
Less: billings to date..................................... (2,190,510) (1,046,759)
----------- -----------
Net under (over) billings........................ $ 15,471 $ (159,319)
=========== ===========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
-------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings.......... $109,739 $ 15,352
Billings in excess of costs and estimated earnings.......... (94,268) (174,671)
-------- ---------
Total............................................. $ 15,471 $(159,319)
======== =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Land........................................................ $ 96,266 $ 103,803
Building and improvements................................... 254,622 254,622
Service equipment and vehicles.............................. 607,043 690,156
Office equipment............................................ 86,415 89,451
---------- ----------
Subtotal.................................................... 1,044,346 1,138,032
Less: accumulated depreciation.............................. (605,816) (661,700)
---------- ----------
Property and equipment, net....................... $ 438,530 $ 476,332
========== ==========
</TABLE>
F-148
<PAGE> 230
REGISTER CONTRACTING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
$250,000 unsecured line of credit; interest is payable
monthly and accrues at the prime rate plus 1% (9.5% at
September 30, 1997); matures December 31, 1997; renewable
annually.................................................. $ 1,000 $ 1,000
Vehicle loans; interest accrues at various fixed rates
ranging from 7% to 9.14%; original maturities are from 24
to 36 months; collateralized by vehicles with a net book
value of $112,102, and $24,486 at September 30, 1996 and
1997, respectively........................................ 31,129 98,353
-------- --------
Total............................................. 32,129 99,353
Less: current portion....................................... (21,723) (44,558)
-------- --------
$ 10,406 $ 54,795
======== ========
</TABLE>
Aggregate maturities of long-term debt for years ending September 30 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $44,558
1999........................................................ 38,140
2000........................................................ 16,655
-------
Total............................................. $99,353
=======
</TABLE>
6. INCOME TAXES
The Company's provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Current:
Federal................................................ $56,295 $144,586
State.................................................. 3,240 24,750
------- --------
59,535 169,336
------- --------
Deferred:
Federal................................................ $15,146 23,474 (78,008)
State.................................................. 3,702 5,721 (8,774)
------- ------- --------
18,848 29,195 (86,782)
------- ------- --------
$18,848 $88,730 $ 82,554
======= ======= ========
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Statutory federal tax rate.............................. 34.0% 34.0% 34.0%
State tax, net of federal benefit....................... 4.2 4.2 4.2
Other................................................... (7.2) (6.2) 26.2
------- ------- ---------
Effective rate.......................................... 31.0% 32.0% 64.4%
======= ======= =========
</TABLE>
F-149
<PAGE> 231
REGISTER CONTRACTING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes have been recorded using the enacted tax rates expected to
apply to taxable income in the periods in which the deferred tax liabilities are
expected to be settled. The settlement of such deferred tax liability in 1997
was at a rate exceeding that previously recorded resulting in an effective rate
for 1997 in excess of the statutory rate.
Construction contracts are reported for tax purposes on the
completed-contract method and for financial statement purposes on the
percentage-of-completion method. Accelerated depreciation is used for tax
reporting, and straight-line depreciation is used for financial statement
reporting.
Components of the Company's deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 16,929
Allowance for doubtful accounts........................... 5,856 $ 6,685
Vacation accrual.......................................... 3,516 3,516
Other..................................................... 24,717 49,823
-------- -------
Total............................................. 51,018 60,024
-------- -------
Deferred tax liabilities:
Contracts in progress..................................... 144,947 57,162
Depreciation.............................................. 12,730 22,739
-------- -------
Total............................................. 157,677 79,901
-------- -------
Net deferred tax liability........................ $106,659 $19,877
======== =======
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
contract receivables, accounts and notes payable, and debt. The carrying value
of these financial instruments approximates fair value because of their short
duration or current interest rates. The Company places its temporary cash
investments with financial institutions and limits the amount of credit exposure
with any one financial institution. The carrying value of debt approximates
their fair value based on current rates for borrowings of similar quality and
terms.
Other financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of contract
receivables. The Company's customers are concentrated in the Florida market. The
Company believes this concentration of credit risk is mitigated by the diversity
of industries represented by the Company's customer base.
8. MAJOR CUSTOMERS
At September 30, 1997, approximately $329,000 was due from one customer of
the Company. Total revenues under this contract represented 52% of the Company's
total contract revenues for the year ended September 30, 1997.
9. EMPLOYEE PROFIT SHARING PLAN
The Company sponsored a non-contributory employee profit sharing plan
adopted on September 27, 1984. Under the plan, employees who are 21 years of age
or older and who have been employed at least one year and completed at least
1,000 hours of service were eligible to participate. The plan provided for
discretionary contributions by the Company up to the maximum amount permitted
under the Internal
F-150
<PAGE> 232
REGISTER CONTRACTING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Code. The Company's board of directors determines amounts to be
contributed to the plan on an annual basis which is largely determined by the
Company's performance over the preceding year. Contributions accrued for the
year ended September 30, 1996 were $25,000. There were no contributions for the
years ended September 30, 1995 or 1997. The Company terminated the plan
effective September 30, 1997, at which time the net assets of the plan were
disbursed to participants.
10. RELATED PARTY TRANSACTIONS
The Company has subcontracted with Gary Register, General Contractor, Inc.,
a company 100% owned and operated by a shareholder of RCCI. The costs related to
these subcontracts are reflected in "Cost of Contract Revenues Earned" and
amounted to $44,841, $214,473 and $7,545 for the years ended September 30, 1995,
1996, and 1997, respectively.
In April 1995, the Company loaned $100,000 to Gibbs and Register, Inc., a
company owned in part by shareholders of RCCI. This note is scheduled to be paid
off in January 1999, and earns interest at 10% compounded monthly. Interest
income related to this loan was $5,078, $10,563, and $9,363 for the years ended
September 30, 1995, 1996 and 1997, respectively. Through September 30, 1997,
principal payments received relating to this note amounted to $28,709.
Gibbs and Register, Inc. was issued performance bonds under RCCI's surety
policy during 1995, 1996 and 1997.
11. SUBSEQUENT EVENT
On May 8, 1998, the Company signed a stock purchase agreement with General
Roofing Services, Inc. (GRS) whereby GRS will acquire the Company for cash
concurrent with the consummation of an initial public offering of the common
stock of GRS, subject to certain conditions including consummation of the
offering.
* * * * * *
F-151
<PAGE> 233
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Summary Pro Forma Combined Financial
Data................................ 7
Summary Individual Founding Company
Historical Financial Data........... 9
Risk Factors.......................... 11
The Company........................... 18
Use of Proceeds....................... 21
Capitalization........................ 22
Dividend Policy....................... 23
Dilution.............................. 23
Selected Historical and Pro Forma
Financial Data...................... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 55
Management............................ 64
Certain Transactions.................. 69
Security Ownership of Certain
Beneficial Owners and Management.... 71
The Combination....................... 72
Description of Capital Stock.......... 74
Shares Eligible for Future Sale....... 76
Underwriting.......................... 78
Legal Matters......................... 79
Experts............................... 79
Available Information................. 80
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,000,000 SHARES
GENERAL ROOFING SERVICES, INC.
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
THE ROBINSON-HUMPHREY COMPANY
BANCAMERICA ROBERTSON STEPHENS
RAYMOND JAMES & ASSOCIATES, INC.
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 234
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of certain estimated
expenses incurred in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $20,355.00
NASD filing fee............................................. 7,400.00
Nasdaq National Market listing fee..........................
Blue Sky fees and expenses..................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Registrar and Transfer Agent's fees and expenses............
Miscellaneous...............................................
----------
Total............................................. $
==========
</TABLE>
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and Nasdaq National Market listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has authority under the Florida General Corporation Act to
indemnify all directors and officers to the extent provided in such statute. The
Company's Articles of Incorporation provide that the Company shall indemnify its
directors to the fullest extent permitted by law either now or hereafter. The
Company has also entered into an agreement with each of its directors and
certain of its officers wherein it has agreed to indemnify each of them to the
fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <C> <S>
1.1 -- Underwriting Agreement among the Registrant, The
Robinson-Humphrey Company, LLC, BancAmerica Robertson
Stephens and Raymond James & Associates, Inc.*
2.1 -- Stock Purchase Agreement dated May 12, 1998, by and among
the Registrant, Harrington-Scanlon Roofing Company, Inc., a
Kansas corporation, and its stockholders
2.2 -- Stock Purchase Agreement dated May 8, 1998, by and among the
Registrant, Register Contracting Company, Inc., a Florida
corporation, Register & Childers Roof Repairs, Inc., a
Florida corporation, and their stockholders
2.3 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, S & B Roofing Services, Inc., a Michigan
corporation and its stockholders
</TABLE>
II-1
<PAGE> 235
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <C> <S>
2.4 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, Anthony Roofing, Ltd., an Illinois
corporation, and its stockholders
2.5 -- Stock Purchase Agreement dated May 12, 1998, by and among
the Registrant, Specialty Associates, Inc., a Wisconsin
corporation, SAI Wholesale Distributors, Inc., a Wisconsin
corporation, and their stockholders
2.6 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, Cyclone Roofing Company, a North Carolina
corporation, and its sole stockholder
2.7 -- Stock Purchase Agreement dated May 19, 1998, by and among
the Registrant, Five-K Industries, Inc., a Georgia
corporation, and its sole stockholder
2.8 -- Stock Purchase Agreement dated May 20, 1998, by and among
the Registrant, Advanced Roofing, Inc., a Florida
corporation, and its stockholders
2.9 -- Stock Purchase Agreement dated May 12, 1998, by and among
the Registrant, Blackmore & Buckner Roofing, Inc., an
Indiana corporation, and its stockholders
2.10 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, Wright-Brown Roofing Company, a Michigan
corporation, and its stockholders
2.11 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, C.E.I. West Roofing Company, Inc., a
Colorado corporation, and its stockholders
2.12 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, C.E.I. Roofing, Inc., a Texas corporation,
and its stockholders
2.13 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, C.E.I. Florida, Inc., a Florida corporation,
and its stockholders
2.14 -- Stock Purchase Agreement dated as of May 25, 1998, by and
among the Registrant, GRI of South Florida, Inc., a Florida
corporation, and its shareholder, GRI of West Florida, Inc.,
a Florida corporation, and its shareholder, GRI of Orlando,
Inc., a Florida corporation, and its shareholder, Dakota
Leasing, Inc., a Florida corporation, and its shareholder,
and General Roofing Acquisition Corp., a Florida
corporation, and its shareholder*
3.1 -- Articles of Incorporation of Registrant*
3.2 -- Bylaws of Registrant
4.1 -- Specimen Certificate for the Common Stock
5.1 -- Opinion of Baker & McKenzie
10.1 -- Employment Agreement dated as of February 16, 1998 between
the Registrant and Gregg Wallick
10.2 -- Employment Agreement dated as of February 16, 1998 between
the Registrant and Eric B. Levine
10.3 -- Employment Agreement dated as of February 16, 1998 between
the Registrant and Dale E. Eby
10.4 -- Employment Agreement dated as of February 16, 1998 between
the Registrant and William A. Abberger III
10.5 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Gregg E. Wallick
10.6 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Eric B. Levine
10.7 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Dale E. Eby
10.8 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and William A. Abberger III
10.9 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Angela Pettus
10.10 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Robert Brooker
10.11 -- 1998 Stock Option and Restricted Stock Purchase Plan adopted
May 26, 1998
10.12 -- Bank of America Commitment Letter
11.1 -- Statement Regarding Computation of Per Share Earnings*
21.1 -- List of Subsidiaries of the Company**
</TABLE>
II-2
<PAGE> 236
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <C> <S>
23.1 -- Consent of Baker & McKenzie (included in Exhibit 5.1)
23.2 -- Consents of Independent Auditors
23.3 -- Consent of Scott & Stringfellow, Inc., independent
appraisers
24.1 -- Powers of Attorney (as set forth on the signature page of
the Registration Statement)**
27.1 -- Financial Data Schedules (for SEC use only)**
99.1 -- Consent of Francis X. Maguire, Proposed Director of the
Registrant**
99.2 -- Consent of Charles "Red" Scott, Proposed Director of the
Registrant**
99.3 -- Consent of David C. Willis, Proposed Director of the
Registrant**
99.4 -- Consent of Robert G. Shuler, Proposed Director of the
Registrant**
99.5 -- Consent of John C. Cook, Proposed Director of the
Registrant**
99.6 -- Consent of Joel A. Thompson, Proposed Director of the
Registrant**
99.7 -- Consent of Thomas E. Brown, Jr., Proposed Director of the
Registrant**
99.8 -- Consent of J. Patrick Millinor, Jr., Proposed Director of
the Registrant
</TABLE>
- ---------------
* To be filed by amendment.
** Previously Filed.
(b) Financial Statement Schedules:
None.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of the registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(4) That insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant 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
Registrant 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 of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 237
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has caused this amendment to the Form S-1 Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Pompano Beach, Florida, on the 7th day of July, 1998.
GENERAL ROOFING SERVICES, INC.
By: /s/ GREGG E. WALLICK
------------------------------------
Gregg E. Wallick
President and Chief Executive
Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GREGG E. WALLICK President, Chief Executive July 7, 1998
- ----------------------------------------------------- Officer, Chairman of the
Gregg E. Wallick Board (Principal Executive
Officer)
/s/ DALE E. EBY* Chief Financial Officer July 7, 1998
- ----------------------------------------------------- Treasurer and Assistant
Dale E. Eby Secretary
(Principal Financial and
Accounting Officer)
/s/ ERIC B. LEVINE* Senior Vice President of July 7, 1998
- ----------------------------------------------------- Corporate Development
Eric B. Levine
/s/ WILLIAM A. ABBERGER III* Senior Vice President of July 7, 1998
- ----------------------------------------------------- Operations
William A. Abberger III
*By: /s/ GREGG E. WALLICK
-------------------------------------------------
GREGG E. WALLICK
Attorney-in-fact
</TABLE>
II-4
<PAGE> 238
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
2.1 -- Stock Purchase Agreement dated May 12, 1998, by and among
the Registrant, Harrington-Scanlon Roofing Company, Inc., a
Kansas corporation, and its stockholders
2.2 -- Stock Purchase Agreement dated May 8, 1998, by and among the
Registrant, Register Contracting Company, Inc., a Florida
corporation, Register & Childers Roof Repairs, Inc., a
Florida corporation, and their stockholders
2.3 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, S & B Roofing Services, Inc., a Michigan
corporation and its stockholders
2.4 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, Anthony Roofing, Ltd., an Illinois
corporation, and its stockholders
2.5 -- Stock Purchase Agreement dated May 12, 1998, by and among
the Registrant, Specialty Associates, Inc., a Wisconsin
corporation, SAI Wholesale Distributors, Inc., a Wisconsin
corporation, and their stockholders
2.6 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, Cyclone Roofing Company, a North Carolina
corporation, and its sole stockholder
2.7 -- Stock Purchase Agreement dated May 19, 1998, by and among
the Registrant, Five-K Industries, Inc., a Georgia
corporation, and its sole stockholder
2.8 -- Stock Purchase Agreement dated May 20, 1998, by and among
the Registrant, Advanced Roofing, Inc., a Florida
corporation, and its stockholders
2.9 -- Stock Purchase Agreement dated May 12, 1998, by and among
the Registrant, Blackmore & Buckner Roofing, Inc., an
Indiana corporation, and its stockholders
2.10 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, Wright-Brown Roofing Company, a Michigan
corporation, and its stockholders
2.11 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, C.E.I. West Roofing Company, Inc., a
Colorado corporation, and its stockholders
2.12 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, C.E.I. Roofing, Inc., a Texas corporation,
and its stockholders
2.13 -- Stock Purchase Agreement dated May 13, 1998, by and among
the Registrant, C.E.I. Florida, Inc., a Florida corporation,
and its stockholders
3.2 -- Bylaws of Registrant
4.1 -- Specimen Certificate for the Common Stock
5.1 -- Opinion of Baker & McKenzie
10.1 -- Employment Agreement dated as of May 27, 1998 between the
Registrant and Gregg Wallick
10.2 -- Employment Agreement dated as of May 27, 1998 between the
Registrant and Eric B. Levine
10.3 -- Employment Agreement dated as of May 27, 1998 between the
Registrant and Dale E. Eby
10.4 -- Employment Agreement dated as of May 27, 1998 between the
Registrant and William A. Abberger III
10.5 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Gregg E. Wallick
10.6 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Eric B. Levine
10.7 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Dale E. Eby
10.8 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and William A. Abberger III
10.9 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Angela Pettus
10.10 -- Indemnification Agreement dated May 26, 1998 between the
Registrant and Robert Brooker
</TABLE>
<PAGE> 239
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
10.11 -- 1998 Stock Option and Restricted Stock Purchase Plan adopted
May 26, 1998
10.12 -- Bank of America Commitment Letter
23.1 -- Consent of Baker & McKenzie (included in Exhibit 5.1)
23.2 -- Consents of Independent Auditors
23.3 -- Consent of Scott & Stringfellow, Inc., independent
appraisers
99.8 -- Consent of J. Patrick Millinor, Jr., Proposed Director of
the Registrant
</TABLE>
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
HARRINGTON-SCANLON ROOFING COMPANY, INC.
AND
ALL OF THE STOCKHOLDERS
OF
HARRINGTON-SCANLON ROOFING COMPANY, INC.
----------------------------
----------------------------
MAY 12, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................1
1.01 Sale and Purchase of Company Common Stock................................................................1
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Excluded Assets and Distribution of Assets...............................................................3
1.05 Stockholders' Representative.............................................................................3
1.06 Earn-Out.................................................................................................4
ARTICLE II - CLOSING..............................................................................................5
2.01 Closing..................................................................................................5
2.02 Deliveries by Stockholders to GRS........................................................................5
2.03 Deliveries by GRS........................................................................................6
2.04 Termination in Absence of Closing........................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS..................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS.................................................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................7
6.01 GRS' Access to Information and Assets....................................................................7
6.02 Company's Conduct of Business and Operations.............................................................8
6.03 General Restrictions.....................................................................................8
6.04 Notice Regarding Changes.................................................................................9
6.05 Consents and Best Efforts...............................................................................10
6.06 Casualty Loss...........................................................................................10
6.07 Employee Matters........................................................................................10
6.08 No Solicitation.........................................................................................10
6.09 Employment Agreements...................................................................................11
6.10 Lock-Up Agreement.......................................................................................11
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................11
7.01 Conditions to Obligations of All Parties................................................................11
7.02 Conditions to Obligations of Stockholders...............................................................11
7.03 Conditions to Obligations of GRS........................................................................12
ARTICLE VIII - SURVIVAL..........................................................................................14
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................14
ARTICLE IX - INDEMNIFICATION.....................................................................................15
9.01 Obligation of the Stockholders to Indemnify.............................................................15
9.02 Obligation of GRS to Indemnify..........................................................................15
9.03 Notice and Opportunity to Defend........................................................................15
9.04 Limitations on Indemnification..........................................................................16
9.05 Set-Off Rights..........................................................................................17
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................17
10.01 Further Assurances......................................................................................17
10.02 Publicity...............................................................................................18
10.03 Access to Records.......................................................................................18
ARTICLE XI - MISCELLANEOUS.......................................................................................18
11.01 Brokers.................................................................................................18
11.02 Costs and Expenses......................................................................................18
11.03 Notices.................................................................................................18
11.04 Governing Law...........................................................................................19
11.05 Representations and Warranties..........................................................................19
11.06 Entire Agreement, Amendments and Waivers................................................................19
11.07 Binding Effect and Assignment...........................................................................20
11.08 Remedies................................................................................................20
11.09 Exhibits and Schedules..................................................................................20
11.10 Multiple Counterparts...................................................................................20
11.11 References..............................................................................................20
11.12 Survival................................................................................................20
11.13 Attorneys' Fees.........................................................................................20
ARTICLE XII - DEFINITIONS........................................................................................21
12.01 Affiliate...............................................................................................21
12.02 Collateral Agreements...................................................................................21
12.03 Company Assets..........................................................................................21
12.04 Contract Retention......................................................................................21
12.05 Current Assets..........................................................................................21
12.06 Current Liabilities.....................................................................................21
12.07 Damages.................................................................................................21
12.08 Environmental Law.......................................................................................21
12.09 GAAP....................................................................................................22
12.10 Governmental Authorities................................................................................22
12.11 Hazardous Substances....................................................................................22
12.12 Knowledge...............................................................................................22
12.13 Legal Requirements......................................................................................22
12.14 Permits.................................................................................................22
12.15 Properties..............................................................................................22
12.16 Proportionate Share.....................................................................................22
12.17 Regulations.............................................................................................22
12.18 Taxes...................................................................................................22
12.19 Tax Returns.............................................................................................23
12.20 Used....................................................................................................23
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for J.R. Harrington
Exhibit H - Employment Agreement for Kevin Scanlon
Exhibit I - Opinion of Baker & McKenzie
Exhibit J - Opinion of Shughart, Thomson & Kilroy, P.C.
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 12, 1998, by and among (i) General Roofing Services,
Inc., a Florida corporation (the "Buyer" or "GRS"),(ii) Harrington-Scanlon
Roofing Company, Inc., a Kansas corporation (the "Company"), and (iii) all of
the stockholders of the Company (the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS purchase
all of the issued and outstanding capital stock of the Company, consisting of
1,000 shares (the "Shares") of common stock, $1.00 par value ("Company Common
Stock"), upon the terms and subject to the conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange within
the meaning of the Internal Revenue Code.
C. The Company owns all of the capital stock of Harrington-Nissen
Roofing Co. and intends to purchase all of the capital stock of Architectural
Sheet Metal, Inc. ("ASM") prior to the Closing (as defined in Section 2.01
hereof) (each a "Subsidiary" and collectively "Subsidiaries").
D. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase, acquire
and accept from each Stockholder, the number of shares of Company Common Stock
set forth opposite the name of each such Stockholder on Exhibit A hereto under
the heading "Number of Shares of Company Common Stock Purchased", constituting
all of the issued and outstanding shares of Company Common Stock. The sale and
purchase of the Company Common Stock pursuant to this Agreement is sometimes
hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a),
at the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in
<PAGE> 6
blank or otherwise in proper form acceptable to GRS for transfer to GRS on the
books of the Company, against payment therefor in accordance with Section 1.03
hereof.
Section 1.02 Purchase Price.
(a) The purchase price for the issued and outstanding shares
of Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to (i) $800,000 plus (ii) any additional
amount as shall be payable to the Stockholders in accordance with Section 1.06
hereof. The Purchase Price shall be subject to adjustment as provided in this
Agreement and shall be allocated among the Stockholders in accordance with their
respective ownership interests as set forth on Exhibit A hereof. The Purchase
Price shall be delivered to the Stockholders, in accordance with their
respective Proportionate Share, and to the Escrow Agent (as defined in Section
1.03(b) hereof), subject to and in accordance with Section 1.03 hereof. The
amount of the Purchase Price allocated to each outstanding share of Company
Common Stock is hereinafter referred to as the "Stock Purchase Payment."
(b) The Stockholders shall cause to be prepared and delivered
to GRS within fifteen (15) days prior to the Closing Date (i) an unaudited
consolidated balance sheet of the Company forecasted as of the Closing Date (the
"Closing Date Unaudited Balance Sheet") and (ii) a certificate executed by the
Company's Chief Financial Officer (or another duly authorized officer of the
Company) to the effect that the Closing Date Unaudited Balance Sheet has been
prepared from the books and records of the Company and in a manner consistent
with the preparation of the Company Financial Statements (as defined in Section
3.06 hereof).
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price shall be paid upon the surrender pursuant to Section 1.01(b) hereof of a
certificate or certificates representing all of the issued and outstanding
shares of Company Common Stock, as follows:
(a) $360,000, shall be paid directly to the holders thereof by
wire transfer in New York Clearing House Funds in accordance with Exhibit A
hereto.
(b) An aggregate of $440,000 shall be paid by the delivery to
an escrow agent (the "Escrow Agent") selected by GRS and reasonably acceptable
to the Stockholders, on behalf of the Stockholders, of such number of shares of
GRS' common stock, par value $.01 per share ("GRS Common Stock"), as shall have
a value equal to $440,000, (the "Escrow Fund"), based upon the public offering
price of the GRS Common Stock to be sold in its initial public offering (the
"Offering"). The shares of GRS Common Stock to be so held in escrow shall be
held by the Escrow Agent for a period of one year following the Closing in
accordance with the terms of an Escrow Agreement in the form of Exhibit B hereto
(the "Escrow Agreement"), and shall thereafter be restricted from transfer for
an additional one-year period in accordance with the terms, and subject to the
conditions, of a Lock-Up Agreement in the form of Exhibit C hereto (the "Lock-Up
Agreement"). The Stockholders shall receive cash in lieu of fractional shares.
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933
ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE
TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
2
<PAGE> 7
COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Excluded Assets; No Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those assets (the "Excluded
Assets") which GRS and the Stockholders have agreed in writing are not required
by the Company in the conduct of its operations and which are listed in Schedule
1.04 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions in order to reduce the Company's Closing Net Book Value
to not less than $750,000.
Section 1.05 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean J.R. Harrington or any person appointed as a
successor Stockholders' Representative pursuant to Section 1.05(b) hereof.
(b) During the period ending upon the date when all
obligations under this Agreement have been discharged (including all
indemnification obligations hereunder and all obligations under the Escrow
Agreement), the Stockholders who, immediately prior to the Closing, held Company
Common Stock representing an aggregate number of shares of Company Common Stock
which exceeded 50% of the amount of such Company Common Stock outstanding
immediately prior to such time (a "Majority"), may, from time to time upon
written notice to the Stockholders' Representative and GRS, remove the
Stockholders' Representative or appoint a new Stockholders' Representative to
fill any vacancy created by the death, incapacitation, resignation or removal of
the Stockholders' Representative. Furthermore, if the Stockholders'
Representative dies, becomes incapacitated, resigns or is removed by a Majority,
the Majority shall appoint a successor Stockholders' Representative to fill the
vacancy so created. If the Majority is required to but has not appointed a
successor Stockholders' Representative within 20 business days from a request by
GRS to appoint a successor Stockholders' Representative, GRS shall have the
right to appoint a Stockholders' Representative to fill any vacancy so created,
and shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right and power to execute the Escrow
Agreement on their behalf with such changes or amendments thereto as the
Stockholders' Representative shall determine to be necessary or desirable in his
sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
3
<PAGE> 8
(d) GRS shall have no liability to any Stockholder or
otherwise arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders or with the Stockholders'
Representative. GRS may rely entirely on its dealings with, and notices to and
from, the Stockholders' Representative to satisfy any disputed obligations it
might have to the Stockholders under this Agreement, any agreement referred to
herein or otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
Section 1.06 Earn-Out. (a) As additional consideration for the sale of
the Company Common Stock, subject to the provisions of Section 1.06(c), GRS
shall deliver to the Stockholders within 60 days of the last day of each
Earn-Out Period (as defined below), for allocation among the Stockholders in
accordance with their respective Proportionate Share, an aggregate amount (the
"Earn-Out Amount") equal to (i) EBIT, (as defined and determined pursuant to
Section 1.06(b) hereof) for each of two consecutive 12 month periods following
the Closing Date (as defined in Section 2.01 hereof), beginning with the first
full month following the Closing Date (the "Earn-Out Period"), as determined by
reference to the financial statements of the Company prepared in accordance with
GAAP multiplied by (ii) two (2) (subject to the limitation set forth in Section
1.06(e)). The sum of the Earn-Out Amount minus $180,000 shall be paid to the
stockholders for each Earn-Out Period (i) in cash by wire transfer of
immediately available funds, (ii) by the delivery of such number of shares of
GRS Common Stock as shall have a value equal to the Earn-Out Amount as computed
in accordance with Section 1.06(f) hereof, or (iii) a combination of cash and
GRS Common Stock, the form of such consideration to be determined by the
Stockholders' Representative.
(b) For purposes of this Section 1.06, "EBIT" shall mean the
consolidated net income of the Company before interest, federal and state income
taxes and general corporate overhead allocations during the Earn-Out Period,
modified as follows:
(i) to the extent included in the consolidated net
income of the Company, excluding the effect of the following items:
(A) the gain or loss from any sale, exchange
or other disposition of assets other than in the ordinary course of business
consistent with past practice;
(B) any extraordinary gain or loss;
(C) any reserves or adjustments to reserves
which are not consistent with past practices of the Company; and
(D) any other adjustments agreed to in
writing by GRS and the Stockholders.
(c) Within 30 days after the last day of each Earn-Out Period,
GRS shall prepare and deliver to the Stockholders' Representative a statement
setting forth in reasonable detail the computation of EBIT, including
identification of all excluded items and adjustments and all necessary
calculations in accordance with Section 1.06(b) hereof. The calculation of EBIT
shall be used in determining the amounts to be paid under Section 1.06 unless
the holders of at least 50% of the Company Common Stock on the date hereof give
GRS notice (the "EBIT Dispute Notice") that such Stockholders dispute GRS
calculation of EBIT within ten (10) days after the initial determination of EBIT
has been given to the Stockholders,
4
<PAGE> 9
which notice shall set forth in reasonable detail the exclusions or calculations
being disputed in good faith (the "Disputed Matters"). In the event an EBIT
Dispute Notice is timely given to GRS, GRS and the Stockholders shall have
fifteen (15) days to resolve the dispute and, if not resolved, the dispute shall
be submitted to an internationally recognized "Big Six" accounting firm or its
successor (the "EBIT Arbitrator"), selected by GRS and the Stockholders which
shall be instructed to arbitrate such disputed item(s) and determine EBIT within
thirty (30) days. If within five days following the expiration of such fifteen
(15) day period, GRS and the Stockholders have failed to agree in writing upon
the selection of the EBIT Arbitrator or any EBIT Arbitrator selected by them has
not agreed to perform the services called for hereunder, the EBIT Arbitrator
shall thereupon be selected by the American Arbitration Association (the "AAA"),
with preference being given by the AAA in making such selection to any one of
the "Big Six" accounting firms (other than GRS' Accountants and the
Stockholders' Accountants) willing to perform such services. The EBIT Arbitrator
shall consider only the Disputed Matters. The resolution of disputes by the EBIT
Arbitrator shall be set forth in writing and shall be conclusive and binding
upon and non-appealable by the parties, and the determination of EBIT shall
become final upon the date of such resolution, and may be entered as a final
judgment in any court of proper jurisdiction. The fees and expenses of the EBIT
Arbitrator with respect to settlement of each Disputed Matter shall, to the
extent such fees and expenses are allocable, be borne in each such instance by
the party against whom the award of the EBIT Arbitrator is made, and if
allocation is not feasible in any such instance, then such fees and expenses
shall be borne by the parties in reverse proportion to the number of Disputed
Matters settled in their respective favor by the EBIT Arbitrator.
(d) Notwithstanding anything in this Agreement to the
contrary, if an EBIT Dispute Notice has been delivered with respect to any
payment to be made under this Section 1.07, and the dispute has not been
resolved by the payment due date, (i) the amount not in dispute shall be paid as
required hereunder, and (ii) GRS shall have no obligation to pay any disputed
amount until ten (10) days after the date on which the dispute is resolved.
(e) Notwithstanding anything to the contrary in this Section
1.06, the combined aggregate Earn-Out Amount for the 24 month Earn-Out Period
shall not exceed $6,000,000.
(f) In the event that the Stockholders' Representative elects
to receive GRS Common Stock for the Earn-Out Amount, the number of shares of GRS
Common Stock to be so delivered shall be based upon the average closing price of
GRS Common Stock as quoted on the Nasdaq Stock Market's National Market for the
last five (5) business days of each Earn-Out Period.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued
and outstanding shares of Company Common
Stock in proper form for transfer to GRS;
5
<PAGE> 10
(ii) the resignations of all members of the board
directors of the Company and each Subsidiary
as set forth in Section 7.03(l);
(iii) the stock books, stock ledgers, minute books
and corporate seals of the Company;
(iv) a certificate executed by the Company to the
effect that the conditions set forth in
Sections 7.03(b) through 7.03(i), have been
satisfied;
(v) the opinion of counsel set forth in Section
7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant
to Section 7.03(n).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available
funds to the Stockholders the payment
described in Section 1.03(a) as being
required to be paid by GRS at Closing;
(ii) by delivery to the Escrow Agent the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Escrow Agent at Closing;
(iii) a certified copy of all necessary corporate
action on behalf of GRS approving its
execution, delivery and performance of this
Agreement and the Collateral Agreements to
which it is a party pursuant to Section
7.02(a);
(iv) a certificate executed by an authorized
officer of GRS to the effect that the
conditions set forth in Sections 7.02(b) and
7.02(c) have been satisfied;
(v) the opinion of counsel set forth in Section
7.02(d);
(vi) the executed Collateral Agreements to which
it is a party; and
(vii) evidence that: (a) the Stockholders have
been released from all personal guarantees
relating to any obligations of the Company,
including but not limited to, any bank
loans, lines of credit, and/or performance
bonds (the "Personal Guarantees and
Obligations") and (b) GRS shall indemnify
and hold harmless the Stockholders from and
against any personal liability or
obligations relating to or arising out of
any Personal Guarantees or Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of
business on December 31, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability of
or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been
6
<PAGE> 11
satisfied or waived in writing by the date scheduled for the Closing pursuant to
Section 2.01, the failure of such party to perform its obligations under this
Article II on such date; provided, however, that any termination pursuant to
this Section 2.04 shall not relieve any party hereto who was responsible for
Closing having not occurred as described in clauses (i) or (ii) above of any
liability for (x) such party's willful breach of the provisions of this
Agreement, or (y) if all of the conditions to such party's obligations set forth
in Article VII have been satisfied or waived in writing by the date scheduled
for the Closing pursuant to Section 2.01, the failure of such party to perform
its obligations under this Article II on such date. Notwithstanding the
foregoing, the Stockholders expressly acknowledge and agree that market and
economic conditions are impossible to predict, and although GRS intends to
proceed with the Offering in an expeditious manner at this time, GRS shall not
be liable to the Stockholders or the Company if the Closing has not occurred
because the Offering has not been consummated prior to the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense, to have access to the
books, records, employees, counsel, accountants, and other representatives of
the Company at all times reasonably requested by GRS for the purpose of
conducting an investigation ("GRS' Due Diligence Investigation") of the
Company's and each Subsidiary's financial condition, corporate status,
operations, business and Properties. The Stockholders shall make available to
GRS for examination and reproduction, at GRS' own expense, all documents and
data of every kind and character relating to the Company and each Subsidiary in
possession or control of, or subject to reasonable access by, the Stockholders
or the Company, including, without limitation, all files, records, data and
information relating to the Company Assets (whether stored in paper, magnetic or
other storage
7
<PAGE> 12
media) and all agreements, instruments, contracts, assignments, certificates,
orders, and amendments thereto. Also, the Company shall allow GRS, at GRS' own
expense, access to, and the right to inspect, the Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company, each Subsidiary or the Company
Assets. Except for distributions permitted pursuant to Sections 1.04 and 3.02,
the Company and each Subsidiary shall (a) conduct its business in the ordinary
course, (b) use its best efforts to keep available to the Company and each
Subsidiary the services of present employees, (c) maintain and operate Company
Assets in a good and workmanlike manner, (d) pay or cause to be paid all costs
and expenses (including but not limited to insurance premiums) incurred in
connection therewith in a timely manner in accordance with prior practices, (e)
use reasonable efforts to keep all Company Contracts listed or required to be
listed on Schedule 3.12 in full force and effect, (f) comply with all of the
material covenants contained in all such Company Contracts, (g) maintain in
force until the Closing Date insurance policies (subject to the provisions of
Section 6.06) equivalent to those in effect on the date hereof, and (h) comply
in all material respects with all applicable Legal Requirements. Except as
otherwise contemplated in this Agreement, the Stockholders shall use their best
efforts to preserve the present relationships of the Company with persons having
significant business relations therewith. GRS acknowledges and agrees that prior
to the Closing, the Company intends to acquire, through a stock purchase, merger
or other business combination, all of the issued and outstanding capital stock
of ASM.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS, neither
the Company nor any Subsidiary shall:
(i) (A) except as permitted by Sections 1.04 and
3.02 hereof, declare, set aside or pay any dividends on, or make any
other distribution (whether in cash, stock or property) in respect of,
any of its capital stock, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in view of or in substitution for shares of
its capital stock, or (C) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any Subsidiary or any other
securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities;
(iii) amend its Articles of Incorporation or By-laws
(or similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation,
partnership, joint venture, association or other business organization
or division thereof or (B) any assets that are material, individually
or in the aggregate, to the Company, except purchases of assets in the
ordinary course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of, or agree to sell, transfer, lease,
mortgage, encumber or otherwise dispose of, any Properties except (A)
in the ordinary course of business consistent with past practice, or
(B) pursuant to any Company Contract or except as permitted by Sections
1.04 and 3.02 hereof;
(vi) (A) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company or any Subsidiary, guarantee any debt
securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement
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condition of another person or enter into any arrangement having the
economic effect of the foregoing, except for borrowings incurred in the
ordinary course of business consistent with past practice, or (B) make
any loans, advances or capital contributions to, or investments in, any
other person;
(vii) make or agree to make any new capital
expenditure or expenditures which, individually is in excess of $25,000
or, in the aggregate, are in excess of $50,000 (other than those
required pursuant to currently outstanding Company Contracts or in the
ordinary course of business consistent with past practice);
(viii) make any material tax election or settle or
compromise any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Company
Financial Statements (or the notes thereto) or incurred in the ordinary
course of business consistent with past practice, or waive any material
benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which the Company
or any Subsidiary is a party;
(x) except in the ordinary course of business
consistent with past practice, modify, amend or terminate any Company
Contract;
(xi) except in the ordinary course of business
consistent with past practice, enter into any contracts, agreements,
arrangements or understandings relating to performance by third parties
of the Company's or any Subsidiary's services;
(xii) except as required to comply with applicable
law and as may be required with respect to union members (A) adopt,
enter into, terminate or amend any benefit plan or other arrangement
for the benefit or welfare of any director, officer or current or
former employee, (B) increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any director, officer or employee
(except in a manner consistent with past practice), (C) pay any benefit
not provided for under any benefit plan, (D) grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement
or benefit plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance
units or restricted stock, or the removal of existing restrictions in
any benefit plans or agreement or awards made thereunder) or (E) take
any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract
or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take
any of, the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company,
any Subsidiary or the Stockholders inaccurate or misleading if such
representations and warranties had been made upon the occurrence of the fact or
circumstance in question. GRS shall promptly inform the Stockholders in writing
of any change in facts and circumstances that could render any of the
representations and warranties made herein by it inaccurate or misleading if
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such representations and warranties had been made upon the occurrence of the
fact or circumstance in question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto
shall use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of the conditions to such
other party's obligation to consummate the transactions contemplated hereby, as
specified in Article VII of this Agreement, to be fully satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and
the Closing, any of the Properties of the Company or any Subsidiary shall be
destroyed or damaged, in whole or in part, by fire, earthquake, flood, other
casualty or any other cause (a "Casualty Loss"), then the Stockholders shall, at
GRS' election, (i) cause the Company or any Subsidiary to cause such Properties
to be repaired or replaced prior to the Closing with Property of substantially
the same condition and function to the extent of available insurance proceeds,
(ii) cause the Company or any Subsidiary to deposit in a separate account an
amount sufficient to cause such Property to be so repaired or replaced to the
extent of available insurance proceeds, or (iii) enter into contractual
arrangements with the Company or any Subsidiary satisfactory to GRS so that the
Company or any Subsidiary will have at the Closing the same economic value as if
such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause
the Company or any Subsidiary to take) all actions necessary or appropriate to
cause each plan or benefit program or agreement in effect on the date of this
Agreement to remain in full force and effect until the Closing Date; provided,
however, that, to the extent requested in writing by GRS at least ten (10) days
prior to the Closing Date, the Stockholders shall cause the Company or any
Subsidiary to cease to sponsor, maintain or contribute to any plan or benefit
program or agreement specified by GRS in such written request.
Section 6.08 No Solicitation. The Stockholders, the Company, its
Subsidiaries and their officers, directors, employees, representatives and
agents shall immediately cease any discussions or negotiations with any parties
that may be ongoing with respect to a Third Party Acquisition Proposal (as
defined below). Neither the Company or any Subsidiary nor any of the
Stockholders shall, nor shall they permit any of their Affiliates to, nor shall
they authorize or permit any of their officers, directors or employees or any
investment banker, attorney or other advisor or representatives retained by them
or any of their Affiliates to (i) solicit, initiate or knowingly encourage the
submission of, any Third Party Acquisition Proposal, or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any non-public
information with respect to, or take any other action knowingly to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Third Party Acquisition Proposal. For purposes of
this Agreement, "Third Party Acquisition Proposal" means any inquiry, proposal
or offer from any person relating to any direct or indirect acquisition or
purchase of all or a portion or more of the assets of the Company or any
Subsidiary or all or a portion of any class of equity securities of the Company
or any Subsidiary (other than Excluded Assets) or any offer to acquire or
purchase that if consummated would result in any person beneficially owning all
or a portion of any class of equity securities of the Company or any Subsidiary,
or any merger, consolidation, business combination, sale of assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any Subsidiary, other than the transactions contemplated by this
Agreement, or any other transaction the consummation of which could reasonably
be expected to impede, interfere with, prevent or delay, or dilute materially
the benefits to GRS of the transactions contemplated hereby.
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Section 6.09 Employment Agreement. On or before the Closing, J. R.
Harrington and Kevin Scanlon shall have entered into employment agreements in
the form of Exhibits G and H (the "Employment Agreement"), which shall include
non-competition provisions, to take effect on and after the Closing Date.
Section 6.10 Lock-Up Agreement. On or before Closing, the Stockholders
shall have entered into the Lock-Up Agreement.
ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the date of the Closing; provided, however,
that no provision of this Agreement shall be construed as requiring any party to
accept, in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company, its Subsidiaries or GRS conducts or proposes to conduct its business,
and no transfers of licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any
statute, rule, regulation, decree, ruling, injunction or other order issued by
any Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in
this Agreement qualified by materiality shall be true and correct in all
respects at Closing and all other representations and warranties of GRS
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if such representations and warranties were made at
and as of the Closing, except for changes contemplated by the terms of this
Agreement except as and to the extent that the facts and conditions upon which
such representations and warranties are based are expressly required or
permitted to be changed by the terms thereof, and GRS shall have performed and
satisfied in all material respects all covenants and agreements required by this
Agreement to be performed and satisfied by GRS at or prior to the Closing;
provided, however, that no Stockholder shall be entitled to refuse to consummate
the transaction in reliance upon its own breach or failure to perform.
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(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the
Stockholders or the Company) shall be pending or threatened before any
Governmental Authority seeking to restrain the Stockholders from effectuating
the Stock Purchase or prohibit the Closing or seeking Damages against the
Stockholders or the Company as a result of the consummation of the transactions
contemplated by this Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
H. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and
the Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) GRS shall have furnished the Stockholders and the Company
with an Opinion Letter from Deloitte & Touche to GRS which provides that the
consummation of the transactions described in this Agreement will qualify as a
Section 351 Plan of Exchange within the meaning of the Internal Revenue Code.
(i) GRS shall have provided the Stockholders with evidence of
the release and indemnification of the Personal Guarantees and Obligations as
contemplated by Section 2.03 (vii) hereof.
(j) All proceedings to be taken by GRS in connection with the
transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to the Stockholders and their counsel, and
the Stockholders and said counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
(k) The Stockholders shall have received written evidence, in
form and substance satisfactory to the Stockholders, of the consent to the
transactions contemplated by this Agreement of all governmental,
quasi-governmental and private third parties (including, without limitation,
persons or other entities leasing real or personal property to GRS), except
where the failure to have obtained any such consent would not have an adverse
effect on the Company or GRS following the Closing.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS
to carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered
to GRS.
(b) All representations and warranties of Stockholders, the
Company and any Subsidiary contained in this Agreement qualified by materiality
shall be true and correct in all respects at Closing and all other
representations and warranties of the Stockholders, the Company and any
Subsidiary contained in this Agreement shall be true and correct in all material
respects at and as of the Closing as if such representations and warranties were
made at and as of the Closing, except for changes contemplated by the terms of
this Agreement except as and to the extent that the facts and conditions upon
which such representations and warranties are based are expressly required or
permitted to be changed by the terms thereof, and the Stockholders, the Company
and any Subsidiary shall have performed and satisfied in all material respects
all agreements and covenants required by this Agreement
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to be performed and satisfied by Stockholders, the Company and any Subsidiary at
or prior to the Closing; provided, however, that GRS shall not be entitled to
refuse to consummate the transaction in reliance upon its own breach or failure
to perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of GRS) shall be
pending or threatened before any court or governmental agency seeking to
restrain GRS or prohibit the Closing or seeking Damages against GRS, the
Stockholders, the Company, any Subsidiary or their Properties as a result of the
consummation of the transactions contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from
the date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations,
prospects or financial condition of the Company that had or would reasonably be
likely to have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company or any Subsidiary;
and
(ii) any damage, destruction or loss to the Company
or any Subsidiary (whether or not covered by insurance) that had or would
reasonably be likely to have a material adverse effect on the business,
operations, prospects, Properties, securities or financial condition of the
Company or any Subsidiary.
(f) GRS shall have received the opinion of Shughart, Thomson &
Kilroy, P.C. ("Sellers' Counsel"), counsel to the Company, the Subsidiaries and
the Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit J. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall be equal to or
greater than $575,000. For purposes of this Agreement, Net Book Value shall mean
the excess of the Company's total assets over the Company's total liabilities,
determined in accordance with GAAP.
(i) The Working Capital of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall not be less than
$389,000. For purposes of this Agreement, Working Capital shall mean the
Company's
(i) Current Assets less
(ii) its Current Liabilities determined in accordance
with GAAP.
(j) The Stockholders shall have executed and delivered to GRS
the Escrow Agreement.
(k) GRS shall have received the executed Employment Agreement
for J.R. Harrington and Kevin Scanlon.
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(l) GRS shall have received the resignation of all of the
members of the board of directors of the Company or any Subsidiary effective as
of the Closing Date.
(m) All proceedings to be taken by Stockholders and the
Company or any Subsidiary in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in form and
substance to GRS and its counsel, and GRS and said counsel shall have received
all such counterpart originals or certified or other copies of such documents as
it or they may reasonably request.
(n) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company or any Subsidiary), except where the failure
to have obtained any such consent would not have an adverse effect on the
Company or GRS following the Closing.
(o) GRS shall be satisfied in its sole and absolute discretion
with GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(p) GRS shall have determined, in its reasonable discretion,
that all agreements between the Company and the Stockholders shall be on terms
as favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(q) The Offering shall have been consummated on or before the
Termination Date.
(r) All assets or the capital stock of H&S Investments, LLC
shall have been transferred to the Company, an affiliate of the Company or to
GRS, as directed by GRS in its reasonable discretion.
(s) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the assignment and transfer of all the capital
stock of ASM to the Company.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company
and the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company its Subsidiaries and the Stockholders, as the case may be, contained in
this Agreement, or in any certificate delivered pursuant to any of the
foregoing; provided, that no party hereto shall be entitled to rely on any
representation or warranty made by any other party hereto herein to the extent
that such party has actual knowledge, and the other party or parties (or any of
them) are not aware, that such representation or warranty is untrue or incorrect
in any material respect. All such representations, warranties, covenants and
agreements shall survive the execution and delivery of this Agreement and the
Closing hereunder, and, except as otherwise specifically provided in this
Agreement and, except for all representations and warranties of the Stockholders
contained in Article IV and except with respect to the obligation to pay the
Earn-Out Amount, if any, and the Basket Exclusions (as defined in Section 9.04),
shall thereafter terminate and expire on the first anniversary of the Closing
Date.
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ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify Subject to the
limitations contained in Article VIII and Article IX hereof, the Stockholders,
jointly and severally, agree to indemnify, defend and hold harmless GRS (and its
Affiliates, successors and assigns and their respective officers and directors)
from and against all losses, liabilities, damages, deficiencies, costs or
expenses (including interest, penalties and reasonable attorneys' fees and
disbursements, but offset by any proceeds from insurance and taking into account
the present value of any tax savings to GRS or the Company resulting from such
losses, liabilities, damages, deficiencies, costs or expenses) ("Losses") based
upon, arising out of or otherwise in respect of (i) any inaccuracy in or any
breach of any representation, warranty, covenant or agreement of the Company or
the Stockholders contained in this Agreement, (ii) liabilities for Taxes and
(iii) any liability arising out of any subsequent adjustment by any tax
authorities with respect to items attributable to periods prior to the Closing
Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by
any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a claim
or the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company or any Subsidiary prior to the
Closing in connection with which GRS may make a claim against the Stockholders
for indemnification pursuant to Section 9.01, GRS shall give a Claims Notice
with respect thereto but, unless GRS and the
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Indemnifying Party otherwise agree, the Stockholders shall have the exclusive
right at its option to defend, at their own expense, any such matter, subject to
the duty of the Stockholders to consult with GRS and its attorneys in connection
with such defense and provided that no such matter shall be compromised or
settled by the Stockholders without the prior consent of GRS, which consent
shall not be unreasonably withheld. GRS shall have the right to recommend in
good faith to the Stockholders proposals to compromise or settle claims brought
by a supplier, distributor or customer, and the Stockholders agree to present
such proposed compromises or settlements to such supplier, distributor or
customer. All amounts required to be paid in connection with any such Asserted
Liability pursuant to the determination of any court, governmental or regulatory
body or arbitrator, and all amounts required to be paid in connection with any
such compromise or settlement consented to by GRS , shall be borne and paid by
the Stockholders. The parties agree to cooperate fully with one another in the
defense, compromise or settlement of any Asserted Liability.
Section 9.04 Limitations on Indemnification. The indemnification
provided for in Sections 9.01 and 9.02 shall be subject to the following
limitations:
(i) The Stockholders shall not be obligated to pay
any amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders
shall be obligated to pay any amounts for indemnification under this Article IX,
except those based upon, arising out of or otherwise in respect of Sections
3.02, 3.13, 3.21, 3.28, 5.22, 9.01 (ii) and (iii), 11.01 and 11.02 and Article
IV hereof (the "Basket Exclusions"), until the aggregate indemnification
payments, exclusive of the Basket Exclusions, equals one percent (1%) of the
Purchase Price (including the Earn-Out Amount, if any) (the "Basket Amount"),
whereupon GRS, or the Company and Stockholders, as the case may be, shall be
obligated to pay any indemnification payments, including the Basket Amount, in
full. It is expressly understood that the Basket Amount shall serve as a
"trigger" for indemnification and not as a "deductible" (for example, if the
indemnity claims for which GRS or the Stockholders would, but for the provisions
of this subparagraph (ii), be liable is in the aggregate amount of $100,000, and
1% of the Purchase Price is $70,000, the Stockholders would then be liable for
the entire $100,000 and not just $30,000). This Section 9.04(ii) will not apply
to any breach of any representations and warranties of which any party had
actual Knowledge at any time prior to the date on which such representation and
warranty is made or any intentional breach by any party of any covenant or
obligation, and GRS or the Stockholders, as the case may be, will be jointly and
severally liable for all damages with respect to such breaches.
(iii) GRS, the Company and Stockholders shall be
obligated to pay the Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to whether the aggregate amount of
all other indemnification payments shall have exceeded, in the aggregate, the
Basket Amount.
(iv) Notwithstanding anything to the contrary in
this Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of $1,288,000.
(v) After the Closing, the indemnification rights
set forth in this Article IX shall be each party's sole and exclusive remedy
against the other party for any breach of any representation, warranty or
covenant contained in this Agreement. Notwithstanding the foregoing, nothing
herein shall prevent any party from bringing an action based upon allegations of
fraud in connection with this Agreement. In the event an action based on
allegations of fraud is brought, the prevailing party's attorneys' fees and
costs shall be paid by the nonprevailing party.
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<PAGE> 21
(vi) GRS shall be deemed to have suffered Losses with
respect to accounts receivable reflected on the Closing Date Unaudited Balance
Sheet only if and to the extent that such accounts receivable, except for
Contract Retention, remain uncollected 180 days from the Closing Date. Contract
Retention will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses from the failure to collect accounts
receivable of the Company or Contract Retention and such Losses result in a
set-off from the Escrow Fund, the related accounts receivable or Contract
Retention shall be assigned to the Stockholders following, and to the extent of,
such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to
initial compliance with the procedures of Section 9.03 and to Section 9.04 and
paragraphs (b) and (c) of this Section 9.05, any claims for indemnification by
GRS against the Stockholders (or any of them) hereunder shall be satisfied first
against the Escrow Fund pursuant to the Escrow Agreement and second against the
aggregate Earn-Out Amounts.
(b) GRS shall give Stockholders not less than fifteen (15)
days' notice (the "GRS Notice") of its intention to deduct or set-off any
amounts pursuant to this Section 9.05, including in such notice a description of
GRS' indemnification claim. If none of the Stockholders object in writing to
such deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment, absent fraud.
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, any Subsidiary, the Stockholders and GRS shall execute and deliver such
documents, and take such other action, as shall be reasonably requested by any
other party hereto to carry out the transactions contemplated by this Agreement.
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<PAGE> 22
Section 10.02 Publicity. None of the parties hereto shall issue or
make, or cause to have issued or made, any public release or announcement
concerning this Agreement or the transactions contemplated hereby, without the
advance approval in writing of the form and substance thereof by each of the
other parties, and the parties shall endeavor jointly to agree on the text of
any announcement or circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each
of the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company, the Subsidiaries and their Affiliates, in
each case, to the extent and at all times reasonably requested by the
Stockholders, or any of them, for the purpose of investigating or defending any
claim made against the Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur,
(i) each Stockholder shall jointly and severally indemnify and hold harmless GRS
and the Company and each Subsidiary from and against any and all liability for
any brokers or finders' fees arising with respect to brokers or finders retained
or engaged by the Company, any Subsidiary or any of the Stockholders in respect
of the transactions contemplated by this Agreement, and (ii) GRS shall indemnify
and hold harmless the Stockholders from and against any and all liability for
any brokers' or finders' fees arising with respect to brokers or finders
retained or engaged by GRS in respect of the transactions contemplated by this
Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
18
<PAGE> 23
THE STOCKHOLDERS: J.R. Harrington
Harrington Roofing Company, Inc.
P.O. Box 3412
2820 Roe Lane
Kansas City, Kansas 66103
Telecopy No.: (913) 831-4001
With a copy to:
Shughart, Thomson & Kilroy, P.C.
Twelve Wyandotte Plaza
120 West 12th Street
Kansas City, Missouri 84106
Attention: Michael B. Shteamer
Telecopy No.: (816) 734-0509
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
Section 11.05 Representations and Warranties. Each of the
representations and warranties of each of the parties to this Agreement shall be
deemed to have been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of
19
<PAGE> 24
whether similar), nor shall any such waiver constitute a continuing waiver
unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this
Agreement are cumulative, and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies. Such rights and remedies are given in addition to any other
rights and remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference. Disclosure of a specific item in any one schedule shall be deemed
restricted only to the Section to which such disclosure specifically relates
except where (i) there is an explicit cross-reference to another Schedule, and
(ii) GRS could reasonably be expected to ascertain the scope of the modification
to a representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used
in this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which
contemplates performance or the existence of obligations after the Closing Date,
and any and all representations and warranties set forth in this Agreement,
shall not be deemed to be merged into or waived by the execution and delivery of
the instruments executed at the Closing, but shall expressly survive Closing for
the time period set forth in Section 8.01 hereof and shall be binding upon the
party or parties obligated thereby in accordance with the terms of this
Agreement, subject to any limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
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<PAGE> 25
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined in
this Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect
to any person, any other person controlling, controlled by or under common
control with such person. The term "Control" as used in the preceding sentence
means, with respect to a corporation, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to any person other
than a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements"
shall mean any or all of the following agreements, the forms of which are
attached hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for J.R. Harrington
Exhibit H - Employment Agreement for Kevin Scanlon
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean,
with respect to the Company, all of the Properties, Company Contracts, and
Permits, that were Used by the Company as of the Balance Sheet Date and those
Used by the Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall
mean any amounts withheld by customers from contract progress billing until
final and satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean,
with respect to the Company, cash and other assets that are expected to be
converted into cash, sold or exchanged within one year from the Closing Date,
including marketable securities, receivables, inventory and current prepayments
.
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Damages. The term "Damages" shall mean any and all
damages, liabilities, obligations, penalties, fines, judgments, claims,
deficiencies, losses, costs, expenses and assessments (including without
limitation income and other Taxes, interest, penalties and attorneys' and
accountants' fees and disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of
21
<PAGE> 26
conduct as may now be in effect regarding any air emission, water discharge or
use, storage, handling, generation or disposal of any Hazardous Substances,
including, without limitation, the following, and all regulations promulgated
thereunder or in connection therewith: the Comprehensive Environmental Response,
Compensation, and Liability Act, the Clean Air Act, the Clean Water Act, the
Toxic Substances Control Act, the Resource Conservation and Recovery Act, the
Used Oil Recycling Act, the Occupational Safety and Health Act, the Federal Safe
Drinking Water Act, the Federal Water Pollution Control Act, the Oil Pollution
Act, the Emergency Planning and Community Right-to-Know Act, and all other
federal, state, tribal and local laws, rules and regulations relating to
protection of human health and the environment, reclamation of land, wetlands
and waterways or relating to the use, storage, emissions, discharge, clean-up or
release of Hazardous Substances on or into the work-place or the environment
(including, without limitation, ambient air, oceans, waterways, wetlands,
surface water, ground water (tributary and nontributary), land surface or
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation or handling of
contaminants, as all of the foregoing may be amended, supplemented and
reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers with respect to the representation
being made, and such knowledge of any such persons as reasonably should have
obtained upon due investigation and inquiry into the representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all
permits or orders under any Legal Requirement or otherwise granted by any
Governmental Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and
all regulations promulgated by the Department of the Treasury pursuant to the
Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss.59A), customs duties, capital stock, franchise,
profits,
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<PAGE> 27
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg Wallick
------------------------------
Gregg Wallick, President
COMPANY:
HARRINGTON-SCANLON
ROOFING COMPANY, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
STOCKHOLDERS:
/s/ J.R. Harrington
----------------------------------
J.R. Harrington
/s/ Kevin Scanlon
----------------------------------
Kevin Scanlon
23
<PAGE> 28
EXHIBIT A
<TABLE>
<CAPTION>
Purchase Price
Name Number of Shares Allocation
- ---- ---------------- --------------
<S> <C> <C>
J. R. Harrington 510 51%
Kevin Scanlon 490 49%
Total........................ 1,000 100%
</TABLE>
<PAGE> 29
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company and each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of Kansas, and
is not required to be qualified to do business as a foreign corporation in any
other jurisdiction where the failure to so qualify would have a material adverse
effect on the Company. The Company and each Subsidiary has all required
corporate power and authority to own its Properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of the Company
and each Subsidiary, copies of which are attached as Schedule 3.01(a), are
complete and reflect all amendments thereto through the date hereof.
(b) The stock and minute books of the Company and each
Subsidiary that have been made available to GRS for review contain a complete
and accurate record of all stockholders of the Company and each Subsidiary and
all material actions of the stockholders and directors (and any committees
thereof) taken at meetings of stockholders or directors of the Company and each
Subsidiary.
(c) The Company does not have any subsidiaries, participate in
any partnership or joint venture, or own any outstanding capital stock of any
other corporation other than Harrington-Nissen Roofing Co., Architectural Sheet
Metal, Inc. and HS Investments LLC.
Section 3.02 Capitalization and Ownership. As of the date of this
Agreement, the entire authorized capital stock of the Company consists of 50,000
shares of Company Common Stock, par value $1.00 per share. The issued and
outstanding shares of Company Common Stock are owned of record and beneficially
by the Stockholders shown on Exhibit A hereof. All of the issued and outstanding
capital stock of the Subsidiaries is owned by the Company. All of the presently
outstanding shares of capital stock of the Company have been validly authorized
and issued and are fully paid and nonassessable. Neither the Company nor any
Subsidiary has issued any other shares of its capital stock and there are no
outstanding options, warrants, subscriptions or other rights or obligations to
purchase or acquire any of such shares, nor any outstanding securities
convertible into or exchangeable for such shares, except as set forth on
Schedule 3.02. Except as contemplated under this Agreement, there are no
agreements to which the Company or any Subsidiary is a party regarding the
issuance, registration, voting or transfer of its outstanding shares of its
capital stock. Except for possible dividends to be issued in connection with the
Excluded Assets as described in Section 1.04 and dividends related to the
payment of the Stockholders' tax liabilities with respect to earnings of the
Company up to the Closing Date, each and all of which shall be subject to the
prior written approval of GRS, no dividends are accrued but unpaid on any
capital stock of the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set
forth in Schedule 3.04 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the Articles of Incorporation or bylaws of the
Company or any Subsidiary;
<PAGE> 30
(ii) violate any Legal Requirements applicable to
the Company or any Subsidiary;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to the Company or any Subsidiary;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of the Company
or any Subsidiary; or
(v) require any of the Stockholders or the Company
or any Subsidiary to obtain or make any waiver, consent, action, approval or
authorization of, or registration, declaration, notice or filing with, any
private non-governmental third party or any Governmental Authority. Any and all
consents required to be obtained by the Company or any Subsidiary as set forth
in Schedule 3.04 shall be obtained and copies thereof delivered to GRS upon
execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no
suit, action or other proceeding is pending or, to the Knowledge of the Company
or the Stockholders, threatened before any Governmental Authority seeking to
restrain any of the Stockholders or prohibit their entry into this Agreement or
prohibit the Closing, or seeking damages against the Company or any Subsidiary
or its Properties, as a result of the consummation of the transactions
contemplated by this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true
and correct copies of the Company's (i) Closing Date Unaudited Balance Sheet,
(ii) unaudited consolidated balance sheets as of March 31, 1998 (the "Interim
Company Balance Sheet") and the related statements of income and stockholders'
equity for the three months ended March 31, 1998 (the "Interim Company Financial
Statements"), as well as (iii) the Company's consolidated balance sheet and
statements of income, stockholders' equity and cash flow as of and for each of
the three fiscal years ended December 31, 1997 (the "Company Financial
Statements"). The Company Financial Statements (i) have been prepared from the
books and records of the Company and the Subsidiary, (ii) present fairly the
consolidated financial condition of the Company and its results of operations as
at and for the respective periods then ended, and (iii) have been prepared in
accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in
Schedule 3.07, the Company Financial Statements reflect all consolidated
liabilities of the Company as determined in accordance with generally accepted
accounting principles arising out of transactions effected or events occurring
on or prior to the date of the Interim Company Balance Sheet, except for
liabilities not exceeding $10,000 in the aggregate. All reserves shown in the
Company Financial Statements are appropriate and reasonable to provide for
losses thereby contemplated. Except as set forth in the Company Financial
Statements (including the Notes thereto), neither the Company nor any Subsidiary
is liable upon or with respect to, or obligated in any other way to provide
funds in respect of or to guarantee or assume in any manner, any debt,
obligation or dividend of any person, corporation, association, partnership,
joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in
Schedule 3.08, the accounts receivable reflected on the Interim Company Balance
Sheet and all accounts receivable arising between the date of the Interim
Company Balance Sheet (the "Interim Company Balance Sheet Date") and the date
hereof, arose from bona fide transactions in the ordinary course of business,
and the goods and services involved have been sold, delivered and performed to
the account of the obligors, and no further filings (with Governmental
Authorities, insurers or others) are required to be made, no further goods are
required to be provided and no further services are required to be rendered in
order to complete the sales and fully render the services and to entitle the
Company or any Subsidiary to collect the
2
<PAGE> 31
accounts receivable in full. No such account has been assigned or pledged to any
other person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim Company Balance Sheet, no defense or setoff
to any such account has been asserted by the account obligor.
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of the Company and
each Subsidiary, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $50,000 per year (including any
reasonably anticipated bonus) or who earned in excess of $50,000 during the
Company's fiscal year ended December 31, 1997 (collectively, the "Company Key
Employees"). In addition, Schedule 3.09(a) contains a complete and accurate
description of (i) all increases in compensation of the Company Key Employees
during the fiscal years of the Company ending December 31, 1997 and December 31,
1996, respectively, and (ii) any promised increases in compensation of the
Company Key Employees that have not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of
all Compensation Plans sponsored by the Company and each Subsidiary or to which
the Company and each Subsidiary contributes on behalf of its employees, other
than Employee Benefit Plans listed in Schedule 3.10. As used herein,
"Compensation Plans" shall mean and include, without limitation, plans,
arrangements or practices that provide for severance pay, deferred compensation,
incentive, bonus or performance awards, and stock ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 3.09(c) and in Section
3.09(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which the Company or any Subsidiary is a party.
(d) The Company has provided GRS with a complete and accurate
list of all significant written employee policies and procedures of the Company
and each Subsidiary.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company and each Subsidiary (i) has been and is in
material compliance with all laws, rules, regulations and ordinances respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and (ii) is not liable in any material amount for any arrears
of wages or penalties for failure to comply with any of the foregoing. Neither
the Company nor any Subsidiary has engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of the
Company, there are no (i) material unfair labor practice charges or complaints
or racial, color, religious, sex, national origin, race or handicap
discrimination charges or complaints pending or threatened against the Company
or any Subsidiary before the National Labor Relations Board or any similar state
or foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company or any Subsidiary.
(g) Except as set forth on Schedule 3.09(g), neither the
Company nor any Subsidiary has ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of the
Company or any Subsidiary are represented by any union, labor organization or
collective bargaining unit. No employees of the Company or any Subsidiary have
threatened to organize or join a union, labor organization or collective
bargaining unit.
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(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or any Subsidiary or to which
the Company or any Subsidiary contributes on behalf of its employees and all
Employee Benefit Plans previously sponsored or contributed to on behalf of its
employees within the three years preceding the date hereof. No unwritten
amendment exists with respect to any Employee Benefit Plan. For purposes of this
Agreement an "Employee Benefit Plan" means each employee benefit plan, as such
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company or
any Subsidiary. To the Knowledge of the Company no Employee Benefit Plan is
currently the subject of an audit, investigation, enforcement action or other
similar proceeding conducted by any state or federal agency. To the Knowledge of
the Company, no prohibited transactions (within the meaning of Section 4975 of
the Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) The Company and each Subsidiary has received a favorable
determination letter or ruling from the Internal Revenue Service for each
Employee Benefit Plan intended to be qualified within the meaning of Section 401
(a) of the Code and/or tax exempt within the meaning of Section 501(a) of the
Code, which letter or ruling is current and covers all required amendments to
each such Employee Benefit Plan through the Closing Date. No proceedings exist
or, to the Knowledge of the Company, have been threatened that could result in
the revocation of any such favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company, any Subsidiary nor
any member of a Controlled Group has any liability to pay excise taxes with
respect to any Employee Benefit Plan under applicable provisions of the Code or
ERISA. Neither the Company, any Subsidiary nor any member of a Controlled Group
is or ever has been obligated to contribute to a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) Neither the Company nor any Subsidiary has any obligation
or commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees who
have retired from employment with the Company or any Subsidiary.
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Section 3.11 Absence of Certain Changes. Except as set forth in
Schedule 3.11, from the Interim Company Balance Sheet Date to the date of this
Agreement, neither the Company nor any Subsidiary has:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company, or any Stockholder, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any
Company Assets (whether or not covered by insurance) that has materially
adversely affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.04 hereof;
(i) written up or written down the carrying value of any of
the Company Assets, except in the ordinary course of business consistent with
past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or
Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
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(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights or paid any
dividends or made any distribution to the holders of the Company's or any
Subsidiary's capital stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which the Company or any Subsidiary is a party (the "Company Contracts") set
forth in Schedule 3.12, neither the Company nor any Subsidiary has entered into,
nor is the capital stock, the assets or the business of the Company or any
Subsidiary bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company, any Subsidiary
and any Affiliate;
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(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company or any Subsidiary;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23 hereof; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of the Company or any Subsidiary.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, neither the Company nor any
Subsidiary has received notice of any plan or intention of any other party to
any Company Contract to exercise any right to cancel or terminate any Company
Contract. Neither the Company nor any Subsidiary currently contemplates, or has
reason to believe any person or entity currently contemplates, any amendment or
change to any Company Contract. None of the customers, joint venture partners or
suppliers of the Company or any Subsidiary has refused, or communicated that it
will or may refuse, to purchase or supply goods or services, as the case may be,
or has communicated that it will or may substantially reduce the amounts of
goods or services that it is willing to purchase from, or sell to, the Company
or any Subsidiary.
Section 3.13 Insurance. Each of the Company and any Subsidiary has had
in effect, and will maintain through the Closing Date, comprehensive insurance
coverage with respect to all completed operations of the Company and each
Subsidiary. The Company has previously made available to GRS all insurance
policies of the Company. All of such policies are valid and enforceable against
the Company, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
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Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except as set forth on Schedule 3.14(a), the Company and
each Subsidiary owns all patents, trade-marks, service marks and copyrights
(collectively "Proprietary Rights"), if any, necessary to conduct its business,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Schedule 3.14(a) is a true and
correct description of all Proprietary Rights.
(b) The Company and each Subsidiary has the sole and exclusive
right to use the Proprietary Rights without infringing or violating the rights
of any third parties and, upon the consummation of the Stock Purchase, GRS will
have the right to use all Proprietary Rights without any obligation to pay any
additional amounts whatsoever. Use of the Proprietary Rights does not require
the consent of any other person and the Proprietary Rights are freely
transferable. No claim has been asserted by any person to the ownership of or
right to use any Proprietary Right or challenging or questioning the validity or
effectiveness of any license or agreement constituting a part of any Proprietary
Right. Each of the Proprietary Rights is valid and subsisting, has not been
canceled, abandoned or otherwise terminated and, if applicable, has been duly
issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
the Company and each Subsidiary is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company and
each Subsidiary has good and marketable title to the Company Assets, including,
without limitation, those reflected on the Interim Balance Sheet (other than
those since disposed of in the ordinary course of business), free and clear of
all security interests, liens, charges and other encumbrances, except for (i)
liens for taxes not yet due and payable or being contested in good faith in
appropriate proceedings, and (ii) encumbrances that are incidental to the
conduct of its businesses or ownership of property, not incurred in connection
with the borrowing of money or the obtaining of credit, and which do not in the
aggregate materially detract from the value of the assets affected or materially
impair their use by the Company or any Subsidiary. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company or any Subsidiary are in good operating condition and repair, normal
wear and tear excepted, are adequate and sufficient for the Company's and each
Subsidiary's business and conform in all material respects with all applicable
ordinances, regulations and laws relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 3.15(c). The Company and
each Subsidiary enjoys peaceful and undisturbed possession under all real
property leases under which the Company and each Subsidiary is operating, and
all such leases are valid and subsisting and none of them is in default, except
for those defaults, which, individually or in the aggregate, would not have a
material adverse effect upon the Company or each Subsidiary.
Section 3.16 Compliance with Laws. The Company and each Subsidiary has
all material franchises, Permits, licenses and other rights and privileges
necessary to permit it to own its properties and to conduct its businesses as
presently conducted. The business and operations of the Company and each
Subsidiary have been and are being conducted in accordance in all material
respects with all applicable laws, rules and regulations, and neither the
Company or any Subsidiary is in violation of any judgment, law or regulation
except where any such violation would not have a material adverse effect on the
Company's consolidated results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in
Schedule 3.17, there are no claims, actions, suits, investigations or
proceedings against the Company or any Subsidiary pending or, to
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the Knowledge of the Company or any Subsidiary, threatened in any court or
before or by any Governmental Authority, or before any arbitrator, that could
reasonably be expected to have a material adverse effect (whether covered by
insurance or not) on the business, operations, prospects, Properties, securities
or financial condition of the Company or any Subsidiary. Except as otherwise set
forth in Schedule 3.17, neither the Company or any Subsidiary is in default
under, and no condition exists (whether covered by insurance or not) that with
or without notice or lapse of time or both would (i) constitute a default under,
or breach or violation of, any Company Contract and each Subsidiary or any Legal
Requirement or Permit applicable to the Company or any Subsidiary, or (ii)
accelerate or permit the acceleration of the performance required under, or give
any other party the right to terminate, any Company Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition (a "Material Adverse Effect") of the Company or any
Subsidiary.
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of
the Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's or the
Subsidiary's business (the "Company Business") is or was, or at which the
business or, to the Knowledge of the Company, its predecessors was, located
which would have a Material Adverse Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which Company Business is or was, or, to knowledge of the Company,
at which the business of its predecessors was, located which would have a
Material Adverse Effect on the Company or the Subsidiary. With respect to
underground storage tanks, Schedule 3.18(b) sets forth the size, location,
construction, installation date, use and testing history of all underground
storage tanks (whether or not excluded from regulation under Environmental Law),
including all underground storage tanks in use, out of service, closed,
abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of
the Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to
the best knowledge of the Company, threat of a "release" of any Hazardous
Substance on, from or under any premises from which (i) the Company's operations
have been or are being conducted related to the Company Business. or (ii) to the
Knowledge of the Company, the operations of any predecessor of the Company or
any Subsidiary which would have a Material Adverse Effect on the Company or any
Subsidiary.
(d) Except as listed in Schedule 3.18(d), the Company, any
Subsidiary and their respective predecessors have not received written notice
alleging any potential liability with respect to the contamination,
investigation, or cleanup of any site at which Hazardous Substances have been or
have alleged to have been generated, treated, stored, discharged, emitted or
disposed of and, to the Knowledge of the Company, there are no past or present
events, facts, conditions or circumstances which may interfere with or prevent
material compliance by the Company or any Subsidiary with Environmental Law, or
with any order, decree, judgment, injunction, notice or demand issued, entered,
promulgated or approved thereunder, or which may give rise to any liability
under applicable law including, without limitation, any Environmental Law, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, notice of violation, study or investigation, based on or related to the
manufacture, process, distribution, use, treatment, storage, disposal, transport
or handling, or the emission, discharge, release or threatened release into the
environment of Hazardous Substances by the Company or, to the Knowledge of the
Company, by any predecessor of the Company or any Subsidiary, as a result of any
act or omission of the Company or any Subsidiary or their respective
predecessors related to the Company Business.
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(e) Except as disclosed in Schedule 3.18(e), all of the
Company's, each Subsidiary's and, to the Knowledge of the Company, their
predecessors', Hazardous Substances disposal and recycling practices related to
the Company Business have been accomplished in material compliance with all
applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall
not be interpreted to imply that GRS has constructive knowledge regarding any
aspect of the Company Business with respect to environmental matters nor to
limit the scope of any of the Company's or any Stockholders' representations
under this Agreement. No such due diligence examination or related activities
of, or on behalf of, GRS however, shall constitute a waiver or relinquishment by
GRS of its right to rely upon the Company's or any Stockholders'
representations, warranties, covenants and agreements as made herein or pursuant
hereto, and no such disclosure shall constitute an assumption by GRS of any
conditions or liabilities, and such disclosure shall not relieve the Company or
any Stockholder of its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company or any Subsidiary has an account, credit line or safe deposit
box or vault, (ii) the names of all persons authorized to draw thereon or to
have access to any safe deposit box or vault, (iii) the purpose of each such
account, safe deposit box or vault, and (iv) the names of all persons authorized
by proxies, powers of attorney or other like instrument to act on behalf of the
Company or any Subsidiary in matters concerning any of its business or affairs.
Except as otherwise set forth in Schedule 3.19, no such proxies, powers of
attorney or other like instruments are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth
all the Company's and each Subsidiary's material suppliers, together with the
dollar amount of goods purchased by the Company from each such supplier during
the twelve month period ended December 31, 1997 as well as each of the principal
customers of the Company and each Subsidiary. Except as otherwise set forth in
Schedule 3.20, since December 31, 1997, there has been no material adverse
change in the business relationship of the Company or any Subsidiary with any
supplier or customer named in Schedule 3.20. Except as disclosed on Schedule
3.20, no customer or supplier named in Schedule 3.20 has terminated or
materially altered, or notified the Company or any Subsidiary of any intention
to terminate or materially alter, its relationship with the Company, and the
Company has no reason to believe that any such customer or supplier will
terminate or materially alter its relationship with the Company or any
Subsidiary or to materially decrease its services or supplies to the Company or
any Subsidiary or its direct or indirect usage of the services of the Company or
any Subsidiary. For purposes of Sections 3.20 and 3.23, "material suppliers"
refers to suppliers from whom the Company purchased five percent (5%) or more of
the total amount of the goods purchased by the Company or any Subsidiary during
the twelve month period ended December 31, 1997 and "principal customers" refers
to customers who accounted for 5% or more of the Company's total consolidated
revenues during the twelve month period ended December 31, 1997.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company, any Subsidiary or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by the Company, any Subsidiary or the Stockholders to GRS
or its counsel, do not contain any untrue statement of material fact or omit any
material fact necessary in order to make the statements therein not misleading;
provided, however, certain materials provided to GRS contain projections and
estimates of future events, and such projections and estimates have been based
upon certain assumptions that management of the Company made in good faith and
believed are reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set
forth in Schedule 3.23, no director or executive officer of the Company or any
Subsidiary or their respective spouses or children,
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owns directly or indirectly, on an individual or joint basis, any material
interest in, or serves as an officer or director of, any principal customer or
material supplier which has a business relationship with the Company or any
Subsidiary or any organization that has a material contract or arrangement with
the Company or any Subsidiary.
Section 3.24 Investments in Competitors. No director or executive
officer of the Company or any Subsidiary owns directly or indirectly any
material interest or has any investment equal to 5% or more of the outstanding
voting securities in any corporation, business or other person that is a direct
competitor of the Company or any Subsidiary.
Section 3.25 Certain Payments. Neither the Company nor any Subsidiary,
nor any director, officer or employee of the Company or any Subsidiary, has paid
or caused to be paid, directly or indirectly, in connection with the business of
the Company: (a) to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or (b) any
material contribution to any political party or candidate (other than from
personal funds of directors, officers or employees not reimbursed by their
respective employers or as otherwise permitted by applicable law).
Section 3.26 Government Inquiries. Except as set forth on Schedule
3.26, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company or any Subsidiary
from, or any material statement, report or other document filed by the Company
or any Subsidiary with, the federal government or any federal administrative
agency (including but not limited to, the Justice Department, Internal Revenue
Service, Department of Labor, Occupational Safety and Health Administration,
Federal Trade Commission, National Labor Relations Board, and Interstate
Commerce Commission), any state securities administrator or any local or state
taxing authority.
Section 3.27 Other Transactions. Neither the Company, the Stockholders
nor any Subsidiary has entered into any agreements or arrangements and there are
no pending offers or discussions concerning or providing for the merger or
consolidation of the Company or all or any substantial portion of its assets,
the sale by the Company or any Subsidiary or any Stockholder of any securities
of the Company or any Subsidiary or any similar transaction affecting the
Company or any Subsidiary or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28:
(i) the Company and each Subsidiary has timely
filed all federal income Tax Returns, and all other material Tax Returns which
it is required to file under applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) the Company and each Subsidiary has paid all
Taxes due and owing by it (whether or not such Taxes are required to be shown on
a Tax Return) and has withheld and paid over to the appropriate taxing authority
all Taxes which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third party, except where the amounts
of such unpaid Taxes or the amounts that have not been withheld and paid over do
not, in the aggregate, exceed $25,000;
(iv) the accrual for Taxes on the Closing Date
Unaudited Balance Sheet is sufficient to pay in full all liabilities for Taxes
of the Company and each Subsidiary related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company
have been filed through December 31, 1997, and, as of the date hereof, none of
such Tax Returns has been audited; and
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(vi) the Company and each Subsidiary has disclosed
in its federal income Tax Returns, all positions taken therein that could give
rise to a substantial understatement of federal income tax within the meaning of
IRC ss. 6662.
(b) To the Knowledge of the Company, no claim has been made by
a taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company and each Subsidiary is or may be subject to taxation by that
jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local
Tax audits or administrative or judicial proceedings pending or being conducted
with respect to the Company or any Subsidiary;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company or any Subsidiary from any foreign, federal, state or
local taxing authority; and
(iii) there are no material unresolved claims
concerning the Company's or any
Subsidiary's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company or any Subsidiary, except where such waiver would not have
a material adverse effect on the Company or any Subsidiary.
(e) Neither the Company nor any Subsidiary has executed or
entered into a closing agreement pursuant to IRC ss. 7121 or any predecessor
provision thereof or any similar provision of state, local or foreign law; nor
has the Company agreed to or is required to make any adjustments pursuant to IRC
ss. 481(a) or any similar provision of state, local or foreign law by reason of
a change in accounting method initiated by the Company or any Subsidiary. The
Company has no knowledge that the IRS has proposed any such adjustment or change
in accounting method, or has any knowledge with respect to any application
pending with any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of the Company.
(f) Neither the Company nor any Subsidiary has made an
election under IRC ss. 341(f).
(g) Neither the Company nor any Subsidiary is liable for the
Taxes of another person.
(h) Neither the Company nor any Subsidiary is a party to any
Tax sharing agreement.
(i) Neither the Company nor any Subsidiary has made any
payments nor is it obligated to make payments nor is it a party to an agreement
that could obligate it to make any payments that would not be deductible under
IRC ss. 280G.
(j) The Company shall prepare and permit GRS to review,
comment on and approve the federal and state income Tax Returns for the Company
and its Subsidiaries for the period ending on or before the Closing Date, and
shall make such revisions to such Tax Returns as are reasonably requested by
GRS.
(k) GRS, the Company and its Subsidiaries, if any, and the
Stockholders shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing
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of Tax Returns pursuant to this Section 3.28 and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
an making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
(l) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any New York State Gains Tax, New York
City Transfer Tax, if applicable, and any similar Tax imposed in other states or
subdivisions), shall be paid by the Stockholders when due, and the Stockholders
will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes and fees, and, if required by
applicable law, GRS will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
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EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such
Stockholder shall own beneficially and of record, free and clear of any lien,
option or other encumbrance, the shares of Company Common Stock set forth
opposite such Stockholders' name on Exhibit A hereof, and, upon consummation of
the Stock Purchase, GRS will acquire good and valid title thereto, free and
clear of any lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such
Stockholder has the full legal right and power and all authority and approval
required to enter into, execute and deliver this Agreement and to perform fully
such Stockholders' obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common
Stock to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for
its own account and not on behalf of any other person; such Stockholder is aware
and acknowledges that the GRS Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold unless the GRS Shares are registered under the Securities Act or
an exemption from the registration requirements of the Securities Act is
available;
<PAGE> 43
(b) Such Stockholder has been furnished all information that
it deems necessary to enable it to evaluate the merits and risks of an
investment in GRS; such Stockholder has had a reasonable opportunity to ask
questions of and receive answers from GRS concerning GRS and the GRS Shares, and
all such questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i)
any rights in and to the GRS Shares, which rights were obtained through or from
such Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in
financial and business matters (including knowledge and expertise in the roofing
industry) that it is capable of evaluating the merits and risks involved in an
investment in the GRS Shares: and such Stockholder is financially able to bear
the economic risk of the investment in the GRS Shares, including a total loss of
such investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal
or state agency has made any finding of determination regarding the fairness of
the offering of the GRS Shares for investment, or any recommendation or
endorsement of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of the GRS Shares, and shall not make
any sale, transfer or pledge thereof without registration under the Securities
Act and any applicable securities laws of any state or unless an exemption from
registration is available;
(i) Except as set forth herein, no representations or
warranties have been made to such Stockholder by GRS or any agent, employee or
Affiliate of GRS, and in entering into this transaction such Stockholder is not
relying upon any information, other than from the results of independent
investigation by such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of
the GRS Shares except (i) pursuant to an effective registration statement under
the Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS or other counsel reasonably satisfactory to GRS, is not required
to be registered under the Securities Act.
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EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate
Documents.
(a) GRS is a corporation duly organized, validly existing and
in good standing under the laws of Florida, and is not required to be qualified
to do business as a foreign corporation in any other jurisdiction where the
failure to so qualify would have a material adverse effect on GRS. GRS has all
required corporate power and authority to own its properties and to carry on its
business as presently conducted. The Articles of Incorporation and By-laws of
GRS, copies of which are attached as Schedule 5.01(a), are complete and reflect
all amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have
any subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership. As of the date of this
Agreement, the entire authorized capital stock of GRS consists of 100,000,000
shares of which 90,000,000 have been designated as GRS Common Stock and
10,000,000 have been designated as Preferred Stock. All of the presently
outstanding shares of capital stock of GRS have been validly authorized and
issued and are fully paid and nonassessable. Except as set forth on Schedule
5.03, GRS has not issued any other shares of its capital stock and there are no
outstanding options, warrants, subscriptions or other rights or obligations to
purchase or acquire any of such shares, nor any outstanding securities
convertible into or exchangeable for such shares. No dividends are accrued but
unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
<PAGE> 45
(i) violate or conflict with any of the terms,
conditions or provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to
GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private non-governmental third party or any
Governmental Authority. Any and all consents required to be obtained by GRS as
set forth in Schedule 5.05 shall be obtained and copies thereof delivered to the
Company and the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no
suit, action or other proceeding is pending or, to the Knowledge of GRS,
threatened before any Governmental Authority seeking to restrain GRS or prohibit
its entry into this Agreement or prohibit the Closing, or seeking damages
against GRS or its Properties, as a result of the consummation of the
transaction contemplated by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in
Schedule 5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS
Balance Sheets") and the related statements of income, stockholders' equity and
cash flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in
Schedule 5.09, the accounts receivable reflected on the GRS Balance Sheet and
all accounts receivable arising between December 31, 1997 and the date hereof,
arose from bona fide transactions in the ordinary course of business, and the
goods and services involved have been sold, delivered and performed to the
account of the obligors, and no further filings (with Governmental Authorities,
insurers or others) are required to be made, no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle GRS to collect
the accounts receivable in full. No such account has been assigned or pledged to
any other person, firm or corporation, and, except only to the extent fully
reserved against as set forth in the Interim GRS Balance Sheet, no defense or
setoff to any such account has been asserted by the account obligor.
Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of GRS, regardless
of compensation levels, and other employees
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<PAGE> 46
who are currently compensated at a rate in excess of $50,000 per year (including
any reasonably anticipated bonus) or who earned in excess of $50,000 during GRS'
fiscal year ended October 31, 1997 (collectively, the "GRS Key Employees"). In
addition, Schedule 5.10(a) contains a complete and accurate description of (i)
all increases in compensation of the GRS Key Employees during the fiscal years
of GRS ending October 31, 1997 and October 31, 1996, respectively, and (ii) any
promised increases in compensation of the Key Employees of GRS that have not yet
been effected.
(b) Schedule 5.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by GRS or to which GRS contributes on behalf of
its employees, other than Employee Benefit Plans listed in Schedule 5.11. As
used in this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 5.10(c) and in Section
5.10(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key
Employee has indicated his or her desire or intent to terminate employment with
GRS, and GRS has no present intent of terminating the employment of any GRS Key
Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee Benefit Plans previously sponsored or contributed
to on behalf of its employees within the three years preceding the date hereof.
No unwritten amendment exists with respect to any Employee Benefit Plan.
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<PAGE> 47
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in
Schedule 5.12, from the date of the GRS Balance Sheet to the date of this
Agreement, GRS has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of GRS or any stockholder of GRS, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
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<PAGE> 48
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of
its assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of
its assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or its
assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights, paid any
dividends or made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 5.13 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which GRS is a party (the "GRS Contracts") set forth in
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Schedule 5.13, GRS has not entered into, nor is the capital stock, the assets or
the business of GRS bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of GRS.
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True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice
of any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available
to the Stockholders all insurance policies of GRS. All of such policies are
valid and enforceable against GRS, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. Use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
GRS is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the ordinary course of business), free and
clear of all security interests, liens, charges and other encumbrances, except
for (i) liens for taxes not yet due and payable or being contested in good faith
in appropriate proceedings, and (ii) encumbrances that are incidental to the
conduct of its businesses or
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ownership of property, not incurred in connection with the borrowing of money or
the obtaining of credit, and which do not in the aggregate materially detract
from the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful
and undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults, which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in
Schedule 5.18, there are no claims, actions, suits, investigations or
proceedings against GRS pending or, to the Knowledge of GRS, threatened in any
court or before or by any Governmental Authority, or before any arbitrator, that
could reasonably be expected to have a material adverse effect (whether covered
by insurance or not) on the business, operations, prospects, Properties,
securities or financial condition of GRS. Except as otherwise set forth in
Schedule 5.18, GRS is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any Legal
Requirement or Permit applicable to GRS or any GRS Contract applicable to GRS,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any GRS Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of
GRS, there are no PCBs, TCE, PCE, or asbestos containing materials generated,
used, treated, stored, maintained, disposed of, or otherwise deposited in, or
located on any premises at which GRS' business (the "GRS Business") is or was,
or at which the business or, to the Knowledge of GRS, its predecessors was,
located, which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which the GRS Business is or was, or, to knowledge of GRS, at which
the business of its predecessors was, located, which would have a Material
Adverse Effect on GRS. With respect to underground storage tanks, Schedule
5.19(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of
GRS, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of GRS, threat of a "release" of any Hazardous Substance on, from
or under any premises from which (i) GRS' operations have been or are being
conducted related to the GRS Business. or (ii) to the Knowledge of GRS, the
operations of any predecessor of GRS, which would have a Material Adverse Effect
on GRS.
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<PAGE> 52
(d) Except as listed in Schedule 5.19(d), neither GRS nor
their respective predecessors have received written notice alleging any
potential liability with respect to the contamination, investigation, or cleanup
of any site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and,
to the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth
all of GRS' material suppliers, together with the dollar amount of goods
purchased by GRS from each such supplier during the twelve month period ended
December 31, 1997 and the four month period ended April 30, 1998, as well as
each of the principal customers of GRS. Except as otherwise set forth in
Schedule 5.21, since December 31, 1997, there has been no material adverse
change in the business relationship of GRS with any supplier or customer named
in Schedule 5.21. No customer or supplier named in Schedule 5.21 has terminated
or materially altered, or notified GRS of any intention to terminate or
materially alter, its relationship with GRS and GRS has no reason to believe
that any such customer or supplier will terminate or materially alter its
relationship with GRS or to materially decrease its services or supplies to GRS
or its direct or indirect usage of the services or products of GRS. For purposes
of Sections 5.21 and 5.24 hereof, "material suppliers" refers to suppliers from
whom GRS purchased five percent (5%) or more of the total amount of the goods
purchased by GRS during the twelve month period ended December 31, 1997 and the
four month period ended April 30, 1998, and "principal customers" refers to
customers who accounted for 5% or more of GRS' revenues during the twelve month
period ended December 31, 1997 and the four month period ended April 30, 1998.
9
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Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by GRS to the Stockholders or their counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to the Stockholders contain projections and
estimates of future events, and such projections and estimates have been based
upon certain assumptions that management of GRS made in good faith and believed
are reasonable at the time such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set
forth in Schedule 5.24, no director or executive officer of GRS or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with GRS or any organization that has a material contract or arrangement with
GRS.
Section 5.25 Investments in Competitors. No director or executive
officer of GRS owns directly or indirectly any material interests or has any
investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer
or employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule
5.27, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28, GRS:
(i) has filed all federal income Tax Returns, and
all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Unaudited GRS
Balance Sheet (excluding any amount recorded which is attributable to timing
differences between book and Tax income) would be
10
<PAGE> 54
adequate to pay all material Tax liabilities of GRS if its current tax year were
treated as ending on the date of the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited.
(b) To the Knowledge of GRS, no claim has been made by a
taxing authority in a jurisdiction where GRS does not file Tax Returns that GRS
is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local
tax audits or administrative or judicial proceedings pending or being conducted
with respect to GRS;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by GRS from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims
concerning GRS' Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC ss. 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC ss. 481(a) or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by GRS. GRS has no knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any knowledge with respect to any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC ss. 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC ss. 280G.
Section 5.29 Participation in Secondary Offering. In the event that
after the Offering GRS files a registration statement with the Securities and
Exchange Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such number of shares of GRS Common
Stock owned by the Stockholders as shall equal (i)(A) the total number of shares
of GRS Common Stock owned by such Stockholders divided by (B) the total number
of shares of GRS Common Stock owned by all shareholders of the Founding
Companies, multiplied by (ii)
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the total number of shares of GRS Common Stock owned by shareholders of the
Company which are to be included in the Secondary Offering.
12
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
REGISTER CONTRACTING COMPANY, INC.,
REGISTER & CHILDERS ROOF REPAIRS, INC.
AND
ALL OF THE STOCKHOLDERS
OF
REGISTER CONTRACTING COMPANY, INC.
AND
REGISTER & CHILDERS ROOF REPAIRS, INC.
----------------------------
MAY 8, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................1
1.01 Sale and Purchase of Company Common Stock................................................................1
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Purchase Price Adjustment................................................................................2
1.05 Excluded Assets and Distribution of Assets...............................................................3
1.06 Stockholders' Representative.............................................................................3
1.07 Earn-Out.................................................................................................4
ARTICLE II - CLOSING..............................................................................................6
2.01 Closing..................................................................................................6
2.02 Deliveries by Stockholders to GRS........................................................................6
2.03 Deliveries by GRS........................................................................................6
2.04 Termination in Absence of Closing........................................................................7
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF RCC, RCRR AND THE STOCKHOLDERS....................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS.................................................................8
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................8
6.01 GRS' Access to Information and Assets....................................................................8
6.02 Company's Conduct of Business and Operations.............................................................8
6.03 General Restrictions.....................................................................................8
6.04 Notice Regarding Changes................................................................................10
6.05 Consents and Best Efforts...............................................................................10
6.06 Casualty Loss...........................................................................................10
6.07 Employee Matters........................................................................................10
6.08 No Solicitation.........................................................................................11
6.09 Employment Agreements...................................................................................11
6.10 Noncompetition Agreement................................................................................11
6.11 Lock-Up Agreement.......................................................................................11
6.12 Notice and Cure.........................................................................................11
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................11
7.01 Conditions to Obligations of All Parties................................................................11
7.02 Conditions to Obligations of Stockholders...............................................................12
7.03 Conditions to Obligations of GRS........................................................................12
ARTICLE VIII - SURVIVAL..........................................................................................14
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................14
ARTICLE IX - INDEMNIFICATION.....................................................................................14
9.01 Obligation of the Stockholders to Indemnify.............................................................14
9.02 Obligation of GRS to Indemnify..........................................................................15
9.03 Notice and Opportunity to Defend........................................................................15
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
9.04 Limitations on Indemnification..........................................................................16
9.05 Set-Off Rights..........................................................................................17
ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................18
10.01 Further Assurances......................................................................................18
10.02 Publicity...............................................................................................18
10.03 Access to Records.......................................................................................18
10.01 Further Assurances......................................................................................18
ARTICLE XI - MISCELLANEOUS.......................................................................................18
11.01 Brokers.................................................................................................18
11.02 Costs and Expenses......................................................................................18
11.03 Notices.................................................................................................19
11.04 Governing Law...........................................................................................19
11.05 Representations and Warranties..........................................................................20
11.06 Entire Agreement, Amendments and Waivers................................................................20
11.07 Binding Effect and Assignment...........................................................................20
11.08 Remedies................................................................................................20
11.09 Exhibits and Schedules..................................................................................20
11.10 Multiple Counterparts...................................................................................20
11.11 References..............................................................................................20
11.12 Survival................................................................................................20
11.13 Attorneys' Fees.........................................................................................21
ARTICLE XII - DEFINITIONS........................................................................................21
12.01 Affiliate...............................................................................................21
12.02 Collateral Agreements...................................................................................21
12.03 Company Assets..........................................................................................21
12.04 Contract Retention......................................................................................21
12.05 Current Assets..........................................................................................21
12.06 Current Liabilities.....................................................................................22
12.07 Damages.................................................................................................22
12.08 Environmental Law.......................................................................................22
12.09 GAAP....................................................................................................22
12.10 Governmental Authorities................................................................................22
12.11 Hazardous Substances....................................................................................22
12.12 Knowledge...............................................................................................22
12.13 Legal Requirements......................................................................................22
12.14 Permits.................................................................................................22
12.15 Properties..............................................................................................23
12.16 Proportionate Share.....................................................................................23
12.17 Regulations.............................................................................................23
12.18 Taxes...................................................................................................23
12.19 Tax Returns.............................................................................................23
12.20 Used....................................................................................................23
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Lock-Up Agreement
Exhibit C - Representations and Warranties of the Company and the Stockholders
Exhibit D - Representations and Warranties of each Stockholder
Exhibit E - Representations and Warranties of GRS
Exhibit F - Employment Agreement for Gary Register
Exhibit G - Employment Agreement for Ben Childers, III
Exhibit H - Noncompetition Agreement for Joanne Register
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 8, 1998, by and among (i) General Roofing Services, Inc.
a Florida corporation (the "Buyer" or "GRS"),(ii) Register Contracting Company,
Inc., a Florida corporation ("RCC"), (iii) Register & Childers Roof Repairs,
Inc., a Florida corporation ("RCRR"; RCC and RCRR are collectively referred to
as the "Company") and (iv) all of the stockholders of the Company (the
"Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS purchase
all of the issued and outstanding capital stock of RCC, consisting of 1,992
shares of common stock, $10.00 par value (the "RCC Common Stock"), and all of
the issued and outstanding capital stock of RCRR, consisting of 300 shares of
common stock, $10.00 par value (the "RCRR Common Stock"; the RCC Common Stock
and RCRR Common Stock are collectively referred to as the "Company Common Stock"
or the "Shares"), upon the terms and subject to the conditions hereinafter set
forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange within
the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01 Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase, acquire
and accept from each Stockholder, the number of shares of RCRR Common Stock and
RCC Common Stock set forth opposite the name of each such Stockholder on Exhibit
A hereto under the heading "Number of Shares of Company Common Stock Purchased",
constituting all of the issued and outstanding shares of Company Common Stock.
The sale and purchase of the Company Common Stock pursuant to this Agreement is
sometimes hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a),
at the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in
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<PAGE> 6
blank or otherwise in proper form acceptable to GRS for transfer to GRS on the
books of the Company, against payment therefor in accordance with Section 1.03
hereof.
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares
of Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $3,210,000. The Purchase Price shall be
allocated among the shares of RCC Common Stock and RCRR Common Stock in
accordance with Exhibit A hereof. The Purchase Price shall be delivered to the
Stockholders in accordance with their respective Proportionate Share in
accordance with Section 1.03 hereof. The amount of the Purchase Price allocated
to each outstanding share of Company Common Stock is hereinafter referred to as
the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar to
the extent that the Net Book Value of the Company as shown on the Closing Date
Unaudited Balance Sheet referred to in Section 1.02(c), below (the "Closing Net
Book Value"), is less than $980,579 (the "Target Net Book Value") (such
adjustment is referred to herein as the "Net Book Value Adjustment"); provided,
that the Net Book Value as determined pursuant to the Closing Date Unaudited
Balance Sheet shall not be less than $930,579 (the "Minimum Net Book Value").
For purposes of this Agreement, Net Book Value shall mean the excess of the
Company's combined total assets over the Company's combined total liabilities
determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered
to GRS within fifteen days prior to the Closing Date (i) an unaudited balance
sheet of the Company on a combined basis forecasted as of the Closing Date (the
"Closing Date Unaudited Balance Sheet"), (ii) a calculation of the Purchase
Price Adjustment, if any, determined pursuant to Section 1.02(b) above, and
(iii) a certificate executed by the Company's Chief Financial Officer (or
another duly authorized officer of the Company) to the effect that the Closing
Date Unaudited Balance Sheet has been prepared from the books and records of the
Company and in a manner consistent with the preparation of the Company Financial
Statements (as defined in Section 3.06 hereof).
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price minus the Net Book Value Adjustment, if any, shall be paid upon the
surrender pursuant to Section 1.01(b) of a certificate or certificates
representing all of the issued and outstanding shares of Company Common Stock
shall be paid directly to the holders thereof by wire transfer in New York
Clearing House Funds in accordance with Exhibit A hereto.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Net Book Value Adjustment pursuant to Section 1.02(b) hereof,
if any, and not less than 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Net Book Value Adjustment,
if any, and the cash portion of the Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Net Book Value Adjustment, if any:
(i) Within five (5) business days after delivery by
GRS to the Stockholders of a Purchase Price Notice, the Stockholders may deliver
to GRS a written notice advising GRS either that the Stockholders (A) agree with
the calculation of the Net Book Value Adjustment, or (B) believe that one
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<PAGE> 7
or more adjustments are required. If the Stockholders shall concur with the
calculation of the Purchase Price Adjustment, if any, or if the Stockholders
shall not object thereto in a written notice delivered to GRS within five (5)
business days after the Stockholders' receipt of the Purchase Price Notice, the
Purchase Price as set forth in the Purchase Price Notice, if any, shall become
final and shall not be subject to further review, challenge or adjustment absent
fraud.
(ii) In the event that GRS submits the Purchase Price
Notice and the Stockholders timely object to the proposed Net Book Value
Adjustment, and the Stockholders and GRS are unable to resolve the disagreements
with respect to the proposed Net Book Value Adjustment prior to the Closing,
then such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing roofing or construction
companies and selected by mutual agreement of Stockholders and GRS (the
"Settlement Accountants"), and the determination of the Net Book Value
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment, absent fraud. In the
event that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Net Book Value Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination not more than five (5) days after such referral. The costs and
expenses of the services of the Settlement Accountants shall be paid equally by
the Stockholders and GRS. Pending the final determination by the Settlement
Accountants of the Net Book Value Adjustment if any (the "Final Determination"),
the difference between the determination by the Stockholders and GRS of the Net
Book Value Adjustment, if any, shall be withheld from the cash portion of the
Purchase Price to be delivered pursuant to Section 1.03(a) and shall be paid in
accordance with and upon the Final Determination. Any such dispute shall not
delay the Closing.
(c) After the final determination of the Purchase Price
pursuant to Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the
adjustment determined pursuant thereto shall be deducted from the cash portion
of the Purchase Price and allocated among the Stockholders in accordance with
their respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those assets (the "Excluded
Assets") which are listed in Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall such
distributions be made to the extent that the Closing Net Book Value would be
less than the Minimum Net Book Value.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean Gary E. Register or any person appointed as a
successor Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all
obligations under this Agreement have been discharged (including all
indemnification obligations hereunder), the Stockholders who, immediately prior
to the Closing, held Company Common Stock representing an aggregate number of
shares of Company Common Stock which exceeded 50% of the amount of such Company
Common Stock outstanding immediately prior to such time (a "Majority"), may,
from time to time upon written notice to the Stockholders' Representative and
GRS, remove the Stockholders' Representative or appoint a new Stockholders'
Representative to fill any vacancy created by the death, incapacitation,
resignation or
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removal of the Stockholders' Representative. Furthermore, if the Stockholders'
Representative dies, becomes incapacitated, resigns or is removed by a Majority,
the Majority shall appoint a successor Stockholders' Representative to fill the
vacancy so created. If the Majority is required to but has not appointed a
successor Stockholders' Representative within 20 business days from a request by
GRS to appoint a successor Stockholders' Representative, GRS shall have the
right to appoint a Stockholders' Representative to fill any vacancy so created,
and shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. Any party receiving an
Instrument from the Stockholders' Representative shall have the right to rely in
good faith upon such Instrument, and to act in accordance with the Instrument
without independent investigation.
(d) GRS shall have no liability to any Stockholder or
otherwise arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders or with the Stockholders'
Representative. GRS may rely entirely on its dealings with, and notices to and
from, the Stockholders' Representative to satisfy any obligations it might have
to the Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
Section 1.07 Earn-Out. (a) As additional consideration for the sale of
the Company Common Stock, subject to the provisions of Section 1.07(c), GRS
shall deliver to the Stockholders within 60 days of the last day of the Earn-Out
Period (as defined below), for allocation among the Stockholders in accordance
with their respective Proportionate Share, an aggregate amount (the "Earn-Out
Amount") equal to the amount, if any, by which (i) the Average Annual EBIT, (as
defined and determined pursuant to Section 1.07(b) hereof) for the 24 month
period following the Closing Date (as defined in Section 2.01 hereof), beginning
with the first full month following the Closing Date (the "Earn-Out Period"), as
determined by reference to the financial statements of the Company prepared in
accordance with U.S. generally accepted accounting principles applied in a
manner consistent with prior periods ("GAAP"), exceeds $458,571, multiplied by
(ii) seven (7) (subject to the limitation set forth in Section 1.07(e)). The
Earn-Out Amount shall not be a negative number. The Earn-Out Amount shall be
paid to the stockholders (i) in cash by wire transfer of immediately available
funds, (ii) by the delivery of such number of shares of GRS Common Stock as
shall have a value equal to the Earn-Out Amount as computed in accordance with
Section 1.07(f) hereof, or (iii) a combination of cash and GRS Common Stock, the
form of such consideration to be determined by the Stockholders' Representative.
(b) For purposes of this Section 1.07, "Average Annual EBIT"
shall mean the (A) combined net income of RCC and RCRR during the Earn-Out
Period before interest, federal and state
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income taxes and general corporate overhead allocations during the Earn-Out
Period, divided by (B) two, modified as follows:
(i) to the extent included in the combined net income
of RCC and RCRR, excluding the effect of the following items;
(A) the gain or loss from any sale, exchange
or other disposition of assets other than in the ordinary course of business
consistent with past practice;
(B) any extraordinary gain or loss;
(C) any reserves or adjustments to reserves
which are not consistent with past practices of RCC or RCRR;
(D) any depreciation or amortization
expenses resulting from the Stock Purchase; and
(E) any other adjustments agreed to in
writing by GRS and the Stockholders.
(c) Within 30 days after the last day of the Earn-Out Period,
GRS shall prepare and deliver to the Stockholders' Representative a statement
setting forth in reasonable detail the computation of Average Annual EBIT,
including identification of all excluded items and adjustments and all necessary
calculations in accordance with Section 1.07(b) hereof. The calculation of
Average Annual EBIT shall be used in determining the amounts to be paid under
Section 1.07 unless the holders of at least 50% of the Company Common Stock on
the date hereof give GRS notice (the "Average Annual EBIT Dispute Notice") that
such Stockholders dispute GRS calculation of Average Annual EBIT within ten (10)
days after the initial determination of Average Annual EBIT has been given to
the Stockholders, which notice shall set forth in reasonable detail the
exclusions or calculations being disputed in good faith (the "Disputed
Matters"). In the event a Average Annual EBIT Dispute Notice is timely given to
GRS, GRS and the Stockholders shall have fifteen (15) days to resolve the
dispute and, if not resolved, the dispute shall be submitted to an
internationally recognized "Big Six" accounting firm or its successor (the
"Average Annual EBIT Arbitrator"), selected by GRS and the Stockholders which
shall be instructed to arbitrate such disputed item(s) and determine Average
Annual EBIT within thirty (30) days. If within five days following the
expiration of such fifteen (15) day period GRS and the Stockholders have failed
to agree in writing upon the selection of the Average Annual EBIT Arbitrator or
any Average Annual EBIT Arbitrator selected by them has not agreed to perform
the services called for hereunder, the Average Annual EBIT Arbitrator shall
thereupon be selected by the American Arbitration Association (the "AAA"), with
preference being given by the AAA in making such selection to any one of the
"Big Six" accounting firms (other than GRS' Accountants and the Stockholders'
Accountants) willing to perform such services. The Average Annual EBIT
Arbitrator shall consider only the Disputed Matters. The resolution of disputes
by the Average Annual EBIT Arbitrator shall be set forth in writing and shall be
conclusive and binding upon and non-appealable by the parties, and the
determination of Average Annual EBIT shall become final upon the date of such
resolution, and may be entered as a final judgment in any court of proper
jurisdiction. The fees and expenses of the Average Annual EBIT Arbitrator with
respect to settlement of each Disputed Matter shall, to the extent such fees and
expenses are allocable, be borne in each such instance by the party against whom
the award of the Average Annual EBIT Arbitrator is made, and if allocation is
not feasible in any such instance, then such fees and expenses shall be borne by
the parties in reverse proportion to the number of Disputed Matters settled in
their respective favor by the Average Annual EBIT Arbitrator.
(d) Notwithstanding anything in this Agreement to the
contrary, if an Average Annual EBIT Dispute Notice has been delivered with
respect to any payment to be made under this Section 1.07, and the dispute has
not been resolved by the payment due date, (i) the amount not in dispute shall
be paid
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as required hereunder, and (ii) GRS shall have no obligation to pay any amount
until ten (10) days after the date on which the dispute is resolved.
(e) Notwithstanding anything to the contrary in this Section
1.07, the aggregate Earn-Out Amount shall not exceed $1,019,340.
(f) In the event that the Stockholders' Representative elects
to receive GRS Common Stock for the Earn-Out Amount, the number of shares of GRS
Common Stock to be so delivered shall be based upon the average closing price of
GRS Common Stock as quoted on the Nasdaq Stock Market's National Market for the
last five business days of the Earn-Out Period.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the initial public offering of the GRS Common Stock (the
"Offering"), estimated to be July 15, 1998 or, if the conditions set forth in
Sections 7.01 through 7.03 have not been satisfied or waived on such date, no
later than seven (7) days after all such conditions shall have been satisfied or
waived (but in no event later than December 31, 1998 if all conditions have been
satisfied or waived), at the offices of Baker & McKenzie, 701 Brickell Avenue,
Suite 1600, Miami, Florida 33131, unless another date or place is agreed to in
writing by the parties hereto. The date upon which the Closing occurs is
hereinafter referred to as the "Closing Date." The Closing shall be deemed
completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued and
outstanding shares of Company Common Stock in proper
form for transfer to GRS;
(ii) the resignations of all members of the board
directors of RCC and RCRR as set forth in Section
7.03(k);
(iii) the stock books, stock ledgers, minute books and
corporate seals of RCC and RCRR Company;
(iv) a certificate executed by RCC and RCRR to the effect
that the conditions set forth in Sections 7.03(b)
through 7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section 7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant to Section
7.03(m).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available funds to
the Stockholders the payment described in Section
1.03 as being required to be paid by GRS at Closing;
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(ii) [intentionally omitted]
(iii) a certified copy of all necessary corporate action on
behalf of GRS approving its execution, delivery and
performance of this Agreement and the Collateral
Agreements to which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized officer of
GRS to the effect that the conditions set forth in
Sections 7.02(b) and 7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section 7.02(d);
and
(vii) the executed Collateral Agreements to which it is a
party.
Section 2.04 Termination in Absence of Closing. If by the close of
business on December 31, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability of
or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party to
perform its obligations under this Article II on such date; provided, however,
that any termination pursuant to this Section 2.04 shall not relieve any party
hereto who was responsible for Closing having not occurred as described in
clauses (i) or (ii) above of any liability for (x) such party's willful breach
of the provisions of this Agreement, or (y) if all of the conditions to such
party's obligations set forth in Article VII have been satisfied or waived in
writing by the date scheduled for the Closing pursuant to Section 2.01, the
failure of such party to perform its obligations under this Article II on such
date. Notwithstanding the foregoing, the Stockholders expressly acknowledge and
agree that market and economic conditions are impossible to predict, and
although GRS intends to proceed with the Offering in an expeditious manner at
this time, GRS shall not be liable to the Stockholders or the Company if the
Closing has not occurred because the Offering has not been consummated prior to
the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RCC, RCRR AND THE STOCKHOLDERS
RCC, RCRR and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit C hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit D hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense at reasonable times, to
have access to the books, records, employees, counsel, accountants, and other
representatives of the Company at all times reasonably requested by GRS for the
purpose of conducting an investigation ("GRS' Due Diligence Investigation") of
the Company's financial condition, corporate status, operations, business and
Properties. The Stockholders shall make available at reasonable times to GRS for
examination and reproduction, at GRS' own expense, all documents and data of
every kind and character relating to the Company in possession or control of, or
subject to reasonable access by, the Stockholders or the Company, including,
without limitation, all files, records, data and information relating to the
Company Assets (whether stored in paper, magnetic or other storage media) and
all agreements, instruments, contracts, assignments, certificates, orders, and
amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets. The Buyer shall not use
this information for any competitive purpose, shall keep all such information
confidential, and shall return all such information to the Company if the
Closing does not occur.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company or the Company Assets. Except for
actions with the written consent of Buyer (which consent shall not be withheld
unreasonably or in bad faith) and except for distributions permitted pursuant to
Sections 1.05 and 3.02, the Company shall (a) conduct its business in the
ordinary course, (b) use its best efforts to keep available to the Company the
services of present employees, (c) maintain and operate Company Assets in a good
and workmanlike manner, (d) pay or cause to be paid all costs and expenses
(including but not limited to insurance premiums) incurred in connection
therewith in a timely manner, (e) use reasonable efforts to keep all Company
Contracts listed or required to be listed on Schedule 3.12 in full force and
effect, (f) comply with all of the covenants contained in all such Company
Contracts, (g) maintain in force until the Closing Date insurance policies
(subject to the provisions of Section 6.06) equivalent to those in effect on the
date hereof, and (h) comply in all material respects with all applicable Legal
Requirements. Except as otherwise contemplated in this Agreement, the
Stockholders shall use their best reasonable efforts to preserve the present
relationships of the Company with persons having significant business relations
therewith.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS (which
consent shall not be withheld unreasonably or in bad faith), the Company shall
not:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof, declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of
its capital stock, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in
respect of, in view of or in
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substitution for shares of its capital stock, or (C) purchase, redeem
or otherwise acquire any shares of capital stock of the Company or any
other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities;
(iii) amend its Articles of Incorporation or By-laws
(or similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation,
partnership, joint venture, association or other business organization
or division thereof or (B) any assets that are material, individually
or in the aggregate, to the Company, except purchases of assets in the
ordinary course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of, or agree to sell, transfer, lease,
mortgage, encumber or otherwise dispose of, any Properties except (A)
in the ordinary course of business consistent with past practice, or
(B) pursuant to any Company Contract or except as permitted by Sections
1.05 and 3.02 hereof;
(vi) (A) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company, guarantee any debt securities of another
person, enter into any "keep well" or other agreements to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of the foregoing, except for
borrowings incurred in the ordinary course of business consistent with
past practice, or (B) make any loans, advances or capital contributions
to, or investments in, any other person;
(vii) make or agree to make any new capital
expenditure or expenditures which, individually is in excess of $25,000
or, in the aggregate, are in excess of $50,000 (other than those
required pursuant to currently outstanding Company Contracts or in the
ordinary course of business consistent with past practice);
(viii) make any material Tax election or settle or
compromise any material Tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Company
Financial Statements (or the notes thereto) or incurred in the ordinary
course of business consistent with past practice, or waive any material
benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which the Company
is a party;
(x) except in the ordinary course of business
consistent with past practice, modify, amend or terminate any Company
Contract;
(xi) except in the ordinary course of business
consistent with past practice, enter into any contracts, agreements,
arrangements or understandings relating to performance by third parties
of the Company's services;
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(xii) except as required to comply with applicable
law or in the ordinary course of its business consistent with past
practice (A) adopt, enter into, terminate or amend any benefit plan or
other arrangement for the benefit or welfare of any director, officer
or current or former employee, (B) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director,
officer or employee, (C) pay any benefit not provided for under any
benefit plan, (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan
(including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock,
or the removal of existing restrictions in any benefit plans or
agreement or awards made thereunder) or (E) take any action to fund or
in any other way secure the payment of compensation or benefits under
any employee plan, agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take
any of, the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto
shall use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of the conditions to such
other party's obligation to consummate the transactions contemplated hereby as
specified in Article VII of this Agreement to be fully satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and
the Closing, any of the Properties of the Company shall be destroyed or
substantially damaged, in whole or in part such that their economic value is
materially impaired, by fire, earthquake, flood, other casualty or any other
cause (a "Casualty Loss"), then the Stockholders shall, at GRS' election, (i)
cause the Company to cause such Properties to be repaired or replaced prior to
the Closing with Property of substantially the same condition and function, (ii)
cause the Company to deposit in a separate account an amount sufficient to cause
such Property to be so repaired or replaced, or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause
the Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date.
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Section 6.08 No Solicitation. The Stockholders and the Company and its
respective officers, directors, employees, representatives and agents shall
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to a Third Party Acquisition Proposal (as defined below).
Neither the Company nor any of the Stockholders shall, nor shall they permit any
of their Affiliates to, nor shall they authorize or permit any of their
officers, directors or employees or any investment banker, attorney or other
advisor or representatives retained by them or any of their Affiliates to (i)
solicit, initiate or knowingly encourage the submission of, any Third Party
Acquisition Proposal, or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect to,
or take any other action knowingly to facilitate any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Third Party Acquisition Proposal. For purposes of this Agreement, "Third Party
Acquisition Proposal" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of all or a portion
or more of the assets of the Company or all or a portion of any class of equity
securities of the Company or any offer to acquire or purchase that if
consummated would result in any person beneficially owning all or a portion of
any class of equity securities of the Company, or any merger, consolidation,
business combination, sale of assets, recapitalization, liquidation, dissolution
or similar transaction involving the Company, other than the transactions
contemplated by this Agreement, or any other transaction the consummation of
which could reasonably be expected to impede, interfere with, prevent or delay,
or dilute materially the benefits to GRS of the transactions contemplated
hereby.
Section 6.09 Employment Agreements. On or before the Closing, Gary
Register and Ben Childers, III shall each have entered into employment
agreements in the form of Exhibits F and G (the "Employment Agreements"), which
shall include noncompetition provisions, to take effect on and after the Closing
Date.
Section 6.10 Noncompetition Agreement. On or before the Closing, Joanne
Register shall have entered into a non-competition agreement (the
"Noncompetition Agreement"), in the form of Exhibit H, to take effect on and
after the Closing Date.
Section 6.11 Lock-Up Agreement. On or before the Closing, the
Stockholders shall have entered into the Lock-Up Agreement in the form of
Exhibit B, to take effect on and after the Closing Date.
Section 6.12 Notice and Cure. The parties agree that in the event any
transaction or circumstance causes or will cause any covenant, warranty or
agreement to be breached by a party hereto after the date of this Agreement,
such party shall notify the other parties hereto in writing of, and
contemporaneously will provide the other parties with true and complete copies
of any and all information or documents relating to, any event, transaction or
circumstance, as soon as practical after it becomes known to such party, and the
parties shall cooperate reasonably and in good faith to remedy or correct any
such breach prior to Closing.
ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the
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date of the Closing; provided, however, that no provision of this Agreement
shall be construed as requiring any party to accept, in connection with
obtaining any other requisite approval, clearance or assurance of
non-opposition, avoiding any challenge, or negotiating settlement, any condition
that would materially change or restrict the manner in which the Company or GRS
conducts or proposes to conduct its business, and no transfers of licenses shall
occur prior to the Closing.
(b) None of the parties hereto shall be subject to any
statute, rule, regulation, decree, ruling, injunction or other order issued by
any Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in
this Agreement qualified by materiality shall be true and correct in all
respects at Closing and all other representations and warranties of GRS
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if such representations and warranties were made at
and as of the Closing, except for changes contemplated by the terms of this
Agreement except as and to the extent that the facts and conditions upon which
such representations and warranties are based are expressly required or
permitted to be changed by the terms thereof, and GRS shall have performed and
satisfied in all material respects all covenants and agreements required by this
Agreement to be performed and satisfied by GRS at or prior to the Closing;
provided, however, that no Stockholder shall be entitled to refuse to consummate
the transaction in reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the
Stockholders or the Company) shall be pending or threatened before any
Governmental Authority seeking to restrain the Stockholders from effectuating
the Stock Purchase or prohibit the Closing or seeking Damages against the
Stockholders or the Company as a result of the consummation of the transactions
contemplated by this Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, to the effect that GRS has full
corporate power and authority to consummate the transactions contemplated
hereby. In rendering such opinion, Baker & McKenzie may rely as to factual
matters on certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
(e) GRS shall have executed and delivered to Stockholders and
the Company the documents referred to in Section 2.03 hereof.
(f) The Offering shall have been consummated on or before the
Termination Date.
(g) The Stockholders shall have received the executed
Employment Agreements and Noncompetition Agreement.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS
to carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
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(a) All of the Company Common Stock shall have been tendered
to GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of GRS) shall be
pending or threatened before any court or governmental agency seeking to
restrain GRS or prohibit the Closing or seeking Damages against GRS, the
Stockholders, the Company or its Properties as a result of the consummation of
the transactions contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from
the date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations,
prospects or financial condition of the Company that had or would reasonably be
likely to have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company
(whether or not covered by insurance) that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company.
(f) GRS shall have received the opinion of Foley & Lardner
("Sellers' Counsel"), counsel to the Company and the Stockholders, dated as of
the Closing Date, as to the power and authority of the Stockholders to
consummate the transactions contemplated hereby. In rendering such opinion,
Seller's Counsel may rely as to factual matters on certificates of officers,
directors and shareholders of the Company and on certificates of governmental
officials, and as to legal matters on opinions of other counsel reasonably
acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall be equal to or
greater than the Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined
by reference to the Closing Date Unaudited Balance Sheet shall not be less than
$325,000. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness determined in accordance with GAAP.
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(j) GRS shall have received the executed Employment Agreements
and the Noncompetition Agreement.
(k) GRS shall have received the resignation of all of the
members of the board of directors of the Company effective as of the Closing
Date.
(l) All proceedings to be taken by Stockholders and the
Company in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in form and substance to GRS
and its counsel, and GRS and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request.
(m) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company), except where the failure to have obtained
any such consent would not have a material adverse effect on the Company or GRS
following the Closing.
(n) GRS shall be satisfied in its sole and absolute discretion
with GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before May 31, 1998 that it has waived this condition
precedent.
(o) GRS shall have determined, in its reasonable discretion,
that all agreements between the Company and the Stockholders shall be on terms
as favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(p) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company
and the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
Knowledge, and the other party or parties (or any of them) are not aware, that
such representation or warranty is untrue or incorrect in any material respect.
All such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the second anniversary of the Closing Date.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to
the limitations contained in Article VIII and Article IX hereof, the
Stockholders, jointly and severally, agree to indemnify, defend and
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hold harmless GRS (and it's Affiliates, successors and assigns and their
respective officers and directors) from and against all losses, liabilities,
damages, deficiencies, costs or expenses (including interest, penalties and
reasonable attorneys' fees and disbursements, but offset by any proceeds from
insurance and taking into account the present value of any tax savings to GRS or
the Company resulting from such losses, liabilities, damages, deficiencies,
costs or expenses) ("Losses") based upon, arising out of or otherwise in respect
of (i) any inaccuracy in or any breach of any representation, warranty, covenant
or agreement of the Company or the Stockholders contained in this Agreement,
(ii) liabilities for Taxes and (iii) any liability arising out of any subsequent
adjustment by any tax authorities with respect to items attributable to periods
prior to the Closing Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by
any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a claim
or the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee. No party shall be obligated to indemnify any other
party hereto with respect to any Asserted Liability which is not described in a
Claims Notice delivered after the second anniversary of the Closing Date.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at their
own expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such
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proposed compromises or settlements to such supplier, distributor or customer.
All amounts required to be paid in connection with any such Asserted Liability
pursuant to the determination of any court, governmental or regulatory body or
arbitrator, and all amounts required to be paid in connection with any such
compromise or settlement consented to by GRS, shall be borne and paid by the
Stockholders. The parties agree to cooperate fully with one another in the
defense, compromise or settlement of any Asserted Liability.
Section 9.04 Limitations on Indemnification. The indemnification
provided for in Sections 9.01 and 9.02 shall be subject to the following
limitations:
(i) The Stockholders shall not be obligated to pay
any amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders
shall be obligated to pay any amounts for indemnification under this Article IX,
except those based upon, arising out of or otherwise in respect of Sections
3.02, 3.13, 3.21, 3.28, 5.03, 5.14, 5.22, 5.28, 9.01 (ii) and (iii), 11.01 and
11.02 and Article IV hereof (the "Basket Exclusions"), until the aggregate
indemnification payments, exclusive of the Basket Exclusions, equals one percent
(1%) of the Purchase Price (the "Basket Amount"), whereupon GRS, or the Company
and Stockholders, as the case may be, shall be obligated to pay any
indemnification payments, including the Basket Amount, in full. It is expressly
understood that the Basket Amount shall serve as a "trigger" for indemnification
and not as a "deductible" (for example, if the indemnity claims for which GRS or
the Stockholders would, but for the provisions of this subparagraph (ii), be
liable is in the aggregate amount of $30,000, and 1% of the Purchase Price is
$40,000, the Stockholders would then be liable for the entire $40,000 and not
just $10,000). This Section 9.04(ii) will not apply to any breach of any
representations and warranties of which any party had actual Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by any party of any covenant or obligation, and GRS or the
Stockholders, as the case may be, will be jointly and severally liable for all
damages with respect to such breaches.
(iii) GRS, the Company and Stockholders shall be
obligated to pay the Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to whether the aggregate amount of
all other indemnification payments shall have exceeded, in the aggregate, the
Basket Amount.
(iv) Notwithstanding anything to the contrary in
this Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, the Stockholders and the Company
shall not have any obligation to indemnify GRS (A) for any breach of any
representation, warranty or covenant under this Agreement (including liabilities
for Taxes and any subsequent adjustment by any Tax Authorities) or any other
claim or loss arising out of or in connection with this Agreement and the
transactions contemplated hereby (excluding the Employment Agreements and the
Non-Competition Agreement) for any amount of Losses in excess of the Earn-Out
Amount, or (B) the breach of any such representation, warranty or covenant by
the Stockholders or the Company which is not a contributing factor to the
failure of the Offering to be consummated.
(v) Notwithstanding anything to the contrary in
this Agreement, GRS shall not have any obligation to indemnify the Company or
the Stockholders for any breach of any representation, warranty or covenant
under this Agreement for any amount of Losses in excess of the amount of the
Earn-Out Amount (excluding the obligation of GRS to pay the Earn-Out Amount upon
the terms and subject to the conditions set forth herein).
(vi) After the Closing, the indemnification rights
set forth in this Article IX shall be each party's sole and exclusive remedy
against the other party for any breach of any representation,
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warranty or covenant contained in this Agreement or for any claim or loss
arising out of or in connection with this Agreement and the transactions
contemplated hereby (excluding the Employment Agreements and the Non-Competition
Agreement). Notwithstanding the foregoing, nothing herein shall prevent either
party from bringing an action based upon allegations of fraud in connection with
this Agreement. In the event such action is brought, the prevailing party's
attorneys' fees and costs shall be paid by the non-prevailing party.
(vii) GRS shall be deemed to have suffered Losses
with respect to accounts receivable reflected on the Closing Date Unaudited
Balance Sheet only if and to the extent that such accounts receivable, except
for Contract Retention, remain uncollected 180 days from the Closing Date.
Contract Retention will be considered uncollectible, and be deemed a Loss, if it
remains uncollected 350 days from the Closing Date. Because the Purchase Price
is predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Earn-out
Amount based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the Earn-Out Period.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to
Section 9.04 and, paragraphs (b) and (c) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder may
be satisfied against the Earn-Out Amount.
(b) GRS shall give Stockholders not less than fifteen (15)
days' notice (the "GRS Notice") of its intention to deduct or set-off any
amounts pursuant to this Section 9.05, including in such notice a description of
GRS' indemnification claim. If none of the Stockholders object in writing to
such deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be paid in accordance with Section 1.03
hereof. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
Section 9.06 Warranties Not Evidence of Actual Fraud. The parties
acknowledge that the representation and warranties contained herein, although
normal in contracts for sale of a business to apportion risk, shall not
constitute a presumption or evidence of actual fraud or willful intent to
defraud.
Section 9.07 Offering. Notwithstanding anything to the contrary, Buyer
shall have no claim for damages against the Company or the Stockholders if Buyer
is unable to consummate the Offering on or before September 30, 1998 and such
failure is not as a result of the Stockholders' breach of this Agreement.
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ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or
make, or cause to have issued or made, any public release or announcement
concerning this Agreement or the transactions contemplated hereby, without the
advance approval in writing of the form and substance thereof by each of the
other parties, and the parties shall endeavor jointly to agree on the text of
any announcement or circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each
of the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her reasonable
best efforts to permit GRS and its authorized employees, agents, accountants,
legal counsel and other representatives to have access to the employees,
counsel, accountants and other representatives of the Stockholders and their
respective Affiliates, in each case, to the extent and at all times reasonably
requested by GRS for the purpose of investigating or defending any claim made
against the Stockholders or the Company in connection with periods ending on or
before the Closing Date and (ii) GRS shall permit the Stockholders and their
authorized agents, accountants, legal counsel and other representatives to have
access to the books, records, files, agreements and other information in the
possession of GRS or its Affiliates and GRS shall use its reasonable best
efforts to permit the Stockholders and their respective authorized employees,
agents, accountants, legal counsel and other representatives to have access to
the employees, counsel, accountants and other representatives of GRS, the
Company and their Affiliates, in each case, to the extent and at all times
reasonably requested by the Stockholders, or any of them, for the purpose of
investigating or defending any claim made against the Stockholders in connection
with Article IX.
Section 10.04 Employment. Following the Closing, GRS will consider
employing the employees of RCC. GRS shall take such action which is deems to be
appropriate in carrying out its hiring practices.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur,
(i) each Stockholder shall jointly and severally indemnify and hold harmless GRS
and the Company from and against any and all liability for any brokers or
finders' fees arising with respect to brokers or finders retained or engaged by
the Company or any of the Stockholders in respect of the transactions
contemplated by this Agreement, and (ii) GRS shall indemnify and hold harmless
the Stockholders and the Company from and against any and all liability for any
brokers' or finders' fees arising with respect to brokers or finders retained or
engaged by GRS in respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
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Section 11.03 Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: Gary and Joanne Register
1839 Turnberry Court
Green Cove Springs, Florida 32043
Ben H. Childers III
115 32nd Avenue South
Jacksonville Beach, Florida 32250
With a copy to:
Foley & Lardner
200 N. Laura Street
Jacksonville, Florida 32201-0240
Attention: Gardner F. Davis
Telecopy No.: (904) 359-8700
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do
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so, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
Section 11.05 Representations and Warranties. Each of the
representations and warranties of each of the parties to this Agreement shall be
deemed to have been made at the date hereof and at and as of the Closing Date,
provided that the parties shall have the right to update the Disclosure
Schedules for intervening developments and additional information arising prior
to the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this
Agreement are cumulative, and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies. Such rights and remedies are given in addition to any other
rights and remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference. Disclosure of a specific item in any one schedule shall be deemed
restricted only to the Section to which such disclosure specifically relates
except where (i) there is an explicit cross-reference to another Schedule, and
(ii) GRS could reasonably be expected to ascertain the scope of the modification
to a representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used
in this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which
contemplates performance or the existence of obligations after the Closing Date,
and any and all representations and warranties set forth in this Agreement,
shall not be deemed to be merged into or waived by the execution and delivery of
the instruments executed at the Closing, but shall expressly survive Closing for
the time period set forth in
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Section 8.01 hereof and shall be binding upon the party or parties obligated
thereby in accordance with the terms of this Agreement, subject to any
limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal or for any bankruptcy or insolvency
proceedings, and the costs incurred in bringing such suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined in
this Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect
to any person, any other person controlling, controlled by or under common
control with such person. The term "Control" as used in the preceding sentence
means, with respect to a corporation, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to any person other
than a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements"
shall mean any or all of the following agreements, the forms of which are
attached hereto as exhibits to this Agreement:
Exhibit B - Lock-Up Agreement
Exhibit F - Employment Agreement for Gary Register
Exhibit G - Employment Agreement for Ben Childers, III
Exhibit H - Noncompetition Agreement for Joanne Register
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean,
with respect to the Company, all of the Properties, Company Contracts, and
Permits, that were Used by the Company as of the Balance Sheet Date and those
Used by the Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall
mean any amounts withheld by customers from contract progress billing until
final and satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean,
with respect to the Company, cash and other assets that are expected to be
converted into cash, sold or exchanged within one year from the Closing Date,
including marketable securities, receivables, inventory and current prepayments.
21
<PAGE> 26
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Damages. The term "Damages" shall mean any and all
damages, liabilities, obligations, penalties, fines, judgments, claims,
deficiencies, losses, costs, expenses and assessments (including without
limitation income and other Taxes, interest, penalties and attorneys' and
accountants' fees and disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and re-authorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers with respect to the representation
being made, and such knowledge of any such persons as reasonably should have
obtained upon due investigation and inquiry into the representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all
permits or orders under any Legal Requirement or otherwise granted by any
Governmental Authority.
22
<PAGE> 27
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and
all regulations promulgated by the Department of the Treasury pursuant to the
Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss.59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg Wallick
-----------------------------------
Gregg Wallick, President
REGISTER CONTRACTING COMPANY, INC.
By:
-----------------------------------
REGISTER & CHILDERS ROOF REPAIRS, INC.
By:
-----------------------------------
STOCKHOLDERS:
/s/ Gary Register
--------------------------------------
Gary Register
/s/ Joanne G. Register
--------------------------------------
Joanne G. Register
/s/ Ben H. Childers, III
--------------------------------------
Ben H. Childers, III
23
<PAGE> 28
EXHIBIT A
<TABLE>
<CAPTION>
Purchase Price
Name Number of Shares Allocation
---- ---------------- ----------------------------
RCRR RCC RCRR RCC
---- ---- --------- -------------
<S> <C> <C> <C> <C>
Gary E. Register ............. 128 1000 $2,133.00 $1,608,935.74
Joanne G. Register ........... 128 700 2,133.00 1,126,255.02
Ben H. Childers, III ......... 44 292 734.00 469,809.24
--- ---- --------- -------------
Total ............... 300 1992 $5,000.00 $3,205.000.00
</TABLE>
24
<PAGE> 29
EXHIBIT C
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RCC, RCRR AND THE STOCKHOLDERS
RCC, RCRR and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) RCC and RCRR are corporations duly organized, validly
existing and in good standing under the laws of Florida, and are not required to
be qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of RCC and RCRR that have been
made available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of RCC and RCRR.
(c) Neither RCC nor RCRR has any subsidiaries, participate in
any partnership or joint venture, or own any outstanding capital stock of any
other corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized
capital stock of RCC consists of 10,000 shares of RCC Common Stock and the
entire authorized capital stock of RCRR consists of 10,000 shares of RCRR Common
Stock. The issued and outstanding shares of Company Common Stock are owned of
record and beneficially by the Stockholders shown on Exhibit A hereof. All of
the presently outstanding shares of capital stock of the Company have been
validly authorized and issued and are fully paid and nonassessable. Neither RCC
nor RCRR has issued any other shares of its capital stock and there are no
outstanding options, warrants, subscriptions or other rights or obligations to
purchase or acquire any of such shares, nor any outstanding securities
convertible into or exchangeable for such shares, except as set forth on
Schedule 3.02. Except as contemplated under this Agreement, there are no
agreements to which either RCC or RCRR is a party regarding the issuance,
registration, voting or transfer of its outstanding shares of its capital stock.
Except for possible dividends to be issued in connection with the Excluded
Assets as described in Section 1.05, each and all of which shall be subject to
the prior written approval of GRS, no dividends are accrued but unpaid on any
capital stock of RCC or RCRR.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set
forth in Schedule 3.04 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the Articles of Incorporation or By-laws of RCC or
RCRR;
<PAGE> 30
(ii) violate any Legal Requirements applicable to
RCC or RCRR;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to RCC or RCRR;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of RCC or RCRR;
or
(v) require any of the Stockholders or RCC or RCRR
to obtain or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority. Any and all consents required to be
obtained by RCC or RCRR prior to the Closing as set forth in Schedule 3.04 shall
be obtained and copies thereof delivered to GRS upon execution of this
Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no
suit, action or other proceeding is pending or, to the Knowledge of RCC or RCRR
or the Stockholders, threatened before any Governmental Authority seeking to
restrain any of the Stockholders or prohibit their entry into this Agreement or
prohibit the Closing, or seeking damages against the Company or its Properties,
as a result of the consummation of the transactions contemplated by this
Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true
and correct copies of RCC's and RCRR's (i) Closing Date Unaudited Balance Sheet,
(ii) unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
six months ended March 31, 1998 (the "Interim Company Financial Statements"), as
well as (iii) the Company's balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended September 30, 1997 (collectively, the "Company Financial Statements"). The
Company Financial Statements (i) have been prepared from the books and records
of the Company, (ii) present fairly the financial condition of the Company and
its results of operations as at and for the respective periods then ended, and
(iii) have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in
Schedule 3.07, the Company Financial Statements reflect all liabilities of RCC
and RCRR as determined in accordance with generally accepted accounting
principles arising out of transactions effected or events occurring on or prior
to the date of the Interim Company Balance Sheet, except for liabilities not
exceeding $10,000 in the aggregate. All reserves shown in the Company Financial
Statements established in accordance with GAAP. Except as set forth in the
Company Financial Statements (including the Notes thereto) or on Schedule 3.07,
neither RCC nor RCRR is liable upon or with respect to, or obligated in any
other way to provide funds in respect of or to guarantee or assume in any
manner, any debt, obligation or dividend of any other person, corporation,
association, partnership, joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in
Schedule 3.08, the accounts receivable reflected on the Interim Company Balance
Sheet and all accounts receivable arising between the date of the Interim
Company Balance Sheet (the "Interim Company Balance Sheet Date") and the date
hereof, arose from bona fide transactions in the ordinary course of business,
and the goods and services involved have been sold, delivered and performed to
the account of the obligors, and no further filings (with Governmental
Authorities, insurers or others) are required to be made, no further goods are
required to be provided and no further services are required to be rendered to
collect the accounts receivable in full. All reserves shown in the Company
Financial Statements are established in accordance with GAAP. No such account
has been assigned or pledged to any other person, firm or corporation, and,
except only to the extent fully reserved against as set forth in the Interim
Company Balance Sheet, no defense or setoff to any such account has been
asserted by the account obligor.
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<PAGE> 31
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of RCC and RCRR ,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended September 30, 1997 (collectively, the "Company Key
Employees"). In addition, Schedule 3.09(a) contains a complete and accurate
description of (i) all increases in compensation of the Company Key Employees
during the fiscal years of RCC or RCRR ended September 30, 1997 and 1996,
respectively, and (ii) any promised increases in compensation of the Company Key
Employees that have not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of
all Compensation Plans sponsored by RCC or RCRR or to which RCC or RCRR
contributes on behalf of its employees, other than Employee Benefit Plans listed
in Schedule 3.10. As used herein, "Compensation Plans" shall mean and include,
without limitation, plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 3.09(c) and in Section
3.09(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which RCC or RCRR is a party.
(d) The Company has provided GRS with a complete and accurate
list of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), RCC and RCRR (i) have been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) are
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. To the Knowledge of the Company,
the Company has not engaged in any unfair labor practice or discriminated on the
basis of race, color, religion, sex, national origin, age or handicap in its
employment conditions or practices. To the Knowledge of the Company, there are
no (i) material unfair labor practice charges or complaints or racial, color,
religious, sex, national origin, race or handicap discrimination charges or
complaints pending or threatened against RCC or RCRR before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting RCC or RCRR.
(g) Except as set forth on Schedule 3.09 (g), (i) neither RCC
nor RCRR has been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit and
(iii) to the Knowledge of the Company, the employees of the Company have not
threatened to organize or join a union, labor organization or collective
bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
RCC or RCRR, and the Company has no present intent of terminating the employment
of any Company Key Employee.
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<PAGE> 32
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by RCC or RCRR or to which RCC or RCRR
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency. No prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) Neither RCC nor RCRR has any obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in
Schedule 3.11, from the Interim Company Balance Sheet Date to the date of this
Agreement, neither RCC nor RCRR has:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of RCC, RCRR or any Stockholder, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any
Company Assets (whether or not covered by insurance) that has materially
adversely affected, or could reasonably be expected to materially adversely
affect, its business;
4
<PAGE> 33
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05 hereof;
(i) written up or written down the carrying value of any of
the Company Assets, except in the ordinary course of business consistent with
past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or
Company Assets;
(m) increased the compensation of any director or officer,
except in the ordinary course of business consistent with past practice;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights or paid any
dividends or made any distribution to the holders of the Company's capital
stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except for the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which RCC or RCRR are a party (the "Company Contracts") set forth in Schedule
3.12, neither RCC or RCRR have not entered into, nor is the capital stock, the
assets or the business of RCC or RCRR bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
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<PAGE> 34
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between RCC or RCRR and any
Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of RCC or RCRR;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23 hereof; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of RCC or RCRR.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by RCC or RCRR, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of RCC or RCRR, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of
6
<PAGE> 35
equity (regardless of whether such equitable principles are applied in a
proceeding at law or in equity). RCC or RCRR have not received notice of any
material default with respect to any Company Contracts. For the purposes of this
Section 3.12(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to RCC or RCRR valued in excess
of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby or except in the ordinary
course of business consistent with past practice, neither RCC nor RCRR has
received notice of any plan or intention of any other party to any Company
Contract to exercise any right to cancel or terminate any Company Contract.
Neither RCC nor RCRR currently contemplates, or have reason to believe any
person or entity currently contemplates, any material amendment or material
change to any Company Contract. None of the principal customers (as defined in
Section 3.20 hereof), joint venture partners or material suppliers (as defined
in Section 3.20 hereof) of RCC or RCRR has refused, or communicated that it will
or may refuse, to purchase or supply goods or services, as the case may be,
which refusal would have a material adverse effect on the financial condition of
the Company, or has communicated that it will or may substantially reduce the
amounts of goods or services that it is willing to purchase from, or sell to,
RCC or RCRR.
Section 3.13 Insurance. RCC and RCRR has had in effect, and will
maintain through the Closing Date, comprehensive insurance coverage with respect
to all completed operations of RCC and RCRR . The Company has previously made
available to GRS all insurance policies of RCC and RCRR. All of such policies
are valid and enforceable against the Company, except as such enforceability may
be limited by any applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally,
and except as the availability of equity remedies may be limited by the
application of general principles of equity (regardless of whether such
equitable principles are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except as set forth on Schedule 3.14(a), the Company owns
all patents, trade-marks, service marks and copyrights (collectively
"Proprietary Rights"), if any, necessary to conduct its business, or possesses
adequate licenses or other rights, if any, therefor, without conflict with the
rights of others. Set forth in Schedule 3.14(a) is a true and correct
description of all Proprietary Rights.
(b) RCC or RCRR have the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock Purchase, GRS will have the
right to use all Proprietary Rights without any obligation to pay any additional
amounts whatsoever. Use of the Proprietary Rights does not require the consent
of any other person and the Proprietary Rights are freely transferable. No claim
has been asserted by any person to the ownership of or right to use any
Proprietary Right or challenging or questioning the validity or effectiveness of
any license or agreement constituting a part of any Proprietary Right. Each of
the Proprietary Rights is valid and subsisting, has not been canceled, abandoned
or otherwise terminated and, if applicable, has been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
RCC or RCRR is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), RCC or RCRR have
good and marketable title to the Company Assets, including, without limitation,
those reflected on the Interim Balance Sheet (other than those since disposed of
in the ordinary course of business), free and clear of all security interests,
liens, charges and other encumbrances, except for (i) liens for taxes not yet
due and payable or being contested in good faith in appropriate proceedings, and
(ii) encumbrances that are
7
<PAGE> 36
incidental to the conduct of its businesses or ownership of property, not
incurred in connection with the borrowing of money or the obtaining of credit,
and which do not in the aggregate materially detract from the value of the
assets affected or materially impair their use by RCC or RCRR. All facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased or
used by RCC or RCRR are in good operating condition and repair, normal wear and
tear excepted, are adequate and sufficient for the business of RCC or RCRR and
conform in all material respects with all applicable ordinances, regulations and
laws relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 3.15(c). RCC and RCRR each
enjoy peaceful and undisturbed possession under all real property leases under
which they are operating, and all such leases are valid and subsisting and none
of them is in default, except for those defaults which, individually or in the
aggregate, would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. RCC and RCRR each have all material
franchises, Permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its businesses as presently
conducted, the failure of which to obtain would have a material adverse effect
on RCC, RCRR or their businesses. The business and operations of RCC and RCRR
have been and are being conducted in accordance in all material respects with
all applicable laws, rules and regulations, and neither RCC nor RCRR is in
violation of any judgment, law or regulation except where any such violation
would not have a material adverse effect on the Company's combined results of
operations, business, assets or financial condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in
Schedule 3.17, there are no claims, actions, suits, investigations or
proceedings against RCC or RCRR pending or, to the Knowledge of the Company,
threatened in any court or before or by any Governmental Authority, or before
any arbitrator, that could reasonably be expected to have a material adverse
effect (whether covered by insurance or not) on the business, operations,
prospects, Properties, securities or financial condition of RCC or RCRR. Except
as otherwise set forth in Schedule 3.17, neither RCC nor RCRR is not in default
under, and no condition exists (whether covered by insurance or not) that with
or without notice or lapse of time or both would (i) constitute a default under,
or breach or violation of, any Company Contract or any Legal Requirement or
Permit applicable to RCC or RCRR, or (ii) accelerate or permit the acceleration
of the performance required under, or give any other party the right to
terminate, any Company Contract, other than defaults, breaches, violations or
accelerations that would not have a material adverse effect on the business,
operations, prospects, Properties, securities or financial condition (a
"Material Adverse Effect") of RCC or RCRR.
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of
the Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the business facilities of RCC
or RCRR (the "Company Business") is or was, or at which RCC's or RCRR's business
or, to the Knowledge of RCC or RCRR, its predecessors, business to which RCC and
RCRR have succeeded, if any, was, located which would have a Material Adverse
Effect on RCC or RCRR.
(b) Except as described in Schedule 3.18(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which Company Business is or was, or, to knowledge of the Company,
at which the business of its predecessors was, located which would have a
Material Adverse Effect on RCC or RCRR. With respect to underground storage
tanks, Schedule 3.18(b) sets forth the size, location, construction,
installation date, use and testing history of all underground storage tanks
(whether or not excluded from regulation under Environmental Law), including all
underground storage tanks in use, out of service, closed, abandoned,
decommissioned, or sold to a third party.
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<PAGE> 37
(c) Except as listed in Schedule 3.18(c), to the Knowledge of
the Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to
the Knowledge of the Company, threat of a "release" of any Hazardous Substance
on, from or under any premises from which (i) RCC's or RCRR's operations have
been or are being conducted related to the Company Business. or (ii) to the
Knowledge of the Company, the operations of any predecessor of RCC or RCRR which
would have a Material Adverse Effect on RCC or RCRR.
(d) Except as listed in Schedule 3.18(d), RCC, RCRR and their
respective predecessors have not received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of the Company, there are no past or present events, facts, conditions
or circumstances which may interfere with or prevent material compliance by RCC
or RCRR with Environmental Law, or with any order, decree, judgment, injunction,
notice or demand issued, entered, promulgated or approved thereunder, or which
may give rise to any liability under applicable law including, without
limitation, any Environmental Law, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, notice of violation, study or
investigation, based on or related to the manufacture, process, distribution,
use, treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the environment of Hazardous
Substances by RCC or RCRR or, to the Knowledge of the Company, by any
predecessor of RCC or RCRR, as a result of any act or omission of RCC, RCRR or
their respective predecessors related to the Company Business.
(e) Except as disclosed in Schedule 3.18(e), to the Knowledge
of the Company all of RCC's and RCRR's and, to the Knowledge of the Company,
their predecessors', Hazardous Substances disposal and recycling practices
related to the Company Business have been accomplished in material compliance
with all applicable Environmental Laws.
The representation(s) with respect to this Section 3.18 shall not be
interpreted to imply that GRS has constructive knowledge regarding any aspect of
the Company Business with respect to environmental matters nor to limit the
scope of any of the Company's or any Stockholders' representations under this
Agreement. No such due diligence examination or related activities of, or on
behalf of, GRS however, shall constitute a waiver or relinquishment by GRS of
its right to rely upon the Company's or any Stockholders' representations,
warranties, covenants and agreements as made herein or pursuant hereto, and no
such disclosure revealed to GRS from GRS' due diligence examination shall
constitute an assumption by GRS of any conditions or liabilities, and such
disclosure shall not relieve RCC, RCRR or any Stockholder of its duties and
obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which RCC or RCRR have an account, credit line or safe deposit box or vault,
(ii) the names of all persons authorized to draw thereon or to have access to
any safe deposit box or vault, (iii) the purpose of each such account, safe
deposit box or vault, and (iv) the names of all persons authorized by proxies,
powers of attorney or other like instrument to act on behalf of RCC or RCRR in
matters concerning any of its business or affairs. Except as otherwise set forth
in Schedule 3.19, no such proxies, powers of attorney or other like instruments
are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth
all RCC's and RCRR's material suppliers, together with the dollar amount of
goods purchased by RCC or RCRR from each such supplier during the twelve month
period ended September 30, 1998 and the six month period ended March 31, 1998,
as well as each of the principal customers of RCC and RCRR . Except as otherwise
set forth in Schedule 3.20, since September 30, 1997, there has been no material
adverse change in the business relationship of the Company with any supplier or
customer named in Schedule 3.20. No customer or supplier named in Schedule 3.20
has terminated or materially altered, or notified RCC or RCRR of any intention
to terminate or materially alter, its relationship with RCC or RCRR, and neither
9
<PAGE> 38
RCC nor RCRR has any has no reason to believe that any such customer or supplier
will terminate or materially alter its relationship with RCC or RCRR or to
materially decrease its services or supplies to RCC or RCRR or its direct or
indirect usage of the services of RCC or RCRR. For purposes of Sections 3.20 and
3.23, "material suppliers" refers to suppliers from whom RCC and RCRR purchased
five percent (5%) or more of the total amount of the goods purchased by RCC and
RCRR during the twelve month period ended September 30, 1997, and the six (6)
month period ended March 31, 1998, and "principal customers" refers to customers
who accounted for 5% or more of RCC's and RCRR's total revenues during the
twelve month period ended September 30, 1997 and the six (6) month period ended
March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
RCC, RCRR or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by RCC, RCRR or the Stockholders to GRS or its counsel,
do not contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of RCC and RCRR made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set
forth in Schedule 3.23, no director or executive officer of RCC or RCRR or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with RCC or RCRR or any organization that has a material contract or arrangement
with RCC or RCRR.
Section 3.24 Investments in Competitors. No director or executive
officer of RCC or RCRR owns directly or indirectly any material interest or has
any investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of RCC or
RCRR.
Section 3.25 Certain Payments. Neither RCC, RCRR, nor any director,
officer or employee of RCC or RCRR, has paid or caused to be paid, directly or
indirectly, in connection with the business of RCC or RCRR: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate (other than from personal funds of directors,
officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law).
Section 3.26 Government Inquiries. Except as set forth on Schedule 3.26
and except in the ordinary course of business consistent with past practice,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by RCC or RCRR from, or any
material statement, report or other document filed by RCC or RCRR with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither RCC, RCRR nor any Stockholder
has entered into any agreements or arrangements and there are no pending offers
or discussions concerning or providing for the merger or consolidation of RCC or
RCRR or all or any substantial portion of its assets, the sale by RCC or RCRR or
any Stockholder of any securities of RCC or RCRR or any similar transaction
affecting RCC, RCRR or the Stockholders.
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<PAGE> 39
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) each of RCC and RCRR has timely filed all
federal income Tax Returns, and all other material Tax Returns which it is
required to file under applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) the Company has paid all Taxes due and owing by
it (whether or not such Taxes are required to be shown on a Tax Return) and has
withheld and paid over to the appropriate taxing authority all Taxes which it is
required to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third party, except where the amounts of such unpaid Taxes or
the amounts that have not been withheld and paid over do not, in the aggregate,
exceed $25,000;
(iv) the accrual for Taxes on the Closing Date
Unaudited Balance Sheet is sufficient to pay in full all liabilities for Taxes
of RCC and RCRR related to periods prior to the Closing;
(v) the federal income Tax Returns of RCC and RCRR
have been filed through March 31, 1997, and, as of the date hereof, none of such
Tax Returns has been audited; and
(vi) each of RCC and RCRR has disclosed in its
federal income Tax Returns, all positions taken therein that could give rise to
a substantial understatement of federal income tax within the meaning of IRC ss.
6662.
(b) To the Knowledge of the Company, no claim has been made by
a taxing authority in a jurisdiction where RCC or RCRR does not file Tax Returns
that RCC or RCRR is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local
Tax audits or administrative or judicial proceedings pending or being conducted
with respect to RCC or RCRR;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by RCC or RCRR from any foreign, federal, state or local taxing
authority; and
(iii) there are no material unresolved claims
concerning RCC's or RCRR's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to RCC or RCRR in connection with any Tax Returns
covering RCC or RCRR, except where such waiver would not have a material adverse
effect on RCC or RCRR.
(e) Neither RCC nor RCRR has executed or entered into a
closing agreement pursuant to IRC ss. 7121 or any predecessor provision thereof
or any similar provision of state, local or foreign law; nor has the Company
agreed to or is required to make any adjustments pursuant to IRC ss. 481(a) or
any similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company. The Company has no Knowledge that
the IRS has proposed any such adjustment or change in accounting method, or has
any Knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
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<PAGE> 40
(f) Neither RCC nor RCRR has made an election under IRC ss.
341(f).
(g) Neither RCC nor RCRR is liable for the Taxes of another
person.
(h) Neither RCC nor RCRR is a party to any Tax sharing
agreement.
(i) Neither RCC nor RCRR has made any payments nor is it
obligated to make payments nor is it a party to an agreement that could obligate
it to make any payments that would not be deductible under IRC ss. 280G.
(j) RCC and RCRR shall prepare or cause to be prepared and
file or cause to be filed all federal and state income Tax Returns for RCC and
RCRR, if any, for tax periods ending on or prior to the Closing Date which are
filed after the Closing Date which are filed after the Closing Date. RCC and
RCRR shall permit GRS to review, comment on and approve each such Tax Return
described in the preceding sentence prior to filing.
(k) GRS, RCC and RCRR and the Stockholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section 3.28 and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding an making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.
(l) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any New York State Gains Tax, New York
City Transfer Tax and any similar Tax imposed in other states and subdivisions),
shall be paid by the Stockholders when due, and the Stockholders will, at their
own expense, file all necessary Tax Returns and other documentation with respect
to all such transfer, documentary, sales, use, stamp, registration and other
Taxes and fees, and, if required by applicable law, GRS will, and will cause its
Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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<PAGE> 41
EXHIBIT D
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such
Stockholder shall own beneficially and of record, free and clear of any lien,
option or other encumbrance, the shares of Company Common Stock set forth
opposite such Stockholders' name on Exhibit A hereof, and, upon consummation of
the Stock Purchase, GRS will acquire good and valid title thereto, free and
clear of any lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such
Stockholder has the full legal right and power and all authority and approval
required to enter into, execute and deliver this Agreement and to perform fully
such Stockholders' obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common
Stock to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for
its own account and not on behalf of any other person; such Stockholder is aware
and acknowledges that the GRS Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold unless the GRS Shares are registered under the Securities Act or
an exemption from the registration requirements of the Securities Act is
available;
<PAGE> 42
(b) Such Stockholder has been furnished all information that
it deems necessary to enable it to evaluate the merits and risks of an
investment in GRS; such Stockholder has had a reasonable opportunity to ask
questions of and receive answers from GRS concerning GRS and the GRS Shares, and
all such questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i)
any rights in and to the GRS Shares, which rights were obtained through or from
such Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in
financial and business matters (including knowledge and expertise in the roofing
industry) that it is capable of evaluating the merits and risks involved in an
investment in the GRS Shares: and such Stockholder is financially able to bear
the economic risk of the investment in the GRS Shares, including a total loss of
such investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal
or state agency has made any finding of determination regarding the fairness of
the offering of the GRS Shares for investment, or any recommendation or
endorsement of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of the GRS Shares, and shall not make
any sale, transfer or pledge thereof without registration under the Securities
Act and any applicable securities laws of any state or unless an exemption from
registration is available;
(i) Except as set forth herein, no representations or
warranties have been made to such Stockholder by GRS or any agent, employee or
Affiliate of GRS, and in entering into this transaction such Stockholder is not
relying upon any information, other than from the results of independent
investigation by such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of
the GRS Shares except (i) pursuant to an effective registration statement under
the Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS or other counsel reasonably satisfactory to GRS, is not required
to be registered under the Securities Act.
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<PAGE> 43
EXHIBIT E
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to RCC, RCRR and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate
Documents.
(a) GRS is a corporation duly organized, validly existing and
in good standing under the laws of Florida, and is not required to be qualified
to do business as a foreign corporation in any other jurisdiction where the
failure to so qualify would have a material adverse effect on GRS. GRS has all
required corporate power and authority to own its properties and to carry on its
business as presently conducted. The Articles of Incorporation and By-laws of
GRS, copies of which are attached as Schedule 5.01(a), are complete and reflect
all amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have
any subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized
capital stock of GRS consists of 100,000,000 shares of which 90,000,000 have
been designated as GRS Common Stock and 10,000,000 shares have been designated
as Preferred Stock. All of the presently outstanding shares of capital stock of
GRS have been validly authorized and issued and are fully paid and
nonassessable. Except as set forth on Schedule 5.03, GRS has not issued any
other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares. No dividends are accrued but unpaid on any capital
stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
<PAGE> 44
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms,
conditions or provisions of the articles of incorporation or By-laws of GRS;
(ii) violate any Legal Requirements applicable to
GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any GRS Contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private non-governmental third party or any
Governmental Authority. Any and all consents required to be obtained by GRS as
set forth in Schedule 5.05 shall be obtained and copies thereof delivered to the
Company and the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no
suit, action or other proceeding is pending or, to the Knowledge of GRS,
threatened before any Governmental Authority seeking to restrain GRS or prohibit
its entry into this Agreement or prohibit the Closing, or seeking damages
against GRS or its Properties, as a result of the consummation of the
transaction contemplated by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in
Schedule 5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS
Balance Sheets") and the related statements of income, stockholders' equity and
cash flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in
Schedule 5.09, the accounts receivable reflected on the GRS Balance Sheet and
all accounts receivable arising between December 31, 1997 and the date hereof,
arose from bona fide transactions in the ordinary course of business, and the
goods and services involved have been sold, delivered and performed to the
account of the obligors, and no further filings (with Governmental Authorities,
insurers or others) are required to be made, no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle GRS to collect
the accounts receivable in full. No such account has been assigned or pledged to
any other person, firm or corporation, and, except only to the extent fully
reserved against as set forth in the Interim GRS Balance Sheet, no defense or
setoff to any such account has been asserted by the account obligor.
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<PAGE> 45
Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of GRS, regardless
of compensation levels, and other employees who are currently compensated at a
rate in excess of $50,000 per year (including any reasonably anticipated bonus)
or who earned in excess of $50,000 during GRS' fiscal year ended October 31,
1996 (collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a)
contains a complete and accurate description of (i) all increases in
compensation of the GRS Key Employees during the fiscal years of GRS ending
October 31, 1997 and October 31, 1996, respectively, and (ii) any promised
increases in compensation of the GRS Key Employees of GRS that have not yet been
effected.
(b) Schedule 5.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by GRS or to which GRS contributes on behalf of
its employees, other than Employee Benefit Plans listed in Schedule 5.11. As
used in this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 5.10(c) and in Section
5.10(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key
Employee has indicated his or her desire or intent to terminate employment with
GRS, and GRS has no present intent of terminating the employment of any GRS Key
Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
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<PAGE> 46
Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment exists
with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in
Schedule 5.12, from the date of the GRS Balance Sheet to the date of this
Agreement, GRS has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of GRS or any stockholder of GRS, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
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<PAGE> 47
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of
its assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of
its assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or its
assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights paid any
dividends or made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
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<PAGE> 48
Section 5.13 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which GRS is a party (the "GRS Contracts") set forth in Schedule 5.13, GRS has
not entered into, nor is the capital stock, the assets or the business of GRS
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
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<PAGE> 49
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice
of any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has no reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available
to the Stockholders all insurance policies of GRS. All of such policies are
valid and enforceable against GRS, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. Use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
GRS is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the Interim GRS Balance Sheet in
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<PAGE> 50
the ordinary course of business), free and clear of all security interests,
liens, charges and other encumbrances, except for (i) liens for taxes not yet
due and payable or being contested in good faith in appropriate proceedings, and
(ii) encumbrances that are incidental to the conduct of its businesses or
ownership of property, not incurred in connection with the borrowing of money or
the obtaining of credit, and which do not in the aggregate materially detract
from the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful
and undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in
Schedule 5.18, there are no claims, actions, suits, investigations or
proceedings against GRS pending or, to the Knowledge of GRS, threatened in any
court or before or by any Governmental Authority, or before any arbitrator, that
could reasonably be expected to have a material adverse effect (whether covered
by insurance or not) on the business, operations, prospects, Properties,
securities or financial condition of GRS. Except as otherwise set forth in
Schedule 5.18, GRS is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any Legal
Requirement or Permit applicable to GRS or any GRS Contract applicable to GRS,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any GRS Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of
GRS, there are no PCBs, TCE, PCE, or asbestos containing materials generated,
used, treated, stored, maintained, disposed of, or otherwise deposited in, or
located on any premises at which GRS' business (the "GRS Business") is or was,
or at which the business or, to the Knowledge of GRS, its predecessors was,
located, which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which the GRS Business is or was, or, to knowledge of GRS, at which
the business of its predecessors was, located, which would have a Material
Adverse Effect on GRS. With respect to underground storage tanks, Schedule
5.19(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of
GRS, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of GRS, threat of a "release" of
8
<PAGE> 51
any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor
their respective predecessors have received written notice alleging any
potential liability with respect to the contamination, investigation, or cleanup
of any site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and,
to the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth
all of GRS' material suppliers, together with the dollar amount of goods
purchased by GRS from each such supplier during the twelve month period ended
December 31, 1997 and the four month period ended April 30, 1998, as well as
each of the principal customers of GRS. Except as otherwise set forth in
Schedule 5.21, since December 31, 1997, there has been no material adverse
change in the business relationship of GRS with any supplier or customer named
in Schedule 5.21. No customer or supplier named in Schedule 5.21 has terminated
or materially altered, or notified GRS of any intention to terminate or
materially alter, its relationship with GRS and GRS has no reason to believe
that any such customer or supplier will terminate or materially alter its
relationship with GRS or to materially decrease its services or supplies to GRS
or its direct or indirect usage of the services or products of GRS. For purposes
of Sections 5.21 and 5.24 hereof "material suppliers" refers to suppliers from
whom GRS purchased five percent (5%) or more of the total amount of the goods
purchased by GRS during the twelve month period ended December 31, 1997 and the
four month period ended April 30, 1998, and "principal customers" refers to
customers who
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accounted for 5% or more of GRS' revenues during the twelve month period ended
December 31, 1997 and the four month period ended April 30, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by GRS to the Stockholders or their counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to the Stockholders contain projections and
estimates of future events, and such projections and estimates have been based
upon certain assumptions that management of GRS made in good faith and believed
are reasonable at the time such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set
forth in Schedule 5.24, no director or executive officer of GRS or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with GRS or any organization that has a material contract or arrangement with
GRS.
Section 5.25 Investments in Competitors. No director or executive
officer of GRS owns directly or indirectly any material interests or has any
investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer
or employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule
5.27, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and
all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
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(iv) the accrual for Taxes on the Unaudited GRS
Balance Sheet (excluding any amount recorded which is attributable to timing
differences between book and Tax income) would be adequate to pay all material
Tax liabilities of GRS if its current tax year were treated as ending on the
date of the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited.
(b) To the Knowledge of GRS, no claim has been made by a
taxing authority in a jurisdiction where GRS does not file Tax Returns that GRS
is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local
tax audits or administrative or judicial proceedings pending or being conducted
with respect to GRS;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by GRS from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims
concerning GRS' Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC ss. 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC ss. 481(a) or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by GRS. GRS has no knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any knowledge with respect to any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC ss. 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC ss. 280G.
Section 5.29 Participation in Secondary Offering. In the event that
after the Offering GRS files a registration statement with the Securities and
Exchange Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such
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<PAGE> 54
number of shares of GRS Common Stock owned by the Stockholders as shall equal
(i)(A) the total number of shares of GRS Common Stock owned by such Stockholders
divided by (B) the total number of shares of GRS Common Stock owned by all
shareholders of the Founding Companies, multiplied by (ii) the total number of
shares of GRS Common Stock owned by shareholders of the Company which are to be
included in the Secondary Offering.
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<PAGE> 1
EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
S & B ROOFING SERVICES, INC.
AND
ALL OF THE STOCKHOLDERS
OF
S & B ROOFING SERVICES, INC.
----------------------------
MAY 13, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES............................................................................1
1.01 Sale and Purchase of Company Common Stock....................................................................1
1.02 Purchase Price...............................................................................................2
1.03 Delivery of Purchase Price...................................................................................2
1.04 Purchase Price Adjustment....................................................................................3
1.05 Excluded Assets and Distriubiton of Assets...................................................................4
1.06 Stockholders' Representative.................................................................................4
1.07 Earn-Out.....................................................................................................5
ARTICLE II - CLOSING...............................................................................................6
2.01 Closing......................................................................................................6
2.02 Deliveries by Stockholders to GRS............................................................................7
2.03 Deliveries by GRS............................................................................................7
2.04 Termination in Absence of Closing............................................................................8
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS.................................................................................................8
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER....................................................8
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS..................................................................8
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING..........................................................................9
6.01 GRS' Access to Information and Assets........................................................................9
6.02 Company's Conduct of Business and Operations.................................................................9
6.03 General Restrictions.........................................................................................9
6.04 Notice Regarding Changes....................................................................................11
6.05 Consents and Best Efforts...................................................................................11
6.06 Casualty Loss...............................................................................................11
6.07 Employee Matters............................................................................................11
6.08 No Solicitation.............................................................................................11
6.09 Employment Agreements.......................................................................................12
6.10 Noncompetition Agreement....................................................................................12
6.11 Lock-Up Agreement...........................................................................................12
6.12 Use of Name.................................................................................................12
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS....................................................12
7.01 Conditions to Obligations of All Parties....................................................................12
7.02 Conditions to Obligations of Stockholders...................................................................12
7.03 Conditions to Obligations of GRS............................................................................13
ARTICLE VIII - SURVIVAL...........................................................................................15
8.01 Survival of Representations and Warranties of the Company and the
Stockholders................................................................................................15
ARTICLE IX - INDEMNIFICATION......................................................................................15
9.01 Obligation of the Stockholders to Indemnify.................................................................15
9.02 Obligation of GRS to Indemnify..............................................................................16
9.03 Notice and Opportunity to Defend............................................................................16
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
9.04 Limitations on Indemnification..............................................................................17
9.05 Set-Off Rights..............................................................................................18
ARTICLE X - POST-CLOSING OBLIGATIONS..............................................................................18
10.01 Further Assurances..........................................................................................18
10.02 Publicity...................................................................................................18
10.03 Access to Records...........................................................................................18
ARTICLE XI - MISCELLANEOUS........................................................................................19
11.01 Brokers.....................................................................................................19
11.02 Costs and Expenses..........................................................................................19
11.03 Notices.....................................................................................................19
11.04 Governing Law...............................................................................................20
11.05 Representations and Warranties..............................................................................20
11.06 Entire Agreement, Amendments and Waivers....................................................................20
11.07 Binding Effect and Assignment...............................................................................21
11.08 Remedies....................................................................................................21
11.09 Exhibits and Schedules......................................................................................21
11.10 Multiple Counterparts.......................................................................................21
11.11 References..................................................................................................21
11.12 Survival....................................................................................................21
11.13 Attorneys' Fees.............................................................................................21
ARTICLE XII - DEFINITIONS.........................................................................................22
12.01 Affiliate...................................................................................................22
12.02 Collateral Agreements.......................................................................................22
12.03 Company Assets..............................................................................................22
12.04 Contract Retention..........................................................................................22
12.05 Current Assets..............................................................................................22
12.06 Current Liabilities.........................................................................................22
12.07 Damages.....................................................................................................22
12.08 Environmental Law...........................................................................................23
12.09 GAAP........................................................................................................23
12.10 Governmental Authorities....................................................................................23
12.11 Hazardous Substances........................................................................................23
12.12 Knowledge...................................................................................................23
12.13 Legal Requirements..........................................................................................23
12.14 Permits.....................................................................................................23
12.15 Properties..................................................................................................23
12.16 Proportionate Share.........................................................................................23
12.17 Regulations.................................................................................................24
12.18 Taxes.......................................................................................................24
12.19 Tax Returns.................................................................................................24
12.20 Used........................................................................................................24
</TABLE>
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<PAGE> 4
LIST OF EXHIBITS
----------------
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for Patrick Butcher
Exhibit H - Employment Agreement for Joseph Butcher
Exhibit I - Noncompetition Agreement for Stephan Slavik
Exhibit J - Noncompetition Agreement for Martin J. Baecker
Exhibit K - Opinion of Baker & McKenzie
Exhibit L - Opinion of Williams, Williams, Ruby & Plunkett, P.C.
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of May 13, 1998, by and among (i) General Roofing Services, Inc. a Florida
corporation (the "Buyer" or "GRS"),(ii) S & B Roofing Services, Inc., a Michigan
corporation (the "Company"), and (iii) all of the stockholders of the Company
(the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable for
their welfare and best interests that the Stockholders sell and GRS purchase all
of the issued and outstanding capital stock of the Company, consisting of 10,000
shares (the "Shares") of common stock, $1.00 par value ("Company Common Stock"),
upon the terms and subject to the conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange within
the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to such
use shall have the respective meanings given such terms in Article XII hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01 Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this Agreement,
at the Closing referred to in Section 2.01 hereof, each Stockholder shall sell,
transfer, convey and deliver to GRS, and GRS shall purchase, acquire and accept
from each Stockholder, the number of shares of Company Common Stock set forth
opposite the name of each such Stockholder on Exhibit A hereto under the heading
"Number of Shares of Company Common Stock Purchased", constituting all of the
issued and outstanding shares of Company Common Stock. The sale and purchase of
the Company Common Stock pursuant to this Agreement is sometimes hereinafter
referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a), at
the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholder's Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares of
Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $3,599,951. The Purchase Price shall be
subject to adjustment as provided in this Agreement and shall be allocated among
the Stockholders in accordance with their respective ownership interests as set
forth on Exhibit A hereof. The Purchase Price, as so adjusted, shall be
delivered to the Stockholders in accordance with their respective Proportionate
Share and to the Escrow Agent (as defined in Section 1.03(b) hereof), subject to
and in accordance with Section 1.03 hereof. The amount of the Purchase Price
allocated to each outstanding share of Company Common Stock is hereinafter
referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $617,951
(the "Target Net Book Value") (such adjustment is referred to herein as the "Net
Book Value Adjustment"); provided, that the Net Book Value as determined
pursuant to the Closing Date Unaudited Balance Sheet shall not be less than
$567,951 (the "Minimum Net Book Value"). For purposes of this Agreement, Net
Book Value shall mean the excess of the Company's total assets over the
Company's total liabilities determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered to
GRS within fifteen days prior to the Closing Date (i) an unaudited balance sheet
of the Company forecasted as of the Closing Date (the "Closing Date Unaudited
Balance Sheet"), (ii) a calculation of the Purchase Price Adjustment, if any,
determined pursuant to Section 1.02(b) above, and (iii) a certificate executed
by the Company's Chief Financial Officer (or another duly authorized officer of
the Company) to the effect that the Closing Date Unaudited Balance Sheet has
been prepared from the books and records of the Company and in a manner
consistent with the preparation of the Company Financial Statements (as defined
in Section 3.06 hereof).
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section 1.01(b)
hereof of a certificate or certificates representing all of the issued and
outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $899,988, representing
twenty-five percent (25%) of the Purchase Price, minus (ii) the amount of the
Purchase Price Adjustment, if any, shall be paid directly to the holders thereof
by wire transfer in New York Clearing House Funds in accordance with Exhibit A
hereto.
(b) An aggregate of $2,699,963 shall be paid by the delivery to
(A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of the GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $719,990, representing twenty percent (20%) of
the Purchase Price (the "Escrow Fund"), based upon the public offering price of
the GRS Common Stock to be sold in its initial public offering (the "Offering")
and (B) to the Stockholders in accordance with Exhibit A hereto, of such number
of shares of GRS Common Stock as shall have a value equal to $1,979,973 based
upon the public offering price of the GRS Common Stock to be sold in the
Offering. The shares of GRS Common Stock to be so held in escrow shall be held
by the Escrow Agent for a period of one year following the Closing in accordance
with the terms of an Escrow Agreement in the form of Exhibit B hereto (the
"Escrow Agreement"), and shall thereafter be restricted from transfer for an
additional one-year period in accordance with the terms, and subject to the
conditions, of a Lock-Up Agreement in the form of Exhibit C hereto (the "Lock-Up
Agreement"). The Stockholders shall receive cash in lieu of fractional shares.
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<PAGE> 7
(c) Each certificate evidencing shares of GRS Common Stock issued
in connection with the Stock Purchase shall bear the following restrictive
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933 ACT"), NOR
UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED,
SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE
1933 ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO
THE HOLDER OF SUCH SHARES, WHICH OPINION IS SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH SECURITIES MAY BE TRANSFERRED,
SOLD, ASSIGNED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933
ACT OR APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b) hereof,
if any, and within 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Purchase Price Adjustment,
if any, and the cash portion of the Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by GRS to
the Stockholders of a Purchase Price Notice, the Stockholders may deliver to GRS
a written notice advising GRS either that the Stockholders (A) agree with the
calculation of the Purchase Price Adjustment, or (B) believe that one or more
adjustments are required. If the Stockholders shall concur with the calculation
of the Purchase Price Adjustment, if any, or if the Stockholders shall not
object thereto in a written notice delivered to GRS within five (5) business
days after the Stockholders' receipt of the Purchase Price Notice, the Purchase
Price as set forth in the Purchase Price Notice, if any, shall become final and
shall not be subject to further review, challenge or adjustment absent fraud.
(ii) In the event that GRS timely submits the Purchase Price
Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the disagreements
with respect to the proposed Purchase Price Adjustment prior to the Closing,
then such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing roofing or construction
companies and selected by mutual agreement of Stockholders and GRS (the
"Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment, absent fraud. In the
event that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination not more than five (5) days after such referral. The costs and
expenses of the services of the Settlement Accountants shall be paid equally by
the Stockholders and GRS. Pending the final determination by the
3
<PAGE> 8
Settlement Accountants of the Purchase Price Adjustment, if any, (the "Final
Determination"), the difference between the determination by the Stockholders
and GRS of the Purchase Price Adjustment, if any, shall be withheld from the
cash portion of the Purchase Price to be delivered pursuant to Section 1.03(a)
and shall be paid in accordance with and upon the Final Determination. Any such
dispute shall not delay the Closing.
(c) After the final determination of the Purchase Price pursuant
to Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the
adjustment determined pursuant thereto shall be deducted from the cash portion
of the Purchase Price and allocated among the Stockholders in accordance with
their respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to distribute
to the Stockholders as in proportion to their respective stock ownership
interests those tangible assets (the "Excluded Assets") which GRS and the
Stockholders have agreed in writing are not required by the Company in the
conduct of its operations and which are listed in Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall such
distributions be made to the extent that the Closing Net Book Value would be
less than the Minimum Net Book Value.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders' Representative"
shall mean Joseph E. Butcher or any person appointed as a successor
Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all obligations
under this Agreement have been discharged (including all indemnification
obligations hereunder and all obligations under the Escrow Agreement), the
Stockholders who, immediately prior to the Closing, held Company Common Stock
representing an aggregate number of shares of Company Common Stock which
exceeded 50% of the amount of such Company Common Stock outstanding immediately
prior to such time (a "Majority"), may, from time to time upon written notice to
the Stockholders' Representative and GRS, remove the Stockholders'
Representative or appoint a new Stockholders' Representative to fill any vacancy
created by the death, incapacitation, resignation or removal of the
Stockholders' Representative. Furthermore, if the Stockholders' Representative
dies, becomes incapacitated, resigns or is removed by a Majority, the Majority
shall appoint a successor Stockholders' Representative to fill the vacancy so
created. If the Majority is required to but has not appointed a successor
Stockholders' Representative within 20 business days from a request by GRS to
appoint a successor Stockholders' Representative, GRS shall have the right to
appoint a Stockholders' Representative to fill any vacancy so created, and shall
advise all those who were holders of Company Common Stock immediately prior to
the Closing of such appointment by written notice. A copy of any appointment by
the Majority of any successor Stockholders' Representative shall be provided to
GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to take
any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right
4
<PAGE> 9
and power to execute the Escrow Agreement on their behalf with such changes or
amendments thereto as the Stockholders' Representative shall determine to be
necessary or desirable in his sole and absolute discretion. Any party receiving
an Instrument from the Stockholders' Representative shall have the right to rely
in good faith upon such Instrument, and to act in accordance with the Instrument
without independent investigation.
(d) GRS shall have no liability to any Stockholder or otherwise
arising out of the acts or omissions of the Stockholders' Representative or any
disputes among the Stockholders or with the Stockholders' Representative. GRS
may rely entirely on its dealings with, and notices to and from, the
Stockholders' Representative to satisfy any obligations it might have to the
Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless the
Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
Section 1.07 Earn-Out. (a) As additional consideration for the sale of the
Company Common Stock, subject to the provisions of Section 1.07(c), if the
Company's EBIT (as defined and determined pursuant to Section 1.07(b) hereof)
for the 12 month period following the month in which the Closing occurs (the
"Earn-Out Period"), is equal to or exceeds $497,000, as determined by reference
to the financial statements of the Company prepared in accordance with U.S.
generally accepted accounting principles applied in a manner consistent with
prior periods ("GAAP"), GRS shall deliver to the Stockholders within 60 days of
the last day of the Earn-Out Period (as defined below) for allocation among the
Stockholders in accordance with their respective Proportionate Share an
aggregate amount equal to (A) the amount of the Company's EBIT in excess of
$497,000, multiplied by (B) seven (the "Earn-Out Amount"); provided, that the
maximum Earn-Out Amount shall be $161,000. The Earn-Out Amount will be delivered
to the Stockholders in (i) cash by wire transfer of immediately available funds,
(ii) such number of shares of GRS Common Stock as shall have a value to the
Earn-Out Amount as computed in accordance with Section 1.07(f) hereof, or (iii)
a combination of cash and GRS Common Stock, the form of such consideration to be
determined by the Stockholders' Representative.
(b) For purposes of this Section 1.07, "EBIT" shall mean the
Company's net income before interest, federal and state income taxes and general
corporate overhead allocations, modified as follows:
(i) to the extent included in the net income of the Company,
excluding the effect of the following items;
(A) the gain or loss from any sale, exchange or other
disposition of assets other than in the ordinary course of business consistent
with past practice.
(B) any extraordinary gain or loss;
(C) any reserves or adjustments to reserves which are not
consistent with past practices of the Company; and
(D) any other adjustments agreed to in writing by GRS and
the Stockholders.
5
<PAGE> 10
(c) Within 30 days after the last day of the Earn-Out Period, GRS
shall prepare and deliver to the Stockholders' Representative a statement
setting forth in reasonable detail the computation of EBIT, including
identification of all excluded items and adjustments and all necessary
calculations in accordance with Section 1.07(b) hereof. The calculation of EBIT
shall be used in determining the amounts to be paid under Section 1.07 unless
the holders of at least 50% of the Company Common Stock on the date hereof give
GRS notice (the "EBIT Dispute Notice") that such Stockholders dispute GRS'
calculation of EBIT within ten (10) days after the initial determination of EBIT
has been given to the Stockholders, which notice shall set forth in reasonable
detail the exclusions or calculations being disputed in good faith (the
"Disputed Matters"). In the event a EBIT Dispute Notice is timely given to GRS,
GRS and the Stockholders shall have fifteen (15) days to resolve the dispute
and, if not resolved, the dispute shall be submitted to an internationally
recognized "Big Six" accounting firm or its successor (the "EBIT Arbitrator"),
selected by GRS and the Stockholders which shall be instructed to arbitrate such
disputed item(s) and determine EBIT within thirty (30) days. If within five days
following the expiration of such fifteen (15) day period GRS and the
Stockholders have failed to agree in writing upon the selection of the EBIT
Arbitrator or any EBIT Arbitrator selected by them has not agreed to perform the
services called for hereunder, the EBIT Arbitrator shall thereupon be selected
by the American Arbitration Association (the "AAA"), with preference being given
by the AAA in making such selection to any one of the "Big Six" accounting firms
(other than GRS' accountants and the Stockholders' accountants) willing to
perform such services. The EBIT Arbitrator shall consider only the Disputed
Matters. The resolution of disputes by the EBIT Arbitrator shall be set forth in
writing and shall be conclusive and binding upon and non-appealable by the
parties, and the determination of EBIT shall become final upon the date of such
resolution, and may be entered as a final judgment in any court of proper
jurisdiction. The fees and expenses of the EBIT Arbitrator with respect to
settlement of each Disputed Matter shall, to the extent such fees and expenses
are allocable, be borne in each such instance by the party against whom the
award of the EBIT Arbitrator is made, and if allocation is not feasible in any
such instance, then such fees and expenses shall be borne by the parties in
reverse proportion to the number of Disputed Matters settled in their respective
favor by the EBIT Arbitrator.
(d) Notwithstanding anything in this Agreement to the contrary, if
an EBIT Dispute Notice has been delivered with respect to any payment to be made
under this Section 1.07, and the dispute has not been resolved by the payment
due date, (i) the amount not in dispute shall be paid as required hereunder, and
(ii) GRS shall have no obligation to pay any amount until ten (10) days after
the date on which the dispute is resolved.
(e) Notwithstanding anything to the contrary in this Section 1.07,
the aggregate Earn-Out Amount shall not exceed $161,000.
(f) In the event that the Stockholders' Representative elects to
receive GRS Stock as payment, in whole or in part, of the Earn-Out Amount, the
number of shares of GRS Common Stock to be so delivered shall be based upon the
average closing price of GRS Common Stock as quoted on the Nasdaq Stock Market's
National Market ("Nasdaq") for the last five business days of the Earn-Out
Period.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by
6
<PAGE> 11
the parties hereto. The date upon which the Closing occurs is hereinafter
referred to as the "Closing Date." The Closing shall be deemed completed as of
11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the Closing,
the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued and
outstanding shares of Company Common Stock in proper
form for transfer to GRS;
(ii) the resignations of all members of the board directors
of the Company as set forth in Section 7.03(m);
(iii) the stock books, stock ledgers, minute books and
corporate seals of the Company;
(iv) a certificate executed by the Company to the effect
that the conditions set forth in Sections 7.03(b)
through 7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section 7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant to Section
7.03(o).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to or on behalf of the Stockholders:
(i) by wire transfer in immediately available funds to the
Stockholders the payment described in Section 1.03(a)
as being required to be paid by GRS at Closing;
(ii) by delivery to the Stockholders the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Stockholders at
Closing;
(iii) by delivery to the Escrow Agent the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Escrow Agent at
Closing;
(iv) a certified copy of all necessary corporate action on
behalf of GRS approving its execution, delivery and
performance of this Agreement and the Collateral
Agreements to which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized officer of GRS
to the effect that the conditions set forth in Sections
7.02(b) and 7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section 7.02(d);
(vii) the executed Collateral Agreements to which it is a
party; and
(viii) evidence that: (a) the Stockholders have been released
from all personal guarantees relating to any
obligations of the Company, including but not
7
<PAGE> 12
limited to, any bank loans, lines of credit, and/or
performance bonds (the "Personal Guarantees and
Obligations") and (b) GRS shall indemnify and hold
harmless the Stockholders from and against any
personal liability or obligations relating to or arising
out of any Personal Guarantees or Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of business
on September 30, 1998 (the "Termination Date"), the Closing has not occurred,
then any party hereto may thereafter terminate this Agreement by written notice
to such effect, to the other parties hereto, without liability of or to any
party to this Agreement or any shareholder, director, officer, employee or
representatives of such party unless the reason for Closing having not occurred
is (i) such party's willful breach of the provisions of this Agreement, or (ii)
if all of the conditions to such party's obligations set forth in Article VII
have been satisfied or waived in writing by the date scheduled for the Closing
pursuant to Section 2.01, the failure of such party to perform its obligations
under this Article II on such date; provided, however, that any termination
pursuant to this Section 2.04 shall not relieve any party hereto who was
responsible for Closing having not occurred as described in clauses (i) or (ii)
above of any liability for (x) such party's willful breach of the provisions of
this Agreement, or (y) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party to
perform its obligations under this Article II on such date. Notwithstanding the
foregoing, the Stockholders expressly acknowledge and agree that market and
economic conditions are impossible to predict, and although GRS intends to
proceed with the Offering in an expeditious manner at this time, GRS shall not
be liable to the Stockholders or the Company if the Closing has not occurred
because the Offering has not been consummated prior to the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set forth
on Exhibit E hereto, the full text of which is incorporated herein by reference
as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set forth
on Exhibit F hereto, the full text of which is incorporated herein by reference
as if set forth fully herein.
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ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders shall
permit GRS and its authorized employees, agents, accountants, legal counsel and
other representatives, at GRS' own expense, to have access to the books,
records, employees, counsel, accountants, and other representatives of the
Company at all times reasonably requested by GRS for the purpose of conducting
an investigation ("GRS' Due Diligence Investigation") of the Company's financial
condition, corporate status, operations, business and Properties. The
Stockholders shall make available to GRS for examination and reproduction, at
GRS' own expense, all documents and data of every kind and character relating to
the Company in possession or control of, or subject to reasonable access by, the
Stockholders or the Company, including, without limitation, all files, records,
data and information relating to the Company Assets (whether stored in paper,
magnetic or other storage media) and all agreements, instruments, contracts,
assignments, certificates, orders, and amendments thereto. Also, the Company
shall allow GRS, at GRS' own expense, access to, and the right to inspect, the
Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The Stockholders
shall keep GRS advised as to all material operations and proposed material
operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and workmanlike manner, (d) pay or cause to
be paid all costs and expenses (including but not limited to insurance premiums)
incurred in connection therewith in a timely manner, (e) use reasonable efforts
to keep all Company Contracts listed or required to be listed on Schedule 3.12
in full force and effect, (f) comply with all of the covenants contained in all
such Company Contracts, (g) maintain in force until the Closing Date insurance
policies (subject to the provisions of Section 6.06) equivalent to those in
effect on the date hereof, and (h) comply in all material respects with all
applicable Legal Requirements. Except as otherwise contemplated in this
Agreement, the Stockholders shall use their best efforts to preserve the present
relationships of the Company with persons having significant business relations
therewith.
Section 6.03 General Restrictions. Except as otherwise expressly permitted
in this Agreement, without the prior written consent of GRS, the Company shall
not:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof, declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of its
capital stock, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
view of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(ii) except as disclosed on Schedule 6.03(ii), issue,
deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws (or
similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business of any
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corporation, partnership, joint venture, association or other business
organization or division thereof or (B) any assets that are material,
individually or in the aggregate, to the Company or any Subsidiary, except
purchases of assets in the ordinary course of business consistent with
past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
otherwise dispose of, or agree to sell, transfer, lease, mortgage, encumber
or otherwise dispose of, any Properties except (A) in the ordinary course
of business consistent with past practice, or (B) pursuant to any Company
Contract or except as permitted by Sections 1.05 and 3.02 hereof;
(vi) except as permitted by Section 1.05 hereof, (A) incur any
indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of the foregoing,
except for borrowings incurred in the ordinary course of business
consistent with past practice, or (B) make any loans, advances or capital
contributions to, or investments in, any other person;
(vii) make or agree to make any new capital expenditure or
expenditures which, individually is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 (other than those required pursuant to
currently outstanding Company Contracts or in the ordinary course of
business consistent with past practice);
(viii) make any material Tax election or settle or compromise any
material Tax liability;
(ix) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the Company Financial Statements (or the notes
thereto) or incurred in the ordinary course of business consistent with
past practice, or waive any material benefits of, or agree to modify in
any material respect, any confidentiality, standstill or similar
agreements to which the Company is a party;
(x) except in the ordinary course of business consistent with past
practice, modify, amend or terminate any Company Contract;
(xi) except in the ordinary course of business consistent with past
practice, enter into any contracts, agreements, arrangements or
understandings relating to performance by third parties of the Company's
services;
(xii) except as required to comply with applicable law (A) adopt,
enter into, terminate or amend any benefit plan or other arrangement for
the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except in a
manner consistent with past practice), (C) pay any benefit not provided
for under any benefit plan, (D) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or
benefit plan (including the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any benefit
plans or agreement or awards made thereunder) or (E) take any action to
fund or in any other way secure the payment of compensation or benefits
under any employee plan, agreement, contract or arrangement or benefit
plan;
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(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take any of,
the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto shall
use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of the conditions to such
other party's obligation to consummate the transactions contemplated hereby as
specified in Article VII of this Agreement to be fully satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and the
Closing, any of the Properties of the Company shall be destroyed or damaged in
whole or in part by fire, earthquake, flood, other casualty or any other cause
which materially affects the ability of the Company to conduct its business (a
"Casualty Loss"), then the Stockholders may, if requested by GRS, (i) cause the
Company to cause such Properties to be repaired or replaced prior to the Closing
with Property of substantially the same condition and function, (ii) cause the
Company to deposit in a separate account an amount sufficient to cause such
Property to be so repaired or replaced, or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause the
Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to, (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may
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reasonably be expected to lead to, any Third Party Acquisition Proposal. For
purposes of this Agreement, "Third Party Acquisition Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of all or a portion or more of the assets of the Company
or all or a portion of any class of equity securities of the Company or any
offer to acquire or purchase that if consummated would result in any person
beneficially owning all or a portion of any class of equity securities of the
Company, or any merger, consolidation, business combination, sale of assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company, other than the transactions contemplated by this Agreement, or any
other transaction the consummation of which could reasonably be expected to
impede, interfere with, prevent or delay, or dilute materially the benefits to
GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreements. On or before Closing, Patrick Butcher
and Joseph Butcher shall each have entered into an employment agreement in the
form of Exhibits G and H, respectively (the "Employment Agreements"), which
shall include noncompetition provisions, to take effect on and after the Closing
Date.
Section 6.10 Noncompetition Agreements. On or before the Closing, Stephan
Slavik and Martin J. Baecker shall each have entered into a noncompetition
agreement in the form of Exhibits I and J, respectively (the "Noncompetition
Agreements"), to take effect on and after the Closing Date.
Section 6.11 Lock-Up Agreement. On or before Closing, the Stockholders
shall have entered into the Lock-Up Agreement.
Section 6.12 Use of Name. . Following the Closing, GRS shall not use the
name "Slavik, Butcher & Baecker Construction Company, Inc." or "Slavik" in the
conduct of its business.
ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have
been made, and all orders, permits, waivers, authorizations, exemptions,
and approvals of such entities required to be in effect on the date of the
Closing in connection with the transactions contemplated hereby shall have
been issued, and all such orders, permits, waivers, authorizations,
exemptions or approvals shall be in full force and effect on the date of
the Closing; provided, however, that no provision of this Agreement shall
be construed as requiring any party to accept, in connection with
obtaining any other requisite approval, clearance or assurance of
non-opposition, avoiding any challenge, or negotiating settlement, any
condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no
transfers of licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any statute,
rule, regulation, decree, ruling, injunction or other order issued by any
Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the
consummation of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations of
the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
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(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in this
Agreement qualified by materiality shall be true and correct in all respects at
Closing and all other representations and warranties of GRS contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing, as if such representations and warranties were made at and as of the
Closing, except for changes contemplated by the terms of this Agreement except
as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms thereof, and GRS shall have performed and satisfied in
all material respects all covenants and agreements required by this Agreement to
be performed and satisfied by GRS at or prior to the Closing; provided, however,
that no Stockholder shall be entitled to refuse to consummate the transaction in
reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Stockholders or the
Company) shall be pending or threatened before any Governmental Authority
seeking to restrain the Stockholders from effectuating the Stock Purchase or
prohibit the Closing or seeking Damages against the Stockholders or the Company
as a result of the consummation of the transactions contemplated by this
Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
K. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and the
Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) GRS shall have furnished the Stockholders and the Company with
an Opinion Letter from Deloite & Touche which provides that the consummation of
the transactions described in this Agreement will qualify as a Section 351 Plan
of Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS to
carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered to
GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the
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Company at or prior to the Closing; provided, however, that GRS shall not be
entitled to refuse to consummate the transaction in reliance upon its own breach
or failure to perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of GRS) shall be pending or
threatened before any court or governmental agency seeking to restrain GRS or
prohibit the Closing or seeking Damages against GRS, the Stockholders, the
Company or its Properties as a result of the consummation of the transactions
contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from the
date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations, prospects or
financial condition of the Company that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company (whether or
not covered by insurance) that had or would reasonably be likely to have a
material adverse effect on the business, operations, prospects, Properties,
securities or financial condition of the Company.
(f) GRS shall have received the opinion of Williams, Williams, Ruby
& Plunkett, P.C., counsel to the Company and the Stockholders ("Sellers'
Counsel"), dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit L. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by reference to
the Closing Date Unaudited Balance Sheet shall be equal to or greater than the
Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall not be less than
$200,000. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness determined in accordance with GAAP.
(j) The Stockholders shall have executed and delivered to GRS the
Escrow Agreement.
(k) GRS shall have received the executed Employment Agreements for
Patrick Butcher and Joseph Butcher.
(l) GRS shall have received the executed Noncompetition Agreements.
(m) GRS shall have received the resignation of all of the members
of the board of directors of the Company, effective as of the Closing Date.
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(n) All proceedings to be taken by Stockholders or the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to GRS and its counsel, and
GRS and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(o) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company), except where the failure to have obtained
any such consent would not have an adverse effect on the Company or GRS
following the Closing.
(p) GRS shall be satisfied in its sole and absolute discretion
with GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(q) GRS shall have determined, in its reasonable discretion, that
all agreements between the Company and the Stockholders, shall be on terms as
favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(r) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company and
the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
knowledge, and the other party or parties (or any of them) are not aware, that
such representation or warranty is untrue or incorrect in any material respect.
All such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
The Basket Exclusions shall survive the Closing indefinitely, other than Section
3.28, which shall survive for the applicable statute of limitations.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to the
limitations contained in Article VIII and Article IX hereof, the Stockholders,
jointly and severally, agree to indemnify, defend and hold harmless GRS (and its
Affiliates, successors and assigns and their respective officers and directors)
from and against all losses, liabilities, damages, deficiencies, costs or
expenses (including interest, penalties and reasonable attorneys' fees and
disbursements, but offset by any proceeds from insurance and taking into account
the present value of any tax savings to GRS or the Company resulting from such
losses, liabilities, damages, deficiencies, costs or expenses) ("Losses") based
upon, arising out of or
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otherwise in respect of (i) any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Company or the
Stockholders contained in this Agreement, (ii) liabilities for Taxes incurred by
the Company with respect to actions prior to the Closing Date and (iii) any
liability arising out of any subsequent adjustment by any tax authorities with
respect to items attributable to periods prior to the Closing Date, (iv) the
extent that the Company's EBIT for the fiscal year ending June 30, 1998 is less
than $650,000, the parties hereto expressly agree and stipulate that GRS' Losses
for such deficiency shall be equal to 650,000 minus (i) EBIT for the Company's
fiscal year ending June 30, 1998 multiplied by (ii) 3.5.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim or circumstances
which, with the lapse of time, would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at their
own expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any
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such compromise or settlement consented to by GRS, shall be borne and paid by
the Stockholders. The parties agree to cooperate fully with one another in the
defense, compromise or settlement of any Asserted Liability.
Section 9.04 Limitations on Indemnification. The indemnification provided
for in Sections 9.01 and 9.02 shall be subject to the following limitations:
(i) The Stockholders shall not be obligated to pay any
amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders shall be
obligated to pay any amounts for indemnification under this Article IX, except
those based upon, arising out of or otherwise in respect of Sections 3.02, 3.21,
3.28, 3.29, 5.22, 5.29, 9.01 (ii), (iii) and (iv), 11.01 and 11.02 and Article
IV hereof (the "Basket Exclusions"), until the aggregate indemnification
payments, exclusive of the Basket Exclusions, equals one percent (1%) of the
Purchase Price (the "Basket Amount"), whereupon GRS, or the Company and
Stockholders, as the case may be, shall be obligated to pay any indemnification
payments, including the Basket Amount, in full. It is expressly understood that
the Basket Amount shall serve as a "trigger" for indemnification and not as a
"deductible" (for example, if the indemnity claims for which GRS or the
Stockholders would, but for the provisions of this subparagraph (ii), be liable
is in the aggregate amount of $100,000, and 1% of the Purchase Price is $70,000,
the Stockholders would then be liable for the entire $100,000 and not just
$30,000). This Section 9.04(ii) will not apply to any breach of any
representations and warranties of which any party had actual Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by any party of any covenant or obligation, and GRS or the
Stockholders, as the case may be, will be jointly and severally liable for all
damages with respect to such breaches.
(iii) GRS, the Company and Stockholders shall be obligated to
pay the Basket Exclusions without regard to the individual or aggregate amounts
thereof and without regard to whether the aggregate amount of all other
indemnification payments shall have exceeded, in the aggregate, the Basket
Amount.
(iv) Notwithstanding anything to the contrary in this
Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights set forth
in this Article IX shall be each party's sole and exclusive remedy against the
other party for any breach of any representation, warranty or covenant contained
in this Agreement. Notwithstanding the foregoing, nothing herein shall prevent
any party from bringing an action based upon allegations of fraud in connection
with this Agreement. In the event an action based upon allegations of fraud is
brought, the prevailing party's attorneys' fees and costs shall be paid by the
non-prevailing party.
(vi) GRS shall be deemed to have suffered Losses with
respect to accounts receivable reflected on the Closing Date Unaudited Balance
Sheet only if and to the extent that such accounts receivable, except for
Contract Retention, remain uncollected 180 days from the Closing Date. Contract
Retention will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract
17
<PAGE> 22
Retention will be credited back to the Escrow Fund based on the foregoing
formula to the extent such accounts receivable or Contract Retention are
recovered within the period of the Escrow Agreement. To the extent that GRS
suffers Losses from the failure to collect accounts receivable of the Company or
Contract Retention and such Losses result in a set-off from the Escrow Fund, the
related accounts receivable or Contract Retention shall be assigned to the
Stockholders following, and to the extent of, such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to Section
9.04 and, paragraphs (b) and (c) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
be satisfied first against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15) days'
notice (the "GRS Notice") of its intention to deduct or set-off any amounts
pursuant to this Section 9.05, including in such notice a description of GRS'
indemnification claim. If none of the Stockholders object in writing to such
deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties, and
the parties shall endeavor jointly to agree on the text of any announcement or
circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each of
the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have
18
<PAGE> 23
access to the employees, counsel, accountants and other representatives of the
Stockholders and their respective Affiliates, in each case, to the extent and at
all times reasonably requested by GRS for the purpose of investigating or
defending any claim made against the Stockholders or the Company in connection
with periods ending on or before the Closing Date and (ii) GRS shall use its
best efforts to permit the Stockholders and their respective authorized
employees, agents, accountants, legal counsel and other representatives to have
access to the employees, counsel, accountants and other representatives of GRS,
the Company and their Affiliates, in each case, to the extent and at all times
reasonably requested by the Stockholders, or any of them, for the purpose of
investigating or defending any claim made against the Stockholders in connection
with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur, (i)
each Stockholder shall jointly and severally indemnify and hold harmless GRS and
the Company from and against any and all liability for any brokers or finders'
fees arising with respect to brokers or finders retained or engaged by the
Company or any of the Stockholders in respect of the transactions contemplated
by this Agreement, and (ii) GRS shall indemnify and hold harmless the
Stockholders from and against any and all liability for any brokers' or finders'
fees arising with respect to brokers or finders retained or engaged by GRS in
respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence or
other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
<TABLE>
<S> <C>
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: S & B Roofing Services, Inc.
3885 Industrial Drive
Rochester Hills, Michigan 48309
Attn: Joseph Butcher
Telecopy No. (248) 852-1226
</TABLE>
19
<PAGE> 24
<TABLE>
<S> <C>
With a copy to: Robert S. Bick, Esq.
R.J. Williams, Jr., Esq.
Williams, Williams, Ruby & Plunkett, P.C.
380 Old Woodward Avenue, Suite 300
Birmingham, Michigan 48009
Telecopy No: (248) 642-0856
and
Ralph A. Castelli, Jr.
Kemp, Klien, Umphrey & Endleman, P.C.
201 West Big Beaver Road - Suite 600
Columbia Center
P.O. Box 4300
Troy, Michigan 48099-4300
Telecopy No: (248) 528-5129
</TABLE>
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
Section 11.05 Representations and Warranties. Each of the representations
and warranties of each of the parties to this Agreement shall be deemed to have
been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of
20
<PAGE> 25
whether similar), nor shall any such waiver constitute a continuing waiver
unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this Agreement
are cumulative, and the use of any one right or remedy by any party hereto shall
not preclude or constitute a waiver of its right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights and
remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules referred
to herein are attached hereto and incorporated herein by this reference.
Disclosure of a specific item in any one schedule shall be deemed restricted
only to the Section to which such disclosure specifically relates except where
(i) there is an explicit cross-reference to another Schedule, and (ii) GRS could
reasonably be expected to ascertain the scope of the modification to a
representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used in
this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing for the
time period set forth in Section 8.01 hereof and shall be binding upon the party
or parties obligated thereby in accordance with the terms of this Agreement,
subject to any limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
21
<PAGE> 26
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective meanings
ascribed to such terms in this Article XII, unless otherwise defined in this
Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect to
any person, any other person controlling, controlled by or under common control
with such person. The term "Control" as used in the preceding sentence means,
with respect to a corporation, the right to exercise, directly or indirectly,
more than fifty percent (50%) of the voting rights attributable to the shares of
the controlled corporation and, with respect to any person other than a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements" shall
mean any or all of the following agreements, the forms of which are attached
hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for Patrick Butcher
Exhibit H - Employment Agreement for Joseph Butcher
Exhibit I - Noncompetition Agreement for Stephan Slavik
Exhibit J - Noncompetition Agreement for Martin J. Baecker
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean, with
respect to the Company, all of the Properties, Company Contracts, and Permits,
that were Used by the Company as of the Balance Sheet Date and those Used by the
Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall mean
any amounts withheld by customers from contract progress billing until final and
satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean, with
respect to the Company, cash and other assets that are expected to be converted
into cash, sold or exchanged within one year from the Closing Date, including
marketable securities, receivables, inventory and current prepayments .
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Damages. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments
22
<PAGE> 27
(including without limitation income and other Taxes, interest, penalties and
attorneys' and accountants' fees and disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and re-authorized from time to time.
Section 12.09 GAAP. The term GAAP shall mean generally accepted accounting
principles applied on a basis consistent with past practices (except for the
omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers who are Stockholders with respect to
the representation being made, and such knowledge of any such persons as
reasonably should have obtained upon due investigation and inquiry into the
representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all permits or
orders under any Legal Requirement or otherwise granted by any Governmental
Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
23
<PAGE> 28
Section 12.17 Regulations. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By:/s/ Gregg Wallick
-------------------------------
Gregg Wallick, President
S & B ROOFING SERVICES, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
STOCKHOLDERS:
/s/ Stephan Slavik
-------------------------------
Stephan Slavik
/s/ Joseph Butcher
-------------------------------
Joseph Butcher
/s/ Patrick Butcher
-------------------------------
Patrick Butcher
/s/ Martin J. Backer
-------------------------------
Martin J. Baecker
24
<PAGE> 29
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares
Of Company
Common Stock Percentage (%)
Name Purchased of Ownership
---- ---------------- --------------
<S> <C> <C>
Stephan Slavik .................... 3,200 32%
Joseph Butcher .................... 2,475 24.75%
Patrick Butcher ................... 2,475 24.75%
Martin J. Baecker ................. 1,850 18.5%
Total ........................... 10,000 100%
====== =====
</TABLE>
25
<PAGE> 30
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of Michigan, and is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been made
available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) Except for S&B General Contracting, Inc. which is a
wholly-owned subsidiary of the Company and which has been formed for the purpose
of the transfer and assignment of the assets of the general contracting business
of the Company to S&B General Contracting, Inc., the Company does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized capital
stock of the Company consists of 50,000 shares of Company Common Stock. The
issued and outstanding shares of Company Common Stock are owned of record and
beneficially by the Stockholders shown on Exhibit A hereof. All of the presently
outstanding shares of capital stock of the Company have been validly authorized
and issued and are fully paid and nonassessable. The Company has not issued any
other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, except as set forth on Schedule 3.02. Except as
contemplated under this Agreement, there are no agreements to which the Company
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock. Except for possible dividends to be
issued in connection with the Excluded Assets as described in Section 1.05, no
dividends are accrued but unpaid on any capital stock of the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set forth
in Schedule 3.04 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the Articles of Incorporation or By-laws of the Company;
<PAGE> 31
(ii) violate any Legal Requirements applicable to the
Company;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to the Company;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of the Company; or
(v) require any of the Stockholders or the Company to obtain
or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority. Any and all consents required to be
obtained by the Company as set forth in Schedule 3.04 shall be obtained and
copies thereof delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no suit,
action or other proceeding is pending or, to the Knowledge of the Company or the
Stockholders, threatened before any Governmental Authority seeking to restrain
any of the Stockholders or prohibit their entry into this Agreement or prohibit
the Closing, or seeking damages against the Company or its Properties, as a
result of the consummation of the transactions contemplated by this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true and
correct copies of the Company's (i) Closing Date Unaudited Balance Sheet, (ii)
unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
nine months ended March 31, 1998 (the "Interim Company Financial Statements"),
as well as (iii) the Company's balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended June 30, 1997 (the "Company Financial Statements"). The Company Financial
Statements (i) have been prepared from the books and records of the Company,
(ii) present fairly the financial condition of the Company and its results of
operations as at and for the respective periods then ended, and (iii) have been
prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in Schedule
3.07, the Company Financial Statements reflect all liabilities of the Company as
determined in accordance with generally accepted accounting principles arising
out of transactions effected or events occurring on or prior to the date of the
Interim Company Balance Sheet, except for liabilities not exceeding $10,000 in
the aggregate. All reserves shown in the Company Financial Statements are
appropriate and reasonable to provide for losses thereby contemplated. Except as
set forth in the Company Financial Statements (including the Notes thereto), the
Company is not liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner, any debt,
obligation or dividend of any person, corporation, association, partnership,
joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in Schedule
3.08, the accounts receivable reflected on the Interim Company Balance Sheet and
all accounts receivable arising between the date of the Interim Company Balance
Sheet (the "Interim Company Balance Sheet Date") and the date hereof, arose from
bona fide transactions in the ordinary course of business, and the goods and
services involved have been sold, delivered and performed to the account of the
obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle the Company to collect the
accounts receivable in full. No such account has been assigned or pledged to any
other person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim Company Balance Sheet, no defense or setoff
to any such account has been asserted by the account obligor.
2
<PAGE> 32
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended June 30, 1998 (collectively, the "Company Key Employees"). In
addition, Schedule 3.09(a) contains a complete and accurate description of (i)
all increases in compensation of the Company Key Employees during the fiscal
years of the Company ended June 30, 1998 and 1997, respectively, and (ii) any
promised increases in compensation of the Company Key Employees that have not
yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of all
Compensation Plans sponsored by the Company or to which the Company contributes
on behalf of its employees, other than Employee Benefit Plans listed in Schedule
3.10. As used herein, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of all
Employment Agreements. As used in Sections 3.09(c) and 3.09(e) hereof,
"Employment Agreements" shall mean and include, without limitation, employee
leasing agreements, employee services agreements and noncompetition agreements
to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate list
of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company (i) has been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), (i) the Company has
not been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit and
(iii) the employees of the Company have not threatened to organize or join a
union, labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
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Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency. No prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of the
Company, have been threatened that could result in the revocation of any such
favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) The Company has no obligation or commitment to provide
medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in Schedule
3.11, from the Interim Company Balance Sheet Date to the date of this Agreement,
the Company has not:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of the Company, or any Stockholder, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
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(b) contracted for the purchase of any capital assets having a cost
in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities, except in the ordinary course of business consistent with
past practice;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its Properties or Company Assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any Company
Assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05 hereof;
(i) written up or written down the carrying value of any of the
Company Assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices followed
or changed the costing system or depreciation methods of accounting for the
Company Assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of the Company's capital stock;
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(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which the
Company is a party (the "Company Contracts") set forth in Schedule 3.12, the
Company has not entered into, nor is the capital stock, the assets or the
business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in
the ordinary course of business;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
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(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23 hereof; or
(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not received
notice of any plan or intention of any other party to any Company Contract to
exercise any right to cancel or terminate any Company Contract. The Company does
not currently contemplate, and has no reason to believe any person or entity
currently contemplates, any amendment or change to any Company Contract. None of
the customers, joint venture partners or suppliers of the Company has refused,
or communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will maintain
through the Closing Date, comprehensive insurance coverage with respect to all
of its completed operations. The Company has previously made available to GRS
all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except as set forth on Schedule 3.14(a), the Company owns all
patents, trade-marks, service marks and copyrights (collectively "Proprietary
Rights"), if any, necessary to conduct its business, or possesses adequate
licenses or other rights, if any, therefor, without conflict with the rights of
others. Set forth in Schedule 3.14(a) is a true and correct description of all
Proprietary Rights.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock
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Purchase, GRS will have the right to use all Proprietary Rights without any
obligation to pay any additional amounts whatsoever. Use of the Proprietary
Rights does not require the consent of any other person and the Proprietary
Rights are freely transferable. No claim has been asserted by any person to the
ownership of or right to use any Proprietary Right or challenging or questioning
the validity or effectiveness of any license or agreement constituting a part of
any Proprietary Right. Each of the Proprietary Rights is valid and subsisting,
has not been canceled, abandoned or otherwise terminated and, if applicable, has
been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by the
Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has good
and marketable title to the Company Assets, including, without limitation, those
reflected on the Interim Company Balance Sheet (other than those since disposed
of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for Taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and total
lease payments is attached hereto as Schedule 3.15(c). The Company enjoys
peaceful and undisturbed possession under all real property leases under which
the Company is operating, and all such leases are valid and subsisting and none
of them is in default, except for those defaults which, individually or in the
aggregate, would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its properties and to conduct its businesses as presently conducted. The
business and operations of the Company have been and are being conducted in
accordance in all material respects with all applicable laws, rules and
regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in Schedule
3.17, there are no claims, actions, suits, investigations or proceedings against
the Company pending or, to the Knowledge of the Company, threatened in any court
or before or by any Governmental Authority, or before any arbitrator, that could
reasonably be expected to have a material adverse effect (whether covered by
insurance or not) on the business, operations, prospects, Properties, securities
or financial condition of the Company. Except as otherwise set forth in Schedule
3.17, the Company is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any
Company Contract or any Legal Requirement or Permit applicable to the Company,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any Company Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition (a "Material Adverse Effect") of the Company.
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Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of the
Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which Company Business is or was, or, to knowledge of the Company, at which the
business of its predecessors was, located which would have a Material Adverse
Effect on the Company. With respect to underground storage tanks, Schedule
3.18(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of the
Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of the Company, threat of a "release" of any Hazardous Substance
on, from or under any premises from which (i) the Company's operations have been
or are being conducted related to the Company Business. or (ii) to the Knowledge
of the Company, the operations of any predecessor of the Company which would
have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the Company's
and, to the Knowledge of the Company, its predecessor's, Hazardous Substances
disposal and recycling practices related to the Company Business have been
accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall not
be interpreted to imply that GRS has constructive knowledge regarding any aspect
of the Company Business with respect to environmental matters nor to limit the
scope of any of the Company's or any Stockholders' representations under this
Agreement. No such due diligence examination or related activities of, or on
behalf of, GRS however, shall constitute a waiver or relinquishment by GRS of
its right to rely upon the Company's or any Stockholders' representations,
warranties, covenants and agreements as made herein or pursuant hereto, and no
such disclosure shall constitute an assumption by GRS of any conditions or
liabilities, and such disclosure shall not relieve the Company or any
Stockholder of its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or
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safe deposit box or vault, (ii) the names of all persons authorized to draw
thereon or to have access to any safe deposit box or vault, (iii) the purpose of
each such account, safe deposit box or vault, and (iv) the names of all persons
authorized by proxies, powers of attorney or other like instrument to act on
behalf of the Company in matters concerning any of its business or affairs.
Except as otherwise set forth in Schedule 3.19, no such proxies, powers of
attorney or other like instruments are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth all
the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve month period
ended June 30, 1997, and the nine (9) month period ended March 31, 1998, as well
as each of the principal customers of the Company. Except as otherwise set forth
in Schedule 3.20, since March 31, 1998, there has been no material adverse
change in the business relationship of the Company with any supplier or customer
named in Schedule 3.20. No customer or supplier named in Schedule 3.20 has
terminated or materially altered, or notified the Company of any intention to
terminate or materially alter, its relationship with the Company, and the
Company has no reason to believe that any such customer or supplier will
terminate or materially alter its relationship with the Company or to materially
decrease its services or supplies to the Company or its direct or indirect usage
of the services of the Company. For purposes of Sections 3.20 and 3.23,
"material suppliers" refers to suppliers from whom the Company purchased five
percent (5%) or more of the total amount of the goods purchased by the Company
during the twelve month period ended June 30, 1997, and the nine (9) month
period ended March 31, 1998 and the 9 month period ended March 31, 1998, and
"principal customers" refers to customers who accounted for 5% or more of the
Company's total revenues during the twelve month period ended June 30, 1997, and
the nine (9) month period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by the Company or the Stockholders to GRS or its counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set forth
in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. Except as provided in Schedule
3.24, no director or executive officer of the Company owns directly or
indirectly any material interest or has any investment equal to 5% or more of
the outstanding voting securities in any corporation, business or other person
that is a direct competitor of the Company.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate (other than from personal funds of directors,
officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law).
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Section 3.26 Government Inquiries. Except as set forth on Schedule 3.26,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any Stockholder
has entered into any agreements or arrangements and there are no pending offers
or discussions concerning or providing for the merger or consolidation of the
Company or all or any substantial portion of its assets, the sale by the Company
or any Stockholder of any securities of the Company or any similar transaction
affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income Tax
Returns, and all other material Tax Returns which it is required to file under
applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in all
material respects;
(iii) has paid all Taxes due and owing by it (whether or not
such Taxes are required to be shown on a Tax Return) and has withheld and paid
over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Closing Date Unaudited
Balance Sheet is sufficient to pay in full all liabilities for Taxes of the
Company related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited; and
(vi) the Company has disclosed in its federal income Tax
Returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC Section 6662.
(b) To the Knowledge of the Company, no claim has been made by a
taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local Tax audits
or administrative or judicial proceedings pending or being conducted with
respect to the Company;
(ii) no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by the
Company from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning the
Company's Tax liability.
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(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company, except where such waiver would not have a material adverse
effect on the Company.
(e) The Company has not executed or entered into a closing
agreement pursuant to IRC Section 7121 or any predecessor provision thereof or
any similar provision of state, local or foreign law; nor has the Company agreed
to or is required to make any adjustments pursuant to IRC Section 481(a) or any
similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company. The Company has no knowledge that
the IRS has proposed any such adjustment or change in accounting method, or has
any knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC Section 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(i) The Company has not made any payments nor is it obligated to
make payments nor is it a party to an agreement that could obligate it to make
any payments that would not be deductible under IRC Section 280G.
(j) The Company shall prepare or cause to be prepared and file or
cause to be filed all federal and state income Tax Returns for the Company for
tax periods ending on or prior to the Closing Date which are filed after the
Closing Date. The Company shall permit GRS to review and comment on each such
Tax Return described in the preceding sentence prior to filing.
(k) GRS, the Company and the Stockholders shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Section 3.28 and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.
(l) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any New York State Gains Tax, New York
City Transfer Tax, if applicable, and any similar Tax imposed in other states
and subdivisions), shall be paid by the Stockholders when due, and the
Stockholders will, at their expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes and fees, and, if required by
applicable law, GRS will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
Section 3.29 Financial Performance. The Company's EBIT for the Company's
fiscal year ending June 30, 1998 (the "Performance Period") shall not be less
than $650,000.
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EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such Stockholder
shall own beneficially and of record, free and clear of any lien, option or
other encumbrance, the shares of Company Common Stock set forth opposite such
Stockholders' name on Exhibit A hereof, and, upon consummation of the Stock
Purchase, GRS will acquire good and valid title thereto, free and clear of any
lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such Stockholder
has the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement and to perform fully such
Stockholders' obligations hereunder. This Agreement has been duly executed and
delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common Stock
to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for its own
account and not on behalf of any other person; such Stockholder is aware and
acknowledges that the GRS Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be offered or sold
unless the GRS Shares are registered under the Securities Act or an exemption
from the registration requirements of the Securities Act is available;
<PAGE> 43
(b) Such Stockholder has been furnished all information that it
deems necessary to enable it to evaluate the merits and risks of an investment
in GRS; such Stockholder has had a reasonable opportunity to ask questions of
and receive answers from GRS concerning GRS and the GRS Shares, and all such
questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i) any
rights in and to the GRS Shares, which rights were obtained through or from such
Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in financial
and business matters (including knowledge and expertise in the roofing industry)
that it is capable of evaluating the merits and risks involved in an investment
in the GRS Shares: and such Stockholder is financially able to bear the economic
risk of the investment in the GRS Shares, including a total loss of such
investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal or
state agency has made any finding of determination regarding the fairness of the
offering of the GRS Shares for investment, or any recommendation or endorsement
of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for investment,
with no present intention of dividing or allowing others to participate in such
investment or of reselling, or otherwise participating, directly or indirectly,
in a distribution of the GRS Shares, and shall not make any sale, transfer or
pledge thereof without registration under the Securities Act and any applicable
securities laws of any state or unless an exemption from registration is
available;
(i) Except as set forth herein, no representations or warranties
have been made to such Stockholder by GRS or any agent, employee or Affiliate of
GRS, and in entering into this transaction such Stockholder is not relying upon
any information, other than from the results of independent investigation by
such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of the
GRS Shares except (i) pursuant to an effective registration statement under the
Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS, Sellers' Counsel or other counsel reasonably satisfactory to
GRS, is not required to be registered under the Securities Act.
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<PAGE> 44
EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate Documents.
(a) GRS is a corporation duly organized, validly existing and in
good standing under the laws of Florida, and is not required to be qualified to
do business as a foreign corporation in any other jurisdiction where the failure
to so qualify would have a material adverse effect on GRS. GRS has all required
corporate power and authority to own its properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of GRS, copies
of which are attached as Schedule 5.01(a), are complete and reflect all
amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized
capital stock of GRS consists of 100,000,000 shares, of which 90,000,000 shares
have been designated as GRS Common Stock and 10,000,000 shares have been
designated as Preferred Stock. All of the presently outstanding shares of
capital stock of GRS have been validly authorized and issued and are fully paid
and nonassessable. Except as set forth on Schedule 5.03, GRS has not issued any
other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares. No dividends are accrued but unpaid on any capital
stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
<PAGE> 45
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the articles of incorporation or By-laws of GRS;
(ii) violate any Legal Requirements applicable to GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver, consent,
action, approval or authorization of, or registration, declaration, notice or
filing with, any private non-governmental third party or any Governmental
Authority. Any and all consents required to be obtained by GRS as set forth in
Schedule 5.05 shall be obtained and copies thereof delivered to the Company and
the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no suit,
action or other proceeding is pending or, to the Knowledge of GRS, threatened
before any Governmental Authority seeking to restrain GRS or prohibit its entry
into this Agreement or prohibit the Closing, or seeking damages against GRS or
its Properties, as a result of the consummation of the transaction contemplated
by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in Schedule
5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS Balance
Sheets") and the related statements of income, stockholders' equity and cash
flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in Schedule
5.09, the accounts receivable reflected on the GRS Balance Sheet and all
accounts receivable arising between December 31, 1997 and the date hereof, arose
from bona fide transactions in the ordinary course of business, and the goods
and services involved have been sold, delivered and performed to the account of
the obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle GRS to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the GRS Balance Sheet, no defense or setoff to any such
account has been asserted by the account obligor.
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Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of GRS, regardless of
compensation levels, and other employees who are currently compensated at a rate
in excess of $50,000 per year (including any reasonably anticipated bonus) or
who earned in excess of $50,000 during GRS' fiscal year ended October 31, 1997
(collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a) contains
a complete and accurate description of (i) all increases in compensation of the
GRS Key Employees during the fiscal years of GRS ending October 31, 1997 and
October 31, 1996, respectively, and (ii) any promised increases in compensation
of the GRS Key Employees that have not yet been effected.
(b) Schedule 5.10(b) contains a complete and accurate list of all
Compensation Plans sponsored by GRS or to which GRS contributes on behalf of its
employees, other than Employee Benefit Plans listed in Schedule 5.11. As used in
this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of all
Employment Agreements. As used in Sections 5.10(c) and 5.10(e) hereof,
"Employment Agreements" shall mean and include, without limitation, employee
leasing agreements, employee services agreements and noncompetition agreements
to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans, Employment Agreements or employee policies
and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any union,
labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key Employee
has indicated his or her desire or intent to terminate employment with GRS, and
GRS has no present intent of terminating the employment of any GRS Key Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
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<PAGE> 47
Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment exists
with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or ruling
from the Internal Revenue Service for each Employee Benefit Plan intended to be
qualified within the meaning of Section 401 (a) of the Code and/or tax exempt
within the meaning of Section 501(a) of the Code, which letter or ruling is
current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical, dental
or life insurance benefits to or on behalf of any of its employees who may
retire or any of its former employees who have retired from employment with GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in Schedule
5.12, from the date of the GRS Balance Sheet to the date of this Agreement, GRS
has not:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of GRS or any stockholder of GRS, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities, except in the ordinary course of business consistent with
past practice;
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<PAGE> 48
(d) incurred or discharged any liabilities or obligations except
in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of its
assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of its
assets, except in the ordinary course of business consistent with past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or its assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights paid any dividends or made
any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
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Section 5.13 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which GRS is a
party (the "GRS Contracts") set forth in Schedule 5.13, GRS has not entered
into, nor is the capital stock, the assets or the business of GRS bound by,
whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in
the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
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<PAGE> 50
(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice of
any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available to
the Stockholders all insurance policies of GRS. All of such policies are valid
and enforceable against GRS, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the Proprietary
Rights without infringing or violating the rights of any third parties. Use of
the Proprietary Rights does not require the consent of any other person and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or right to use any Proprietary Right or challenging
or questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right. Each of the Proprietary Rights is
valid and subsisting, has not been canceled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by GRS
is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the
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ordinary course of business), free and clear of all security interests, liens,
charges and other encumbrances, except for (i) liens for Taxes not yet due and
payable or being contested in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of its businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and total
lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful and
undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in Schedule
5.18, there are no claims, actions, suits, investigations or proceedings against
GRS pending or, to the Knowledge of GRS, threatened in any court or before or by
any Governmental Authority, or before any arbitrator, that could reasonably be
expected to have a material adverse effect (whether covered by insurance or not)
on the business, operations, prospects, Properties, securities or financial
condition of GRS. Except as otherwise set forth in Schedule 5.18, GRS is not in
default under, and no condition exists (whether covered by insurance or not)
that with or without notice or lapse of time or both would (i) constitute a
default under, or breach or violation of, any Legal Requirement, or Permit
applicable to GRS or any GRS Contract, or (ii) accelerate or permit the
acceleration of the performance required under, or give any other party the
right to terminate, any GRS Contract, other than defaults, breaches, violations
or accelerations that would not have a material adverse effect on the business,
operations, prospects, Properties, securities or financial condition of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of GRS,
there are no PCBs, TCE, PCE, or asbestos containing materials generated, used,
treated, stored, maintained, disposed of, or otherwise deposited in, or located
on any premises at which GRS' business (the "GRS Business") is or was, or at
which the business or, to the Knowledge of GRS, its predecessors was, located,
which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which the GRS Business is or was, or, to knowledge of GRS, at which the business
of its predecessors was, located, which would have a Material Adverse Effect on
GRS. With respect to underground storage tanks, Schedule 5.19(b) sets forth the
size, location, construction, installation date, use and testing history of all
underground storage tanks (whether or not excluded from regulation under
Environmental Law), including all underground storage tanks in use, out of
service, closed, abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of GRS,
there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the best
knowledge of GRS, threat of a "release" of
8
<PAGE> 52
any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business, or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor their
respective predecessors have received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and, to
the Knowledge of GRS, its predecessor's, Hazardous Substances disposal and
recycling practices related to the GRS Business have been accomplished in
material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth all of
GRS' material suppliers, together with the dollar amount of goods purchased by
GRS from each such supplier during the twelve month period ended December 31,
1997 and the four month period ended April 30, 1998, as well as each of the
principal customers of GRS. Except as otherwise set forth in Schedule 5.21,
since December 31, 1997, there has been no material adverse change in the
business relationship of GRS with any supplier or customer named in Schedule
5.21. No customer or supplier named in Schedule 5.21 has terminated or
materially altered, or notified GRS of any intention to terminate or materially
alter, its relationship with GRS and GRS has no reason to believe that any such
customer or supplier will terminate or materially alter its relationship with
GRS or to materially decrease its services or supplies to GRS or its direct or
indirect usage of the services or products of GRS. For purposes of Sections 5.21
and 5.24 hereof "material suppliers" refers to suppliers from whom GRS purchased
five percent (5%) or more of the total amount of the goods purchased by GRS
during the twelve month period ended December 31, 1997 and the four month period
ended April 30, 1998, and "principal customers" refers to customers who
accounted for 5% or more of GRS' revenues during the twelve month period ended
December 31, 1997 and the four month period ended April 30, 1998.
9
<PAGE> 53
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by GRS to the Stockholders or their counsel, do not contain any untrue
statement of material fact or omit any material fact necessary in order to make
the statements therein not misleading; provided, however, certain materials
provided to the Stockholders contain projections and estimates of future events,
and such projections and estimates have been based upon certain assumptions that
management of GRS made in good faith and believed are reasonable at the time
such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set forth
in Schedule 5.24, no director or executive officer of GRS or their respective
spouses or children, owns directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
principal customer or material supplier which has a business relationship with
GRS or any organization that has a material contract or arrangement with GRS.
Section 5.25 Investments in Competitors. No director or executive officer
of GRS owns directly or indirectly any material interests or has any investment
equal to 5% or more of the outstanding voting securities in any corporation,
business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer or
employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule 5.27,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and all other
material Tax Returns which it is required to file under applicable laws and
regulations;
(ii) all such Tax Returns are true and accurate in all
material respects;
(iii) has paid all Taxes due and owing by it (whether or not
such Taxes are required to be shown on a Tax Return) and has withheld and paid
over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
10
<PAGE> 54
(iv) the accrual for Taxes on the Unaudited GRS Balance Sheet
(excluding any amount recorded which is attributable to timing differences
between book and Tax income) would be adequate to pay all material Tax
liabilities of GRS if its current tax year were treated as ending on the date of
the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been filed
through the date hereof, and, as of the date hereof, none of such Tax Returns
has been audited.
(b) To the Knowledge of GRS, no claim has been made by a taxing
authority in a jurisdiction where GRS does not file Tax Returns that GRS is or
may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local Tax audits
or administrative or judicial proceedings pending or being conducted with
respect to GRS;
(ii) no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by GRS
from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning GRS'
Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC Section 481(a) or any similar provision
of state, local or foreign law by reason of a change in accounting method
initiated by GRS. GRS has no knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any knowledge with respect to
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC Section 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC Section 280G.
Section 5.29 Participation in Secondary Offering. In the event that after
the Offering GRS files a registration statement with the Securities and Exchange
Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such number of shares of GRS Common
Stock owned by the Stockholders as shall equal (i)(A) the total
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<PAGE> 55
number of shares of GRS Common Stock owned by such Stockholders divided by (B)
the total number of shares of GRS Common Stock owned by all shareholders of the
Founding Companies, multiplied by (ii) the total number of shares of GRS Common
Stock owned by shareholders of the Company which are to be included in the
Secondary Offering.
12
<PAGE> 1
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
ANTHONY ROOFING, LTD.
AND
ALL OF THE STOCKHOLDERS
OF
ANTHONY ROOFING, LTD.
----------------
MAY 13, 1998
----------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES.........................................................1
1.01 Sale and Purchase of Company Common Stock..............................................1
1.02 Purchase Price.........................................................................2
1.03 Delivery of Purchase Price.............................................................2
1.04 Purchase Price Adjustment..............................................................3
1.05 Excluded Assets and Distribution of Assets.............................................4
1.06 Stockholders' Representative...........................................................4
ARTICLE II - CLOSING............................................................................5
2.01 Closing................................................................................5
2.02 Deliveries by Stockholders to GRS......................................................5
2.03 Deliveries by GRS......................................................................6
2.04 Termination in Absence of Closing......................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER.................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS...............................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.......................................................7
6.01 GRS' Access to Information and Assets..................................................7
6.02 Company's Conduct of Business and Operations...........................................7
6.03 General Restrictions...................................................................8
6.04 Notice Regarding Changes...............................................................9
6.05 Consents and Best Efforts..............................................................9
6.06 Casualty Loss.........................................................................10
6.07 Employee Matters......................................................................10
6.08 No Solicitation.......................................................................10
6.09 Employment Agreements.................................................................10
6.10 Lock-Up Agreement.....................................................................10
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS.................................11
7.01 Conditions to Obligations of All Parties..............................................11
7.02 Conditions to Obligations of Stockholders.............................................11
7.03 Conditions to Obligations of GRS......................................................12
ARTICLE VIII - SURVIVAL........................................................................13
8.01 Survival of Representations and Warranties of the Company and the Stockholders........13
ARTICLE IX - INDEMNIFICATION...................................................................14
9.01 Obligation of the Stockholders to Indemnify...........................................14
9.02 Obligation of GRS to Indemnify........................................................14
9.03 Notice and Opportunity to Defend......................................................14
9.04 Limitations on Indemnification........................................................15
9.05 Set-Off Rights........................................................................16
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS...........................................................17
10.01 Further Assurances....................................................................17
10.02 Publicity.............................................................................17
10.03 Access to Records.....................................................................17
10.04 Payment of Indebtedness to Stockholders..............................................17
ARTICLE XI - MISCELLANEOUS.....................................................................17
11.01 Brokers...............................................................................17
11.02 Costs and Expenses....................................................................17
11.03 Notices...............................................................................17
11.04 Governing Law.........................................................................18
11.05 Representations and Warranties........................................................19
11.06 Entire Agreement, Amendments and Waivers..............................................19
11.07 Binding Effect and Assignment.........................................................19
11.08 Remedies..............................................................................19
11.09 Exhibits and Schedules................................................................19
11.10 Multiple Counterparts.................................................................19
11.11 References............................................................................19
11.12 Survival..............................................................................19
11.13 Attorneys' Fees.......................................................................20
ARTICLE XII - DEFINITIONS......................................................................20
12.01 Affiliate.............................................................................20
12.02 Collateral Agreements.................................................................20
12.03 Company Assets........................................................................20
12.04 Contract Retention....................................................................20
12.05 Current Assets........................................................................20
12.06 Current Liabilities...................................................................20
12.07 Damages...............................................................................20
12.08 Environmental Law.....................................................................21
12.09 GAAP..................................................................................21
12.10 Governmental Authorities..............................................................21
12.11 Hazardous Substances..................................................................21
12.12 Knowledge.............................................................................21
12.13 Legal Requirements....................................................................21
12.14 Permits...............................................................................21
12.15 Properties............................................................................21
12.16 Proportionate Share...................................................................21
12.17 Regulations...........................................................................22
12.18 Taxes.................................................................................22
12.19 Tax Returns...........................................................................22
12.20 Used..................................................................................22
12.21 Deferred Income Taxes.................................................................22
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement between GRS and Joel A. Thompson
Exhibit H - Opinion of Baker & McKenzie
Exhibit I - Opinion of McBride Baker & Coles
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 13, 1998, by and among (i) General Roofing Services,
Inc., a Florida corporation (the "Buyer" or "GRS"),(ii) Anthony Roofing, Ltd.,
an Illinois corporation (the "Company"), and (iii) all of the stockholders of
the Company (the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS purchase
all of the issued and outstanding capital stock of the Company, consisting of
100 shares (the "Shares") of common stock, no par value ("Company Common
Stock"), upon the terms and subject to the conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange within
the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase, acquire
and accept from each Stockholder, the number of shares of Company Common Stock
set forth opposite the name of each such Stockholder on Exhibit A hereto under
the heading "Number of Shares of Company Common Stock Purchased," constituting
all of the issued and outstanding shares of Company Common Stock. The sale and
purchase of the Company Common Stock pursuant to this Agreement is sometimes
hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a),
at the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares of
Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $21,827,698. The Purchase Price shall be
subject to adjustment as provided in this Agreement and shall be allocated among
the Stockholders in accordance with their respective ownership interests as set
forth on Exhibit A hereof. The Purchase Price, as so adjusted, shall be
delivered to the Stockholders, in accordance with their respective Proportionate
Share, and to the Escrow Agent (as defined in Section 1.03(b) hereof, subject to
and in accordance with Section 1.03 hereof. The amount of the Purchase Price
allocated to each outstanding share of Company Common Stock is hereinafter
referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $5,456,830
(the "Target Net Book Value") (such adjustment is referred to herein as the "Net
Book Value Adjustment"); provided, that the Net Book Value as determined
pursuant to the Closing Date Unaudited Balance Sheet shall not be less than
$239,101 (the "Minimum Net Book Value"). For purposes of this Agreement, Net
Book Value shall mean the excess of the Company's total assets over the
Company's total liabilities determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered
to GRS within fifteen days prior to the Closing Date (i) an unaudited
consolidated balance sheet of the Company forecasted as of the Closing Date (the
"Closing Date Unaudited Balance Sheet"), (ii) a calculation of the Purchase
Price Adjustment, if any, determined pursuant to Section 1.02(b) above, and
(iii) a certificate executed by the Company's Chief Financial Officer (or
another duly authorized officer of the Company) to the effect that the Closing
Date Unaudited Balance Sheet has been prepared from the books and records of the
Company and in a manner consistent with the preparation of the Company Financial
Statements (as defined in Section 3.06 hereof), except that Deferred Income
Taxes have been reflected in the same manner as if the Company was a "C"
corporation.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section 1.01(b)
hereof of a certificate or certificates representing all of the issued and
outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $7,514,439, minus (ii) the
amount of the Purchase Price Adjustment, if any, shall be paid directly to the
holders thereof by wire transfer in New York Clearing House Funds in accordance
with Exhibit A hereto.
(b) An aggregate of $14,313,259 shall be paid by the delivery
to (A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of GRS' common stock, par value $.01 per share ("GRS Common Stock"), as
shall have a value equal to $4,365,540, representing twenty percent (20%) of the
Purchase Price (the "Escrow Fund"), based upon the public offering price of the
GRS Common Stock to be sold in its initial public offering (the "Offering") and
(B) the Stockholders in accordance with Exhibit A hereto, of such number of
shares of GRS Common Stock as shall have a value equal to $9,947,719 based upon
the public offering price of the GRS Common Stock to be sold in the Offering.
The shares of GRS Common Stock to be so held in escrow shall be held by the
Escrow Agent for a period of one year following the Closing in accordance with
the terms of an Escrow Agreement in the form of Exhibit B hereto (the "Escrow
Agreement"), and shall thereafter be restricted from transfer for an additional
one-year period in accordance with the terms, and subject to the conditions, of
a Lock-Up Agreement in the form of Exhibit C hereto (the "Lock-Up Agreement").
The Stockholders shall receive cash in lieu of fractional shares.
2
<PAGE> 7
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933
ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE
TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b) hereof,
if any, and within 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Purchase Price Adjustment,
if any, and the cash portion of the Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by GRS
to the Stockholders of a Purchase Price Notice, the Stockholders may deliver to
GRS a written notice advising GRS either that the Stockholders (A) agree with
the calculation of the Purchase Price Adjustment, or (B) believe that one or
more adjustments are required. If the Stockholders shall concur with the
calculation of the Purchase Price Adjustment, if any, or if the Stockholders
shall not object thereto in a written notice delivered to GRS within five (5)
business days after the Stockholders' receipt of the Purchase Price Notice, the
Purchase Price as set forth in the Purchase Price Notice, if any, shall become
final and shall not be subject to further review, challenge or adjustment absent
fraud.
(ii) In the event that GRS timely submits the Purchase
Price Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the disagreements
with respect to the proposed Purchase Price Adjustment prior to the Closing,
then such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing roofing or construction
companies and selected by mutual agreement of Stockholders and GRS (the
"Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the event
that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination not more than five (5) days after such referral. The costs and
expenses of the services of the Settlement Accountants shall be paid equally by
the Company and GRS. Pending the final determination by the Settlement
Accountants of the Purchase Price Adjustment if any (the "Final Determination"),
the difference
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between the determination by the Stockholders and GRS of the Purchase Price
Adjustment, if any, shall be withheld from the cash portion of the Purchase
Price to be delivered pursuant to Section 1.03(a) and shall be paid in
accordance with and upon the Final Determination. Any such dispute shall not
delay the Closing.
(c) After the final determination of the Purchase Price
pursuant to Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the
adjustment determined pursuant thereto shall be deducted from the cash portion
of the Purchase Price and allocated among the Stockholders in accordance with
their respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those tangible assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are not
required by the Company in the conduct of its operations and which are listed in
Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall such
distributions be made to the extent that the Closing Net Book Value would be
less than the Minimum Net Book Value.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean Joel A. Thompson or any person appointed as a
successor Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all
obligations under this Agreement have been discharged (including all
indemnification obligations hereunder and all obligations under the Escrow
Agreement), the Stockholders who, immediately prior to the Closing, held Company
Common Stock representing an aggregate number of shares of Company Common Stock
which exceeded 50% of the amount of such Company Common Stock outstanding
immediately prior to such time (a "Majority"), may, from time to time upon
written notice to the Stockholders' Representative and GRS, remove the
Stockholders' Representative or appoint a new Stockholders' Representative to
fill any vacancy created by the death, incapacitation, resignation or removal of
the Stockholders' Representative. Furthermore, if the Stockholders'
Representative dies, becomes incapacitated, resigns or is removed by a Majority,
the Majority shall appoint a successor Stockholders' Representative to fill the
vacancy so created. If the Majority is required to but has not appointed a
successor Stockholders' Representative within 20 business days from a request by
GRS to appoint a successor Stockholders' Representative, GRS shall have the
right to appoint a Stockholders' Representative to fill any vacancy so created,
and shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right and power to execute the Escrow
Agreement on their behalf with such changes or amendments thereto as
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the Stockholders' Representative shall determine to be necessary or desirable in
his sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
(d) GRS shall have no liability to any Stockholder or
otherwise arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders or with the Stockholders'
Representative. GRS may rely entirely on its dealings with, and notices to and
from, the Stockholders' Representative to satisfy any obligations it might have
to the Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued and
outstanding shares of Company Common Stock in
proper form for transfer to GRS;
(ii) the resignations of all members of the board
directors of the Company as set forth in Section
7.03(j);
(iii) the stock books, stock ledgers, minute books and
corporate seals of the Company;
(iv) a certificate executed by the Company to the
effect that the conditions set forth in Sections
7.03(b) through 7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section
7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant to
Section 7.03(l).
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Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available
funds to the Stockholders the payment
described in Section 1.03(a) as being
required to be paid by GRS at Closing;
(ii) by delivery to the Stockholders the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Stockholders at Closing;
(iii) by delivery to the Escrow Agent the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Escrow Agent at Closing;
(iv) a certified copy of all necessary corporate
action on behalf of GRS approving its
execution, delivery and performance of this
Agreement and the Collateral Agreements to
which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized
officer of GRS to the effect that the
conditions set forth in Sections 7.02(b) and
7.02(c) have been satisfied;
(vi) the opinions set forth in Sections7.02(d)
and (i);
(vii) the executed Collateral Agreements to which
it is a party, and
(viii) evidence that: (a) the Stockholders have
been released from all personal guarantees
relating to any obligations of the Company,
including but not limited to, any bank
loans, lines of credit, and/or performance
bonds (the "Personal Guarantees and
Obligations") and (b) GRS shall indemnify
and hold harmless the Stockholders from and
against any personal liability or
obligations relating to or arising out of
any Personal Guarantees or Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of
business on December 31, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability of
or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is such party's willful breach of the provisions of this Agreement.
Notwithstanding the foregoing, the Stockholders expressly acknowledge and agree
that market and economic conditions are impossible to predict, and although GRS
intends to proceed with the Offering in an expeditious manner at this time, GRS
shall not be liable to the Stockholders or the Company if the Closing has not
occurred because the Offering has not been consummated prior to the Termination
Date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense, to have access to the
books, records, employees, counsel, accountants, and other representatives of
the Company at all times reasonably requested by GRS for the purpose of
conducting an investigation ("GRS' Due Diligence Investigation") of the
Company's financial condition, corporate status, operations, business and
Properties. The Stockholders shall make available to GRS for examination and
reproduction, at GRS' own expense, all documents and data of every kind and
character relating to the Company in possession or control of, or subject to
reasonable access by, the Stockholders or the Company, including, without
limitation, all files, records, data and information relating to the Company
Assets (whether stored in paper, magnetic or other storage media) and all
agreements, instruments, contracts, assignments, certificates, orders, and
amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and workmanlike manner, (d) pay or cause to
be paid all costs and expenses (including but not limited to insurance premiums)
incurred in connection therewith in a timely manner, (e) use reasonable efforts
to keep all Company Contracts listed or required to be listed on Schedule 3.12
in full force and effect, (f) comply with all of the covenants contained in all
such Company Contracts, (g) maintain in force until the Closing Date insurance
policies (subject to the provisions of Section 6.06) equivalent to those in
effect on
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the date hereof, and (h) comply in all material respects with all applicable
Legal Requirements. Except as otherwise contemplated in this Agreement, the
Stockholders shall use their best efforts to preserve the present relationships
of the Company with persons having significant business relations therewith.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS, the
Company shall not:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof and with respect to S Corporation distributions, declare, set
aside or pay any dividends on, or make any other distribution (whether
in cash, stock or property) in respect of, any of its capital stock,
(B) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in view
of or in substitution for shares of its capital stock, or (C) purchase,
redeem or otherwise acquire any shares of capital stock of the Company
or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
(ii) except as disclosed on Schedule 6.03 (ii),
issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws
(or similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation,
partnership, joint venture, association or other business organization
or division thereof or (B) any assets that are material, individually
or in the aggregate, to the Company, except purchases of assets in the
ordinary course of business consistent with past practice and except as
provided by Section 6.03 (v) below;
(v) sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of, or agree to sell, transfer, lease,
mortgage, encumber or otherwise dispose of, any Properties except (A)
in the ordinary course of business consistent with past practice, or
(B) pursuant to any Company Contract or except as permitted by Sections
1.05 and 3.02 hereof or in connection with bank indebtedness incurred
for the purpose of funding S Corporation distributions or any
indebtedness issued to the Stockholders in exchange for such bank
indebtedness;
(vi) except as permitted by Section 1.05 hereof or
except with respect to bank indebtedness incurred for the purpose of
funding S Corporation distributions or any indebtedness issued to the
Stockholders in exchange for such bank indebtedness, (A) incur any
indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company, guarantee any
debt securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of the
foregoing, except for borrowings incurred in the ordinary course of
business consistent with past practice, or (B) make any loans, advances
or capital contributions to, or investments in, any other person;
(vii) make or agree to make any new capital
expenditure or expenditures which, individually is in excess of $25,000
or, in the aggregate, are in excess of $50,000 (other than those
required pursuant to currently outstanding Company Contracts or in the
ordinary course of business consistent with past practice);
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(viii) make any material tax election or settle or
compromise any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Company
Financial Statements (or the notes thereto) or incurred in the ordinary
course of business consistent with past practice, or waive any material
benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which the Company
is a party;
(x) except in the ordinary course of business
consistent with past practice, modify, amend or terminate any Company
Contract;
(xi) except in the ordinary course of business
consistent with past practice, enter into any contracts, agreements,
arrangements or understandings relating to performance by third parties
of the Company's services;
(xii) except as required to comply with applicable
law (A) adopt, enter into, terminate or amend any benefit plan or other
arrangement for the benefit or welfare of any director, officer or
current or former employee, (B) increase in any manner the compensation
or fringe benefits of, or pay any bonus to, any director, officer or
employee (except in a manner consistent with past practice), (C) pay
any benefit not provided for under any benefit plan, (D) grant any
awards under any bonus, incentive, performance or other compensation
plan or arrangement or benefit plan (including the grant of stock
options, stock appreciation rights, stock based or stock related
awards, performance units or restricted stock, or the removal of
existing restrictions in any benefit plans or agreement or awards made
thereunder) or (E) take any action to fund or in any other way secure
the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take
any of, the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto
shall use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such
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actions and doing such things as any other party hereto may reasonably request
in order to cause any of the conditions to such other party's obligation to
consummate the transactions contemplated hereby, as specified in Article VII of
this Agreement, to be fully satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and
the Closing, any of the Properties of the Company shall be destroyed or damaged
in whole or in part by fire, earthquake, flood, other casualty or any other
cause which materially affects the ability of the Company to conduct its
business (a "Casualty Loss"), then the Stockholders shall, at GRS' election, (i)
cause the Company to cause such Properties to be repaired or replaced prior to
the Closing with Property of substantially the same condition and function, (ii)
cause the Company to deposit in a separate account an amount sufficient to cause
such Property to be so repaired or replaced, or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause
the Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company, or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before the Closing, Joel
Thompson shall have entered into an employment agreement in the form of Exhibit
G (the "Employment Agreement"), which shall include non-competition provisions,
to take effect on and after the Closing Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the
Stockholders shall have entered into the Lock-Up Agreement.
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ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the date of the Closing; provided, however,
that no provision of this Agreement shall be construed as requiring any party to
accept, in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no transfers of
licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any
statute, rule, regulation, decree, ruling, injunction or other order issued by
any Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in
this Agreement qualified by materiality shall be true and correct in all
respects at Closing and all other representations and warranties of GRS
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if such representations and warranties were made at
and as of the Closing, except for changes contemplated by the terms of this
Agreement except as and to the extent that the facts and conditions upon which
such representations and warranties are based are expressly required or
permitted to be changed by the terms thereof, and GRS shall have performed and
satisfied in all material respects all covenants and agreements required by this
Agreement to be performed and satisfied by GRS at or prior to the Closing;
provided, however, that no Stockholder shall be entitled to refuse to consummate
the transaction in reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the
Stockholders or the Company) shall be pending or threatened before any
Governmental Authority seeking to restrain the Stockholders from effectuating
the Stock Purchase or prohibit the Closing or seeking Damages against the
Stockholders or the Company as a result of the consummation of the transactions
contemplated by this Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
H. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
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(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and
the Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) The Stockholders shall have had the opportunity to review
and comment upon the registration statement relating to the Offering.
(i) GRS shall have furnished the Stockholders and the Company with a copy of an
Opinion Letter from Deloitte & Touche which provides that the consummation of
the transactions described in this Agreement will qualify as a Section 351 Plan
of Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS
to carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered
to GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of GRS) shall be
pending or threatened before any court or governmental agency seeking to
restrain GRS or prohibit the Closing or seeking Damages against GRS, the
Stockholders, the Company or its Properties as a result of the consummation of
the transactions contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from
the date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations, prospects or
financial condition of the Company that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
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(ii) any damage, destruction or loss to the Company
(whether or not covered by insurance) that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company.
(f) GRS shall have received the opinion of McBride Baker &
Coles ("Sellers' Counsel"), counsel to the Company and the Stockholders, dated
as of the Closing Date, in form and substance reasonably satisfactory to GRS, as
to the matters set forth on Exhibit I. In rendering such opinion, Sellers'
Counsel may rely as to factual matters on certificates of officers, directors
and shareholders of the Company and on certificates of governmental officials,
and as to legal matters on opinions of other counsel reasonably acceptable to
GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Stockholders shall have executed and delivered to GRS
the Escrow Agreement.
(i) GRS shall have received the executed Employment Agreement.
(j) GRS shall have received the resignation of all of the
members of the board of directors of the Company effective as of the Closing
Date.
(k) All proceedings to be taken by Stockholders and the
Company in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in form and substance to GRS
and its counsel, and GRS and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request.
(l) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company), except where the failure to have obtained
any such consent would not have an adverse effect on the Company or GRS
following the Closing.
(m) GRS shall not have notified the Company in writing on or
before May 31, 1998 that it is not satisfied in its sole and absolute discretion
with GRS' Due Diligence Investigation of the Company.
(n) Except with respect to the real estate lease listed on
Schedule 3.15 (c), GRS shall have determined, in its reasonable discretion, that
all agreements between the Company and the Stockholders shall be on terms as
favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(o) The Offering shall have been consummated on or before the
Termination Date.
(p) The Closing Net Book Value shall be equal to or greater
than the Minimum Net Book Value.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company
and the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company
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and the Stockholders, on the other hand, has the right to rely fully upon the
representations, warranties, covenants and agreements of GRS or the Company and
the Stockholders, as the case may be, contained in this Agreement, or in any
certificate delivered pursuant to any of the foregoing; provided, that no party
hereto shall be entitled to rely on any representation or warranty made by any
other party hereto herein to the extent that such party has actual knowledge,
and the other party or parties (or any of them) are not aware, that such
representation or warranty is untrue or incorrect in any material respect. All
such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
The Basket Exclusions shall survive the Closing indefinitely, other than Section
3.28, which shall survive for the applicable statute of limitations.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to
the limitations contained in Article VIII and Article IX hereof, the
Stockholders, jointly and severally, agree to indemnify, defend and hold
harmless GRS (and its Affiliates, successors and assigns and their respective
officers and directors) from and against all losses, liabilities, damages,
deficiencies, costs or expenses (including interest, penalties and reasonable
attorneys' fees and disbursements, but offset by any proceeds from insurance and
taking into account the present value of any tax savings to GRS or the Company
resulting from such losses, liabilities, damages, deficiencies, costs or
expenses) ("Losses") based upon, arising out of or otherwise in respect of (i)
any inaccuracy in or any breach of any representation, warranty, covenant or
agreement of the Company or the Stockholders contained in this Agreement, (ii)
liabilities for Taxes incurred by the Company with respect to actions prior to
the Closing Date and (iii) any liability arising out of any subsequent
adjustment by any tax authorities with respect to items attributable to periods
prior to the Closing Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by
any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a claim
or the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this
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<PAGE> 19
Agreement, the Indemnitee may pay, compromise or defend such Asserted Liability.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any claim over the objection of the other, provided,
however, that consent to settlement or compromise shall not be unreasonably
withheld. In any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in the defense of such Asserted Liability. If
the Indemnifying Party chooses to defend the claim, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at their
own expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any such compromise or settlement consented to by
GRS , shall be borne and paid by the Stockholders. The parties agree to
cooperate fully with one another in the defense, compromise or settlement of any
Asserted Liability.
Section 9.04 Limitations on Indemnification. The indemnification
provided for in Sections 9.01 and 9.02 shall be subject to the following
limitations:
(i) The Stockholders shall not be obligated to pay
any amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders
shall be obligated to pay any amounts for indemnification under this Article IX,
except those based upon, arising out of or otherwise in respect of Sections
3.02, 3.13, 3.21, 3.28, 5.22, 9.01 (ii) and (iii), 11.01 and 11.02 and Article
IV hereof (the "Basket Exclusions"), until the aggregate indemnification
payments, exclusive of the Basket Exclusions, equals one percent (1%) of the
Purchase Price (the "Basket Amount"), whereupon GRS, or the Company and
Stockholders, as the case may be, shall be obligated to pay any indemnification
payments, including the Basket Amount, in full. It is expressly understood that
the Basket Amount shall serve as a "trigger" for indemnification and not as a
"deductible" (for example, if the indemnity claims for which GRS or the
Stockholders would, but for the provisions of this subparagraph (ii), be liable
is in the aggregate amount of $200,000, and 1% of the Purchase Price is
$180,000, the Stockholders would then be liable for the entire $200,000 and not
just $20,000). This Section 9.04(ii) will not apply to any breach of any
representations and warranties of which any party had actual Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by any party of any covenant or obligation, and GRS or the
Stockholders, as the case may be, will be jointly and severally liable for all
damages with respect to such breaches.
(iii) GRS, the Company and Stockholders shall be
obligated to pay the Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to whether the aggregate amount of
all other indemnification payments shall have exceeded, in the aggregate, the
Basket Amount.
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<PAGE> 20
(iv) Notwithstanding anything to the contrary in
this Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights
set forth in this Article IX shall be each party's sole and exclusive remedy
against the other party for any breach of any representation, warranty or
covenant contained in this Agreement. Notwithstanding the foregoing, nothing
herein shall prevent any party from bringing an action based on allegations of
fraud in connection with this Agreement. In the event an action based upon
allegations of fraud is brought, the prevailing party's attorneys' fees and
costs shall be paid by the nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses with
respect to accounts receivable reflected on the Closing Date Unaudited Balance
Sheet only if and to the extent that such accounts receivable, except for
Contract Retention, remain uncollected 180 days from the Closing Date. Contract
Retention will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date and is considered uncollectible by
GRS' independent auditors. Because the Purchase Price is predicated upon the
Company's adjusted earnings before interest and taxes ("EBIT"), GRS shall be
deemed to have suffered Losses in an amount equal to (i) the amount of such
accounts receivable and Contract Retention incurred prior to January 1, 1998
which have not been collected within the time periods specified above. Any
Losses claimed on such accounts receivable or Contract Retention will be
credited back to the Escrow Fund based on the foregoing formula to the extent
such accounts receivable or Contract Retention are recovered within the period
of the Escrow Agreement. To the extent that GRS suffers Losses from the failure
to collect accounts receivable of the Company or Contract Retention and such
Losses result in a set-off from the Escrow Fund, the related accounts receivable
or Contract Retention shall be assigned to the Stockholders following, and to
the extent of, such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to
Section 9.04 and, paragraphs (b) and (c) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
be satisfied first against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15)
days' notice (the "GRS Notice") of its intention to deduct or set-off any
amounts pursuant to this Section 9.05, including in such notice a description of
GRS' indemnification claim. If none of the Stockholders object in writing to
such deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment, absent fraud.
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
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ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or
make, or cause to have issued or made, any public release or announcement
concerning this Agreement or the transactions contemplated hereby, without the
advance approval in writing of the form and substance thereof by each of the
other parties, and the parties shall endeavor jointly to agree on the text of
any announcement or circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each
of the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
Section 10.04 Payment of Indebtedness to Stockholders. All notes
payable to Stockholders made by the Company prior to the Closing in an amount
equal to S Corporation distributions shall be paid within five business days
after the Closing in accordance with their terms.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur,
(i) each Stockholder shall jointly and severally indemnify and hold harmless GRS
and the Company from and against any and all liability for any brokers or
finders' fees arising with respect to brokers or finders retained or engaged by
the Company or any of the Stockholders in respect of the transactions
contemplated by this Agreement, and (ii) GRS shall indemnify and hold harmless
the Stockholders from and against any and all liability for any brokers' or
finders' fees arising with respect to brokers or finders retained or engaged by
GRS in respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing
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and delivered personally or mailed by registered or certified mail, postage
prepaid and return receipt requested, or by telecopier, as follows:
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: Joel A. Thompson
Anthony Roofing, Ltd.
2555 White Oak Circle
Aurora, IL 60504
With a copy to:
McBride Baker & Coles
One Mid America Plaza, Suite 100
Oakbrook Terrace, Illinois 60181-4710
Attention: Carl A. Neumann, Esq.
Telecopy No.: (630) 954-2112
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
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Section 11.05 Representations and Warranties. Each of the
representations and warranties of each of the parties to this Agreement shall be
deemed to have been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this
Agreement are cumulative, and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies. Such rights and remedies are given in addition to any other
rights and remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference. Disclosure of a specific item in any one schedule shall be deemed
restricted only to the Section to which such disclosure specifically relates
except where (i) there is an explicit cross-reference to another Schedule, and
(ii) GRS could reasonably be expected to ascertain the scope of the modification
to a representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used
in this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which
contemplates performance or the existence of obligations after the Closing Date,
and any and all representations and warranties set forth in this Agreement,
shall not be deemed to be merged into or waived by the execution and delivery of
the instruments executed at the Closing, but shall expressly survive Closing for
the time period set forth in Section 8.01 hereof and shall be binding upon the
party or parties obligated thereby in accordance with the terms of this
Agreement, subject to any limitations expressly set forth in this Agreement.
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Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined in
this Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect
to any person, any other person controlling, controlled by or under common
control with such person. The term "Control" as used in the preceding sentence
means, with respect to a corporation, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to any person other
than a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements"
shall mean any or all of the following agreements, the forms of which are
attached hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for Joel A. Thompson
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean,
with respect to the Company, all of the Properties, Company Contracts, and
Permits, that were Used by the Company as of the Balance Sheet Date and those
Used by the Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall
mean any amounts withheld by customers from contract progress billing until
final and satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean,
with respect to the Company, cash and other assets that are expected to be
converted into cash, sold or exchanged within one year from the Closing Date,
including marketable securities, receivables, inventory and current prepayments
.
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Damages. The term "Damages" shall mean any and all
damages, liabilities, obligations, penalties, fines, judgments, claims,
deficiencies, losses, costs, expenses and assessments
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(including without limitation income and other Taxes, interest, penalties and
attorneys' and accountants' fees and disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers who are stockholders with respect to
the representation being made, and such knowledge of any such persons as
reasonably should have obtained upon due investigation and inquiry into the
representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all
permits or orders under any Legal Requirement or otherwise granted by any
Governmental Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
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Section 12.17 Regulations. The term "Regulations" shall mean any and
all regulations promulgated by the Department of the Treasury pursuant to the
Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss.59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes"
shall mean the deferred tax assets and liabilities required to be recorded under
GAAP to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By:/s/ Gregg Wallick
-------------------------------------
Gregg Wallick, President
ANTHONY ROOFING, LTD.
By:/s/ Joel A. Thompson
-------------------------------------
Joel A. Thompson, President
STOCKHOLDERS:
/s/ Joel A. Thompson
-------------------------------------
Joel A. Thompson
/s/ Ann M. Thompson
-------------------------------------
Ann M. Thompson
22
<PAGE> 27
EXHIBIT A
<TABLE>
<CAPTION>
Name Number of Shares of Company Percentage (%) of
- ---- Common Stock Purchased Ownership
--------------------------- ---------
<S> <C> <C>
Joel A. Thompson...................... 50 50%
Ann M. Thompson....................... 50 50%
---
Total .................... 100 100%
=== ====
</TABLE>
<PAGE> 28
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Ilinois, and is not required to
be qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been
made available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in
any partnership or joint venture, or own any outstanding capital stock of any
other corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized
capital stock of the Company consists of 1,000 shares of Company Common Stock.
The issued and outstanding shares of Company Common Stock are owned of record
and beneficially by the Stockholders shown on Exhibit A hereof. All of the
presently outstanding shares of capital stock of the Company have been validly
authorized and issued and are fully paid and nonassessable. The Company has not
issued any other shares of its capital stock and there are no outstanding
options, warrants, subscriptions or other rights or obligations to purchase or
acquire any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, except as set forth on Schedule 3.02. Except as
contemplated under this Agreement, there are no agreements to which the Company
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock. Except for possible dividends to be
issued in connection with the Excluded Assets as described in Section 1.05 and
dividends related to the payment of S Corporation earnings of the Company up to
the Closing Date, no dividends are accrued but unpaid on any capital stock of
the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set
forth in Schedule 3.04 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the Articles of Incorporation or bylaws of the
Company;
(ii) violate any Legal Requirements applicable to
the Company;
<PAGE> 29
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to the Company;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of the Company;
or
(v) require any of the Stockholders or the Company
to obtain or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority. Any and all consents required to be
obtained by the Company as set forth in Schedule 3.04 shall be obtained and
copies thereof delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no
suit, action or other proceeding is pending or, to the Knowledge of the Company
or the Stockholders, threatened before any Governmental Authority seeking to
restrain any of the Stockholders or prohibit their entry into this Agreement or
prohibit the Closing, or seeking damages against the Company or its Properties,
as a result of the consummation of the transactions contemplated by this
Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true
and correct copies of the Company's (i) Closing Date Unaudited Balance Sheet,
(ii) unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
three months ended March 31, 1998 (the "Interim Company Financial Statements"),
as well as (iii) the Company's balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended December 31, 1995, 1996 and 1997 (the "Company Financial Statements"). The
Company Financial Statements (i) have been prepared from the books and records
of the Company, (ii) present fairly the financial condition of the Company and
its results of operations as at and for the respective periods then ended, and
(iii) have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in
Schedule 3.07, the Company Financial Statements reflect all liabilities of the
Company as determined in accordance with generally accepted accounting
principles arising out of transactions effected or events occurring on or prior
to the date of the Interim Company Balance Sheet, except for liabilities not
exceeding $10,000 in the aggregate. All reserves shown in the Company Financial
Statements are appropriate and reasonable to provide for losses thereby
contemplated. Except as set forth in the Company Financial Statements (including
the Notes thereto), the Company is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in
Schedule 3.08, the accounts receivable reflected on the Interim Company Balance
Sheet and all accounts receivable arising between the date of the Interim
Company Balance Sheet (the "Interim Company Balance Sheet Date") and the date
hereof, arose from bona fide transactions in the ordinary course of business,
and the goods and services involved have been sold, delivered and performed to
the account of the obligors, and no further filings (with Governmental
Authorities, insurers or others) are required to be made, no further goods are
required to be provided and no further services are required to be rendered in
order to complete the sales, fully render the services and entitle the Company
to collect the accounts receivable in full. No such account has been assigned or
pledged to any other person, firm or corporation, and, except only to the extent
fully reserved against as set forth in the Interim Company Balance Sheet, no
defense or setoff to any such account has been asserted by the account obligor.
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<PAGE> 30
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ending December 31, 1997 and 1996, respectively, and (ii)
any promised increases in compensation of the Company Key Employees that have
not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of
all Compensation Plans sponsored by the Company or to which the Company
contributes on behalf of its employees, other than Employee Benefit Plans listed
in Schedule 3.10. As used herein, "Compensation Plans" shall mean and include,
without limitation, plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 3.09(c), and in Section
3.09(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate
list of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company (i) has been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), the Company has
not ever been a party to any agreement with any union, labor organization or
collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three
3
<PAGE> 31
years preceding the date hereof. No unwritten amendment exists with respect to
any Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit
Plan" means each employee benefit plan, as such term is defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency. No prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter
or ruling from the Internal Revenue Service for each Employee Benefit Plan
intended to be qualified within the meaning of Section 401 (a) of the Code
and/or tax exempt within the meaning of Section 501(a) of the Code, which letter
or ruling is current and covers all required amendments to each such Employee
Benefit Plan through the Closing Date. No proceedings exist or, to the Knowledge
of the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) The Company has no obligation or commitment to provide
medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with the Company.
(g) None of the representations or warranties contained in
this Section 3.10 shall be deemed to relate to any employee benefit plan
sponsored by any union of which employees of the Company are members.
Section 3.11 Absence of Certain Changes. Except as set forth in
Schedule 3.11, from the Interim Company Balance Sheet Date to the date of this
Agreement, the Company has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company, or any Stockholder, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
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<PAGE> 32
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any
Company Assets (whether or not covered by insurance) that has materially
adversely affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05 hereof;
(i) written up or written down the carrying value of any of
the Company Assets, except in the ordinary course of business consistent with
past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or
Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights or paid any
dividends or made any distribution to the holders of the Company's capital
stock;
5
<PAGE> 33
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which the Company is a party (the "Company Contracts") set forth in Schedule
3.12, the Company has not entered into, nor is the capital stock, the assets or
the business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any
Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
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<PAGE> 34
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23 hereof; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not
received notice of any plan or intention of any other party to any Company
Contract to exercise any right to cancel or terminate any Company Contract. The
Company does not currently contemplate, and has no reason to believe any person
or entity currently contemplates, any amendment or change to any Company
Contract. None of the customers, joint venture partners or suppliers of the
Company has refused, or communicated that it will or may refuse, to purchase or
supply goods or services, as the case may be, or has communicated that it will
or may substantially reduce the amounts of goods or services that it is willing
to purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will
maintain through the Closing Date, comprehensive insurance coverage with respect
to all of its completed operations. The Company has previously made available to
GRS all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) The Company owns all patents, trade-marks, service marks
and copyrights (collectively "Proprietary Rights"), if any, necessary to conduct
its business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 3.14(a) is a
true and correct description of all Proprietary Rights.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock
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<PAGE> 35
Purchase, GRS will have the right to use all Proprietary Rights without any
obligation to pay any additional amounts whatsoever. Use of the Proprietary
Rights does not require the consent of any other person and the Proprietary
Rights are freely transferable. No claim has been asserted by any person to the
ownership of or right to use any Proprietary Right or challenging or questioning
the validity or effectiveness of any license or agreement constituting a part of
any Proprietary Right. Each of the Proprietary Rights is valid and subsisting,
has not been canceled, abandoned or otherwise terminated and, if applicable, has
been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
the Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has
good and marketable title to the Company Assets, including, without limitation,
those reflected on the Interim Company Balance Sheet (other than those since
disposed of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 3.15(c). The Company enjoys
peaceful and undisturbed possession under all real property leases under which
the Company is operating, and all such leases are valid and subsisting and none
of them is in default, except for those defaults which, individually or in the
aggregate, would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material
franchises, Permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its businesses as presently
conducted. The business and operations of the Company have been and are being
conducted in accordance in all material respects with all applicable laws, rules
and regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in
Schedule 3.17, there are no claims, actions, suits, investigations or
proceedings against the Company pending or, to the Knowledge of the Company,
threatened in any court or before or by any Governmental Authority, or before
any arbitrator, that could reasonably be expected to have a material adverse
effect (whether covered by insurance or not) on the business, operations,
prospects, Properties, securities or financial condition of the Company. Except
as otherwise set forth in Schedule 3.17, the Company is not in default under,
and no condition exists (whether covered by insurance or not) that with or
without notice or lapse of time or both would (i) constitute a default under, or
breach or violation of, any Company Contract or any Legal Requirement or Permit
applicable to the Company, or (ii) accelerate or permit the acceleration of the
performance required under, or give any other party the right to terminate, any
Company Contract, other than defaults, breaches, violations or accelerations
that would not have a material adverse effect on the business, operations,
prospects, Properties, securities or financial condition (a "Material Adverse
Effect") of the Company.
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<PAGE> 36
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of
the Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which Company Business is or was, or, to knowledge of the Company,
at which the business of its predecessors was, located which would have a
Material Adverse Effect on the Company. With respect to underground storage
tanks, Schedule 3.18(b) sets forth the size, location, construction,
installation date, use and testing history of all underground storage tanks
(whether or not excluded from regulation under Environmental Law), including all
underground storage tanks in use, out of service, closed, abandoned,
decommissioned, or sold to a third party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of
the Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to
the best knowledge of the Company, threat of a "release" of any Hazardous
Substance on, from or under any premises from which (i) the Company's operations
have been or are being conducted related to the Company Business. or (ii) to the
Knowledge of the Company, the operations of any predecessor of the Company which
would have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the
Company's and, to the Knowledge of the Company, its predecessor's, Hazardous
Substances disposal and recycling practices related to the Company Business have
been accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall
not be interpreted to imply that GRS has constructive knowledge regarding any
aspect of the Company Business with respect to environmental matters nor to
limit the scope of any of the Company's or any Stockholders' representations
under this Agreement. No such due diligence examination or related activities
of, or on behalf of, GRS however, shall constitute a waiver or relinquishment by
GRS of its right to rely upon the Company's or any Stockholders'
representations, warranties, covenants and agreements as made herein or pursuant
hereto, and no such disclosure shall constitute an assumption by GRS of any
conditions or liabilities, and such disclosure shall not relieve the Company or
any Stockholder of its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or
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<PAGE> 37
safe deposit box or vault, (ii) the names of all persons authorized to draw
thereon or to have access to any safe deposit box or vault, (iii) the purpose of
each such account, safe deposit box or vault, and (iv) the names of all persons
authorized by proxies, powers of attorney or other like instrument to act on
behalf of the Company in matters concerning any of its business or affairs.
Except as otherwise set forth in Schedule 3.19, no such proxies, powers of
attorney or other like instruments are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth
all the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve (12) month
period ended December 31, 1997 and the three (3) month period ended March 31,
1998, as well as each of the principal customers of the Company. Except as
otherwise set forth in Schedule 3.20, since December 31, 1997, there has been no
material adverse change in the business relationship of the Company with any
supplier or customer named in Schedule 3.20. No customer or supplier named in
Schedule 3.20 has terminated or materially altered, or notified the Company of
any intention to terminate or materially alter, its relationship with the
Company, and the Company has no reason to believe that any such customer or
supplier will terminate or materially alter its relationship with the Company or
to materially decrease its services or supplies to the Company or its direct or
indirect usage of the services of the Company. For purposes of Sections 3.20 and
3.23, "material suppliers" refers to suppliers from whom the Company purchased
five percent (5%) or more of the total amount of the goods purchased by the
Company during the twelve (12) month period ended December 31, 1997 and the
three (3) month period ended March 31, 1998, and "principal customers" refers to
customers who accounted for 5% or more of the Company's total revenues during
the twelve (12) month period ended December 31, 1997 and the three (3) month
period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by the Company or the Stockholders to GRS or its counsel,
do not contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set
forth in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. Except as provided in Schedule
3.24, no director or executive officer of the Company owns directly or
indirectly any material interest or has any investment equal to 5% or more of
the outstanding voting securities in any corporation, business or other person
that is a direct competitor of the Company.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate (other than from personal funds of directors,
officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law).
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Section 3.26 Government Inquiries. Except as set forth on Schedule
3.26, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any
Stockholder has entered into any agreements or arrangements and there are no
pending offers or discussions concerning or providing for the merger or
consolidation of the Company or all or any substantial portion of its assets,
the sale by the Company or any Stockholder of any securities of the Company or
any similar transaction affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income
Tax Returns, and all other material Tax Returns which it is required to file
under applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Closing Date
Unaudited Balance Sheet is sufficient to pay in full all liabilities for Taxes
of the Company related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company
have been filed through December 31, 1997 and, as of the date hereof, none of
such Tax Returns has been audited.
(vi) the Company has been a validly existing S
corporation within the meaning of Sections 1361 and 1362 of the Code) at all
times since 1987, and will continue to be an S corporation up to and including
the date immediately preceding the Closing Date; and
(vii) the Company has disclosed in its federal income
Tax Returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC ss. 6662.
(b) To the Knowledge of the Company, no claim has been made by
a taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local
Tax audits or administrative or judicial proceedings pending or being conducted
with respect to the Company;
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<PAGE> 39
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority; and
(iii) there are no material unresolved claims
concerning the Company's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company, except where such waiver would not have a material adverse
effect on the Company.
(e) The Company has not executed or entered into a closing
agreement pursuant to IRC ss. 7121 or any predecessor provision thereof or any
similar provision of state, local or foreign law; nor has the Company agreed to
or is required to make any adjustments pursuant to IRC ss. 481(a) or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company. The Company has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC ss. 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(I) The Company has not made any payments nor is it obligated
to make payments nor is it a party to an agreement that could obligate it to
make any payments that would not be deductible under IRC ss. 280G.
(j) The Company shall prepare and permit GRS to review and
comment on the federal and state income Tax Returns for the period ending on or
before the Closing Date, and shall make such revisions to such Tax Returns as
are reasonably requested by GRS. To the extent permitted by applicable law, the
Stockholders shall include any income, gain, loss, deduction or other tax items
for such period on their individual income Tax Returns in a manner consistent
with the Schedule K-ls furnished by the Company to the Stockholders for such
periods.
(k) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including New York City Transfer Tax, if
applicable, and any similar Tax imposed in other states and subdivisions), shall
be paid by the Stockholders when due, and the Stockholders will, at their
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, GRS will, and will
cause its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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<PAGE> 40
EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such
Stockholder shall own beneficially and of record, free and clear of any lien,
option or other encumbrance, the shares of Company Common Stock set forth
opposite such Stockholders' name on Exhibit A hereof, and, upon consummation of
the Stock Purchase, GRS will acquire good and valid title thereto, free and
clear of any lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such
Stockholder has the full legal right and power and all authority and approval
required to enter into, execute and deliver this Agreement and to perform fully
such Stockholders' obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common
Stock to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for
its own account and not on behalf of any other person; such Stockholder is aware
and acknowledges that the GRS Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold unless the GRS Shares are registered under the Securities Act or
an exemption from the registration requirements of the Securities Act is
available;
<PAGE> 41
(b) Such Stockholder has been furnished all information that
it deems necessary to enable it to evaluate the merits and risks of an
investment in GRS; such Stockholder has had a reasonable opportunity to ask
questions of and receive answers from GRS concerning GRS and the GRS Shares, and
all such questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i)
any rights in and to the GRS Shares, which rights were obtained through or from
such Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in
financial and business matters (including knowledge and expertise in the roofing
industry) that it is capable of evaluating the merits and risks involved in an
investment in the GRS Shares: and such Stockholder is financially able to bear
the economic risk of the investment in the GRS Shares, including a total loss of
such investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal
or state agency has made any finding of determination regarding the fairness of
the offering of the GRS Shares for investment, or any recommendation or
endorsement of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of the GRS Shares, and shall not make
any sale, transfer or pledge thereof without registration under the Securities
Act and any applicable securities laws of any state or unless an exemption from
registration is available;
(i) Except as set forth herein, no representations or
warranties have been made to such Stockholder by GRS or any agent, employee or
Affiliate of GRS, and in entering into this transaction such Stockholder is not
relying upon any information, other than from the results of independent
investigation by such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of
the GRS Shares except (i) pursuant to an effective registration statement under
the Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS, Sellers' Counsel or other counsel reasonably satisfactory to
GRS, is not required to be registered under the Securities Act.
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<PAGE> 42
EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate
Documents.
(a) GRS is a corporation duly organized, validly existing and
in good standing under the laws of Florida, and is not required to be qualified
to do business as a foreign corporation in any other jurisdiction where the
failure to so qualify would have a material adverse effect on GRS. GRS has all
required corporate power and authority to own its properties and to carry on its
business as presently conducted. The Articles of Incorporation and By-laws of
GRS, copies of which are attached as Schedule 5.01(a), are complete and reflect
all amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have
any subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized
capital stock of GRS consists of 100,000,000 shares, of which 90,000,000 have
been designated as GRS Common Stock and 10,000,000 have been designated as
Preferred Stock. All of the presently outstanding shares of capital stock of GRS
have been validly authorized and issued and are fully paid and nonassessable.
Except as set forth on Schedule 5.03, GRS has not issued any other shares of its
capital stock and there are no outstanding options, warrants, subscriptions or
other rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
<PAGE> 43
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms,
conditions or provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to
GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private non-governmental third party or any
Governmental Authority. Any and all consents required to be obtained by GRS as
set forth in Schedule 5.05 shall be obtained and copies thereof delivered to the
Company and the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no
suit, action or other proceeding is pending or, to the Knowledge of GRS,
threatened before any Governmental Authority seeking to restrain GRS or prohibit
its entry into this Agreement or prohibit the Closing, or seeking damages
against GRS or its Properties, as a result of the consummation of the
transaction contemplated by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in
Schedule 5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS
Balance Sheets") and the related statements of income, stockholders' equity and
cash flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in
Schedule 5.09, the accounts receivable reflected on the GRS Balance Sheet and
all accounts receivable arising between December 31, 1997 and the date hereof,
arose from bona fide transactions in the ordinary course of business, and the
goods and services involved have been sold, delivered and performed to the
account of the obligors, and no further filings (with Governmental Authorities,
insurers or others) are required to be made, no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle GRS to collect
the accounts receivable in full. No such account has been assigned or pledged to
any other person, firm or corporation, and, except only to the extent fully
reserved against as set forth in the Interim GRS Balance Sheet, no defense or
setoff to any such account has been asserted by the account obligor.
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<PAGE> 44
Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of GRS, regardless
of compensation levels, and other employees who are currently compensated at a
rate in excess of $50,000 per year (including any reasonably anticipated bonus)
or who earned in excess of $50,000 during GRS' fiscal year ended December 31,
1996 (collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a)
contains a complete and accurate description of (i) all increases in
compensation of the GRS Key Employees during the fiscal years of GRS ending
December 31, 1997 and December 31, 1996, respectively, and (ii) any promised
increases in compensation of the GRS Key Employees that have not yet been
effected.
(b) Schedule 5.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by GRS or to which GRS contributes on behalf of
its employees, other than Employee Benefit Plans listed in Schedule 5.11. As
used in this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 5.10(c) and in Section
5.10(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and are in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key
Employee has indicated his or her desire or intent to terminate employment with
GRS, and GRS has no present intent of terminating the employment of any GRS Key
Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee
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<PAGE> 45
Benefit Plans sponsored by GRS or to which GRS contributes on behalf of its
employees and all Employee Benefit Plans previously sponsored or contributed to
on behalf of its employees within the three years preceding the date hereof. No
unwritten amendment exists with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in
Schedule 5.12, from the date of the GRS Balance Sheet to the date of this
Agreement, GRS has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of GRS or any stockholder of GRS, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
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<PAGE> 46
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of
its assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of
its assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or its
assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights, paid any
dividends or made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
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<PAGE> 47
Section 5.13 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which GRS is a party (the "GRS Contracts") set forth in Schedule 5.13, GRS has
not entered into, nor is the capital stock, the assets or the business of GRS
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that
terminates more than thirty (30) days after the date hereof, except in the
ordinary course of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
6
<PAGE> 48
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice
of any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has no reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available
to the Stockholders all insurance policies of GRS. All of such policies are
valid and enforceable against GRS, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. Use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
GRS is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the Interim GRS Balance Sheet in
7
<PAGE> 49
the ordinary course of business), free and clear of all security interests,
liens, charges and other encumbrances, except for (i) liens for taxes not yet
due and payable or being contested in good faith in appropriate proceedings, and
(ii) encumbrances that are incidental to the conduct of its businesses or
ownership of property, not incurred in connection with the borrowing of money or
the obtaining of credit, and which do not in the aggregate materially detract
from the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful
and undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in
Schedule 5.18, there are no claims, actions, suits, investigations or
proceedings against GRS pending or, to the Knowledge of GRS, threatened in any
court or before or by any Governmental Authority, or before any arbitrator, that
could reasonably be expected to have a material adverse effect (whether covered
by insurance or not) on the business, operations, prospects, Properties,
securities or financial condition of GRS. Except as otherwise set forth in
Schedule 5.18, GRS is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any Legal
Requirement or Permit applicable to GRS or any GRS Contract applicable to GRS,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any GRS Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of
GRS, there are no PCBs, TCE, PCE, or asbestos containing materials generated,
used, treated, stored, maintained, disposed of, or otherwise deposited in, or
located on any premises at which GRS' business (the "GRS Business") is or was,
or at which the business or, to the Knowledge of GRS, its predecessors was,
located, which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which the GRS Business is or was, or, to knowledge of GRS, at which
the business of its predecessors was, located, which would have a Material
Adverse Effect on GRS. With respect to underground storage tanks, Schedule
5.19(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of
GRS, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of GRS, threat of a "release" of
8
<PAGE> 50
any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor
their respective predecessors have received written notice alleging any
potential liability with respect to the contamination, investigation, or cleanup
of any site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and,
to the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth
all of GRS' material suppliers, together with the dollar amount of goods
purchased by GRS from each such supplier during the twelve month period ended
December 31, 1997 and the four month period ended April 30, 1998, as well as
each of the principal customers of GRS. Except as otherwise set forth in
Schedule 5.21, since December 31, 1997, there has been no material adverse
change in the business relationship of GRS with any supplier or customer named
in Schedule 5.21. No customer or supplier named in Schedule 5.21 has terminated
or materially altered, or notified GRS of any intention to terminate or
materially alter, its relationship with GRS and GRS has no reason to believe
that any such customer or supplier will terminate or materially alter its
relationship with GRS or to materially decrease its services or supplies to GRS
or its direct or indirect usage of the services or products of GRS. For purposes
of Sections 5.21 and 5.24 "material suppliers" refers to suppliers from whom GRS
purchased five percent (5%) or more of the total amount of the goods purchased
by GRS during the twelve month period ended December 31, 1997 and the four month
period ended April 30, 1998, and "principal customers" refers to customers who
accounted
9
<PAGE> 51
for 5% or more of GRS' revenues during the twelve month period ended December
31, 1997 and the four month period ended April 30, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by GRS to the Stockholders or their counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to the Stockholders contain projections and
estimates of future events, and such projections and estimates have been based
upon certain assumptions that management of GRS made in good faith and believed
are reasonable at the time such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set
forth in Schedule 5.24, no director or executive officer of GRS or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with GRS or any organization that has a material contract or arrangement with
GRS.
Section 5.25 Investments in Competitors. No director or executive
officer of GRS owns directly or indirectly any material interests or has any
investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer
or employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule
5.27, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and
all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
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<PAGE> 52
(iv) the accrual for Taxes on the Unaudited GRS
Balance Sheet (excluding any amount recorded which is attributable to timing
differences between book and Tax income) would be adequate to pay all material
Tax liabilities of GRS if its current tax year were treated as ending on the
date of the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited.
(b) To the Knowledge of GRS, no claim has been made by a
taxing authority in a jurisdiction where GRS does not file Tax Returns that GRS
is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local
tax audits or administrative or judicial proceedings pending or being conducted
with respect to GRS;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by GRS from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims
concerning GRS' Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC ss. 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC ss. 481(a) or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by GRS. GRS has no knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any knowledge with respect to any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC ss. 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC ss. 280G.
Section 5.29 Participation in Secondary Offering. In the event that
after the Offering GRS files a registration statement with the Securities and
Exchange Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such number of shares of GRS Common
Stock owned by the Stockholders as shall equal (i)(A) the total number of shares
of GRS Common Stock owned by such Stockholders divided by (B) the total number
of shares of GRS Common Stock owned by all shareholders of the Founding
Companies, multiplied by (ii) the total number of shares of GRS Common Stock
owned by shareholders of the Company which are to be included in the Secondary
Offering.
11
<PAGE> 1
EXHIBIT 2.5
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
SPECIALTY ASSOCIATES, INC.,
SAI WHOLESALE DISTRIBUTORS, INC.
AND
THE STOCKHOLDERS
OF
SPECIALTY ASSOCIATES, INC.,
AND
SAI WHOLESALE DISTRIBUTORS, INC.
----------------------------
MAY 12, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................1
1.01 Sale and Purchase of Company Common Stock................................................................1
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Purchase Price Adjustment................................................................................3
1.05 Excluded Assets and Distribution of Assets...............................................................4
1.06 Stockholders' Representative.............................................................................4
1.07 Earn-Out.................................................................................................5
ARTICLE II - CLOSING..............................................................................................6
2.01 Closing..................................................................................................6
2.02 Deliveries by Stockholders to GRS........................................................................7
2.03 Deliveries by GRS........................................................................................7
2.04 Termination in Absence of Closing........................................................................7
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS..................................8
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................8
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS.................................................................8
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................8
6.01 GRS' Access to Information and Assets....................................................................8
6.02 Company's Conduct of Business and Operations.............................................................9
6.03 General Restrictions.....................................................................................9
6.04 Notice Regarding Changes................................................................................10
6.05 Consents and Best Efforts...............................................................................10
6.06 Casualty Loss...........................................................................................11
6.07 Employee Matters........................................................................................11
6.08 No Solicitation.........................................................................................11
6.09 Employment Agreements...................................................................................11
6.10 Lock-Up Agreement.......................................................................................11
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................12
7.01 Conditions to Obligations of All Parties................................................................12
7.02 Conditions to Obligations of Stockholders...............................................................12
7.03 Conditions to Obligations of GRS........................................................................13
ARTICLE VIII - SURVIVAL..........................................................................................15
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................15
ARTICLE IX - INDEMNIFICATION.....................................................................................15
9.01 Obligation of the Stockholders to Indemnify.............................................................15
9.02 Obligation of GRS to Indemnify..........................................................................15
9.03 Notice and Opportunity to Defend........................................................................15
9.04 Limitations on Indemnification..........................................................................16
9.05 Set-Off Rights..........................................................................................18
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................18
10.01 Further Assurances......................................................................................18
10.02 Publicity...............................................................................................18
10.03 Access to Records.......................................................................................18
ARTICLE XI - MISCELLANEOUS.......................................................................................19
11.01 Brokers.................................................................................................19
11.02 Costs and Expenses......................................................................................19
11.03 Notices.................................................................................................19
11.04 Governing Law...........................................................................................20
11.05 Entire Agreement, Amendments and Waivers................................................................20
11.06 Binding Effect and Assignment...........................................................................20
11.07 Remedies................................................................................................20
11.08 Exhibits and Schedules..................................................................................20
11.09 Multiple Counterparts...................................................................................21
11.10 References.............................................................................................21
11.11 Survival................................................................................................21
11.12 Attorneys' Fees.........................................................................................21
ARTICLE XII - DEFINITIONS........................................................................................21
12.01 Affiliate...............................................................................................21
12.02 Collateral Agreements...................................................................................21
12.03 Company Assets..........................................................................................22
12.03 Contract Retention......................................................................................22
12.04 Current Assets..........................................................................................22
12.06 Current Liabilities.....................................................................................22
12.07 Environmental Law.......................................................................................22
12.08 Governmental Authorities................................................................................22
12.09 GAAP....................................................................................................22
12.10 Hazardous Substances....................................................................................22
12.11 Knowledge...............................................................................................22
12.12 Legal Requirements......................................................................................23
12.13 Permits.................................................................................................23
12.14 Properties..............................................................................................23
12.15 Proportionate Share.....................................................................................23
12.16 Regulations.............................................................................................23
12.17 Taxes...................................................................................................23
12.18 Tax Returns.............................................................................................23
12.19 Used....................................................................................................23
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for Ronald J. Werowinski
Exhibit H - Employment Agreement for John Pum
Exhibit I - Employment Agreement for David Weiss
Exhibit J - Opinion of Baker & McKenzie
Exhibit K - Opinion of Michael Best & Friedrich LLP
Exhibit L - Form of Promissory Note
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 12, 1998, by and among (i) General Roofing Services, Inc.
a Florida corporation (the "Buyer" or "GRS"),(ii) Specialty Associates, Inc., a
Wisconsin corporation ("SA"), (iii) SAI Wholesale Distributors, Inc., a
Wisconsin corporation ("SAI"; SA and SAI are collectively referred to herein as
the "Company"), and (iv) the stockholders of the Company (individually, a
"Stockholder" or, collectively the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS, SAI and SA and the Stockholders deem
it advisable for their welfare and best interests that the Stockholders sell and
GRS purchase all of the issued and outstanding capital stock of SA, consisting
of 91,304 shares of common stock, no par value per share (the "SA Common
Stock"), and all of the issued and outstanding capital stock of SAI, consisting
of 1,000 shares of common stock, no par value per share (the "SAI Common Stock";
the SA Common Stock and SAI Common Stock are collectively referred to as the
"Company Common Stock" or the "Shares", upon the terms and subject to the
conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring all of the issued and outstanding
capital stock of additional commercial roofing companies (the "Founding
Companies") throughout the United States, and all such transactions are intended
to conform to, and are being made, in connection with, a Section 351 Plan of
Exchange within the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase, acquire
and accept from each Stockholder, the number of shares of Company Common Stock
set forth opposite the name of each such Stockholder on Exhibit A hereto under
the heading "Number of Shares of Company Common Stock Purchased", constituting
all of the issued and outstanding shares of Company Common Stock. The sale and
purchase of the Company Common Stock pursuant to this Agreement is sometimes
hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a),
at the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in
<PAGE> 6
blank or otherwise in proper form acceptable to GRS for transfer to GRS on the
books of the Company, against payment therefor in accordance with Section 1.03
hereof.
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding
shares of Company Common Stock to be purchased by GRS hereunder shall be an
aggregate amount equal to (i) $4,825,000 plus (ii) any additional amount as
shall be payable to the Stockholders in accordance with Section 1.07 hereof (the
"Purchase Price"). The Purchase Price shall be subject to adjustment as provided
in this Agreement and, as so adjusted, shall be allocated among, and delivered
to the Stockholders in accordance with their respective Proportionate Share as
set forth on Exhibit A hereof and to the Escrow Agent (as defined in Section
1.03(b) hereof), subject to and in accordance with Section 1.03 hereof. The
amount of the Purchase Price allocated to each outstanding share of Company
Common Stock is hereinafter referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar to
the extent that the Net Book Value of the Company on a combined basis as shown
on the Closing Date Unaudited Balance Sheet referred to in Section 1.02(c),
below (the "Closing Net Book Value"), is less than $1,476,000 (the "Target Net
Book Value") (such adjustment is referred to herein as the "Purchase Price
Adjustment"); provided, that the Closing Net Book Value shall not be less than
$1,425,000 (the "Minimum Net Book Value"). For purposes of this Agreement, Net
Book Value shall mean the excess of the Company's combined total assets over the
Company's combined total liabilities determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered
to GRS on or before July 15, 1998 (i) an unaudited balance sheet of the Company
forecasted as of July 31, 1998 Closing Date (the "Closing Date Unaudited Balance
Sheet"), (ii) a calculation of the Purchase Price Adjustment, if any, determined
pursuant to Section 1.02(b) above, and (iii) a certificate executed by SA's
Chief Financial Officer (or another duly authorized officer of the Company) to
the effect that the Closing Date Unaudited Balance Sheet has been prepared from
the books and records of the Company and in a manner consistent with the
preparation of the Company Financial Statements (as defined in Section 3.06
hereof). In the event that the Closing occurs after July 31, 1998, the Closing
Date Unaudited Balance Sheet shall be deemed to refer to an unaudited balance
sheet of the Company forecasted as of the anticipated Closing Date, and shall be
delivered to GRS at least 15 days prior to such Closing Date provided, that GRS
has timely informed the Company of the anticipated Closing Date.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section 1.01(b)
hereof of a certificate or certificates representing all of the issued and
outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $1,206,250, minus (ii) the
amount of the Purchase Price Adjustment, if any, shall be paid directly to the
Stockholders by wire transfer in New York Clearing House Funds in accordance
with Exhibit A hereto; provided, that in the event that the Closing occurs prior
to July 31, 1998, GRS shall, in lieu of delivering such amount in New York
Clearing House Funds, deliver a promissory note in the form of Exhibit L due on
August 15, 1998 payable to the Stockholders, which promissory note shall bear
interest at an annual rate of 7.5% and shall provide for a set-off in the amount
of the Purchase Price Adjustment determined in accordance with Sections 1.02 and
1.04 hereof.
(b) An aggregate of $3,618,750 shall be paid by the delivery
to (A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of the GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $965,000 (the "Escrow Fund"), based upon the
public
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<PAGE> 7
offering price of the GRS Common Stock to be sold in its initial public offering
(the "Offering") and (B) to the Stockholders in accordance with Exhibit A
hereto, of such number of shares of GRS Common Stock as shall have a value equal
to $2,653,750 based upon the public offering price of the GRS Common Stock to be
sold in the Offering. The shares of GRS Common Stock to be so held in escrow
shall be held by the Escrow Agent for a period of one year following the Closing
in accordance with the terms of an Escrow Agreement in the form of Exhibit B
hereto (the "Escrow Agreement"), and shall thereafter be restricted from
transfer for an additional one-year period in accordance with the terms, and
subject to the conditions, of a Lock-Up Agreement in the form of Exhibit C
hereto (the "Lock-Up Agreement"). The Stockholders shall receive cash in lieu of
fractional shares within five business days following the Closing.
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (the "1933 ACT"), NOR UNDER ANY STATE SECURITIES
LAWS AND SHALL NOT BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED UNTIL EITHER (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE
UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER
OF SUCH SHARES, WHICH OPINION IS REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT
OR APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b) hereof,
if any, and prior to July 20, 1998, GRS shall notify the Stockholders in writing
of its determination of the Purchase Price Adjustment, if any, and the cash
portion of the Purchase Price to be paid to the Stockholders on the Closing
Date, together with the calculations used in determining the number of shares
placed in the Escrow Fund (the "Purchase Price Notice"), subject to Section
1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by
GRS to the Stockholders' Representative of a Purchase Price Notice, the
Stockholders' Representative may deliver to GRS a written notice advising GRS
either that the Stockholders (A) agree with the calculation of the Purchase
Price Adjustment, or (B) believe that one or more adjustments are required. If
the Stockholders' Representative shall concur with the calculation of the
Purchase Price Adjustment, if any, or if the Stockholders' Representative shall
not object thereto in a written notice delivered to GRS within five (5) business
days after the Stockholders' Representative's receipt of the Purchase Price
Notice, the Purchase Price as set forth in the Purchase Price Notice, if any,
shall become final and shall not be subject to further review, challenge or
adjustment absent fraud.
(ii) In the event that GRS submits the Purchase Price
Notice and the Stockholders' Representative timely objects to the proposed
Purchase Price Adjustment, and the Stockholders' Representative and GRS are
unable to resolve the disagreements with respect to the
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<PAGE> 8
proposed Purchase Price Adjustment prior to the Closing, then such disagreements
shall be referred to a recognized firm of independent certified public
accountants experienced in auditing roofing or construction companies and
selected by mutual agreement of Stockholders and GRS (the "Settlement
Accountants"), and the determination of the Purchase Price Adjustment, if any,
by the Settlement Accountants shall be final and shall not be subject to further
review, challenge or adjustment absent fraud. In the event that Stockholders'
Representative and GRS cannot agree on the selection of Settlement Accountants,
the Settlement Accountants shall be selected by lottery from among recognized
firms of independent certified public accountants, with preference being given
to the "Big Six" accounting firms (except for Deloitte & Touche LLP), until one
such firm is willing to compute the Purchase Price Adjustment, if any. The
Settlement Accountants shall use their best efforts to reach a determination not
more than five (5) days after such referral. The costs and expenses of the
services of the Settlement Accountants shall be paid equally by the Company and
GRS. Pending the final determination by the Settlement Accountants of the
Purchase Price Adjustment, if any, (the "Final Determination"), the difference
between the determination by the Stockholder's Representative and GRS of the
Purchase Price Adjustment, if any, shall be withheld from the cash portion of
the Purchase Price to be delivered pursuant to Section 1.03(a) and shall be paid
in accordance with and upon the Final Determination. Any such dispute shall not
delay the Closing.
(c) After the Purchase Price Adjustment is determined pursuant
to Section 1.04(b) hereof, the amount of the adjustment determined pursuant
thereto shall be deducted from the cash portion of the Purchase Price and
allocated among the Stockholders in accordance with their respective
Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets. (a) Prior to
the Closing, the Company shall be permitted to distribute to the Stockholders as
a dividend those assets (the "Excluded Assets") which GRS and the Stockholders
have agreed in writing are not required by the Company in the conduct of its
operations and which are listed in Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean Ronald J. Werowinski, or any person appointed as a
successor Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all
obligations under this Agreement have been discharged (including all
indemnification obligations hereunder and all obligations under the Escrow
Agreement), the Stockholders who, immediately prior to the Closing, held Company
Common Stock representing an aggregate number of shares of Company Common Stock
which exceeded 50% of the amount of such Company Common Stock outstanding
immediately prior to such time (a "Majority"), may, from time to time upon
written notice to the Stockholders' Representative and GRS, remove the
Stockholders' Representative or appoint a new Stockholders' Representative to
fill any vacancy created by the death, incapacitation, resignation or removal of
the Stockholders' Representative. Furthermore, if the Stockholders'
Representative dies, becomes incapacitated, resigns or is removed by a Majority,
the Majority shall appoint a successor Stockholders' Representative to fill the
vacancy so created. If the Majority is required to but has not appointed a
successor Stockholders' Representative within 20 business days from a request by
GRS to appoint a successor Stockholders' Representative, GRS shall have the
right to appoint a Stockholders' Representative to fill any vacancy so created,
and shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
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<PAGE> 9
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right and power to execute the Escrow
Agreement on their behalf with such changes or amendments thereto as the
Stockholders' Representative shall determine to be necessary or desirable in
their sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
(d) GRS shall have no liability to any Stockholder or
otherwise arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders or with the Stockholders'
Representative. GRS may rely entirely on its dealings with, and notices to and
from, the Stockholders' Representative to satisfy any obligations it might have
to the Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
Section 1.07 Earn-Out. (a) As additional consideration for the sale of
the Company Common Stock, subject to the provisions of Section 1.07(c), if the
Company's EBIT (as defined and determined pursuant to Section 1.07(b) hereof)
for the 12 month period following the month in which the Closing occurs (the
"Earn-Out Period"), is equal to or exceeds $600,000, as determined by reference
to the financial statements of the Company prepared in accordance with U.S.
generally accepted accounting principles applied in a manner consistent with
prior periods ("GAAP"), GRS shall deliver to the Stockholders within 60 days of
the last day of the Earn-Out Period for allocation among the Stockholders in
accordance with their respective Proportionate Share an amount (the "Earn-Out
Amount") equal to (i) the Company's EBIT in excess of $600,000, up to a maximum
EBIT of $660,000, multiplied by (ii) seven (7). The Earn-Out Amount shall be
paid in cash by wire transfer of immediately available funds.
(b) For purposes of this Section 1.07, "EBIT" shall mean the
combined net income of SA and SAI before interest and federal and state income
taxes, and general corporate overhead allocations, modified as follows:
(i) to the extent included in the combined net income
of SA and SAI, excluding the effect of the following items:
(A) the gain or loss from any sale, exchange
or other disposition of assets other than in the ordinary course of business
consistent with past practice;
(B) any extraordinary gain or loss other
than in the ordinary course of the business of performing commercial roofing
services (it being understood and agreed that this Section 1.7 (b) (i) (B) shall
not be deemed to exclude from the calculation of EBIT revenues or profits paid
for the performance of commercial roofing services, whether or not such revenues
or profits are greater than those historically received by SA or SAI;
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<PAGE> 10
(C) any reserves or adjustments to reserves
which are not consistent with past practices of SA or SAI; and
(D) any other adjustments agreed to in
writing by GRS and the Stockholders.
(c) Within 30 days after the last day of the Earn-Out Period,
GRS shall prepare and deliver to the Stockholders' Representative a statement
setting forth in reasonable detail the computation of EBIT, including
identification of all excluded items and adjustments and all necessary
calculations in accordance with Section 1.07(b) hereof. The calculation of EBIT
shall be used in determining the amounts to be paid under this Section 1.07
unless the holders of at least 50% of the Shares on the date hereof give GRS
notice (the "EBIT Dispute Notice") that such Stockholders dispute GRS'
calculation of EBIT within ten (10) days after the initial determination of EBIT
has been given to the Stockholders, which notice shall set forth in reasonable
detail the exclusions or calculations being disputed in good faith (the
"Disputed Matters"). In the event an EBIT Dispute Notice is timely given to GRS,
GRS and the Stockholders shall have fifteen (15) days to resolve the dispute
and, if not resolved, the dispute shall be submitted to an internationally
recognized "Big Six" accounting firm or its successor (other than GRS'
accountants and the Stockholders' accountants (the "EBIT Arbitrator"), selected
by GRS and the Stockholders which shall be instructed to arbitrate such disputed
item(s) and determine EBIT within thirty (30) days. If within five days
following the expiration of such fifteen (15) day period, GRS and the
Stockholders have failed to agree in writing upon the selection of the EBIT
Arbitrator or any EBIT Arbitrator selected by them has not agreed to perform the
services called for hereunder, the EBIT Arbitrator shall thereupon be selected
by the American Arbitration Association (the "AAA"), with preference being given
by the AAA in making such selection to any one of the "Big Six" accounting firms
willing to perform such services. The EBIT Arbitrator shall consider only the
Disputed Matters. The resolution of disputes by the EBIT Arbitrator shall be set
forth in writing and shall be conclusive and binding upon and non-appealable by
the parties, and the determination of EBIT shall become final upon the date of
such resolution, and may be entered as a final judgment in any court of proper
jurisdiction. The fees and expenses of the EBIT Arbitrator with respect to
settlement of each Disputed Matter shall, to the extent such fees and expenses
are allocable, be borne in each such instance by the party against whom the
award of the EBIT Arbitrator is made, and if allocation is not feasible in any
such instance, then such fees and expenses shall be borne by the parties in
reverse proportion to the number of Disputed Matters settled in their respective
favor by the EBIT Arbitrator.
(d) Notwithstanding anything in this Agreement to the
contrary, if an EBIT Dispute Notice has been delivered with respect to any
payment to be made under this Section 1.07, and the dispute has not been
resolved by the payment due date, (i) the amount not in dispute shall be paid as
required hereunder, and (ii) GRS shall have no obligation to pay any amount
until ten (10) days after the date on which the dispute is resolved.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
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Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued
and outstanding shares of Company Common
Stock in proper form for transfer to GRS;
(ii) the resignations of all members of the board
directors of the Company as set forth in
Section 7.03(k);
(iii) the stock books, stock ledgers, minute books
and corporate seals, if any, of the Company;
(iv) a certificate executed by the Company to the
effect that the conditions set forth in
Sections 7.03(b) through 7.03(i), have been
satisfied;
(v) the opinion of counsel set forth in Section
7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant
to Section 7.03(m).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available
funds to the Stockholders the payment
described in Section 1.03(a) as being
required to be paid by GRS at Closing;
(ii) by delivery to the Stockholders the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Stockholders at Closing;
(iii) by delivery to the Escrow Agent the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Escrow Agent at Closing;
(iv) a certified copy of all necessary corporate
action on behalf of GRS approving its
execution, delivery and performance of this
Agreement and the Collateral Agreements to
which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized
officer of GRS to the effect that the
conditions set forth in Sections 7.02(b) and
7.02(c) have been satisfied;
(vi) the opinions set forth in Sections 7.02(d)
and (h); and
(vii) the executed Collateral Agreements to which
it is a party.
Section 2.04 Termination in Absence of Closing. If by the close of
business on December 31, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability of
or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of
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this Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party to
perform its obligations under this Article II on such date; provided, however,
that any termination pursuant to this Section 2.04 shall not relieve any party
hereto who was responsible for Closing having not occurred as described in
clauses (i) or (ii) above of any liability for (x) such party's willful breach
of the provisions of this Agreement, or (y) if all of the conditions to such
party's obligations set forth in Article VII have been satisfied or waived in
writing by the date scheduled for the Closing pursuant to Section 2.01, the
failure of such party to perform its obligations under this Article II on such
date. Notwithstanding the foregoing, the Stockholders expressly acknowledge and
agree that market and economic conditions are impossible to predict, and
although GRS intends to proceed with the Offering in an expeditious manner at
this time, GRS shall not be liable to the Stockholders or the Company if the
Closing has not occurred because the Offering has not been consummated prior to
the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
Except as provided in the Company's and Stockholders' Disclosure
Schedule (the full text of which is incorporated herein by reference as if set
forth fully herein), the Company and the Stockholders, jointly and severally,
represent and warrant to GRS as to the matters set forth on Exhibit D hereto,
the full text of which is incorporated herein by reference as if set forth fully
herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Company shall
permit GRS and its authorized employees, agents, accountants, legal counsel and
other representatives, at GRS' own expense, to have access to the books,
records, employees, counsel, accountants, and other representatives of the
Company at all times reasonably requested by GRS for the purpose of conducting
an investigation ("GRS' Due Diligence Investigation") of the Company's financial
condition, corporate status, operations, business and Properties. The Company
shall make available to GRS for examination and reproduction, at GRS' own
expense, all documents and data of every kind and character relating to the
Company in possession or control of, or subject to reasonable access by, the
Stockholders or the
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Company, including, without limitation, all files, records, data and information
relating to the Company Assets (whether stored in paper, magnetic or other
storage media) and all agreements, instruments, contracts, assignments,
certificates, orders, and amendments thereto. Also, the Company shall allow GRS,
at GRS' own expense, access to, and the right to inspect, the Company Assets.
Section 6.02 Company's Conduct of Business and Operations. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a manner consistent with past practices of the
Company, (d) pay or cause to be paid all costs and expenses (including but not
limited to insurance premiums) incurred in connection therewith in a timely
manner, and (e) maintain in force until the Closing Date insurance policies
(subject to the provisions of Section 6.06) equivalent to those in effect on the
date hereof. Except as otherwise contemplated in this Agreement, the
Stockholders shall use their commercially reasonable efforts to preserve the
present relationships of the Company with persons having significant business
relations therewith.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS, the
Company shall not:
(i) (A) except as permitted by Sections 1.05 and
3.02 hereof, declare, set aside or pay any dividends on, or make any
other distribution (whether in cash, stock or property) in respect of,
any of its capital stock, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in view of or in substitution for shares of
its capital stock, or (C) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock except as provided in Section
180.0622(2)(b) of the Wisconsin Statutes and the cases decided
thereunder, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws
(or similar organizational documents);
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation,
partnership, joint venture, association or other business organization
or division thereof;
(v) sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of, or agree to sell, transfer, lease,
mortgage, encumber or otherwise dispose of, any Properties except (A)
in the ordinary course of business consistent with past practice, or
(B) pursuant to any Company Contract or except as permitted by Sections
1.05 and 3.02 hereof;
(vi) (A) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company, guarantee any debt securities of another
person, enter into any "keep well" or other agreements to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of the foregoing, except for
borrowings incurred in the ordinary course of business consistent with
past practice, or (B) make any loans, advances or capital contributions
to, or investments in, any other person;
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(vii) make or agree to make any new capital
expenditure or expenditures which, individually is in excess of $25,000
or, in the aggregate, are in excess of $50,000 (other than those
required pursuant to currently outstanding Company Contracts or in the
ordinary course of business consistent with past practice);
(viii) make any material tax election or settle or
compromise any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Company
Financial Statements (or the notes thereto) or incurred in the ordinary
course of business consistent with past practice or as may be required
to pay, discharge, settle or satisfy existing obligations of the
Company as disclosed herein, or waive any material benefits of, or
agree to modify in any material respect, any confidentiality,
standstill or similar agreements to which the Company is a party;
(x) except in the ordinary course of business
consistent with past practice or in the best interests of the Company,
modify, amend or terminate any Company Contract;
(xi) except in the ordinary course of business
consistent with past practice, enter into any contracts, agreements,
arrangements or understandings relating to performance by third parties
of the Company's services;
(xii) except as required to comply with applicable
law (A) adopt, enter into, terminate or amend any benefit plan or other
arrangement for the benefit or welfare of any director, officer or
current or former employee, (B) increase in any manner the compensation
or fringe benefits of, or pay any bonus to, any director, officer or
employee (except in a manner consistent with past practice), (C) pay
any benefit not provided for under any benefit plan except for benefits
provided in the ordinary course of business and consistent with past
practice, (D) grant any awards under any bonus, incentive, performance
or other compensation plan or arrangement or benefit plan (including
the grant of stock options, stock appreciation rights, stock based or
stock related awards, performance units or restricted stock, or the
removal of existing restrictions in any benefit plans or agreement or
awards made thereunder) or (E) take any action to fund or in any other
way secure the payment of compensation or benefits under any employee
plan, agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take
any of, the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders materially inaccurate or materially misleading if such
representations and warranties had been made upon the occurrence of the fact or
circumstance in question. GRS shall promptly inform the Stockholders in writing
of any change in facts and circumstances that could render any of the
representations and warranties made herein by it materially inaccurate or
materially misleading if such representations and warranties had been made upon
the occurrence of the fact or circumstance in question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto
shall use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all
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things necessary, proper or advisable under applicable laws and regulations, and
consult and fully cooperate with and provide reasonable assistance to each other
party and their respective representatives in order to consummate and make
effective the transactions contemplated by this Agreement as promptly as
practicable hereafter, including without limitation, (i) using all commercially
reasonable good faith efforts to make all filings, applications, notifications,
reports, submissions and registrations with, and to obtain all consents,
approvals, authorizations or permits of, governmental entities or other persons
or entities as are necessary for the consummation of the transactions
contemplated by this Agreement, and (ii) taking such actions and doing such
things as any other party hereto may reasonably request in order to cause any of
the conditions to such other party's obligation to consummate the transactions
contemplated hereby as specified in Article VII of this Agreement to be fully
satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and
the Closing, any of the Properties of the Company shall be destroyed or damaged
in whole or in part by fire, earthquake, flood, other casualty or other cause (a
"Casualty Loss"), then the Stockholders shall, at GRS' election, (i) cause the
Company to cause such Properties to be repaired or replaced prior to the Closing
with Property of substantially the same condition and function, (ii) cause the
Company to deposit in a separate account an amount sufficient to cause such
Property to be so repaired or replaced or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such Casualty Loss had not
occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause
the Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date.
Section 6.08 No Solicitation. The Stockholders and, the Company and its
respective officers, directors, employees, representatives and agents shall
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to a Third Party Acquisition Proposal (as defined below).
Neither the Company nor any of the Stockholders shall, nor shall they permit any
of their Affiliates to, nor shall they authorize or permit any of their
officers, directors or employees or any investment banker, attorney or other
advisor or representatives retained by them or any of their Affiliates to, (i)
solicit, initiate or knowingly encourage the submission of, any Third Party
Acquisition Proposal, or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect to,
or take any other action knowingly to facilitate any inquiries or the making of
any proposal that constitutes any Third Party Acquisition Proposal. For purposes
of this Agreement, "Third Party Acquisition Proposal" means any inquiry,
proposal or offer from any person relating to any direct or indirect acquisition
or purchase of substantially all of the assets of the Company or substantially
all of any class of equity securities of the Company or any offer to acquire or
purchase that if consummated would result in any person beneficially owning all
or a portion of any class of equity securities of the Company, or any merger,
consolidation, business combination, sale of assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company, other
than the transactions contemplated by this Agreement, or any other transaction
the consummation of which could reasonably be expected to impede, interfere
with, prevent or delay the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before the Closing, Ronald J.
Werowinski, John Pum and David Weiss shall each have entered into an employment
agreement in the form of Exhibits G, H and I (the "Employment Agreements"),
which shall include noncompetition provisions, to take effect on and after the
Closing Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the
Stockholders shall have entered into the Lock-Up Agreement.
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ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the date of the Closing; provided, however,
that no provision of this Agreement shall be construed as requiring any party to
accept, in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no transfers of
licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any
statute, rule, regulation, decree, ruling, injunction or other order issued by
any Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in
this Agreement qualified by materiality shall be true and correct in all
respects at Closing and all other representations and warranties of GRS
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if such representations and warranties were made at
and as of the Closing, except for changes contemplated by the terms of this
Agreement except as and to the extent that the facts and conditions upon which
such representations and warranties are based are expressly required or
permitted to be changed by the terms thereof, and GRS shall have performed and
satisfied in all material respects all covenants and agreements required by this
Agreement to be performed and satisfied by GRS at or prior to the Closing;
provided, however, that no Stockholder shall be entitled to refuse to consummate
the transaction in reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the
Stockholders or the Company) shall be pending or threatened before any
Governmental Authority seeking to restrain the Stockholders from effectuating
the Stock Purchase or prohibit the Closing or seeking Damages against the
Stockholders or the Company as a result of the consummation of the transactions
contemplated by this Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
J. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
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(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and
the Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) The Stockholders shall have received the opinion of
Deloitte & Touche LLP, dated as of the Closing Date, providing that, for federal
income tax purposes, (i) except as provided in (ii) below, no gain or loss will
be recognized by the Stockholders upon the transfer of their Company Common
Stock to GRS in exchange for GRS Common Stock (including shares of GRS Common
Stock placed in escrow pursuant to the Escrow Agreement), the receipt of
payments pursuant to Section 1.03(a) and the receipt of cash pursuant to the
Earn-Out; (ii) each Stockholder shall recognize gain, but not in excess of the
payments received pursuant to Section 1.03(a) and the receipt of payments made
pursuant to the Earn-Out (other than cash treated as interest under Reg
ss.1.483-4(a); and such gain shall be long-term capital gain; (iii) the gain
recognized will be includable in income as the payments are received; (iv) each
Stockholder receiving cash pursuant to the Earn-Out will treat a portion of each
payment as interest income in accordance with Reg ss. 1.483-4(a); (v) each
Stockholder's initial federal income tax basis in the GRS Common Stock received
as part of the transaction shall be the same as the federal income tax basis in
their Company Common Stock transferred to GRS, adjusted in accordance with IRC
Section 358; and (vi) the holding period of the GRS Common Stock received by
each Stockholder will include the period that each Stockholder previously held
their respective shares of Company Common Stock transferred to GRS, provided
that the Company Common Stock so transferred was a capital asset on the date of
the exchange.
(i) The Company and the Stockholders shall have determined, in
their reasonable discretion, that all agreements between GRS and the
shareholders of GRS shall be on terms as favorable to GRS as GRS could have
obtained pursuant to agreements with unaffiliated third parties.
(j) On or before May 15, 1998, the Stockholders shall be
satisfied with their review of the stock purchase agreement between GRS and the
other Founding Companies or shall not have notified GRS in writing on or before
May 15, 1998 that it has not waived this condition precedent.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS
to carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered
to GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of GRS) shall be
pending or threatened before any court or governmental
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agency seeking to restrain GRS or prohibit the Closing or seeking Damages
against GRS, the Stockholders, the Company or their respective Properties as a
result of the consummation of the transactions contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from
the date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations,
prospects or financial condition of the Company that had or would reasonably be
likely to have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company
(whether or not covered by insurance) that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company.
(f) GRS shall have received the opinion of Michael Best &
Friedrich LLP ("Seller's Counsel"), counsel to the Company and the Stockholders,
dated as of the Closing Date, in form and substance reasonably satisfactory to
GRS, as to the matters set forth on Exhibit K. In rendering such opinion,
Seller's Counsel may rely as to factual matters on certificates of officers,
directors and shareholders of the Company and on certificates of governmental
officials, and as to legal matters on opinions of other counsel reasonably
acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall be equal to or
greater than the Minimum Net Book Value.
(i) The Stockholders shall have executed and delivered to GRS
the Escrow Agreement.
(j) GRS shall have received the executed Employment
Agreements.
(k) GRS shall have received the resignation of all of the
members of the board of directors of the Company, effective as of the Closing
Date.
(l) All proceedings to be taken by Stockholders, the Company,
on the one hand, in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in form and substance to GRS
and its counsel, and GRS and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request.
(m) GRS shall have received written evidence, in form and
substance reasonably satisfactory to GRS, of the consent to the transactions
contemplated by this Agreement of all governmental, quasi-governmental and
private third parties (including, without limitation, persons or other entities
leasing real or personal property to the Company), except where the failure to
have obtained any such consent would not have an adverse effect on the Company
or GRS following the Closing.
(n) GRS shall not have notified the Company in writing on or
before July 1, 1998. that it is not satisfied in its sole and absolute
discretion with GRS' Due Diligence Investigation of the Company.
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(o) GRS shall have determined, in its reasonable discretion,
that all agreements between the Company, on the one hand, and the Stockholders,
shall be on terms as favorable to the Company as the Company could have obtained
pursuant to agreements with unaffiliated third parties.
(p) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company
and the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
knowledge, and the other party or parties (or any of them) are not aware, that
such representation or warranty is untrue or incorrect in any material respect.
All such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to
the limitations contained in Article VIII and Article IX hereof, the
Stockholders, jointly and severally, agree to indemnify, defend and hold
harmless GRS (and its Affiliates, successors and assigns and their respective
officers and directors) from and against all losses, liabilities, damages,
deficiencies, costs or expenses (including interest, penalties and reasonable
attorneys' fees and disbursements, but offset by any proceeds from insurance and
taking into account the present value of any tax savings to GRS or the Company
resulting from such losses, liabilities, damages, deficiencies, costs or
expenses) ("Losses") based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of any representation, warranty, covenant or
agreement of the Company or the Stockholders contained in this Agreement.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by
any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a claim
or the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to
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Section 9.01 or 9.02 (the "Indemnifying Party"). The Claims Notice shall
describe the Asserted Liability in reasonable detail, and shall indicate the
amount (estimated, if necessary and to the extent feasible) of the Loss that has
been or may be suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate (but not control), at
their own expense, in the defense of such Asserted Liability. If the
Indemnifying Party chooses to defend the claim, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at its own
expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any such compromise or settlement consented to by
GRS, shall be borne and paid by the Stockholders. The parties agree to cooperate
fully with one another in the defense, compromise or settlement of any Asserted
Liability.
Section 9.04 Limitations on Indemnification. The indemnification
provided for in Sections 9.01 and 9.02 shall be subject to the following
limitations:
(i) The Stockholders shall not be obligated to pay
any amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) In calculating Losses following the Closing,
damages therefor shall not be based upon any multiple of Losses or multiple of
lost or anticipated profits.
(iii) Neither GRS, the Company nor the Stockholders
shall be obligated to pay any amounts for indemnification under this Article IX,
except those based upon, arising out of or otherwise in respect of Sections
3.02, 3.13, 3.21, 3.28, 5.02, 5.22, 5.28, 11.01 and 11.02 and Article IV hereof
(the "Basket Exclusions"), until the aggregate indemnification payments,
exclusive of the Basket Exclusions, equals one percent (1%) of the Purchase
Price (the "Basket Amount"), whereupon GRS, or the Company and Stockholders, as
the case may be, shall be obligated to pay any indemnification
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payments, including the Basket Amount, in full. It is expressly understood that
the Basket Amount shall serve as a "trigger" for indemnification and not as a
"deductible" (for example, if the indemnity claims for which GRS or the
Stockholders would, but for the provisions of this subparagraph (ii), be liable
is in the aggregate amount of $100,000, and 1% of the Purchase Price is $70,000,
the Stockholders would then be liable for the entire $100,000 and not just
$30,000). This Section 9.04(ii) will not apply to any breach of any
representations and warranties of which any party had actual Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by any party of any covenant or obligation, and GRS or the
Stockholders, as the case may be, will be jointly and severally liable for all
damages with respect to such breaches.
(iv) GRS, the Company and Stockholders shall be
obligated to pay the Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to whether the aggregate amount of
all other indemnification payments shall have exceeded, in the aggregate, the
Basket Amount.
(v) Notwithstanding anything to the contrary in
this Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund.
(vi) After the Closing, the indemnification rights
set forth in this Article IX shall be each party's sole and exclusive remedy
against the other party for any breach of any representation, warranty or
covenant contained in this Agreement. Notwithstanding the foregoing, nothing
herein shall prevent any party from bringing an action based upon allegations of
fraud in connection with this Agreement. In the event an action based upon
allegations of fraud is brought, the prevailing party's attorneys' fees and
costs shall be paid by the nonprevailing party.
(vii) The parties hereto further acknowledge and
agree that in the event of the Company's or Stockholders' breach of
representation or warranty pertaining to any matter or item relating to the Net
Book Value, which if known as of the time of preparation and finalization of the
Purchase Price Adjustment would not have resulted in a Purchase Price
Adjustment, then to the extent that no Purchase Price Adjustment was made, the
Company or Stockholders shall have no obligation to indemnify GRS with respect
to such breach or misrepresentation.
(viii) If a party to this Agreement elects to close the
transactions contemplated by this Agreement notwithstanding his, her or its
actual knowledge of any breach of a representation or warranty made by a party
to him, her or it, then such election to close shall constitute a complete
waiver and release of any claim by such party.
(iv) GRS shall be deemed to have suffered Losses with
respect to accounts receivable reflected on the Closing Date Unaudited Balance
Sheet only if and to the extent that such accounts receivable, except for
Contract Retention, remain uncollected 180 days from the Closing Date. Contract
Retention will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses from the failure to collect accounts
receivable of the Company and such Losses result in a set-off from the Escrow
Fund, the related accounts receivable shall be assigned to the Stockholders
following, and to the extent of, such set-off.
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Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to
Section 9.04 and, paragraphs (b) and (c) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
first be satisfied against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than twenty (20)
days' notice (the "GRS Notice") of its intention to deduct or set-off any
amounts pursuant to this Section 9.05, including in such notice a description of
GRS' indemnification claim. If none of the Stockholders object in writing to
such deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or
make, or cause to have issued or made, any public release or announcement
concerning this Agreement or the transactions contemplated hereby, without the
advance approval in writing of the form and substance thereof by each of the
other parties, and the parties shall endeavor jointly to agree on the text of
any announcement or circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each
of the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall (A) permit the Stockholders and the Company's authorized
employees, agents, accountants, legal counsel and other
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representatives to have access to the books, records, files, agreements and
other information in the possession of GRS or its affiliates, and (B) use its
best efforts to permit the Stockholders and their respective authorized
employees, agents, accountants, legal counsel and other representatives to have
access to the employees, counsel, accountants and other representatives of GRS,
the Company and their Affiliates, in each case, to the extent and at all times
reasonably requested by the Stockholders, or any of them, for the purpose of
investigating or defending any claim made against the Stockholders in connection
with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur,
(i) each Stockholder shall jointly and severally indemnify and hold harmless GRS
and the Company from and against any and all liability for any brokers or
finders' fees arising with respect to brokers or finders retained or engaged by
the Company or any of the Stockholders in respect of the transactions
contemplated by this Agreement, , and (ii) GRS shall indemnify and hold harmless
the Stockholders from and against any and all liability for any brokers' or
finders' fees arising with respect to brokers or finders retained or engaged by
GRS in respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: Ronald J. Werowinski
Specialty Associates, Inc.
11122 West Rogers Street
West Allis, Wisconsin 53227
Telecopy No.: (414) 327-0080
With a copy to:
Peter L. Coffey, Esq.
Michael Best & Friedrich LLP
100 East Wisconsin Avenue, Suite 3300
Milwaukee, Wisconsin 53202
Telecopy No: (414) 277-0656
19
<PAGE> 24
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
Section 11.05 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.06 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.07 Remedies. The rights and remedies provided by this
Agreement are cumulative, and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies provided by this Agreement.
Section 11.08 Exhibits and Schedules. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference.
20
<PAGE> 25
Section 11.09 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.10 References. Whenever required by the context, and as used
in this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.11 Survival. Any provision of this Agreement which
contemplates performance or the existence of obligations after the Closing Date,
and any and all representations and warranties set forth in this Agreement,
shall not be deemed to be merged into or waived by the execution and delivery of
the instruments executed at the Closing, but shall expressly survive Closing for
the time period set forth in Section 8.01 hereof and shall be binding upon the
party or parties obligated thereby in accordance with the terms of this
Agreement, subject to any limitations expressly set forth in this Agreement.
Section 11.12 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined in
this Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect
to any person, any other person controlling, controlled by or under common
control with such Person. The term "Control" as used in the preceding sentence
means, with respect to a corporation, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to any person other
than a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements"
shall mean any or all of the following agreements, the forms of which are
attached hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for Ronald J. Werowinski
Exhibit H - Employment Agreement for John Pum
Exhibit I - Employment Agreement for David Weiss
21
<PAGE> 26
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean,
with respect to the Company, all of the Properties, Company Contracts, and
Permits, that were Used by the Company as of the Balance Sheet Date and those
Used by the Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall
mean any amounts withheld by customers from contract progress billing until
final and satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean,
with respect to the Company, cash and other assets that are expected to be
converted into cash, sold or exchanged within one year from the Closing Date,
including marketable securities, receivables, inventory and current prepayments.
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants.
Section 12.08 Governmental Authorities. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.11 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of SA, SAI or GRS, any of their respective
directors or executive officers with respect to the representation being made,
and such knowledge of any such persons as reasonably should have obtained upon
due investigation and inquiry into the representation being made.
22
<PAGE> 27
Section 12.12 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.13 Permits. The term "Permits" shall mean any and all
permits or orders under any Legal Requirement or otherwise granted by any
Governmental Authority.
Section 12.14 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.15 Proportionate Share. The term "Proportionate Share" shall
mean the percentage of the Purchase Price, as adjusted, allocated to each
Stockholder as set forth on Exhibit A.
Section 12.16 Regulations. The term "Regulations" shall mean any and
all regulations promulgated by the Department of the Treasury pursuant to the
Code.
Section 12.17 Taxes. The term "Taxes" means any federal, states, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss.59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
Section 12.18 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.19 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg Wallick
------------------------------
Gregg Wallick, President
SPECIALTY ASSOCIATES, INC.
By: /s/ Ronald J. Werowinski
------------------------------
Ronald J. Werowinski
President
23
<PAGE> 28
SAI WHOLESALE DISTRIBUTORS, INC.
By:/s/ Ronald J. Werowinski
-----------------------------
Ronald J. Werowinski
President
STOCKHOLDER:
/s/Ronald J. Werowinski
--------------------------------
Ronald J. Werowinski
/s/ Jonn Pum
--------------------------------
Jonn Pum
/s/ Mary Pum
--------------------------------
Mary Pum
/s/ Michael Heinzen
--------------------------------
Michael Heinzen
/s/ Tom Bechtel
--------------------------------
Tom Bechtel
/s/ Dave Weiss
--------------------------------
Dave Weiss
KURTIS WEROWINSKI TRUST
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
JASON WEROWINSKI TRUST
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
MICHAEL PUM TRUST
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
24
<PAGE> 29
EXHIBIT A
SPECIALTY ASSOCIATES, INC.
<TABLE>
<CAPTION>
NAME OF STOCKHOLDER NUMBER OF SHARES PROPORTIONATE SHARE
- ------------------- ---------------- -------------------
<S> <C> <C>
Ronald J. Werowinski.............................. 49,167 52.108%
John Pum.......................................... 7,517 7.967%
John Pum and Mary Pum............................. 6,200 6.571%
Michael Heinzen................................... 1,135 1.203%
Tom Bechtel....................................... 3,935 4.170%
Dave Weiss........................................ 500 .530%
Kurtis Werowinski Trust........................... 9,000 9.538%
Jason Werowinski Trust............................ 9,000 9.538%
Michael Pum Trust................................. 4,850 5.140%
Total...................................... 91,304 96.765%
====== =======
</TABLE>
SAI WHOLESALE DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OF STOCKHOLDER NUMBER OF SHARES
- ------------------- ----------------
<S> <C> <C>
Ronald J. Werowinski.............................. 1,000 3.235%
Total 1,000 3.235%
===== ======
</TABLE>
25
<PAGE> 30
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) SA and SAI are corporations duly organized, and validly
existing under the laws of Wisconsin, and except as otherwise disclosed on
Schedule 3.01(a) hereto, are not required to be qualified to do business as a
foreign corporation in any other jurisdiction where the failure to so qualify
would have a material adverse effect on the Company. The Company has all
requisite corporate power and authority to own its Properties and to carry on
its business as presently conducted. The Articles of Incorporation and By-laws
of the Company, copies of which are attached as Schedule 3.01(a), are complete
and reflect all amendments thereto through the date hereof.
(b) The stock and minute books of SA and SAI that have been
made available to GRS for review and, to the Knowledge of the Company contain a
complete and accurate record of all stockholders of the Company and all material
actions of the stockholders and directors (and any committees thereof) taken at
meetings of stockholders or directors of SA and SAI.
(c) Neither SA nor SAI has any subsidiaries, participate in
any partnership or joint venture, or own any outstanding capital stock of any
other corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized
capital stock of the SA consists of 100,000 shares of SA Common Stock and the
entire authorized capital stock of SAI consists of 2,200 shares of SAI Common
Stock. The issued and outstanding shares of Company Common Stock are owned of
record and beneficially by the Stockholders shown on Exhibit A hereof. All of
the presently outstanding shares of capital stock of the Company have been
validly authorized and issued and are fully paid and nonassessable except as
provided by Section 180.0622(2)(b) of the Wisconsin Statutes and cases decided
thereunder. Neither SA nor SAI has issued any other shares of its capital stock
and there are no outstanding options, warrants, subscriptions or other rights or
obligations to purchase or acquire any of such shares, nor any outstanding
securities convertible into or exchangeable for such shares, except as set forth
on Schedule 3.02. Except as contemplated under this Agreement, there are no
agreements to which either SA or SAI is a party regarding the issuance,
registration, voting or transfer of its outstanding shares of its capital stock.
Except for possible dividends to be issued in connection with the Excluded
Assets as described in Section 1.05 and dividends related to the payment of the
Stockholders' tax liabilities with respect to earnings of SA or SAI up to the
Closing Date, each and all of which shall be subject to the prior written
approval of GRS, no dividends are accrued but unpaid on any capital stock of SA
or SAI.
Section 3.03 No Preemptive Rights; Registration Rights. Except as set
forth in Schedule 3.03 attached hereto, there are no preemptive rights affecting
the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set
forth in Schedule 3.04 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will, to the Knowledge of the Company:
<PAGE> 31
(i) violate or conflict with any of the terms,
conditions or provisions of the Articles of Incorporation or bylaws of SA or
SAI;
(ii) violate any Legal Requirements applicable to SA
or SAI ;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract, as
hereinafter defined, or Permit applicable to SA or SAI;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of SA or SAI;
or
(v) require any of the Stockholders or SA or SAI to
obtain or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no
suit, action or other proceeding is pending or, to the Knowledge of SA or SAI or
the Stockholders, threatened before any Governmental Authority seeking to
restrain any of the Stockholders or prohibit their entry into this Agreement or
prohibit the Closing, or seeking damages against the Company or their
Properties, as a result of the consummation of the transactions contemplated by
this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true
and correct copies of SA's and SAI's (i) unaudited balance sheets as of April 5,
1998 (the "Interim Company Balance Sheet") and the related statements of income
and stockholders' equity for the three months ended April 5, 1998 (the "Interim
Company Financial Statements"), as well as (ii) the Company's balance sheet and
statements of income, stockholders' equity and cash flow as of and for the
fiscal years ended July 2, 1995 and July 3, 1994 and drafts of the Company's
balance sheets as of February 1, 1998 and February 2, 1997 and statements of
income, stockholders' equity and cash flow as of and for each of the two fiscal
years ended February 1, 1998 (collectively, the "Company Financial Statements").
The Company Financial Statements (i) to the Knowledge of the Company have been
prepared from the books and records of the Company, (ii) to the Knowledge of the
Company present fairly the financial condition of the Company and its results of
operations as at and for the respective periods then ended, and (iii) have been
prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in
Schedule 3.07, the Company Financial Statements reflect all liabilities of SA or
SAI as determined in accordance with generally accepted accounting principles
arising out of transactions effected or events occurring on or prior to the date
of the Interim Company Balance Sheet, except for liabilities not exceeding
$10,000 in the aggregate. All reserves shown in the Company Financial Statements
are appropriate and reasonable to provide for losses thereby contemplated.
Except as set forth in the Company Financial Statements (including the Notes
thereto), the Company is not liable upon or with respect to, or obligated in any
other way to provide funds in respect of or to guarantee or assume in any
manner, any debt, obligation or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in
Schedule 3.08, the accounts receivable reflected on the Interim Company Balance
Sheet and all accounts receivable arising between the date of the Interim
Company Balance Sheet (the "Interim Company Balance Sheet Date") and the date
hereof, arose from bona fide transactions in the ordinary course of business,
and the goods and services involved have been sold, delivered and performed to
the account of the obligors, and no further filings (with Governmental
Authorities, insurers or others) are required to be made, no further goods are
required to be provided and no further services are required to be rendered in
order to complete the sales and fully render the services and to entitle SA or
SAI to collect the accounts receivable in full
2
<PAGE> 32
subject to historical reserves and reflected on the Company Financial
Statements. No such account has been assigned or pledged to any other person,
firm or corporation, and, except only to the extent fully reserved against as
set forth in the Interim Company Balance Sheet, no defense or setoff to any such
account has been asserted by the account obligor.
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of SA and SAI and
other employees who are currently compensated at a rate in excess of $75,000 per
year (including any reasonably anticipated bonus) or who earned in excess of
$75,000 during the Company's fiscal year ended February 1, 1998 (collectively,
the "Company Key Employees"). In addition, Schedule 3.09(a) contains a complete
and accurate description of (i) all increases in compensation of the Company Key
Employees during the fiscal years of SA or SAI ended February 1, 1998, and (ii)
any promised increases in compensation of the Company Key Employees that have
not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of
all Compensation Plans sponsored by SA or SAI or to which SA or SAI contributes
on behalf of its employees, other than Employee Benefit Plans listed in Schedule
3.10. As used herein, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 3.09(c) and in Section 3.09
(e) hereof "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which SA or SAI is a party.
(d) The Company has provided GRS with a complete and accurate
list of all significant written employee policies and procedures in effect.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
significant employee policies and procedures in effect.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), SA and SAI (i) have been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) are
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against SA
or SAI before the National Labor Relations Board or any similar state or foreign
commission or agency or (ii) existing or threatened material labor strikes,
disputes, grievances, controversies against SA or SAI or any of their respective
employers.
(g) Except as set forth on Schedule 3.09 (g), neither SA nor
SAI have not been a party to any agreement with any union, labor organization or
collective bargaining unit. No employees of the Company are represented by any
union, labor organization or collective bargaining unit. To the Knowledge of the
Company, no remaining employees of the Company have threatened to organize or
join a union, labor organization or collective bargaining unit.
3
<PAGE> 33
(h) Except as disclosed on Schedule 3.09(h), to the Knowledge
of the Company no Company Key Employee has indicated his or her desire or intent
to terminate employment with SA or SAI, and the Company has no present intent of
terminating the employment of any Company Key Employee.
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10(a) contains a complete and accurate list of
all Employee Benefit Plans sponsored by SA or SAI or to which SA or SAI
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. To the Knowledge of the Company, no unwritten
amendment exists with respect to any Employee Benefit Plan. For purposes of this
Agreement an "Employee Benefit Plan" means each employee benefit plan, as such
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"); provided, however, that with respect to the
representations and warranties set forth in subsections (b), (c), (d) and (e) of
this Section, "Employee Benefit Plan" shall exclude any and all "multiemployer
plans" within the meaning of Section 3(37) of ERISA.
(b) To the Knowledge of the Company, each Employee Benefit
Plan has been administered and maintained in compliance with all laws, rules and
regulations, except for such noncompliance that would not have a material
adverse effect on the Company. No Employee Benefit Plan is currently the subject
of an audit, investigation, enforcement action or other similar proceeding
conducted by any state or federal agency. To the Knowledge of the Company, no
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of the Company, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter
or ruling from the Internal Revenue Service for each Employee Benefit Plan
intended to be qualified within the meaning of Section 401 (a) of the Code
and/or tax exempt within the meaning of Section 501(a) of the Code, which letter
or ruling is current and covers all required amendments to each such Employee
Benefit Plan through the Closing Date. No proceedings exist or, to the Knowledge
of the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Except as disclosed in Section 3.10(d),
neither SAI, SAI nor any member of a Controlled Group has any liability to pay
excise taxes with respect to any Employee Benefit Plan under applicable
provisions of the Code or ERISA. Neither SA, SAI nor any member of a Controlled
Group is or ever has been obligated to contribute to a multiemployer plan within
the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) Neither SA nor SAI have any obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former
4
<PAGE> 34
employees who have retired from employment with the Company, other than (i)
coverage mandated by applicable law and (ii) benefits provided under any
multiemployer plan, as defined in Section 3(37) of ERISA.
Section 3.11 Absence of Certain Changes. Except as set forth in
Schedule 3.11, from the Interim Company Balance Sheet Date to the date of this
Agreement, neither SA nor SAI have:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of SA, SAI or any Stockholder, in its
condition (financial or otherwise), operations, assets, liabilities or business;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any
Company Assets (whether or not covered by insurance) that has materially
adversely affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05 hereof;
(i) written up or written down the carrying value of any of
the Company Assets, except in the ordinary course of business consistent with
past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, in the aggregate, its
business or Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
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(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights or paid any
dividends or made any distribution to the holders of the Company's capital
stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the contracts, agreements,
commitments and other arrangements, whether oral or written, to which SA or SAI
are a party (the "Company Contracts") set forth in Schedule 3.12 or in the
Company Financial Statements, neither SA or SAI have not entered into, nor is
the capital stock, the assets or the business of SA or SAI bound by, whether or
not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) material agreement with dealers or sales or
commission agents, investment bankers, financial advisors, business brokers,
public relations or advertising agencies, accountants or attorneys, except with
respect to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between SA or SAI and any Affiliate;
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(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of SA or SAI;
(xii) any material agreement for the acquisition of
services, supplies, equipment or other personal property and involving more than
$25,000 in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other material contract or arrangement
that involves either an unperformed commitment in excess of $30,000 or that
terminates more than thirty (30) days after the date hereof, except in the
ordinary course of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23 hereof; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of SA or SAI.
Except for the Company Contracts described in Sections 3.12(iii) and 3.12(xv)
for which lists of such Company Contracts are provided; true, correct and
complete copies of the written Company Contracts, and true, correct and complete
written descriptions of the oral Company Contracts, have heretofore been
delivered or made available to GRS in accordance with GRS' Due Diligence
Investigation. There are no existing material defaults, material events of
default or events, occurrences, acts or omissions that, with the giving of
notice or lapse of time or both, would constitute material defaults by SA or
SAI, and no material penalties have been incurred nor are amendments pending,
with respect to the Company Contracts. The Company Contracts are in full force
and effect and are valid and enforceable obligations of SA or SAI, except as
such enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). SA or SAI have not received written notice of any material default with
respect to any Company Contracts. For the purposes of this Section 3.12(a), the
term "material" shall mean a condition the existence or breach of which could
result in damage or loss to SA or SAI valued in excess of $5,000 individually or
$25,000 in the aggregate.
(b) Except as contemplated hereby, neither SA nor SAI have
received notice of any plan or intention of any other party to any Company
Contract to exercise any right to cancel or terminate any Company Contract.
Neither SA nor SAI currently contemplates any amendment or change to any Company
Contract. None of the customers, joint venture partners or suppliers of SA or
SAI has refused, or communicated in writing that it will refuse, to purchase or
supply goods or services, as the case may be, or has communicated in writing
that it will substantially reduce the amounts of goods or services that it is
willing to purchase from, or sell to, SA or SAI.
Section 3.13 Insurance. SA and SAI has had in effect commercial
liability and general insurance coverage with respect to all completed
operations of SA and SAI. The Company has previously made available to GRS all
insurance policies of SA and SAI. All of such policies are valid and enforceable
against the Company, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
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<PAGE> 37
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except as set forth on Schedule 3.14(a), the Company owns
all patents, trade-marks, service marks and copyrights (collectively
"Proprietary Rights"), if any, necessary to conduct its business, or possesses
adequate licenses or other rights (except for licenses for the use of
non-customized software), if any, therefor, without conflict with the rights of
others. Set forth in Schedule 3.14(a) is a true and correct description of all
Proprietary Rights.
(b) Except as set forth on Schedule 3.14(b) and to the
Company's Knowledge in the State of Wisconsin, SA or SAI have the sole and
exclusive right to use the Proprietary Rights without infringing or violating
the rights of any third parties and, upon the consummation of the Stock
Purchase, GRS will have the right to use all Proprietary Rights without any
obligation to pay any additional amounts whatsoever. Use of the Proprietary
Rights does not require the consent of any other person and the Proprietary
Rights are freely transferable. No claim has been asserted by any person to the
ownership of or right to use any Proprietary Right or challenging or questioning
the validity or effectiveness of any license or agreement constituting a part of
any Proprietary Right. Each of the Proprietary Rights is valid and subsisting,
has not been canceled, abandoned or otherwise terminated and, if applicable, has
been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
SA or SAI is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), SA or SAI have
good and marketable title to the Company Assets, including, without limitation,
those reflected on the Interim Company Balance Sheet (other than those since
disposed of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by SA or SAI. All facilities, machinery, equipment, fixtures, vehicles
and other properties owned, leased or used by SA or SAI are in good operating
condition and repair, normal wear and tear excepted, are adequate and sufficient
for the business of SA or SAI and conform in all material respects with all
applicable ordinances, regulations and laws relating to their use and operation.
(c) The Company is not a party to any real property leases.
Section 3.16 Compliance with Laws. To the Knowledge of the Company, SA
and SAI each have all material franchises, Permits, licenses and other rights
and privileges necessary to permit it to own its properties and to conduct its
businesses as presently conducted. Except as disclosed on Schedule 3.16, the
business and operations of SA and SAI have been and are being conducted in
accordance in all material respects with all applicable laws, rules and
regulations, and neither SA nor SAI is in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's combined results of operations, business, assets or
financial condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in
Schedule 3.17, there are no claims, actions, suits, investigations or
proceedings against SA or SAI pending or, to the Knowledge of the Company,
threatened in any court or before or by any Governmental Authority, or before
any arbitrator, that could reasonably be expected to have a material adverse
effect (whether covered by insurance or
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not) on the business, operations, Properties, securities or financial condition
of SA or SAI. Except as otherwise set forth in Schedule 3.17, neither SA nor SAI
is not in default under, and no condition exists (whether covered by insurance
or not) that with or without notice or lapse of time or both would (i)
constitute a default under, or breach or violation of, any Company Contract or
any Legal Requirement or Permit applicable to SA or SAI, or (ii) accelerate or
permit the acceleration of the performance required under, or give any other
party the right to terminate, any Company Contract, other than defaults,
breaches, violations or accelerations that would not have a material adverse
effect on the business, operations, prospects, Properties, securities or
financial condition (a "Material Adverse Effect") of SA or SAI.
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of
the Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, disposed of, or otherwise deposited in, or
located on any premises at which the business of SA or SAI (the "Company
Business") is or was, located which would have a Material Adverse Effect on SA
or SAI.
(b) Except as described in Schedule 3.18(b), to the Knowledge
of the Company, there are and were no underground storage tanks used, stored,
maintained, or located on any premises at which Company Business is or was,
located which would have a Material Adverse Effect on SA or SAI. With respect to
underground storage tanks, Schedule 3.18(b) sets forth the size, location,
construction, installation date, and use, to the Knowledge of the Company, of
all underground storage tanks (whether or not excluded from regulation under
Environmental Law), including all underground storage tanks in use, out of
service, closed, abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of
the Company, there has been no "release" as defined in 42 U.S.C. 9601(22) by the
Company, of any Hazardous Substance on, from or under any premises from which
SA's or SAI's operations have been or are being conducted related to the Company
Business which would have a Material Adverse Effect on SA or SAI.
(d) Except as listed in Schedule 3.18(d), the Company has not
received written notice alleging any potential liability of the Company with
respect to the contamination, investigation, or cleanup of any site at which
Hazardous Substances have been or have alleged to have been generated, treated,
stored, discharged, emitted or disposed of and, to the Knowledge of the Company,
there are no violations by the Company alleged by any Governmental Authority
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which gives
rise to any liability under any Environmental Law.
(e) Except as disclosed in Schedule 3.18(e), all of the
Company's, Hazardous Substances disposal and recycling practices related to the
Company Business have been accomplished in material compliance with all
applicable Environmental Laws.
The representation(s) with respect to this Section 3.18 shall not be
interpreted to imply that GRS has constructive knowledge regarding any aspect of
the Company Business with respect to environmental matters nor to limit the
scope of any of the Company's or any Stockholders' representations under this
Agreement. No such due diligence examination or related activities of, or on
behalf of, GRS however, shall constitute a waiver or relinquishment by GRS of
its right to rely upon the Company's or any Stockholders' representations,
warranties, covenants and agreements as made herein or pursuant hereto, and no
such disclosure shall constitute an assumption by GRS of any conditions or
liabilities, and such disclosure shall not relieve SA, SAI or any Stockholder of
its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which SA or SAI have an account, credit line or safe deposit box or vault, (ii)
the names of all persons authorized to draw thereon or to have access to any
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safe deposit box or vault, (iii) the purpose of each such account, safe deposit
box or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of SA or SAI in matters
concerning any of its business or affairs. Except as otherwise set forth in
Schedule 3.19, no such proxies, powers of attorney or other like instruments are
irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth
all SA's and SAI's material suppliers, together with the dollar amount of goods
purchased by SA or SAI from each such supplier during the twelve month period
ended February 1, 1998, as well as each of the principal customers of SA and SAI
. Except as otherwise set forth in Schedule 3.20, since February 1, 1998, there
has been no material adverse change in the business relationship of the Company
with any supplier or customer named in Schedule 3.20. No customer or supplier
named in Schedule 3.20 has terminated or materially altered, or notified SA or
SAI in writing of any intention to terminate or materially alter, its
relationship with SA or SAI, and neither SA nor SAI has any has no reason to
believe that any such customer or supplier will terminate or materially alter
its relationship with SA or SAI or to materially decrease its services or
supplies to SA or SAI or its direct or indirect usage of the services of SA or
SAI. For purposes of Sections 3.20 and 3.23, "material suppliers" refers to
suppliers from whom SA and SAI purchased five percent (5%) or more of the total
amount of the goods purchased by SA and SAI during the twelve month period ended
February 1, 1998, and the two month period ended March 31, 1998 and "principal
customers" refers to customers who accounted for 5% or more of SA's and SAI's
total revenues during the twelve month period ended February 1, 1998 and the two
month period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by SA,
SAI or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by SA, SAI or the Stockholders to GRS or its counsel, do
not contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of SA and SAI made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set
forth in Schedule 3.23, no director or executive officer of SA or SAI or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with SA or SAI or any organization that has a material contract or arrangement
with SA or SAI.
Section 3.24 Investments in Competitors. No director or executive
officer of SA or SAI owns directly or indirectly any material interest or has
any investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of SA or SAI.
Section 3.25 Certain Payments. Neither SA, SAI, nor any director,
officer or employee of SA or SAI, has paid or caused to be paid, directly or
indirectly, in connection with the business of SA or SAI: (a) to any government
or agency thereof or any agent of any supplier or customer any bribe, kick-back
or other similar payment; or (b) any material contribution to any political
party or candidate (other than from personal funds of directors, officers or
employees not reimbursed by their respective employers or as otherwise permitted
by applicable law).
Section 3.26 Government Inquiries. Except as set forth on Schedule
3.26, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by SA or SAI from, or any material
statement, report or other document filed by SA or SAI with, the federal
government or any federal administrative agency (including but not limited to,
the Justice Department,
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Internal Revenue Service, Department of Labor, Occupational Safety and Health
Administration, Federal Trade Commission, National Labor Relations Board, and
Interstate Commerce Commission), any state securities administrator or any local
or state taxing authority.
Section 3.27 Other Transactions. Except as contemplated by this
Agreement, neither SA, SAI nor any Stockholder has entered into any agreements
or arrangements and there are no pending offers or discussions concerning or
providing for the merger or consolidation of SA or SAI or all or any substantial
portion of its assets, the sale by SA or SAI or any Stockholder of any
securities of SA or SAI or any similar transaction affecting SA, SAI or the
Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) each of SA and SAI have timely filed all
federal income Tax Returns, and all other material Tax Returns which it is
required to file under applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the federal income Tax Returns of SA and SAI
have been filed through February 2, 1997, and, as of the date hereof, none of
such Tax Returns has been audited.
(b) To the Knowledge of the Company, the Company has not
received notice of a claim by a taxing authority in a jurisdiction where SA or
SAI does not file Tax Returns that SA or SAI is or may be subject to taxation by
that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local
Tax audits or administrative or judicial proceedings pending or being conducted
with respect to SA or SAI;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by SA or SAI from any foreign, federal, state or local taxing
authority; and
(iii) there are no material unresolved claims
concerning SA's or SAI's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to SA or SAI in connection with any Tax Returns covering
SA or SAI, except where such waiver would not have a material adverse effect on
SA or SAI.
(e) Neither SA nor SAI have executed or entered into a closing
agreement pursuant to IRC ss. 7121 or any predecessor provision thereof or any
similar provision of state, local or foreign law; nor has the Company agreed to
or is required to make any adjustments pursuant to IRC ss. 481(a) or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company. The Company has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
knowledge with respect to any application pending with any taxing
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authority requesting permission for any changes in accounting methods that
relate to the business or operations of SA or SAI.
(f) Neither SA nor SAI have made an election under IRC ss.
341(f).
(g) Neither SA nor SAI is liable for the Taxes of another
person.
(h) Except as set forth in Schedule 3.28(h), neither SA nor
SAI is a party to any Tax sharing agreement.
(i) To the Knowledge of SA or SAI, as appropriate, neither SA
nor SAI has made any payments nor is it obligated to make payments nor is it a
party to an agreement that could obligate it to make any payments that would not
be deductible under IRC ss. 280G.
(j) Each of SA and SAI shall prepare and permit GRS to review
and comment upon the federal and state income Tax Returns for the period ending
on or before the Closing Date.
(k) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any New York State Gains Tax, New York
City Transfer Tax, if applicable, and any similar Tax imposed in other states
and subdivisions), shall be paid by the Stockholders when due, and the
Stockholders will, at their expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes and fees, and, if required by
applicable law, GRS will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
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EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such
Stockholder shall own beneficially and of record, free and clear of any lien,
option or other encumbrance except as provided in Section 180.0622 (2) (b) of
the Wisconsin Statutes and the cases decided thereunder, the shares of Company
Common Stock set forth opposite such Stockholders' name on Exhibit A hereof,
and, upon consummation of the Stock Purchase, GRS will acquire good and valid
title thereto, free and clear of any lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such
Stockholder has the full legal right and power and all authority and approval
required to enter into, execute and deliver this Agreement and to perform fully
such Stockholders' obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common
Stock to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for
its own account and not on behalf of any other person; such Stockholder is aware
and acknowledges that the GRS Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold unless the GRS Shares are registered under the Securities Act or
an exemption from the registration requirements of the Securities Act is
available;
(b) Such Stockholder has been furnished all information that
it deems necessary to enable it to evaluate the merits and risks of an
investment in GRS; such Stockholder has had a reasonable opportunity to ask
questions of and receive answers from GRS concerning GRS and the GRS Shares, and
all such questions, if any, have been answered to the full satisfaction of such
Stockholder;
<PAGE> 43
(c) No person or entity other than such Stockholder has (i)
any rights in and to the GRS Shares, which rights were obtained through or from
such Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in
financial and business matters (including knowledge and expertise in the roofing
industry) that it is capable of evaluating the merits and risks involved in an
investment in the GRS Shares: and such Stockholder is financially able to bear
the economic risk of the investment in the GRS Shares, including a total loss of
such investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal
or state agency has made any finding of determination regarding the fairness of
the offering of the GRS Shares for investment, or any recommendation or
endorsement of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of the GRS Shares, and shall not make
any sale, transfer or pledge thereof without registration under the Securities
Act and any applicable securities laws of any state or unless an exemption from
registration is available;
(i) Except as set forth herein, no representations or
warranties have been made to such Stockholder by GRS or any agent, employee or
Affiliate of GRS, and in entering into this transaction such Stockholder is not
relying upon any information, other than from the results of independent
investigation by such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of
the GRS Shares except (i) pursuant to an effective registration statement under
the Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS or other counsel reasonably satisfactory to GRS, is not required
to be registered under the Securities Act.
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EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to SA, SAI and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate
Documents.
(a) GRS is a corporation duly organized, validly existing and
in good standing under the laws of Florida, and is not required to be qualified
to do business as a foreign corporation in any other jurisdiction where the
failure to so qualify would have a material adverse effect on GRS. GRS has all
required corporate power and authority to own its properties and to carry on its
business as presently conducted. The Articles of Incorporation and By-laws of
GRS, copies of which are attached as Schedule 5.01(a), are complete and reflect
all amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have
any subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized
capital stock of GRS consists of 100,000,000 shares of which 90,000,000 have
been designated as GRS Common Stock and 10,000,000 have been designated as
Preferred Stock. All of the presently outstanding shares of capital stock of GRS
have been validly authorized and issued and are fully paid and nonassessable.
Except as set forth on Schedule 5.03, GRS has not issued any other shares of its
capital stock and there are no outstanding options, warrants, subscriptions or
other rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
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Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms,
conditions or provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to
GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private non-governmental third party or any
Governmental Authority. Any and all consents required to be obtained by GRS as
set forth in Schedule 5.05 shall be obtained and copies thereof delivered to the
Company and the Stockholder upon execution of this Agreement. No filings are
required to be made by GRS, the Company or the Stockholders under the
Hart-Scott-Rondino Antitrust Improvements Act of 1976 in connection with the
transactions contemplated hereby.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no
suit, action or other proceeding is pending or, to the Knowledge of GRS,
threatened before any Governmental Authority seeking to restrain GRS or prohibit
its entry into this Agreement or prohibit the Closing, or seeking damages
against GRS or its Properties, as a result of the consummation of the
transaction contemplated by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in
Schedule 5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS
Balance Sheets") and the related statements of income, stockholders' equity and
cash flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in
Schedule 5.09, the accounts receivable reflected on the GRS Balance Sheet and
all accounts receivable arising between December 31, 1997 and the date hereof,
arose from bona fide transactions in the ordinary course of business, and the
goods and services involved have been sold, delivered and performed to the
account of the obligors, and no further filings (with Governmental Authorities,
insurers or others) are required to be made, no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle GRS to collect
the accounts receivable in full. No such account has been assigned or pledged to
any other person, firm or corporation,
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and, except only to the extent fully reserved against as set forth in the
Interim GRS Balance Sheet, no defense or setoff to any such account has been
asserted by the account obligor.
Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of GRS, regardless
of compensation levels, and other employees who are currently compensated at a
rate in excess of $50,000 per year (including any reasonably anticipated bonus)
or who earned in excess of $50,000 during GRS' fiscal year ended December 31,
1996 (collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a)
contains a complete and accurate description of (i) all increases in
compensation of the GRS Key Employees during the fiscal years of GRS ending
December 31, 1997 and December 31, 1996 respectively, and (ii) any promised
increases in compensation of the GRS Key Employees of GRS that have not yet been
effected.
(b) Schedule 5.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by GRS or to which GRS contributes on behalf of
its employees, other than Employee Benefit Plans listed in Schedule 5.11. As
used in this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 5.10 (c) and in Section 5.10
(e), "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key
Employee has indicated his or her desire or intent to terminate employment with
GRS, and GRS has no present intent of terminating the employment of any GRS Key
Employee.
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Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee Benefit Plans previously sponsored or contributed
to on behalf of its employees within the three years preceding the date hereof.
No unwritten amendment exists with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in
Schedule 5.12, from the date of the GRS Balance Sheet to the date of this
Agreement, GRS has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of GRS or any stockholder of GRS, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
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(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of
its assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of
its assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or its
assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights paid any
dividends or made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
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(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 5.13 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which GRS is a party (the "GRS Contracts") set forth in Schedule 5.13, GRS has
not entered into, nor is the capital stock, the assets or the business of GRS
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
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(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice
of any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has no reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available
to the Stockholders all insurance policies of GRS. All of such policies are
valid and enforceable against GRS, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. Use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
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Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
GRS is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the ordinary course of business), free and
clear of all security interests, liens, charges and other encumbrances, except
for (i) liens for taxes not yet due and payable or being contested in good faith
in appropriate proceedings, and (ii) encumbrances that are incidental to the
conduct of its businesses or ownership of property, not incurred in connection
with the borrowing of money or the obtaining of credit, and which do not in the
aggregate materially detract from the value of the assets affected or materially
impair their use by GRS. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by GRS are in good operating
condition and repair, normal wear and tear excepted, are adequate and sufficient
for GRS' business and conform in all material respects with all applicable
ordinances, regulations and laws relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful
and undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in
Schedule 5.18, there are no claims, actions, suits, investigations or
proceedings against GRS pending or, to the Knowledge of GRS, threatened in any
court or before or by any Governmental Authority, or before any arbitrator, that
could reasonably be expected to have a material adverse effect (whether covered
by insurance or not) on the business, operations, prospects, Properties,
securities or financial condition of GRS. Except as otherwise set forth in
Schedule 5.18, GRS is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any Legal
Requirement, or Permit applicable to GRS or any GRS Contract applicable to GRS,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any GRS Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of
GRS, there are no PCBs, TCE, PCE, or asbestos containing materials generated,
used, treated, stored, maintained, disposed of, or otherwise deposited in, or
located on any premises at which GRS' business (the "GRS Business") is or was,
or at which the business or, to the Knowledge of GRS, its predecessors was,
located, which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which the GRS Business is or was, or, to knowledge of GRS, at which
the business of its predecessors was, located, which would have a
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Material Adverse Effect on GRS. With respect to underground storage tanks,
Schedule 5.19(b) sets forth the size, location, construction, installation date,
use and testing history of all underground storage tanks (whether or not
excluded from regulation under Environmental Law), including all underground
storage tanks in use, out of service, closed, abandoned, decommissioned, or sold
to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of
GRS, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of GRS, threat of a "release" of any Hazardous Substance on, from
or under any premises from which (i) GRS' operations have been or are being
conducted related to the GRS Business. or (ii) to the Knowledge of GRS, the
operations of any predecessor of GRS, which would have a Material Adverse Effect
on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor
their respective predecessors have received written notice alleging any
potential liability with respect to the contamination, investigation, or cleanup
of any site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and,
to the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth
all of GRS' material suppliers, together with the dollar amount of goods
purchased by GRS from each such supplier during the twelve month period ended
December 31, 1997 and the four month period ended April 31, 1998, as well as
each of the principal customers of GRS. Except as otherwise set forth in
Schedule 5.21, since December 31, 1997, there has been no material adverse
change in the business relationship of GRS with any supplier or customer named
in Schedule 5.21. No customer or supplier named in Schedule 5.21 has terminated
or materially altered, or notified GRS of any intention to terminate or
materially alter, its
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relationship with GRS and GRS has no reason to believe that any such customer or
supplier will terminate or materially alter its relationship with GRS or to
materially decrease its services or supplies to GRS or its direct or indirect
usage of the services or products of GRS. For purposes of Sections 5.21 and 5.24
hereof "material suppliers" refers to suppliers from whom GRS purchased five
percent (5%) or more of the total amount of the goods purchased by GRS during
the twelve month period ended December 31, 1997 and the four month period ended
April 31, 1998, and "principal customers" refers to customers who accounted for
5% or more of GRS' revenues during the twelve month period ended October 31,
1997 and the five month period ended April 31, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by GRS to the Stockholders or their counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to the Stockholders contain projections and
estimates of future events, and such projections and estimates have been based
upon certain assumptions that management of GRS made in good faith and believed
are reasonable at the time such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set
forth in Schedule 5.24, no director or executive officer of GRS or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with GRS or any organization that has a material contract or arrangement with
GRS.
Section 5.25 Investments in Competitors. No director or executive
officer of GRS owns directly or indirectly any material interests or has any
investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer
or employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule
5.27, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and
all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
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<PAGE> 54
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Unaudited GRS
Balance Sheet (excluding any amount recorded which is attributable to timing
differences between book and Tax income) would be adequate to pay all material
Tax liabilities of GRS if its current tax year were treated as ending on the
date of the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited.
(b) To the Knowledge of GRS, no claim has been made by a
taxing authority in a jurisdiction where GRS does not file Tax Returns that GRS
is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local
tax audits or administrative or judicial proceedings pending or being conducted
with respect to GRS;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by GRS from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims
concerning GRS' Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC ss. 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC ss. 481(a) or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by GRS. GRS has no knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any knowledge with respect to any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC ss. 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(i) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC ss. 280G.
Section 5.29 Participation in Secondary Offering. In the event that
after the Offering GRS files a registration statement with the Securities and
Exchange Commission with respect to a subsequent
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<PAGE> 55
public offering (the "Secondary Offering") of shares of GRS Common Stock, and
any shareholders of GRS participate in the Secondary Offering through the sale
of their respective shares of GRS Common Stock, then (i) Gregg Wallick shall
first be entitled to participate in the Secondary Offering with respect to
250,000 shares of GRS Common Stock (in recognition of the fact that Mr. Wallick
is not receiving any cash proceeds from the sale of the common stock of the
Founding Companies owned by him) and (ii) thereafter the Stockholders shall be
entitled to participate in the Secondary Offering by including therein such
number of shares of GRS Common Stock owned by the Stockholders as shall equal
(i)(A) the total number of shares of GRS Common Stock owned by such Stockholders
divided by (B) the total number of shares of GRS Common Stock owned by all
shareholders of the Founding Companies, multiplied by (ii) the total number of
shares of GRS Common Stock owned by shareholders of the Company which are to be
included in the Secondary Offering.
12
<PAGE> 1
EXHIBIT 2.6
STOCK PURCHASE AGREEMENT
by and among
GENERAL ROOFING SERVICES, INC.,
CYCLONE ROOFING COMPANY
and
THE SOLE STOCKHOLDER
OF
CYCLONE ROOFING COMPANY
----------------------------
May 13, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................1
1.01 Sale and Purchase of Company Common Stock................................................................1
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Purchase Price Adjustment................................................................................3
1.05 Excluded Assets..........................................................................................4
1.06 Stockholders' Representative.............................................................................4
ARTICLE II - CLOSING..............................................................................................5
2.01 Closing..................................................................................................5
2.02 Deliveries by Stockholders to GRS........................................................................5
2.03 Deliveries by GRS........................................................................................6
2.04 Termination in Absence of Closing........................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS..................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS................................................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................7
6.01 GRS' Access to Information and Assets....................................................................7
6.02 Company's Conduct of Business and Operations.............................................................7
6.03 General Restrictions.....................................................................................8
6.04 Notice Regarding Changes.................................................................................9
6.05 Consents and Best Efforts................................................................................9
6.06 Casualty Loss...........................................................................................10
6.07 Employee Matters........................................................................................10
6.08 No Solicitation.........................................................................................10
6.09 Employment Agreements...................................................................................10
6.10 Lock-Up Agreement.......................................................................................10
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................10
7.01 Conditions to Obligations of All Parties................................................................10
7.02 Conditions to Obligations of Stockholders...............................................................11
7.03 Conditions to Obligations of GRS........................................................................12
ARTICLE VIII - SURVIVAL..........................................................................................13
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................13
ARTICLE IX - INDEMNIFICATION.....................................................................................14
9.01 Obligation of the Stockholders to Indemnify.............................................................14
9.02 Obligation of GRS to Indemnify..........................................................................14
9.03 Notice and Opportunity to Defend........................................................................14
9.04 Limitations on Indemnification..........................................................................15
9.05 Set-Off Rights..........................................................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
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ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................17
10.01 Further Assurances......................................................................................17
10.02 Publicity...............................................................................................17
10.03 Access to Records.......................................................................................17
ARTICLE XI - MISCELLANEOUS.......................................................................................17
11.01 Brokers.................................................................................................17
11.02 Costs and Expenses......................................................................................17
11.03 Notices.................................................................................................17
11.04 Governing Law...........................................................................................18
11.05 Representations and Warranties..........................................................................19
11.06 Entire Agreement, Amendments and Waivers................................................................19
11.07 Binding Effect and Assignment...........................................................................19
11.08 Remedies................................................................................................19
11.09 Exhibits and Schedules..................................................................................19
11.10 Multiple Counterparts...................................................................................19
11.11 References..............................................................................................19
11.12 Survival................................................................................................19
11.13 Attorneys' Fees.........................................................................................20
ARTICLE XII - DEFINITIONS........................................................................................20
12.01 Affiliate...............................................................................................20
12.02 Collateral Agreements...................................................................................20
12.03 Company Assets..........................................................................................20
12.04 Contract Retention......................................................................................20
12.05 Current Assets..........................................................................................20
12.06 Current Liabilities.....................................................................................20
12.07 Damages.................................................................................................21
12.08 Environmental Law.......................................................................................21
12.09 GAAP....................................................................................................21
12.10 Governmental Authorities................................................................................21
12.11 Hazardous Substances....................................................................................21
12.14 Knowledge...............................................................................................21
12.13 Legal Requirements......................................................................................21
12.14 Permits.................................................................................................21
12.15 Properties..............................................................................................21
12.16 Proportionate Share.....................................................................................22
12.17 Regulations.............................................................................................22
12.18 Taxes...................................................................................................22
12.19 Tax Returns.............................................................................................22
12.20 Used....................................................................................................22
12.21 Deferred Income Taxes...................................................................................22
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for R. Wayne Cooke
Exhibit H - Opinion of Baker & McKenzie
Exhibit I - Opinion of Williams, Williams, Ruby & Plunkett, P.C.
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of May 13, 1998, by and among (i) General Roofing Services, Inc., a Florida
corporation (the "Buyer" or "GRS"),(ii) Cyclone Roofing Company, a North
Carolina corporation (the "Company"), and (iii) the sole stockholder of the
Company (the "Stockholder" or the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS
purchase all of the issued and outstanding capital stock of the Company,
consisting of 30,000 shares (the "Shares") of common stock, $1.00 par value
("Company Common Stock"), upon the terms and subject to the conditions
hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange
within the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01 Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase,
acquire and accept from each Stockholder, the number of shares of Company
Common Stock set forth opposite the name of each such Stockholder on Exhibit A
hereto under the heading "Number of Shares of Company Common Stock Purchased,"
constituting all of the issued and outstanding shares of Company Common Stock.
The sale and purchase of the Company Common Stock pursuant to this Agreement is
sometimes hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a), at
the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares of
Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $12,241,822. The Purchase Price shall be
subject to adjustment as provided in this Agreement and shall be allocated
among the Stockholders in accordance with their respective ownership interests
as set forth on Exhibit A hereof. The Purchase Price, as so adjusted, shall be
delivered to the Stockholders, in accordance with their respective
Proportionate Share, and to the Escrow Agent (as defined in Section 1.03(b)
hereof), subject to and in accordance with Section 1.03 hereof. The amount of
the Purchase Price allocated to each outstanding share of Company Common Stock
is hereinafter referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $4,141,822
(the "Target Net Book Value") (such adjustment is referred to herein as the
"Net Book Value Adjustment"); provided, that the Net Book Value as determined
pursuant to the Closing Date Unaudited Balance Sheet shall not be less than $
342,191 (the "Minimum Net Book Value"). For purposes of this Agreement, Net
Book Value shall mean the excess of the Company's total assets over the
Company's total liabilities, determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered
to GRS within fifteen days prior to the Closing Date (i) an unaudited balance
sheet of the Company forecasted as of the Closing Date (the "Closing Date
Unaudited Balance Sheet"), (ii) a calculation of the Purchase Price Adjustment,
if any, determined pursuant to Section 1.02(b) above, and (iii) a certificate
executed by the Company's Chief Financial Officer (or another duly authorized
officer of the Company) to the effect that the Closing Date Unaudited Balance
Sheet has been prepared from the books and records of the Company and in a
manner consistent with the preparation of the Company Financial Statements (as
defined in Section 3.06 hereof), except that Deferred Income Taxes have been
reflected in the same manner as if the Company was a "C" corporation.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section
1.01(b) hereof of a certificate or certificates representing all of the issued
and outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $3,799,631 minus (ii) the
amount of the Purchase Price Adjustment, if any, shall be paid directly to the
holders thereof by wire transfer in New York Clearing House Funds in accordance
with Exhibit A hereto.
(b) An aggregate of $8,442,191 shall be paid by the delivery to
(A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number
of shares of GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $2,448,364 representing twenty percent (20%) of
the Purchase Price (the "Escrow Fund"), based upon the public offering price of
the GRS Common Stock to be sold in its initial public offering (the "Offering")
and (B) the Stockholders in accordance with Exhibit A hereto, of such number of
shares of GRS Common Stock as shall have a value equal to $5,993,827 based upon
the public offering price of the GRS Common Stock to be sold in the Offering.
The shares of GRS Common Stock to be so held in escrow shall be held by the
Escrow Agent for a period of one year following the Closing in accordance with
the terms of an Escrow Agreement in the form of Exhibit B hereto (the "Escrow
Agreement"), and shall thereafter be restricted from transfer for an additional
one-year period in accordance with the terms, and subject to the conditions, of
a Lock-Up Agreement in the form of Exhibit C hereto (the "Lock-Up Agreement").
The Stockholders shall receive cash in lieu of fractional shares.
2
<PAGE> 7
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933 ACT"), NOR
UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED, SOLD,
ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF
SUCH SHARES, WHICH OPINION IS SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR APPLICABLE
STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b)
hereof, if any, and within 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Purchase Price Adjustment,
if any, and the cash portion of the Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by
GRS to the Stockholders of a Purchase Price Notice, the Stockholders may
deliver to GRS a written notice advising GRS either that the Stockholders (A)
agree with the calculation of the Purchase Price Adjustment, or (B) believe
that one or more adjustments are required. If the Stockholders shall concur
with the calculation of the Purchase Price Adjustment, if any, or if the
Stockholders shall not object thereto in a written notice delivered to GRS
within five (5) business days after the Stockholders' receipt of the Purchase
Price Notice, the Purchase Price as set forth in the Purchase Price Notice, if
any, shall become final and shall not be subject to further review, challenge
or adjustment absent fraud.
(ii) In the event that GRS timely submits the Purchase
Price Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the
disagreements with respect to the proposed Purchase Price Adjustment prior to
the Closing, then such disagreements shall be referred to a recognized firm of
independent certified public accountants experienced in auditing roofing or
construction companies and selected by mutual agreement of Stockholders and GRS
(the "Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the
event that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination not more than five (5) days after such referral. The costs and
expenses of the services of the Settlement Accountants shall be paid equally by
the Company and GRS. Pending the final determination by the Settlement
Accountants of the Purchase Price Adjustment if any (the "Final
Determination"), the difference
3
<PAGE> 8
between the determination by the Stockholders and GRS of the Purchase Price
Adjustment, if any, shall be withheld from the cash portion of the Purchase
Price to be delivered pursuant to Section 1.03(a) and shall be paid in
accordance with and upon the Final Determination. Any such dispute shall not
delay the Closing.
(c) After the final determination of the Purchase Price
pursuant to Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the
adjustment determined pursuant thereto shall be deducted from the cash portion
of the Purchase Price and allocated among the Stockholders in accordance with
their respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those tangible assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are
not required by the Company in the conduct of its operations and which are
listed in Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall such
distributions be made to the extent that the Closing Net Book Value would be
less than the Minimum Net Book Value.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean Robert Wayne Cooke, Sr. or any person appointed as a
successor Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all obligations
under this Agreement have been discharged (including all indemnification
obligations hereunder and all obligations under the Escrow Agreement), the
Stockholders who, immediately prior to the Closing, held Company Common Stock
representing an aggregate number of shares of Company Common Stock which
exceeded 50% of the amount of such Company Common Stock outstanding immediately
prior to such time (a "Majority"), may, from time to time upon written notice
to the Stockholders' Representative and GRS, remove the Stockholders'
Representative or appoint a new Stockholders' Representative to fill any
vacancy created by the death, incapacitation, resignation or removal of the
Stockholders' Representative. Furthermore, if the Stockholders' Representative
dies, becomes incapacitated, resigns or is removed by a Majority, the Majority
shall appoint a successor Stockholders' Representative to fill the vacancy so
created. If the Majority is required to but has not appointed a successor
Stockholders' Representative within 20 business days from a request by GRS to
appoint a successor Stockholders' Representative, GRS shall have the right to
appoint a Stockholders' Representative to fill any vacancy so created, and
shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement
or under the documents referred to in this Agreement (an "Instrument") which
the Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole
and absolute discretion to be necessary, advisable or appropriate in order to
carry out and perform his rights and obligations hereunder. The Stockholders
hereby grant the Stockholders' Representative the right and power to execute
the Escrow Agreement on their behalf with such changes or amendments thereto as
the
4
<PAGE> 9
Stockholders' Representative shall determine to be necessary or desirable in
his sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
(d) GRS shall have no liability to any Stockholder or otherwise
arising out of the acts or omissions of the Stockholders' Representative or any
disputes among the Stockholders or with the Stockholders' Representative. GRS
may rely entirely on its dealings with, and notices to and from, the
Stockholders' Representative to satisfy any obligations it might have to the
Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative
by any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued and
outstanding shares of Company Common Stock in proper
form for transfer to GRS;
(ii) the resignations of all members of the board
directors of the Company as set forth in Section
7.03(l);
(iii) the stock books, stock ledgers, minute books and
corporate seals of the Company;
(iv) a certificate executed by the Company to the effect
that the conditions set forth in Sections 7.03(b)
through 7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section 7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant to
Section 7.03(n).
5
<PAGE> 10
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available funds to
the Stockholders the payment described in Section
1.03(a) as being required to be paid by GRS at
Closing;
(ii) by delivery to the Stockholders the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Stockholders
at Closing;
(iii) by delivery to the Escrow Agent the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Escrow Agent
at Closing;
(iv) a certified copy of all necessary corporate action
on behalf of GRS approving its execution, delivery
and performance of this Agreement and the Collateral
Agreements to which it is a party pursuant to
Section 7.02(a);
(v) a certificate executed by an authorized officer of
GRS to the effect that the conditions set forth in
Sections 7.02(b) and 7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section 7.02(d);
(vii) the executed Collateral Agreements to which it is a
party; and
(viii) evidence that: (a) the Stockholders have been
released from all personal guarantees relating to
any obligations of the Company, including but not
limited to, any bank loans, lines of credit, and/or
performance bonds (the "Personal Guarantees and
Obligations") and (b) GRS shall indemnify and hold
harmless the Stockholders from and against any
personal liability or obligations relating to or
arising out of any Personal Guarantees or
Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of
business on September 30, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability
of or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party
to perform its obligations under this Article II on such date; provided,
however, that any termination pursuant to this Section 2.04 shall not relieve
any party hereto who was responsible for Closing having not occurred as
described in clauses (i) or (ii) above of any liability for (x) such party's
willful breach of the provisions of this Agreement, or (y) if all of the
conditions to such party's obligations set forth in Article VII have been
satisfied or waived in writing by the date scheduled for the Closing pursuant
to Section 2.01, the failure of such party to perform its obligations under
this Article II on such date. Notwithstanding the foregoing, the Stockholders
expressly acknowledge and agree that market and economic conditions are
impossible to predict, and although GRS intends to proceed with the Offering in
an expeditious manner at this time, GRS shall not be liable to the Stockholders
or the Company if the Closing has not occurred because the Offering has not
been consummated prior to the Termination Date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text
of which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense, to have access to the
books, records, employees, counsel, accountants, and other representatives of
the Company at all times reasonably requested by GRS for the purpose of
conducting an investigation ("GRS' Due Diligence Investigation") of the
Company's financial condition, corporate status, operations, business and
Properties. The Stockholders shall make available to GRS for examination and
reproduction, at GRS' own expense, all documents and data of every kind and
character relating to the Company in possession or control of, or subject to
reasonable access by, the Stockholders or the Company, including, without
limitation, all files, records, data and information relating to the Company
Assets (whether stored in paper, magnetic or other storage media) and all
agreements, instruments, contracts, assignments, certificates, orders, and
amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and workmanlike manner, (d) pay or cause
to be paid all costs and expenses (including but not limited to insurance
premiums) incurred in connection therewith in a timely manner, (e) use
reasonable efforts to keep all Company Contracts listed or required to be
listed on Schedule 3.12 in full force and effect, (f) comply with all of the
covenants contained in all such Company Contracts, (g) maintain in force until
the
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Closing Date insurance policies (subject to the provisions of Section 6.06)
equivalent to those in effect on the date hereof, and (h) comply in all material
respects with all applicable Legal Requirements. Except as otherwise
contemplated in this Agreement, the Stockholders shall use their best efforts to
preserve the present relationships of the Company with persons having
significant business relations therewith.
Section 6.03 General Restrictions. Except as otherwise expressly permitted
in this Agreement, without the prior written consent of GRS, the Company shall
not:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof, declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of its
capital stock, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
view of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(ii) except as disclosed on Schedule 6.03 (ii), issue,
deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws (or
similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business of any corporation, partnership,
joint venture, association or other business organization or division
thereof or (B) any assets that are material, individually or in the
aggregate, to the Company, except purchases of assets in the ordinary
course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
otherwise dispose of, or agree to sell, transfer, lease, mortgage, encumber
or otherwise dispose of, any Properties except (A) in the ordinary course
of business consistent with past practice, or (B) pursuant to any Company
Contract or except as permitted by Sections 1.05 and 3.02 hereof;
(vi) except as permitted by Section 1.05 hereof, (A) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of the foregoing,
except for borrowings incurred in the ordinary course of business
consistent with past practice, or (B) make any loans, advances or capital
contributions to, or investments in, any other person;
(vii) make or agree to make any new capital expenditure or
expenditures which, individually, is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 (other than those required pursuant to
currently outstanding Company Contracts or in the ordinary course of
business consistent with past practice);
(viii) make any material tax election or settle or
compromise any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment,
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discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the
Company Financial Statements (or the notes thereto) or incurred in the
ordinary course of business consistent with past practice, or waive any
material benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which the Company is a
party;
(x) except in the ordinary course of business consistent
with past practice, modify, amend or terminate any Company Contract;
(xi) except in the ordinary course of business consistent
with past practice, enter into any contracts, agreements, arrangements or
understandings relating to performance by third parties of the Company's
services;
(xii) except as required to comply with applicable law (A)
adopt, enter into, terminate or amend any benefit plan or other arrangement
for the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except in a
manner consistent with past practice), (C) pay any benefit not provided for
under any benefit plan, (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan
(including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock, or
the removal of existing restrictions in any benefit plans or agreement or
awards made thereunder) or (E) take any action to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take any of,
the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto shall
use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of the conditions to such
other party's obligation to consummate the transactions contemplated hereby, as
specified in Article VII of this Agreement, to be fully satisfied.
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Section 6.06 Casualty Loss. If, between the date of this Agreement and the
Closing, any of the Properties of the Company shall be destroyed or damaged in
whole or in part by fire, earthquake, flood, other casualty or any other cause
which materially affects the ability of the Company to conduct its business (a
"Casualty Loss"), then the Stockholders may, if requested by GRS, (i) cause the
Company to cause such Properties to be repaired or replaced prior to the Closing
with Property of substantially the same condition and function, (ii) cause the
Company to deposit in a separate account an amount sufficient to cause such
Property to be so repaired or replaced, or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause the
Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company, or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before the Closing, R. Wayne Cooke
shall have entered into an employment agreement in the form of Exhibit G (the
"Employment Agreement"), which shall include non-competition provisions, to take
effect on and after the Closing Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the Stockholders
shall have entered into the Lock-Up Agreement.
ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
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(a) All filings with all Governmental Authorities required to be made
in connection with the transactions contemplated hereby shall have been made,
and all orders, permits, waivers, authorizations, exemptions, and approvals of
such entities required to be in effect on the date of the Closing in connection
with the transactions contemplated hereby shall have been issued, and all such
orders, permits, waivers, authorizations, exemptions or approvals shall be in
full force and effect on the date of the Closing; provided, however, that no
provision of this Agreement shall be construed as requiring any party to accept,
in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no transfers of
licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any statute, rule,
regulation, decree, ruling, injunction or other order issued by any Governmental
Authorities of competent jurisdiction (collectively, an "Injunction") which
prohibits, restrains, enjoins or restricts the consummation of the transactions
contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations of
the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified copy of
all necessary corporate action on its behalf approving its execution, delivery
and performance of this Agreement and each of the Collateral Agreements.
(b) All representations and warranties of GRS contained in this
Agreement qualified by materiality shall be true and correct in all respects at
Closing and all other representations and warranties of GRS contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing, as if such representations and warranties were made at and as of the
Closing, except for changes contemplated by the terms of this Agreement except
as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms thereof, and GRS shall have performed and satisfied in
all material respects all covenants and agreements required by this Agreement to
be performed and satisfied by GRS at or prior to the Closing; provided, however,
that no Stockholder shall be entitled to refuse to consummate the transaction in
reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Stockholders or the
Company) shall be pending or threatened before any Governmental Authority
seeking to restrain the Stockholders from effectuating the Stock Purchase or
prohibit the Closing or seeking Damages against the Stockholders or the Company
as a result of the consummation of the transactions contemplated by this
Agreement.
(d) The Company shall have received the opinion of Baker & McKenzie,
counsel to GRS, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Company, as to the matters set forth on Exhibit H. In
rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and the
Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
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(h) The Stockholders shall have had the opportunity to review and
comment upon the registration statement relating to the Offering.
(i) GRS shall have furnished the Stockholders and the Company with an
Opinion Letter from Deloite & Touche which provides that the consummation of the
transactions described in this Agreement will qualify as a Section 351 Plan of
Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS to
carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered to GRS.
(b) All representations and warranties of Stockholders and the Company
contained in this Agreement qualified by materiality shall be true and correct
in all respects at Closing and all other representations and warranties of the
Stockholders and the Company contained in this Agreement shall be true and
correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of GRS) shall be pending or
threatened before any court or governmental agency seeking to restrain GRS or
prohibit the Closing or seeking Damages against GRS, the Stockholders, the
Company or its Properties as a result of the consummation of the transactions
contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from the
date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations, prospects or
financial condition of the Company that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company (whether or
not covered by insurance) that had or would reasonably be likely to have a
material adverse effect on the business, operations, prospects, Properties,
securities or financial condition of the Company.
(f) GRS shall have received the opinion of: Williams, Williams, Ruby &
Plunkett, P.C. ("Sellers' Counsel"), counsel to the Company and the
Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit I. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
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(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by reference to
the Closing Date Unaudited Balance Sheet shall be equal to or greater than the
Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall not be less than
$3,295,000. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness, determined in accordance with GAAP.
(j) The Stockholders shall have executed and delivered to GRS the
Escrow Agreement.
(k) GRS shall have received the executed Employment Agreement.
(l) GRS shall have received the resignation of all of the members of
the board of directors of the Company effective as of the Closing Date.
(m) All proceedings to be taken by Stockholders and the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to GRS and its counsel, and
GRS and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(n) GRS shall have received written evidence, in form and substance
satisfactory to GRS, of the consent to the transactions contemplated by this
Agreement of all governmental, quasi-governmental and private third parties
(including, without limitation, persons or other entities leasing real or
personal property to the Company), except where the failure to have obtained any
such consent would not have an adverse effect on the Company or GRS following
the Closing.
(o) GRS shall be satisfied in its sole and absolute discretion with
GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(p) GRS shall have determined, in its reasonable discretion, that all
agreements between the Company and the Stockholders shall be on terms as
favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(q) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company and
the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
knowledge, and the other party or parties (or any of them) are not aware, that
such representation or warranty is untrue or incorrect in any material respect.
All such
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representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
The Basket Exclusions shall survive the Closing indefinitely, other than Section
3.28, which shall survive for the applicable statute of limitations.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to the
limitations contained in Article VIII and Article IX hereof, the Stockholders,
jointly and severally, agree to indemnify, defend and hold harmless GRS (and its
Affiliates, successors and assigns and their respective officers and directors)
from and against all losses, liabilities, damages, deficiencies, costs or
expenses (including interest, penalties and reasonable attorneys' fees and
disbursements, but offset by any proceeds from insurance and taking into account
the present value of any tax savings to GRS or the Company resulting from such
losses, liabilities, damages, deficiencies, costs or expenses) ("Losses") based
upon, arising out of or otherwise in respect of (i) any inaccuracy in or any
breach of any representation, warranty, covenant or agreement of the Company or
the Stockholders contained in this Agreement, (ii) liabilities for Taxes
incurred by the Company with respect to actions prior to the Closing Date and
(iii) any liability arising out of any subsequent adjustment by any tax
authorities with respect to items attributable to periods prior to the Closing
Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by any party
hereto (the "Indemnitee") of notice of any demand, claim or circumstances which,
with the lapse of time, would or might give rise to a claim or the commencement
(or threatened commencement) of any action, proceeding or investigation (an
"Asserted Liability") that may result in a Loss, the Indemnitee shall give
notice thereof (the "Claims Notice") to any other party (or parties) obligated
to provide indemnification pursuant to Section 9.01 or 9.02 (the "Indemnifying
Party"). The Claims Notice shall describe the Asserted Liability in reasonable
detail, and shall indicate the amount (estimated, if necessary and to the extent
feasible) of the Loss that has been or may be suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the
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claim, the Indemnitee shall make available to the Indemnifying Party any books,
records or other documents within its control that are necessary or appropriate
for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section 9.03(b)
to the contrary notwithstanding, in the case of any Asserted Liability by any
supplier, distributor, sales agent or customer of the Company with respect to
the business conducted by the Company prior to the Closing in connection with
which GRS may make a claim against the Stockholders for indemnification pursuant
to Section 9.01, GRS shall give a Claims Notice with respect thereto but, unless
GRS and the Indemnifying Party otherwise agree, the Stockholders shall have the
exclusive right at its option to defend, at their own expense, any such matter,
subject to the duty of the Stockholders to consult with GRS and its attorneys in
connection with such defense and provided that no such matter shall be
compromised or settled by the Stockholders without the prior consent of GRS,
which consent shall not be unreasonably withheld. GRS shall have the right to
recommend in good faith to the Stockholders proposals to compromise or settle
claims brought by a supplier, distributor or customer, and the Stockholders
agree to present such proposed compromises or settlements to such supplier,
distributor or customer. All amounts required to be paid in connection with any
such Asserted Liability pursuant to the determination of any court, governmental
or regulatory body or arbitrator, and all amounts required to be paid in
connection with any such compromise or settlement consented to by GRS, shall be
borne and paid by the Stockholders. The parties agree to cooperate fully with
one another in the defense, compromise or settlement of any Asserted Liability.
Section 9.04 Limitations on Indemnification. The indemnification provided
for in Sections 9.01 and 9.02 shall be subject to the following limitations:
(i) The Stockholders shall not be obligated to pay any amounts
for indemnification under this Article IX arising out of any Losses based upon,
arising out of or otherwise in respect of any inaccuracy or breach disclosed in
writing to GRS and specifically waived in writing by GRS prior to the Closing.
(ii) Neither GRS, the Company nor the Stockholders shall be
obligated to pay any amounts for indemnification under this Article IX, except
those based upon, arising out of or otherwise in respect of Sections 3.02, 3.21,
3.28, 5.22, 5.29, 9.01 (ii) and (iii), 11.01 and 11.02 and Article IV hereof
(the "Basket Exclusions"), until the aggregate indemnification payments,
exclusive of the Basket Exclusions, equals one percent (1%) of the Purchase
Price (the "Basket Amount"), whereupon GRS, or the Company and Stockholders, as
the case may be, shall be obligated to pay any indemnification payments,
including the Basket Amount in full. It is expressly understood that the Basket
Amount shall serve as a "trigger" for indemnification and not as a "deductible"
(for example, if the indemnity claims for which GRS or the Stockholders would,
but for the provisions of this subparagraph (ii), be liable is in the aggregate
amount of $200,000, and 1% of the Purchase Price is $180,000, the Stockholders
would then be liable for the entire $200,000 and not just $20,000). This Section
9.04(ii) will not apply to any breach of any representations and warranties of
which any party had actual Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional breach by any party of
any covenant or obligation, and GRS or the Stockholders, as the case may be,
will be jointly and severally liable for all damages with respect to such
breaches.
(iii) GRS, the Company and Stockholders shall be obligated to pay
the Basket Exclusions without regard to the individual or aggregate amounts
thereof and without regard to whether the aggregate amount of all other
indemnification payments shall have exceeded, in the aggregate, the Basket
Amount.
(iv) Notwithstanding anything to the contrary in this Agreement,
except with respect to any breach of the representations and warranties set
forth in Article IV hereof, neither GRS nor the Stockholders and the Company
shall have any obligation to indemnify the other parties for any breach
15
<PAGE> 20
of any representation, warranty or covenant under this Agreement for any amount
of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights set forth in
this Article IX shall be each party's sole and exclusive remedy against the
other party for any breach of any representation, warranty or covenant contained
in this Agreement. Notwithstanding the foregoing, nothing herein shall prevent
any party from bringing an action based on allegations of fraud in connection
with this Agreement. In the event an action based upon allegations of fraud is
brought, the prevailing party's attorneys' fees and costs shall be paid by the
nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses with respect to
accounts receivable reflected on the Closing Date Unaudited Balance Sheet only
if and to the extent that such accounts receivable, except for Contract
Retention, remain uncollected 180 days from the Closing Date. Contract Retention
will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses from the failure to collect accounts
receivable of the Company or Contract Retention and such Losses result in a
set-off from the Escrow Fund, the related accounts receivable or Contract
Retention shall be assigned to the Stockholders following, and to the extent of,
such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to Section 9.04
and, paragraphs (b) and (c) of this Section 9.05, any claims for indemnification
by GRS against the Stockholders (or any of them) hereunder shall be satisfied
first against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15) days'
notice (the "GRS Notice") of its intention to deduct or set-off any amounts
pursuant to this Section 9.05, including in such notice a description of GRS'
indemnification claim. If none of the Stockholders object in writing to such
deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment, absent fraud.
(c) If any of the Stockholders timely object in writing to the set-off
proposed in the GRS Notice, and if GRS and the objecting Stockholder(s) are
unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
16
<PAGE> 21
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties, and
the parties shall endeavor jointly to agree on the text of any announcement or
circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each of
the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur, (i)
each Stockholder shall jointly and severally indemnify and hold harmless GRS and
the Company from and against any and all liability for any brokers or finders'
fees arising with respect to brokers or finders retained or engaged by the
Company or any of the Stockholders in respect of the transactions contemplated
by this Agreement, and (ii) GRS shall indemnify and hold harmless the
Stockholders from and against any and all liability for any brokers' or finders'
fees arising with respect to brokers or finders retained or engaged by GRS in
respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence or
other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
17
<PAGE> 22
<TABLE>
<S> <C>
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: Cyclone Roofing Company
P.O. Box 1279
Matthews, NC 28106
Attention: R. Wayne Cooke
Telecopy No.: (704) 882-2150
With a copy to:
Lindsay and Schrimsher, P.A.
2316 Randolph Road
Charlotte, North Carolina 28207
Attention: Robert L. Lindsay, Jr., Esq.
Telecopy No.: (704) 376-2562
Williams, Williams, Ruby & Plunkett, P.C.
380 North Old Woodward Ave., Ste. 300
Birmingham, MI 48009
Attention: R. Jamison Williams, Jr., Esq.
Telecopy No.: (248) 642-0856
</TABLE>
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall
be effective upon actual receipt if received during the recipient's normal
business hours, or at the beginning of the recipient's next normal business day
after receipt if not received during the recipient's normal business hours.
All Notices by telecopier shall be confirmed by the sender thereof promptly
after transmission in writing by registered mail or personal delivery.
Anything to the contrary contained herein notwithstanding, Notices to any party
hereto shall not be deemed effective with respect to such party until such
Notice would, but for this sentence, be effective both as to such party and as
to all other persons to whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do
18
<PAGE> 23
so, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
Section 11.05 Representations and Warranties. Each of the representations
and warranties of each of the parties to this Agreement shall be deemed to have
been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this Agreement
are cumulative, and the use of any one right or remedy by any party hereto shall
not preclude or constitute a waiver of its right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights and
remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules referred
to herein are attached hereto and incorporated herein by this reference.
Disclosure of a specific item in any one schedule shall be deemed restricted
only to the Section to which such disclosure specifically relates except where
(i) there is an explicit cross-reference to another Schedule, and (ii) GRS could
reasonably be expected to ascertain the scope of the modification to a
representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used in
this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing for the
time period set forth in
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<PAGE> 24
Section 8.01 hereof and shall be binding upon the party or parties obligated
thereby in accordance with the terms of this Agreement, subject to any
limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective meanings
ascribed to such terms in this Article XII, unless otherwise defined in this
Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect to
any person, any other person controlling, controlled by or under common control
with such person. The term "Control" as used in the preceding sentence means,
with respect to a corporation, the right to exercise, directly or indirectly,
more than fifty percent (50%) of the voting rights attributable to the shares of
the controlled corporation and, with respect to any person other than a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements" shall
mean any or all of the following agreements, the forms of which are attached
hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for R. Wayne Cooke
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean, with
respect to the Company, all of the Properties, Company Contracts, and Permits,
that were Used by the Company as of the Balance Sheet Date and those Used by the
Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall mean
any amounts withheld by customers from contract progress billing until final and
satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean, with
respect to the Company, cash and other assets that are expected to be converted
into cash, sold or exchanged within one year from the Closing Date, including
marketable securities, receivables, inventory and current prepayments.
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
20
<PAGE> 25
Section 12.07 Damages. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation income and
other Taxes, interest, penalties and attorneys' and accountants' fees and
disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers who are stockholders with respect to
the representation being made, and such knowledge of any such persons as
reasonably should have obtained upon due investigation and inquiry into the
representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all permits or
orders under any Legal Requirement or otherwise granted by any Governmental
Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
21
<PAGE> 26
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes" shall
mean the deferred tax assets and liabilities required to be recorded under GAAP
to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By:/s/ Gregg Wallick
------------------------------
Gregg Wallick, President
CYCLONE ROOFING COMPANY
By:
--------------------------
Name:
-------------------------
Title:
-----------------------
STOCKHOLDER:
/s/ R. Wayne Cooke
------------------------------
R. Wayne Cooke
22
<PAGE> 27
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of Company Percentage (%) of
Name Common Stock Purchased Ownership
---- --------------------------- -----------------
<S> <C> <C>
R. Wayne Cooke .. 30,000 100%
Total 30,000 100%
</TABLE>
<PAGE> 28
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of North Carolina, and is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been made
available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in any
partnership or joint venture, or own any outstanding capital stock of any other
corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized capital stock
of the Company consists of 100,000 shares of Company Common Stock. The issued
and outstanding shares of Company Common Stock are owned of record and
beneficially by the Stockholders shown on Exhibit A hereof. All of the presently
outstanding shares of capital stock of the Company have been validly authorized
and issued and are fully paid and nonassessable. The Company has not issued any
other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, except as set forth on Schedule 3.02. Except as
contemplated under this Agreement, there are no agreements to which the Company
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock. Except for possible dividends to be
issued in connection with the Excluded Assets as described in Section 1.05 and
dividends related to the payment of the Stockholders' tax liabilities with
respect to earnings of the Company up to the Closing Date, no dividends are
accrued but unpaid on any capital stock of the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set forth
in Schedule 3.04 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the Articles of Incorporation or bylaws of the Company;
(ii) violate any Legal Requirements applicable to the Company;
<PAGE> 29
(iii) violate, conflict with, result in a breach of, constitute a
default under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any Company Contract or Permit
applicable to the Company;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of the Company; or
(v) require any of the Stockholders or the Company to obtain or
make any waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third party or
any Governmental Authority. Any and all consents required to be obtained by the
Company as set forth in Schedule 3.04 shall be obtained and copies thereof
delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no suit,
action or other proceeding is pending or, to the Knowledge of the Company or the
Stockholders, threatened before any Governmental Authority seeking to restrain
any of the Stockholders or prohibit their entry into this Agreement or prohibit
the Closing, or seeking damages against the Company or its Properties, as a
result of the consummation of the transactions contemplated by this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true and
correct copies of the Company's (i) Closing Date Unaudited Balance Sheet, (ii)
unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
three (3) months ended March 31, 1998 (the "Interim Company Financial
Statements"), as well as (iii) the Company's balance sheet and statements of
income, stockholders' equity and cash flow as of and for each of the three
fiscal years ended December 31, 1997 (the "Company Financial Statements"). The
Company Financial Statements (i) have been prepared from the books and records
of the Company, (ii) present fairly the financial condition of the Company and
its results of operations as at and for the respective periods then ended, and
(iii) have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in Schedule
3.07, the Company Financial Statements reflect all liabilities of the Company as
determined in accordance with generally accepted accounting principles arising
out of transactions effected or events occurring on or prior to the date of the
Interim Company Balance Sheet, except for liabilities not exceeding $10,000 in
the aggregate. All reserves shown in the Company Financial Statements are
appropriate and reasonable to provide for losses thereby contemplated. Except as
set forth in the Company Financial Statements (including the Notes thereto), the
Company is not liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner, any debt,
obligation or dividend of any person, corporation, association, partnership,
joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in Schedule
3.08, the accounts receivable reflected on the Interim Company Balance Sheet and
all accounts receivable arising between the date of the Interim Company Balance
Sheet (the "Interim Company Balance Sheet Date") and the date hereof, arose from
bona fide transactions in the ordinary course of business, and the goods and
services involved have been sold, delivered and performed to the account of the
obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales, fully render the services and entitle the Company to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim Company Balance Sheet, no defense or setoff
to any such account has been asserted by the account obligor.
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Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ended December 31, 1997 and December 31, 1996,
respectively, and (ii) any promised increases in compensation of the Company Key
Employees that have not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of all
Compensation Plans sponsored by the Company or to which the Company contributes
on behalf of its employees, other than Employee Benefit Plans listed in Schedule
3.10. As used herein, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 3.09(c) and in Section 3.09(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate list of
all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of the Company, except as set forth in Schedule
3.09(f), the Company (i) has been and is in material compliance with all laws,
rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), (i) the Company has not
ever been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit and
(iii) the employees of the Company have not threatened to organize or join a
union, labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key Employee
has indicated his or her desire or intent to terminate employment with the
Company, and the Company has no present intent of terminating the employment of
anyCompany Key Employee.
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Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and maintained in
compliance with all laws, rules and regulations, except for such noncompliance
that would not have a material adverse effect on the Company. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of the Company, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of the
Company, have been threatened that could result in the revocation of any such
favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of Section
412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of ERISA)
for which the notice requirement has not been waived has occurred with respect
to any Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(f) The Company has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in Schedule
3.11, from the Interim Company Balance Sheet Date to the date of this Agreement,
the Company has not:
(a) suffered any material adverse change, whether or not caused by any
deliberate act or omission of the Company, or any Stockholder, in its condition
(financial or otherwise), operations, assets, liabilities, business or
prospects;
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(b) contracted for the purchase of any capital assets having a cost in
excess of $25,000 or paid any capital expenditures in excess of $25,000, except
in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold any
debt securities, except in the ordinary course of business consistent with past
practice;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its Properties or Company Assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any Company
Assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the ordinary
course of business consistent with past practice or as permitted by Section 1.05
hereof;
(i) written up or written down the carrying value of any of the
Company Assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices followed or
changed the costing system or depreciation methods of accounting for the Company
Assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the ordinary
course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or entity
except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of the Company's capital stock;
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(r) entered into any material agreement with any person or group, or
modified or amended in any material respect the terms of any material existing
agreement except in the ordinary course of business consistent with past
practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which the
Company is a party (the "Company Contracts") set forth in Schedule 3.12, the
Company has not entered into, nor is the capital stock, the assets or the
business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in the
ordinary course of business;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation relating
to indebtedness for borrowed money or money lent or to be lent to another,
except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any Affiliate;
(xi) agreement relating to any material matter or transaction in
which an interest is held by a person or entity that is an Affiliate of the
Company;
(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property and involving more than $25,000 in the
aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
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(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $5,000 or that terminates more than thirty
(30) days after the date hereof, except in the ordinary course of business;
(xvi) agreement relating to any material matter or transaction in
which an interest is held by any person or entity referred to in Section 3.23
hereof; or
(xvii) any other agreement or commitment not made in the ordinary
course of business that is material to the business or financial condition of
the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not received notice
of any plan or intention of any other party to any Company Contract to exercise
any right to cancel or terminate any Company Contract. The Company does not
currently contemplate, and has no reason to believe any person or entity
currently contemplates, any amendment or change to any Company Contract. None of
the customers, joint venture partners or suppliers of the Company has refused,
or communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will maintain
through the Closing Date, comprehensive insurance coverage with respect to all
of its completed operations. The Company has previously made available to GRS
all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) The Company owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 3.14(a) is a
true and correct description of all Proprietary Rights.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock
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Purchase, GRS will have the right to use all Proprietary Rights without any
obligation to pay any additional amounts whatsoever. Use of the Proprietary
Rights does not require the consent of any other person and the Proprietary
Rights are freely transferable. No claim has been asserted by any person to the
ownership of or right to use any Proprietary Right or challenging or questioning
the validity or effectiveness of any license or agreement constituting a part of
any Proprietary Right. Each of the Proprietary Rights is valid and subsisting,
has not been canceled, abandoned or otherwise terminated and, if applicable, has
been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by the
Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has good and
marketable title to the Company Assets, including, without limitation, those
reflected on the Interim Company Balance Sheet (other than those since disposed
of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and total lease
payments is attached hereto as Schedule 3.15(c). The Company enjoys peaceful and
undisturbed possession under all real property leases under which the Company is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its properties and to conduct its businesses as presently conducted. The
business and operations of the Company have been and are being conducted in
accordance in all material respects with all applicable laws, rules and
regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in Schedule
3.17, there are no claims, actions, suits, investigations or proceedings against
the Company pending or, to the Knowledge of the Company, threatened in any court
or before or by any Governmental Authority, or before any arbitrator, that could
reasonably be expected to have a material adverse effect (whether covered by
insurance or not) on the business, operations, prospects, Properties, securities
or financial condition of the Company. Except as otherwise set forth in Schedule
3.17, the Company is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any
Company Contract or any Legal Requirement or Permit applicable to the Company,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any Company Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition (a "Material Adverse Effect") of the Company.
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Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of the
Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which Company Business is or was, or, to knowledge of the Company, at which the
business of its predecessors was, located which would have a Material Adverse
Effect on the Company. With respect to underground storage tanks, Schedule
3.18(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of the
Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of the Company, threat of a "release" of any Hazardous Substance
on, from or under any premises from which (i) the Company's operations have been
or are being conducted related to the Company Business. or (ii) to the Knowledge
of the Company, the operations of any predecessor of the Company which would
have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the Company's and,
to the Knowledge of the Company, its predecessor's, Hazardous Substances
disposal and recycling practices related to the Company Business have been
accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall not
be interpreted to imply that GRS has constructive knowledge regarding any aspect
of the Company Business with respect to environmental matters nor to limit the
scope of any of the Company's or any Stockholders' representations under this
Agreement. No such due diligence examination or related activities of, or on
behalf of, GRS however, shall constitute a waiver or relinquishment by GRS of
its right to rely upon the Company's or any Stockholders' representations,
warranties, covenants and agreements as made herein or pursuant hereto, and no
such disclosure shall constitute an assumption by GRS of any conditions or
liabilities, and such disclosure shall not relieve the Company or any
Stockholder of its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or
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safe deposit box or vault, (ii) the names of all persons authorized to draw
thereon or to have access to any safe deposit box or vault, (iii) the purpose of
each such account, safe deposit box or vault, and (iv) the names of all persons
authorized by proxies, powers of attorney or other like instrument to act on
behalf of the Company in matters concerning any of its business or affairs.
Except as otherwise set forth in Schedule 3.19, no such proxies, powers of
attorney or other like instruments are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth all
the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve (12) month
period ended December 31, 1997 and the three (3) month period ended March 31,
1998, as well as each of the principal customers of the Company. Except as
otherwise set forth in Schedule 3.20, since December 31, 1997, there has been no
material adverse change in the business relationship of the Company with any
supplier or customer named in Schedule 3.20. No customer or supplier named in
Schedule 3.20 has terminated or materially altered, or notified the Company of
any intention to terminate or materially alter, its relationship with the
Company, and the Company has no reason to believe that any such customer or
supplier will terminate or materially alter its relationship with the Company or
to materially decrease its services or supplies to the Company or its direct or
indirect usage of the services of the Company. For purposes of Sections 3.20 and
3.23, "material suppliers" refers to suppliers from whom the Company purchased
five percent (5%) or more of the total amount of the goods purchased by the
Company during the twelve (12) month period ended December 31, 1997 and the
three (3) month period ended March 31, 1998, and "principal customers" refers to
customers who accounted for 5% or more of the Company's total revenues during
the twelve (12) month period ended December 31, 1997 and the three (3) month
period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by the Company or the Stockholders to GRS or its counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set forth
in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. Except as provided in Schedule
3.24, no director or executive officer of the Company owns directly or
indirectly any material interest or has any investment equal to 5% or more of
the outstanding voting securities in any corporation, business or other person
that is a direct competitor of the Company.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate (other than from personal funds of directors,
officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law).
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Section 3.26 Government Inquiries. Except as set forth on Schedule 3.26,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any Stockholder
has entered into any agreements or arrangements and there are no pending offers
or discussions concerning or providing for the merger or consolidation of the
Company or all or any substantial portion of its assets, the sale by the Company
or any Stockholder of any securities of the Company or any similar transaction
affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income Tax Returns,
and all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in all material
respects;
(iii) has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and has withheld and paid over
to the appropriate taxing authority all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party, except where the amounts of such unpaid Taxes or the amounts that have
not been withheld and paid over do not, in the aggregate, exceed $25,000;
(iv) the accrual for Taxes on the Closing Date Unaudited Balance
Sheet is sufficient to pay in full all liabilities for Taxes of the Company
related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company have been filed
through the date hereof, and, as of the date hereof, none of such Tax Returns
has been audited.
(vi) the Company has been a validly existing S corporation within
the meaning of Sections 1361 and 1362 of the Code) at all times since July 1,
1987, and will continue to be an S corporation up to and including the date
immediately preceding the Closing Date; and
(vii) the Company has disclosed in its federal income Tax
Returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC Section 6662.
(b) To the Knowledge of the Company, no claim has been made by a
taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local Tax audits or
administrative or judicial proceedings pending or being conducted with respect
to the Company;
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(ii) no information related to Tax matters has been requested by
any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by the
Company from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning the
Company's Tax liability.
(d) No waivers of statutes of limitation have been given or requested
with respect to the Company in connection with any Tax Returns covering the
Company, except where such waiver would not have a material adverse effect on
the Company.
(e) The Company has not executed or entered into a closing agreement
pursuant to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has the Company agreed to or is
required to make any adjustments pursuant to IRC Section 481(a) or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company. The Company has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC Section 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(I) The Company has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC Section 280G.
(j) The Company shall prepare or cause to be prepared and file or
cause to be filed all federal and state income Tax Returns for the Company for
tax periods ending on or prior to the Closing Date which are filed after the
Closing Date. The Company shall permit GRS to review and comment on each such
Tax Return described in the preceding sentence prior to filing. To the extent
permitted by applicable law, the Stockholders shall include any income, gain,
loss, deduction or other tax items for such period on their individual income
Tax Returns in a manner consistent with the Schedule K-ls furnished by the
Company to the Stockholders for such periods.
(k) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including New York City Transfer Tax, if
applicable, and any similar Tax imposed in other states and subdivisions), shall
be paid by the Stockholders when due, and the Stockholders will, at their
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, GRS will, and will
cause its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such Stockholder
shall own beneficially and of record, free and clear of any lien, option or
other encumbrance, the shares of Company Common Stock set forth opposite such
Stockholders' name on Exhibit A hereof, and, upon consummation of the Stock
Purchase, GRS will acquire good and valid title thereto, free and clear of any
lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such Stockholder
has the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement and to perform fully such
Stockholders' obligations hereunder. This Agreement has been duly executed and
delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common Stock to be
issued to it pursuant to the Stock Purchase (the "GRS Shares") for its own
account and not on behalf of any other person; such Stockholder is aware and
acknowledges that the GRS Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be offered or sold
unless the GRS Shares are registered under the Securities Act or an exemption
from the registration requirements of the Securities Act is available;
<PAGE> 41
(b) Such Stockholder has been furnished all information that it deems
necessary to enable it to evaluate the merits and risks of an investment in GRS;
such Stockholder has had a reasonable opportunity to ask questions of and
receive answers from GRS concerning GRS and the GRS Shares, and all such
questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i) any rights
in and to the GRS Shares, which rights were obtained through or from such
Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in financial and
business matters (including knowledge and expertise in the roofing industry)
that it is capable of evaluating the merits and risks involved in an investment
in the GRS Shares: and such Stockholder is financially able to bear the economic
risk of the investment in the GRS Shares, including a total loss of such
investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS Shares
is an investment involving a risk of loss and that there is no guarantee that
such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal or
state agency has made any finding of determination regarding the fairness of the
offering of the GRS Shares for investment, or any recommendation or endorsement
of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for investment, with
no present intention of dividing or allowing others to participate in such
investment or of reselling, or otherwise participating, directly or indirectly,
in a distribution of the GRS Shares, and shall not make any sale, transfer or
pledge thereof without registration under the Securities Act and any applicable
securities laws of any state or unless an exemption from registration is
available;
(i) Except as set forth herein, no representations or warranties have
been made to such Stockholder by GRS or any agent, employee or Affiliate of GRS,
and in entering into this transaction such Stockholder is not relying upon any
information, other than from the results of independent investigation by such
Stockholder;
(j) Such Stockholder understands that the GRS Shares are being offered
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that GRS is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Stockholder set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of the GRS
Shares except (i) pursuant to an effective registration statement under the
Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS, Sellers' Counsel or other counsel reasonably satisfactory to
GRS, is not required to be registered under the Securities Act.
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EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate Documents.
(a) GRS is a corporation duly organized, validly existing and in good
standing under the laws of Florida, and is not required to be qualified to do
business as a foreign corporation in any other jurisdiction where the failure to
so qualify would have a material adverse effect on GRS. GRS has all required
corporate power and authority to own its properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of GRS, copies
of which are attached as Schedule 5.01(a), are complete and reflect all
amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made available to
the Stockholder for review contain a complete and accurate record of all
stockholders of GRS, and all material actions of the stockholders and directors
(and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized capital
stock of GRS consists of 100,000,000 shares, of which 90,000,000 have been
designated as GRS Common Stock and 10,000,000 have been designated as Preferred
Stock. All of the presently outstanding shares of capital stock of GRS have been
validly authorized and issued and are fully paid and nonassessable. Except as
set forth on Schedule 5.03, GRS has not issued any other shares of its capital
stock and there are no outstanding options, warrants, subscriptions or other
rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights affecting
the issuance or sale of the capital stock of GRS.
<PAGE> 43
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth in
Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to GRS;
(iii) violate, conflict with, result in a breach of, constitute a
default under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any contract or Permit applicable to
GRS;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver, consent, action,
approval or authorization of, or registration, declaration, notice or filing
with, any private non-governmental third party or any Governmental Authority.
Any and all consents required to be obtained by GRS as set forth in Schedule
5.05 shall be obtained and copies thereof delivered to the Company and the
Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no suit,
action or other proceeding is pending or, to the Knowledge of GRS, threatened
before any Governmental Authority seeking to restrain GRS or prohibit its entry
into this Agreement or prohibit the Closing, or seeking damages against GRS or
its Properties, as a result of the consummation of the transaction contemplated
by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in Schedule
5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS Balance
Sheets") and the related statements of income, stockholders' equity and cash
flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in Schedule
5.09, the accounts receivable reflected on the GRS Balance Sheet and all
accounts receivable arising between December 31, 1997 and the date hereof, arose
from bona fide transactions in the ordinary course of business, and the goods
and services involved have been sold, delivered and performed to the account of
the obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle GRS to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim GRS Balance Sheet, no defense or setoff to
any such account has been asserted by the account obligor.
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Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of GRS, regardless of
compensation levels, and other employees who are currently compensated at a rate
in excess of $50,000 per year (including any reasonably anticipated bonus) or
who earned in excess of $50,000 during GRS' fiscal year ended October 31, 1996
(collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a) contains
a complete and accurate description of (i) all increases in compensation of the
GRS Key Employees during the fiscal years of GRS ending October 31, 1997 and
October 31, 1996, respectively, and (ii) any promised increases in compensation
of the GRS Key Employees that have not yet been effected.
(b) Schedule 5.10(b) contains a complete and accurate list of all
Compensation Plans sponsored by GRS or to which GRS contributes on behalf of its
employees, other than Employee Benefit Plans listed in Schedule 5.11. As used in
this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 5.10(c) and in Section 5.10(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a complete
and accurate list of all significant written employee policies and procedures.
(e) To the Knowledge of GRS, no unwritten material amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans, Employment Agreements or employee policies
and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule 5.10(f),
GRS (i) has been and is in material compliance with all laws, rules, regulations
and ordinances respecting employment and employment practices, terms and
conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any union,
labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key Employee has
indicated his or her desire or intent to terminate employment with GRS, and GRS
has no present intent of terminating the employment of any GRS Key Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
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<PAGE> 45
Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment exists
with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and maintained in
compliance with all laws, rules and regulations, except for such noncompliance
that would not have a material adverse effect on GRS. No Employee Benefit Plan
is currently the subject of an audit, investigation, enforcement action or other
similar proceeding conducted by any state or federal agency. No prohibited
transactions (within the meaning of Section 4975 of the Internal Revenue Code of
1986, as amended, and the regulations promulgated thereunder (the "Code")) have
occurred with respect to any Employee Benefit Plan. No pending or, to the
Knowledge of GRS, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(c) GRS has received a favorable determination letter or ruling from
the Internal Revenue Service for each Employee Benefit Plan intended to be
qualified within the meaning of Section 401 (a) of the Code and/or tax exempt
within the meaning of Section 501(a) of the Code, which letter or ruling is
current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of Section
412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of ERISA)
for which the notice requirement has not been waived has occurred with respect
to any Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(f) GRS has no obligation or commitment to provide medical, dental or
life insurance benefits to or on behalf of any of its employees who may retire
or any of its former employees who have retired from employment with GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in Schedule
5.12, from the date of the GRS Balance Sheet to the date of this Agreement, GRS
has not:
(a) suffered any material adverse change, whether or not caused by any
deliberate act or omission of GRS or any stockholder of GRS, in its condition
(financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a cost in
excess of $25,000 or paid any capital expenditures in excess of $25,000, except
in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold any
debt securities, except in the ordinary course of business consistent with past
practice;
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(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets, except in
the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of its assets
(whether or not covered by insurance) that has materially adversely affected, or
could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the ordinary
course of business consistent with past practice;
(i) written up or written down the carrying value of any of its
assets, except in the ordinary course of business consistent with past practice;
(j) changed any accounting principles methods or practices followed or
changed the costing system or depreciation methods of accounting for its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or its assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the ordinary
course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or entity
except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights, paid any dividends or
made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or group, or
modified or amended in any material respect the terms of any material existing
agreement except in the ordinary course of business consistent with past
practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
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Section 5.13 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which GRS is a
party (the "GRS Contracts") set forth in Schedule 5.13, GRS has not entered
into, nor is the capital stock, the assets or the business of GRS bound by,
whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in the
ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation relating
to indebtedness for borrowed money or money lent or to be lent to another,
except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or transaction in
which an interest is held by a person or entity that is an Affiliate of GRS;
(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property and involving more than $25,000 in the
aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $5,000 or that terminates more than thirty
(30) days after the date hereof, except in the ordinary course of business;
(xvi) agreement relating to any material matter or transaction in
which an interest is held by any person or entity referred to in Section 5.24
hereof; or
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(xvii) any other agreement or commitment not made in the ordinary
course of business that is material to the business or financial condition of
GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice of any
plan or intention of any other party to any GRS Contract to exercise any right
to cancel or terminate any GRS Contract. GRS does not currently contemplate, and
has no reason to believe any person or entity currently contemplates, any
amendment or change to any GRS Contract. None of the customers, joint venture
partners or suppliers of GRS has refused, or communicated that it will or may
refuse, to purchase or supply goods or services, as the case may be, or has
communicated that it will or may substantially reduce the amounts of goods or
services that it is willing to purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available to
the Stockholders all insurance policies of GRS. All of such policies are valid
and enforceable against GRS, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and copyrights
(collectively "Proprietary Rights"), if any, necessary to conduct its business,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Schedule 5.15(a) is a true and
correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the Proprietary Rights
without infringing or violating the rights of any third parties. Use of the
Proprietary Rights does not require the consent of any other person and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or right to use any Proprietary Right or challenging
or questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right. Each of the Proprietary Rights is
valid and subsisting, has not been canceled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by GRS is
set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the
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ordinary course of business), free and clear of all security interests, liens,
charges and other encumbrances, except for (i) liens for taxes not yet due and
payable or being contested in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of its businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and total lease
payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful and
undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in Schedule
5.18, there are no claims, actions, suits, investigations or proceedings against
GRS pending or, to the Knowledge of GRS, threatened in any court or before or by
any Governmental Authority, or before any arbitrator, that could reasonably be
expected to have a material adverse effect (whether covered by insurance or not)
on the business, operations, prospects, Properties, securities or financial
condition of GRS. Except as otherwise set forth in Schedule 5.18, GRS is not in
default under, and no condition exists (whether covered by insurance or not)
that with or without notice or lapse of time or both would (i) constitute a
default under, or breach or violation of, any Legal Requirement or Permit
applicable to GRS or any GRS Contract applicable to GRS, or (ii) accelerate or
permit the acceleration of the performance required under, or give any other
party the right to terminate, any GRS Contract, other than defaults, breaches,
violations or accelerations that would not have a material adverse effect on the
business, operations, prospects, Properties, securities or financial condition
of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of GRS,
there are no PCBs, TCE, PCE, or asbestos containing materials generated, used,
treated, stored, maintained, disposed of, or otherwise deposited in, or located
on any premises at which GRS' business (the "GRS Business") is or was, or at
which the business or, to the Knowledge of GRS, its predecessors was, located,
which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which the GRS Business is or was, or, to knowledge of GRS, at which the business
of its predecessors was, located, which would have a Material Adverse Effect on
GRS. With respect to underground storage tanks, Schedule 5.19(b) sets forth the
size, location, construction, installation date, use and testing history of all
underground storage tanks (whether or not excluded from regulation under
Environmental Law), including all underground storage tanks in use, out of
service, closed, abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of GRS,
there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the best
knowledge of GRS, threat of a "release" of
8
<PAGE> 50
any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor their
respective predecessors have received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and, to the
Knowledge of GRS, their respective predecessor's, Hazardous Substances disposal
and recycling practices related to the GRS Business have been accomplished in
material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth all of
GRS' material suppliers, together with the dollar amount of goods purchased by
GRS from each such supplier during the twelve month period ended December 31,
1997 and the four month period ended April 30, 1998, as well as each of the
principal customers of GRS. Except as otherwise set forth in Schedule 5.21,
since December 31, 1997, there has been no material adverse change in the
business relationship of GRS with any supplier or customer named in Schedule
5.21. No customer or supplier named in Schedule 5.21 has terminated or
materially altered, or notified GRS of any intention to terminate or materially
alter, its relationship with GRS and GRS has no reason to believe that any such
customer or supplier will terminate or materially alter its relationship with
GRS or to materially decrease its services or supplies to GRS or its direct or
indirect usage of the services or products of GRS. For purposes of Sections 5.21
and 5.24 "material suppliers" refers to suppliers from whom GRS purchased five
percent (5%) or more of the total amount of the goods purchased by GRS during
the twelve month period ended December 31, 1997 and the four month period ended
April 30, 1998, and "principal customers" refers to customers who accounted
9
<PAGE> 51
for 5% or more of GRS' revenues during the twelve month period ended December
31, 1997 and the four month period ended April 30, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by GRS to the Stockholders or their counsel, do not contain any untrue
statement of material fact or omit any material fact necessary in order to make
the statements therein not misleading; provided, however, certain materials
provided to the Stockholders contain projections and estimates of future events,
and such projections and estimates have been based upon certain assumptions that
management of GRS made in good faith and believed are reasonable at the time
such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set forth
in Schedule 5.24, no director or executive officer of GRS or their respective
spouses or children, owns directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
principal customer or material supplier which has a business relationship with
GRS or any organization that has a material contract or arrangement with GRS.
Section 5.25 Investments in Competitors. No director or executive officer
of GRS owns directly or indirectly any material interests or has any investment
equal to 5% or more of the outstanding voting securities in any corporation,
business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer or
employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule 5.27,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and all other
material Tax Returns which it is required to file under applicable laws and
regulations;
(ii) all such Tax Returns are true and accurate in all material
respects;
(iii) has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and has withheld and paid over
to the appropriate taxing authority all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party, except where the amounts of such unpaid Taxes or the amounts that have
not been withheld and paid over do not, in the aggregate, exceed $25,000;
10
<PAGE> 52
(iv) the accrual for Taxes on the Unaudited GRS Balance Sheet
(excluding any amount recorded which is attributable to timing differences
between book and Tax income) would be adequate to pay all material Tax
liabilities of GRS if its current tax year were treated as ending on the date of
the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been filed through
the date hereof, and, as of the date hereof, none of such Tax Returns has been
audited.
(b) To the Knowledge of GRS, no claim has been made by a taxing
authority in a jurisdiction where GRS does not file Tax Returns that GRS is or
may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with respect
to GRS;
(ii) no information related to Tax matters has been requested by
any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by GRS
from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning GRS' Tax
liability.
(d) No waivers of statutes of limitation have been given or requested
with respect to GRS in connection with any Tax Returns covering GRS, except
where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement pursuant
to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC Section 481(a) or any similar provision
of state, local or foreign law by reason of a change in accounting method
initiated by GRS. GRS has no knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any knowledge with respect to
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC Section 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make payments
nor is it a party to an agreement that could obligate it to make any payments
that would not be deductible under IRC Section 280G.
Section 5.29 Participation in Secondary Offering. In the event that after
the Offering GRS files a registration statement with the Securities and Exchange
Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such
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<PAGE> 53
number of shares of GRS Common Stock owned by the Stockholders as shall equal
(i)(A) the total number of shares of GRS Common Stock owned by such Stockholders
divided by (B) the total number of shares of GRS Common Stock owned by all
shareholders of the Founding Companies, multiplied by (ii) the total number of
shares of GRS Common Stock owned by shareholders of the Company which are to be
included in the Secondary Offering.
12
<PAGE> 1
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
FIVE K INDUSTRIES, INC.
AND
ALL OF THE STOCKHOLDERS
OF
FIVE K INDUSTRIES, INC.
----------------------------
MAY 19, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES......................................................1
1.01 Sale and Purchase of Company Common Stock............................................1
1.02 Purchase Price.......................................................................2
1.03 Delivery of Purchase Price...........................................................2
1.04 Purchase Price Adjustment............................................................3
1.05 Excluded Assets......................................................................3
1.06 Stockholders' Representative.........................................................3
ARTICLE II - CLOSING.........................................................................4
2.01 Closing..............................................................................4
2.02 Deliveries by Stockholders to GRS....................................................4
2.03 Deliveries by GRS....................................................................4
2.04 Termination in Absence of Closing....................................................5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS.........................................................................5
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER..............................6
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS............................................6
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING....................................................6
6.01 GRS' Access to Information and Assets................................................6
6.02 Company's Conduct of Business and Operations.........................................6
6.03 General Restrictions.................................................................7
6.04 Notice Regarding Changes.............................................................8
6.05 Consents and Best Efforts............................................................8
6.06 Casualty Loss........................................................................8
6.07 Employee Matters.....................................................................9
6.08 No Solicitation......................................................................9
6.09 Employment Agreements................................................................9
6.10 Lock-Up Agreement....................................................................9
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...............................9
7.01 Conditions to Obligations of All Parties.............................................9
7.02 Conditions to Obligations of Stockholders...........................................10
7.03 Conditions to Obligations of GRS....................................................11
ARTICLE VIII - SURVIVAL.....................................................................12
8.01 Survival of Representations and Warranties of the Company and the
Stockholders........................................................................12
ARTICLE IX - INDEMNIFICATION................................................................13
9.01 Obligation of the Stockholders to Indemnify.........................................13
9.02 Obligation of GRS to Indemnify......................................................13
9.03 Notice and Opportunity to Defend....................................................13
9.04 Limitations on Indemnification......................................................14
9.05 Set-Off Rights......................................................................15
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS........................................................16
10.01 Further Assurances..................................................................16
10.02 Publicity...........................................................................16
10.03 Access to Records...................................................................16
ARTICLE XI - MISCELLANEOUS..................................................................16
11.01 Brokers.............................................................................16
11.02 Costs and Expenses..................................................................17
11.03 Notices.............................................................................17
11.04 Governing Law.......................................................................17
11.05 Representations and Warranties......................................................18
11.06 Entire Agreement, Amendments and Waivers............................................18
11.07 Binding Effect and Assignment.......................................................18
11.08 Remedies............................................................................18
11.09 Exhibits and Schedules..............................................................18
11.10 Multiple Counterparts...............................................................18
11.11 References..........................................................................18
11.12 Survival............................................................................19
11.13 Attorneys' Fees.....................................................................19
ARTICLE XII - DEFINITIONS...................................................................19
12.01 Affiliate...........................................................................19
12.02 Collateral Agreements...............................................................19
12.03 Company Assets......................................................................19
12.04 Contract Retention..................................................................19
12.05 Current Assets......................................................................20
12.06 Current Liabilities.................................................................20
12.07 Damages.............................................................................20
12.08 Environmental Law...................................................................20
12.09 Governmental Authorities............................................................20
12.10 GAAP................................................................................20
12.11 Hazardous Substances................................................................20
12.12 Knowledge...........................................................................20
12.13 Legal Requirements..................................................................20
12.14 Permits.............................................................................21
12.15 Properties..........................................................................21
12.16 Proportionate Share.................................................................21
12.17 Regulations.........................................................................21
12.18 Taxes...............................................................................21
12.19 Tax Returns.........................................................................21
12.20 Used................................................................................21
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement between for Herbert J. Kizer, III
Exhibit H - Opinion of Baker & McKenzie
Exhibit I - Opinion of Hendrick, Phillips, Schemm & Salzman
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of May 19, 1998, by and among (i) General Roofing Services, Inc. a
Florida corporation (the "Buyer" or "GRS"),(ii) Five K Industries, Inc., a
Georgia corporation (the "Company"), and (iii) the stockholder of the Company
(the "Stockholder").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS purchase
all of the issued and outstanding capital stock of the Company, consisting of 10
shares (the "Shares") of common stock, par value $1.00 per share ("Company
Common Stock"), upon the terms and subject to the conditions hereinafter set
forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange within
the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock. .
(a) On the terms and subject to the conditions of this Agreement,
at the Closing referred to in Section 2.01 hereof, the Stockholder shall sell,
transfer, convey and deliver to GRS, and GRS shall purchase, acquire and accept
from the Stockholder, the number of shares of Company Common Stock set forth
opposite the name of the Stockholder on Exhibit A hereto under the heading
"Number of Shares of Company Common Stock Purchased", constituting all of the
issued and outstanding shares of Company Common Stock. The sale and purchase of
the Company Common Stock pursuant to this Agreement is sometimes hereinafter
referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a)
hereof, at the Closing, each Stockholder shall deliver, or cause to be
delivered, to the Stockholders' Representative (as defined and provided for in
Section 1.06 hereof), for redelivery to GRS, stock certificates representing the
Company Common Stock being sold by such Stockholder hereunder, together with
stock powers duly executed in blank or otherwise in proper form acceptable to
GRS for transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares of
Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $10,548,000. The Purchase Price shall be
subject to adjustment as provided in this Agreement and shall be allocated among
the Stockholders in accordance with their respective ownership interests as set
forth on Exhibit A hereof. The Purchase Price, as so adjusted, shall be
delivered to the Stockholders in accordance with their respective Proportionate
Share and to the Escrow Agent (as defined in Section 1.03(b) hereof), subject to
and in accordance with Section 1.03 hereof. The amount of the Purchase Price
allocated to each outstanding share of Company Common Stock is hereinafter
referred to as the "Stock Purchase Payment."
(b) The Stockholders shall cause to be prepared and delivered to
GRS within fifteen days prior to the Closing Date (i) an unaudited consolidated
balance sheet of the Company forecasted as of the Closing Date (the "Closing
Date Unaudited Balance Sheet"), and (ii) a certificate executed by the Company's
Chief Financial Officer (or another duly authorized officer of the Company) to
the effect that the Closing Date Unaudited Balance Sheet has been prepared from
the books and records of the Company and in a manner consistent with the
preparation of the Company Financial Statements (as defined in Section 3.06
hereof).
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase Price
shall be paid upon the surrender pursuant to Section 1.01(b) hereof of a
certificate or certificates representing all of the issued and outstanding
shares of Company Common Stock, as follows:
(a) An aggregate of $4,746,600, representing forty-five percent
(45%) of the Purchase Price, shall be paid directly to the holders thereof by
wire transfer in New York Clearing House Funds in accordance with Exhibit A
hereto.
(b) An aggregate of $5,801,400 shall be paid by the delivery to
(A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of the GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $2,109,600, representing twenty percent (20%) of
the Purchase Price (the "Escrow Fund"), based upon the public offering price of
the GRS Common Stock to be sold in its initial public offering (the "Offering")
and (B) to the Stockholders in accordance with Exhibit A hereto, of such number
of shares of GRS Common Stock as shall have a value equal to $3,691,800 based
upon the public offering price of the GRS Common Stock to be sold in the
Offering. All of the shares of GRS Common Stock to be so held in escrow shall be
held by the Escrow Agent for a period of one year following the Closing (the
"First Anniversary"), other than such number of shares as shall have a value of
$1,000,000 based upon the average closing price of the GRS Common Stock on
Nasdaq for the five business days immediately preceeding the First Anniversary
(the "Retained Shares"), which shall be held in escrow for a period of four
years from the Closing Date, in accordance with the terms of an Escrow Agreement
in the form of Exhibit B hereto (the "Escrow Agreement"). All of the shares of
GRS Common Stock received or to be received by the Stockholders shall be
restricted from transfer for a period of two years from the Closing Date in
accordance with the terms, and subject to the conditions, of a Lock-Up Agreement
in the form of Exhibit C hereto (the "Lock-Up Agreement"). The Stockholders
shall receive cash in lieu of fractional shares.
(c) Each certificate evidencing shares of GRS Common Stock issued
in connection with the Stock Purchase shall bear the following restrictive
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
2
<PAGE> 7
(the "1933 ACT"), NOR UNDER ANY STATE SECURITIES
LAWS AND SHALL NOT BE TRANSFERRED, SOLD, ASSIGNED
OR HYPOTHECATED UNTIL EITHER (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS OR (II) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL
TO THE HOLDER OF SUCH SHARES, WHICH OPINION IS
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED
OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933
ACT OR APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment. [Intentionally omitted]
Section 1.05 Excluded Assets. Prior to the Closing, the Company shall be
permitted to distribute to the Stockholders as a dividend those assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are not
required by the Company in the conduct of its operations and which are listed in
Schedule 1.05 hereto.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders' Representative"
shall mean Herbert J. Kizer, III or any person appointed as a successor
Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all obligations
under this Agreement have been discharged (including all indemnification
obligations hereunder and all obligations under the Escrow Agreement), the
Stockholders who, immediately prior to the Closing, held Company Common Stock
representing an aggregate number of shares of Company Common Stock which
exceeded 50% of the amount of such Company Common Stock outstanding immediately
prior to such time (a "Majority"), may, from time to time upon written notice to
the Stockholders' Representative and GRS, remove the Stockholders'
Representative or appoint a new Stockholders' Representative to fill any vacancy
created by the death, incapacitation, resignation or removal of the
Stockholders' Representative. Furthermore, if the Stockholders' Representative
dies, becomes incapacitated, resigns or is removed by a Majority, the Majority
shall appoint a successor Stockholders' Representative to fill the vacancy so
created. If the Majority is required to but has not appointed a successor
Stockholders' Representative within 20 business days from a request by GRS to
appoint a successor Stockholders' Representative, GRS shall have the right to
appoint a Stockholders' Representative to fill any vacancy so created, and shall
advise all those who were holders of Company Common Stock immediately prior to
the Closing of such appointment by written notice. A copy of any appointment by
the Majority of any successor Stockholders' Representative shall be provided to
GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to take
any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right and power to execute the Escrow
Agreement on their behalf with such changes or amendments thereto as the
Stockholders' Representative shall determine to be necessary or desirable in
their sole and absolute
3
<PAGE> 8
discretion. Any party receiving an Instrument from the Stockholders'
Representative shall have the right to rely in good faith upon such Instrument,
and to act in accordance with the Instrument without independent investigation.
(d) GRS shall have no liability to any Stockholder or otherwise
arising out of the acts or omissions of the Stockholders' Representative or any
disputes among the Stockholders or with the Stockholders' Representative. GRS
may rely entirely on its dealings with, and notices to and from, the
Stockholders' Representative to satisfy any obligations it might have to the
Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless the
Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the Closing,
the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued and
outstanding shares of Company Common Stock in proper
form for transfer to GRS;
(ii) the resignations of all members of the board
directors of the Company as set forth in Section
7.03(l);
(iii) the stock books, stock ledgers, minute books and
corporate seals of the Company;
(iv) a certificate executed by the Company to the effect
that the conditions set forth in Sections 7.03(b)
through 7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section 7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant to Section
7.03(n).
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Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available funds to
the Stockholders the payment described in Section
1.03(a) as being required to be paid by GRS at
Closing;
(ii) by delivery to the Stockholders the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Stockholders
at Closing;
(iii) by delivery to the Escrow Agent the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Escrow Agent
at Closing;
(iv) a certified copy of all necessary corporate action on
behalf of GRS approving its execution, delivery and
performance of this Agreement and the Collateral
Agreements to which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized officer of
GRS to the effect that the conditions set forth in
Sections 7.02(b) and 7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section 7.02(d);
and
(vii) the executed Collateral Agreements to which it is a
party.
Section 2.04 Termination in Absence of Closing. If by the close of business
on December 31, 1998 (the "Termination Date"), the Closing has not occurred,
then any party hereto may thereafter terminate this Agreement by written notice
to such effect, to the other parties hereto, without liability of or to any
party to this Agreement or any shareholder, director, officer, employee or
representatives of such party unless the reason for Closing having not occurred
is (i) such party's willful breach of the provisions of this Agreement, or (ii)
if all of the conditions to such party's obligations set forth in Article VII
have been satisfied or waived in writing by the date scheduled for the Closing
pursuant to Section 2.01, the failure of such party to perform its obligations
under this Article II on such date; provided, however, that any termination
pursuant to this Section 2.04 shall not relieve any party hereto who was
responsible for Closing having not occurred as described in clauses (i) or (ii)
above of any liability for (x) such party's willful breach of the provisions of
this Agreement, or (y) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party to
perform its obligations under this Article II on such date. Notwithstanding the
foregoing, the Stockholders expressly acknowledge and agree that market and
economic conditions are impossible to predict, and although GRS intends to
proceed with the Offering in an expeditious manner at this time, GRS shall not
be liable to the Stockholders or the Company if the Closing has not occurred
because the Offering has not been consummated prior to the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set forth
on Exhibit E hereto, the full text of which is incorporated herein by reference
as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set forth
on Exhibit F hereto, the full text of which is incorporated herein by reference
as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders shall
permit GRS and its authorized employees, agents, accountants, legal counsel and
other representatives, at GRS' own expense, to have access to the books,
records, employees, counsel, accountants, and other representatives of the
Company at all times reasonably requested by GRS for the purpose of conducting
an investigation ("GRS' Due Diligence Investigation") of the Company's financial
condition, corporate status, operations, business and Properties. The
Stockholders shall make available to GRS for examination and reproduction, at
GRS' own expense, all documents and data of every kind and character relating to
the Company and each Subsidiary in possession or control of, or subject to
reasonable access by, the Stockholders or the Company and each Subsidiary,
including, without limitation, all files, records, data and information relating
to the Company Assets (whether stored in paper, magnetic or other storage media)
and all agreements, instruments, contracts, assignments, certificates, orders,
and amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets and the assets of each
Subsidiary (together with the Company Assets, the "Company Assets").
Section 6.02 Company's Conduct of Business and Operations. The Stockholders
shall keep GRS advised as to all material operations and proposed material
operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company and each
Subsidiary shall (a) conduct its business in the ordinary course, (b) use its
best efforts to keep available to the Company the services of present employees,
(c) maintain and operate Company Assets in a good and workmanlike manner, (d)
pay or cause to be paid all costs and expenses (including but not limited to
insurance premiums) incurred in connection therewith in a timely manner, (e) use
reasonable efforts to keep all Company Contracts listed or required to be listed
on Schedule 3.12 in full force and effect, (f) comply with all of the covenants
contained in all such Company Contracts, (g) maintain in force until the Closing
Date insurance policies (subject to the provisions of Section 6.06) equivalent
to those in effect on the date hereof, and (h) comply in all material respects
with all applicable Legal Requirements. Except as otherwise contemplated in this
Agreement, the Stockholders shall use their best efforts to preserve the present
relationships of the Company and each Subsidiary with persons having significant
business relations therewith.
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Section 6.03 General Restrictions. From and after the date hereof, except
as otherwise expressly permitted in this Agreement, without the prior written
consent of GRS, neither the Company nor any Subsidiary shall:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof, declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of its
capital stock, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
view of or in substitution for shares of its capital stock, or (C) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws (or
similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business of any corporation, partnership, joint
venture, association or other business organization or division thereof or
(B) any assets that are material, individually or in the aggregate, to the
Company or any Subsidiary, except purchases of assets in the ordinary course
of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
otherwise dispose of, or agree to sell, transfer, lease, mortgage, encumber
or otherwise dispose of, any Properties except (A) in the ordinary course
of business consistent with past practice, or (B) pursuant to any Company
Contract or except as permitted by Sections 1.05 and 3.02 hereof;
(vi) (A) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of the
Company or any Subsidiary, guarantee any debt securities of another person,
enter into any "keep well" or other agreements to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of the foregoing, except for borrowings incurred in the
ordinary course of business consistent with past practice, or (B) make any
loans, advances or capital contributions to, or investments in, any other
person;
(vii) make or agree to make any new capital expenditure or
expenditures which, individually is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 (other than those required pursuant to
currently outstanding Contracts or in the ordinary course of business
consistent with past practice);
(viii) make any material tax election or settle or compromise
any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the Company Financial Statements
(or the notes thereto) or incurred in the ordinary course of business
consistent with past practice, or waive any material benefits of, or
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<PAGE> 12
agree to modify in any material respect, any confidentiality, standstill or
similar agreements to which the Company or any Subsidiary is a party;
(x) except in the ordinary course of business consistent
with past practice, modify, amend or terminate any Company Contract;
(xi) except in the ordinary course of business consistent
with past practice, enter into any contracts, agreements, arrangements or
understandings relating to performance by third parties of the Company's or
any Subsidiary's services;
(xii) except as required to comply with applicable law (A)
adopt, enter into, terminate or amend any benefit plan or other arrangement
for the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee (except in a manner
consistent with past practice), (C) pay any benefit not provided for under
any benefit plan, (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan
(including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock, or the
removal of existing restrictions in any benefit plans or agreement or awards
made thereunder) or (E) take any action to fund or in any other way secure
the payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take any of,
the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company,
any Subsidiary or the Stockholders inaccurate or misleading if such
representations and warranties had been made upon the occurrence of the fact or
circumstance in question. GRS shall promptly inform the Stockholders in writing
of any change in facts and circumstances that could render any of the
representations and warranties made herein by it inaccurate or misleading if
such representations and warranties had been made upon the occurrence of the
fact or circumstance in question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto shall use
all commercially reasonable good faith efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, and consult and fully cooperate
with and provide reasonable assistance to each other party and their respective
representatives in order to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable hereafter, including
without limitation, (i) using all commercially reasonable good faith efforts to
make all filings, applications, notifications, reports, submissions and
registrations with, and to obtain all consents, approvals, authorizations or
permits of, governmental entities or other persons or entities as are necessary
for the consummation of the transactions contemplated by this Agreement, and
(ii) taking such actions and doing such things as any other party hereto may
reasonably request in order to cause any of the conditions to such other party's
obligation to consummate the transactions contemplated hereby as specified in
Article VII of this Agreement to be fully satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and the
Closing, any of the Properties of the Company or any Subsidiary shall be
destroyed or damaged in whole or in part by fire, earthquake, flood, other
casualty or any other cause (a "Casualty Loss"), then the Stockholders shall, at
GRS' election, (i) cause the Company to cause such Properties to be repaired or
replaced prior to the Closing with Property of substantially the same condition
and function to the extent of insurance proceeds
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available for such repair or replacement, (ii) cause the Company to deposit in a
separate account an amount sufficient to cause such Property to be so repaired
or replaced to the extent of insurance proceeds available for such repair or
replacement, or (iii) if such Casualty loss has had a Material Adverse Effect
upon the Company, GRS may terminate this Agreement by giving written notice of
such termination to the Stockholders and the Company prior to Closing.
Section 6.07 Employee Matters. The Stockholders shall take (or cause the
Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders, the Company and each
Subsidiary and their respective officers, directors, employees, representatives
and agents shall immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a Third Party Acquisition Proposal
(as defined below). Neither the Company, any Subsidiary nor any of the
Stockholders shall, nor shall they permit any of their Affiliates to, nor shall
they authorize or permit any of their officers, directors or employees or any
investment banker, attorney or other advisor or representatives retained by them
or any of their Affiliates to, (i) solicit, initiate or knowingly encourage the
submission of, any Third Party Acquisition Proposal, or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any non-public
information with respect to, or take any other action knowingly to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Third Party Acquisition Proposal. For purposes of
this Agreement, "Third Party Acquisition Proposal" means any inquiry, proposal
or offer from any person relating to any direct or indirect acquisition or
purchase of all or a portion or more of the assets of the Company or any
Subsidiary or all or a portion of any class of equity securities of the Company
or any Subsidiary or any offer to acquire or purchase that if consummated would
result in any person beneficially owning all or a portion of any class of equity
securities of the Company or any Subsidiary, or any merger, consolidation,
business combination, sale of assets, recapitalization, liquidation, dissolution
or similar transaction involving the Company or any Subsidiary, other than the
transactions contemplated by this Agreement, or any other transaction the
consummation of which could reasonably be expected to impede, interfere with,
prevent or delay, or dilute materially the benefits to GRS of the transactions
contemplated hereby.
Section 6.09 Employment Agreement. On or before the Closing, Herbert J.
Kizer III shall have entered into an employment agreement in the form of Exhibit
G (the "Employment Agreement"), which shall include non-competition provisions,
to take effect on and after the Closing Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the Stockholders
shall have entered into the Lock-Up Agreement.
ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to be
made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such
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orders, permits, waivers, authorizations, exemptions or approvals shall be in
full force and effect on the date of the Closing; provided, however, that no
provision of this Agreement shall be construed as requiring any party to accept,
in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company, any Subsidiary or GRS conducts or proposes to conduct its business, and
no transfers of licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any statute,
rule, regulation, decree, ruling, injunction or other order issued by any
Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations of
the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified copy
of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in this
Agreement qualified by materiality shall be true and correct in all respects at
Closing and all other representations and warranties of GRS contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing, as if such representations and warranties were made at and as of the
Closing, except for changes contemplated by the terms of this Agreement except
as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms thereof, and GRS shall have performed and satisfied in
all material respects all covenants and agreements required by this Agreement to
be performed and satisfied by GRS at or prior to the Closing; provided, however,
that no Stockholder shall be entitled to refuse to consummate the transaction in
reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Stockholders or the
Company) shall be pending or threatened before any Governmental Authority
seeking to restrain the Stockholders from effectuating the Stock Purchase or
prohibit the Closing or seeking Damages against the Stockholders or the Company
as a result of the consummation of the transactions contemplated by this
Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
H. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and the
Company the documents and funds referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) GRS shall have furnished the Stockholders and the Company with
an opinion letter from Deloitte & Touche to GRS which provides that the
consummation of the transactions described in this Agreement will qualify as a
Section 351 Plan of Exchange within the meaning of the Internal Revenue Code.
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Section 7.03 Conditions to Obligations of GRS. The obligations of GRS to
carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered to
GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of GRS) shall be pending or
threatened before any court or governmental agency seeking to restrain GRS or
prohibit the Closing or seeking Damages against GRS, the Stockholders, the
Company, any Subsidiary or their respective Properties as a result of the
consummation of the transactions contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from the
date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations, prospects or
financial condition of the Company or any Subsidiary that had or would
reasonably be likely to have a material adverse effect on the business,
operations, prospects, Properties, securities or financial condition of the
Company or any Subsidiary; and
(ii) any damage, destruction or loss to the Company or any
Subsidiary (whether or not covered by insurance) that had or would reasonably be
likely to have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company or any Subsidiary.
(f) GRS shall have received the opinion of Hendrick, Phillips,
Schemm & Salzman ("Sellers' Counsel"), counsel to the Company and the
Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit I. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
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(h) The Net Book Value of the Company as of the Closing Date shall
be at least $1,356,000. For purposes of this Agreement, Net Book Value shall
mean the excess of the Company's total assets over its total liabilities
determined in accordance with GAAP.
(i) The Modified Working Capital of the Company as of the Closing
Date shall not be less than $706,153. For purposes of this Agreement, Modified
Working Capital shall mean the Company's (i) Current Assets less (ii) its
Current Liabilities and long-term indebtedness determined in accordance with
GAAP.
(j) The Stockholders shall have executed and delivered to GRS the
Escrow Agreement.
(k) GRS shall have received the executed Employment Agreement for
Herbert J. Kizer, III.
(l) GRS shall have received the resignation of all of the members
of the board of directors of the Company, or any Subsidiary, on the one hand,
effective as of the Closing Date.
(m) All proceedings to be taken by Stockholders, the Company or any
Subsidiary, on the one hand, in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in form and
substance to GRS and its counsel, and GRS and said counsel shall have received
all such counterpart originals or certified or other copies of such documents as
it or they may reasonably request.
(n) GRS shall have received written evidence, in form and substance
satisfactory to GRS, of the consent to the transactions contemplated by this
Agreement of all governmental, quasi-governmental and private third parties
(including, without limitation, persons or other entities leasing real or
personal property to the Company or any Subsidiary), except where the failure to
have obtained any such consent would not have an adverse effect on the Company
or GRS following the Closing.
(o) GRS shall be satisfied in its sole and absolute discretion with
GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(p) GRS shall have determined, in its reasonable discretion, that
all agreements between the Company or any Subsidiary, on the one hand, and the
Stockholders, shall be on terms as favorable to the Company or such Subsidiary
as the Company and such Subsidiary could have obtained pursuant to agreements
with unaffiliated third parties.
(q) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company and
the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
knowledge, and the other party or parties (or any of them) are not
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aware, that such representation or warranty is untrue or incorrect in any
material respect. All such representations, warranties, covenants and agreements
shall survive the execution and delivery of this Agreement and the Closing
hereunder, and, except as otherwise specifically provided in this Agreement and,
except for all representations and warranties of the Stockholders contained in
Article IV and except with respect to the Basket Exclusions (as defined in
Section 9.04 (which shall survive for a period of four years from the Closing
Date)), shall thereafter terminate and expire on the first anniversary of the
date hereof.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to the
limitations contained in Article VIII and Article IX hereof, the Stockholders,
jointly and severally, agree to indemnify, defend and hold harmless GRS (and its
Affiliates, successors and assigns and their respective officers and directors)
from and against all losses, liabilities, damages, deficiencies, costs or
expenses (including interest, penalties and reasonable attorneys' fees and
disbursements, but offset by any proceeds from insurance and taking into account
the present value of any tax savings to GRS or the Company resulting from such
losses, liabilities, damages, deficiencies, costs or expenses) ("Losses") based
upon, arising out of or otherwise in respect of (i) any inaccuracy in or any
breach of any representation, warranty, covenant or agreement of the Company or
the Stockholders contained in this Agreement, (ii) liabilities for Taxes and
(iii) any liability arising out of any subsequent adjustment by any tax
authorities with respect to items attributable to periods prior to the Closing
Date. Provided, however, that for purposes of this Article IX, liabilities for
Taxes shall not include liability for Taxes to the extent reflected as a
liability on the Company Balance Sheet or the Closing Date Unaudited Balance
Sheet; all of which shall be paid by the Company or GRS.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim or circumstances
which, with the lapse of time, would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be
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<PAGE> 18
unreasonably withheld. In any event, the Indemnitee and the Indemnifying Party
may participate, at their own expense, in the defense of such Asserted
Liability. If the Indemnifying Party chooses to defend the claim, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at its own
expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any such compromise or settlement consented to by
GRS, shall be borne and paid by the Stockholders. The parties agree to cooperate
fully with one another in the defense, compromise or settlement of any Asserted
Liability.
Section 9.04 Limitations on Indemnification. The indemnification provided
for in Sections 9.01 and 9.02 shall be subject to the following limitations:
(i) The Stockholders shall not be obligated to pay any
amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders shall be
obligated to pay any amounts for indemnification under this Article IX, except
those based upon, arising out of or otherwise in respect of Sections 3.02, 3.13,
3.21, 3.28, 5.22, 5.29, 9.01 (ii) and (iii), 11.01 and 11.02 and Article IV
hereof (the "Basket Exclusions"), until the aggregate indemnification payments,
exclusive of the Basket Exclusions, equals one percent (1%) of the Purchase
Price (the "Basket Amount"), whereupon GRS, or the Company and Stockholders, as
the case may be, shall be obligated to pay any indemnification payments,
including the Basket Amount, in full. It is expressly understood that the Basket
Amount shall serve as a "trigger" for indemnification and not as a "deductible"
(for example, if the indemnity claims for which GRS or the Stockholders would,
but for the provisions of this subparagraph (ii), be liable is in the aggregate
amount of $100,000, and 1% of the Purchase Price is $70,000, the Stockholders
would then be liable for the entire $100,000 and not just $30,000). This Section
9.04(ii) will not apply to any breach of any representations and warranties of
which any party had actual Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional breach by any party of
any covenant or obligation, and GRS or the Stockholders, as the case may be,
will be jointly and severally liable for all damages with respect to such
breaches.
(iii) GRS, the Company and Stockholders shall be obligated to
pay the Basket Exclusions without regard to the individual or aggregate amounts
thereof and without regard to whether the aggregate amount of all other
indemnification payments shall have exceeded, in the aggregate, the Basket
Amount.
(iv) (A) Notwithstanding anything to the contrary in this
Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, the
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<PAGE> 19
Stockholders shall not have any obligation to indemnify GRS (or its directors,
officers, affiliates, successors or assigns) for any breach of any
representation, warranty or covenant under this Agreement, for any liabilities
for Taxes, or for any liability arising out of any subsequent adjustment by any
tax authorities with respect to items attributable to periods prior to the
Closing Date, for any amount of Losses which cannot be satisfied out of the
Escrow Fund established under the Escrow Agreement and in accordance with the
procedures set forth in the Escrow Agreement; and the Stockholders shall have no
personal liability for such Losses beyond the GRS Common Stock held in the
Escrow Fund.
(B) Notwithstanding anything to the contrary in this
Agreement, except with respect to the representation and warranty of GRS set
forth in Section 5.29, GRS shall not have any obligation to indemnify the
Company or the Stockholders for any breach of any representation, warranty or
covenant under this Agreement for any amount of Losses in excess of the
Indemnity Cap. For purposes of this Agreement the "Indemnity Cap" shall mean the
lesser of $3,812,579 or an amount equal to the value of the GRS Common Stock
held in the Escrow Fund established under the Escrow Agreement valued in
accordance with the procedures set forth in the Escrow Agreement; and GRS shall
have no liability for such Losses beyond the Indemnity Cap.
(v) After the Closing, the indemnification rights set forth
in this Article IX shall be each party's sole and exclusive remedy against the
other party for any breach of any representation, warranty or covenant contained
in this Agreement, including but not limited to matters arising out of Section
9.01(ii) and (iii) hereof. Notwithstanding the foregoing, nothing herein shall
prevent any party from bringing an action based upon allegations of fraud in
connection with this Agreement. In the event an action based upon allegations of
fraud is brought, the prevailing party's attorneys' fees and costs shall be paid
by the nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses with respect
to accounts receivable reflected on the Closing Date Unaudited Balance Sheet
only if and to the extent that such accounts receivable, except for Contract
Retention, remain uncollected 180 days from the Closing Date. Contract Retention
will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses from the failure to collect accounts
receivable of the Company and such Losses result in a set-off from the Escrow
Fund, the related accounts receivable shall be assigned to the Stockholders
following, and to the extent of, such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to Section
9.04 and, paragraphs (b) and (c) of this Section 9.05, any valid claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
be first satisfied against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15) days'
notice (the "GRS Notice") of its intention to deduct or set-off any amounts
pursuant to this Section 9.05, including in such notice a description of GRS'
indemnification claim. If none of the Stockholders object in writing to such
deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
15
<PAGE> 20
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties, and
the parties shall endeavor jointly to agree on the text of any announcement or
circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each of
the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur, (i)
each Stockholder shall jointly and severally indemnify and hold harmless GRS and
the Company from and against any and all liability for any brokers or finders'
fees arising with respect to brokers or finders retained or engaged by the
Company or any of the Stockholders in respect of the transactions contemplated
by this Agreement, , and (ii) GRS shall indemnify and hold harmless the
Stockholders from and against any and all liability for
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<PAGE> 21
any brokers' or finders' fees arising with respect to brokers or finders
retained or engaged by GRS in respect of the transactions contemplated by this
Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence or
other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
<TABLE>
<S> <C>
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
---------------
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: To such Stockholder
c/o Herbert J. Kizer, III
Five-K Industries, Inc.
4990 Church Lane, SE
Smyrna, GA 30080
Telecopy No.:(404) 799-1437
With a copy to:
---------------
Neil C. Schemm, Esq.
Hendrick, Phillips, Schemm & Salzman
1800 Peachtree Center Tower
230 Peachtree Street, N.W.
Atlanta, GA 30303
Telecopy No.: (404) 522-1410
</TABLE>
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. Except as otherwise provided in this Section
11.04 the provisions of this Agreement and the documents delivered pursuant
hereto shall be governed by and construed in accordance with the laws of the
State of Florida (excluding any conflict of law rule or principle that would
refer to the laws of another jurisdiction). If a dispute arises out of or
relates to this Agreement,
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<PAGE> 22
or the breach thereof, and if said dispute cannot be settled through direct
discussions, the parties agree to first endeavor to settle the dispute in an
amicable manner by mediation administered by the American Arbitration
Association under its then prevailing Commercial Mediation Rules, before
resorting to arbitration. Thereafter, any unresolved controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by arbitration administered by the American Arbitration Association in
accordance with its then prevailing Commercial Arbitration Rules. The
enforcement, interpretation and procedural and substantive effect of the
obligation to arbitrate created by paragraph 19 of this Agreement shall be
governed by the Federal Arbitration Act as amended from time to time, 9 U.S.C.
Section Section 1 et seq. The parties hereby disclaim any intention to have the
substantive or procedural law of any state or other jurisdiction, other than the
law of the United States as embodied in the Federal Arbitration Act, applied to
such obligation.
Section 11.05 Representations and Warranties. Each of the representations
and warranties of each of the parties to this Agreement shall be deemed to have
been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this Agreement
are cumulative, and the use of any one right or remedy by any party hereto shall
not preclude or constitute a waiver of its right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights and
remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules referred to
herein are attached hereto and incorporated herein by this reference. Disclosure
of a specific item in any one schedule shall be deemed restricted only to the
Section to which such disclosure specifically relates except where (i) there is
an explicit cross-reference to another Schedule, and (ii) GRS could reasonably
be expected to ascertain the scope of the modification to a representation
intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used in
this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
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<PAGE> 23
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing for the
time period set forth in Section 8.01 hereof and shall be binding upon the party
or parties obligated thereby in accordance with the terms of this Agreement,
subject to any limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective meanings
ascribed to such terms in this Article XII, unless otherwise defined in this
Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect to
any person, any other Person controlling, controlled by or under common control
with such person. The term "Control" as used in the preceding sentence means,
with respect to a corporation, the right to exercise, directly or indirectly,
more than fifty percent (50%) of the voting rights attributable to the shares of
the controlled corporation and, with respect to any person other than a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements" shall
mean any or all of the following agreements, the forms of which are attached
hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement between for Herbert J. Kizer, III
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean, with
respect to the Company, all of the Properties, Company Contracts, and Permits,
that were Used by the Company as of the Balance Sheet Date and those Used by the
Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall mean
any amounts withheld by customers from contract progress billing until final and
satisfactory contract completion as determined by such customers.
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<PAGE> 24
Section 12.05 Current Assets. The term "Current Assets" shall mean, with
respect to the Company, cash and other assets that are expected to be converted
into cash, sold or exchanged within one year from the Closing Date, including
marketable securities, receivables, inventory and current prepayments .
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Damages. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation income and
other Taxes, interest, penalties and attorneys' and accountants' fees and
disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 Governmental Authorities. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.10 GAAP. The term "GAAP" shall mean generally accepted accounting
principles applied on a basis consistent with past practices (except for the
omission of footnotes in any interim financial statements).
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers with respect to the representation
being made, and such knowledge of any such persons as reasonably should have
obtained upon due investigation and inquiry into the representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
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<PAGE> 25
Section 12.14 Permits. The term "Permits" shall mean any and all permits or
orders under any Legal Requirement or otherwise granted by any Governmental
Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall mean
each Stockholder's respective percentage ownership interest in the Company as
set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By:/s/ Gregg Wallick
---------------------------
Gregg Wallick, President
FIVE K INDUSTRIES, INC.
By:/s/ Herbert J. Kizer, III
---------------------------
Herbert J. Kizer, III
President
STOCKHOLDER:
/s/ Herbert J. Kizer, III
------------------------------
Herbert J. Kizer, III
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<PAGE> 26
EXHIBIT A
<TABLE>
<S> <C> <C>
Number of Shares of Company Percentage (%)
Name Common Stock Purchased of Ownership
---- ---------------------- ------------
Herbert J. Kizer, III .......... 10 ............................ 100%
Total .................. 10 ............................ 100%
-- ----
</TABLE>
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EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company and each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of Georgia, and
is not required to be qualified to do business as a foreign corporation in any
other jurisdiction where the failure to so qualify would have a material adverse
effect on the Company. The Company and each Subsidiary has all required
corporate power and authority to own its Properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of the Company
and each Subsidiary, copies of which are attached as Schedule 3.01(a), are
complete and reflect all amendments thereto through the date hereof.
(b) The stock and minute books of the Company and each Subsidiary
that have been made available to GRS for review contain a complete and accurate
record of all stockholders of the Company and each Subsidiary and all material
actions of the stockholders and directors (and any committees thereof) taken at
meetings of stockholders or directors of the Company and each Subsidiary.
(c) The Company does not have any subsidiaries, participate in any
partnership or joint venture, except as disclosed in Schedule 3.12, or own any
outstanding capital stock of any other corporation other than Therell-Kizer
Roofing, Inc.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized capital stock
of the Company consists of 100,000 shares of Company Common Stock. The issued
and outstanding shares of Company Common Stock are owned of record and
beneficially by the Stockholders shown on Exhibit A hereof. All of the presently
outstanding shares of capital stock of the Company have been validly authorized
and issued and are fully paid and nonassessable. The Company has not issued any
other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, except as set forth on Schedule 3.02. Except as
contemplated under this Agreement, there are no agreements to which the Company
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock. Except for possible dividends to be
issued in connection with the Excluded Assets as described in Section 1.05 and
dividends related to the payment of the Stockholders' tax liabilities with
respect to earnings of the Company up to the Closing Date, each and all of which
shall be subject to the prior written approval of GRS, no dividends are accrued
but unpaid on any capital stock of the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set forth
in Schedule 3.04 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the Articles of Incorporation or bylaws of the Company or any
Subsidiary;
<PAGE> 28
(ii) violate any Legal Requirements applicable to the Company
or any Subsidiary;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to the Company or any Subsidiary;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of the Company or any
Subsidiary; or
(v) require any of the Stockholders or the Company or any
Subsidiary to obtain or make any waiver, consent, action, approval or
authorization of, or registration, declaration, notice or filing with, any
private non-governmental third party or any Governmental Authority. Any and all
consents required to be obtained by the Company or any Subsidiary as set forth
in Schedule 3.04 shall be obtained and copies thereof delivered to GRS upon
execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no suit,
action or other proceeding is pending or, to the Knowledge of the Company or the
Stockholders, threatened before any Governmental Authority seeking to restrain
any of the Stockholders or prohibit their entry into this Agreement or prohibit
the Closing, or seeking damages against the Company or any Subsidiary or their
Properties, as a result of the consummation of the transactions contemplated by
this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true and
correct copies of the Company's (i) Closing Date Unaudited Balance Sheet, (ii)
unaudited consolidated balance sheets as of March 31, 1998 (the "Company Balance
Sheet") and the related statements of income and stockholders' equity for the
twelve months ended March 31, 1998 (the "Company Financial Statements"), as well
as (iii) the Company's consolidated balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended March 31, 1997 (the "Company Financial Statements"). The Company Financial
Statements (i) have been prepared from the books and records of the Company,
(ii) present fairly the consolidated financial condition of the Company and its
results of operations as at and for the respective periods then ended, and (iii)
have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in Schedule
3.07, the Company Financial Statements reflect all consolidated liabilities of
the Company as determined in accordance with generally accepted accounting
principles arising out of transactions effected or events occurring on or prior
to the date of the Company Balance Sheet, except for liabilities not exceeding
$10,000 in the aggregate. All reserves shown in the Company Financial Statements
are appropriate and reasonable to provide for losses thereby contemplated.
Except as set forth in the Company Financial Statements (including the Notes
thereto), the Company is not liable upon or with respect to, or obligated in any
other way to provide funds in respect of or to guarantee or assume in any
manner, any debt, obligation or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in Schedule
3.08, the accounts receivable reflected on the Company Balance Sheet and all
accounts receivable arising between the date of the Balance Sheet (the "Interim
Balance Sheet Date") and the date hereof, arose from bona fide transactions in
the ordinary course of business, and the goods and services involved have been
sold, delivered and performed to the account of the obligors, and no further
filings (with Governmental Authorities, insurers or others) are required to be
made, no further goods are required to be provided and no further services are
required to be rendered in order to complete the sales and fully render the
services and to entitle the Company or any Subsidiary to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully
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reserved against as set forth in the Company Balance Sheet, no defense or setoff
to any such account has been asserted by the account obligor.
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of the Company and
each Subsidiary, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $50,000 per year (including any
reasonably anticipated bonus) or who earned in excess of $50,000 during the
Company's fiscal year ended December 31, 1997 (collectively, the "Company Key
Employees"). In addition, Schedule 3.09(a) contains a complete and accurate
description of (i) all increases in compensation of the Company Key Employees
during the fiscal years of the Company ending December 31, 1997 and 1996,
respectively, and (ii) any promised increases in compensation of the Company Key
Employees that have not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of all
Compensation Plans sponsored by the Company and each Subsidiary or to which the
Company and each Subsidiary contributes on behalf of its employees, other than
Employee Benefit Plans listed in Schedule 3.10. As used herein, "Compensation
Plans" shall mean and include, without limitation, plans, arrangements or
practices that provide for severance pay, deferred compensation, incentive,
bonus or performance awards, and stock ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 3.09(c) and in Section 3.09(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which the Company or any Subsidiary is a party and which are in
writing.
(d) The Company has provided GRS with a complete and accurate list
of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company (i) has been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. Neither the Company nor any
Subsidiary has engaged in any unfair labor practice or discriminated on the
basis of race, color, religion, sex, national origin, age or handicap in its
employment conditions or practices. To the Knowledge of the Company, there are
no (i) material unfair labor practice charges or complaints or racial, color,
religious, sex, national origin, race or handicap discrimination charges or
complaints pending or threatened against the Company or any Subsidiary before
the National Labor Relations Board or any similar state or foreign commission or
agency or (ii) existing or threatened material labor strikes, disputes,
grievances, controversies or other labor troubles affecting the Company or any
Subsidiary.
(g) Except as set forth on Schedule 3.09(g), (i) neither the
Company nor any Subsidiary has ever been a party to any agreement with any
union, labor organization or collective bargaining unit, (ii) no employees of
the Company or any Subsidiary are represented by any union, labor organization
or collective bargaining unit and, (iii) no employees of the Company or any
Subsidiary have threatened to organize or join a union, labor organization or
collective bargaining unit.
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<PAGE> 30
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or any Subsidiary or to which
the Company or any Subsidiary contributes on behalf of its employees and all
Employee Benefit Plans previously sponsored or contributed to on behalf of its
employees within the three years preceding the date hereof. No unwritten
amendment exists with respect to any Employee Benefit Plan. For purposes of this
Agreement an "Employee Benefit Plan" means each employee benefit plan, as such
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and maintained
in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company or
any Subsidiary. No Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency. No prohibited transactions (within the meaning of
Section 4975 of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder (the "Code")) have occurred with respect to
any Employee Benefit Plan. No pending or, to the Knowledge of the Company,
threatened, claims, suits or other proceedings exist with respect to any
Employee Benefit Plan other than normal benefit claims filed by participants or
beneficiaries.
(c) The Company has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of the
Company, have been threatened that could result in the revocation of any such
favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company, any Subsidiary nor
any member of a Controlled Group has any liability to pay excise taxes with
respect to any Employee Benefit Plan under applicable provisions of the Code or
ERISA. Except as described on Schedule 3.10(d), neither the Company, any
Subsidiary nor any member of a Controlled Group is or ever has been obligated to
contribute to a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) Except as described on Schedule 3.10(f), neither the Company
nor any Subsidiary has any obligation or commitment to provide medical, dental
or life insurance benefits to or on behalf of any of its employees who may
retire or any of its former employees who have retired from employment with the
Company or any Subsidiary.
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<PAGE> 31
Section 3.11 Absence of Certain Changes. Except as set forth in Schedule
3.11, from March 31, 1998 (the "Company Balance Sheet Date") to the date of this
Agreement, neither the Company nor any Subsidiary has:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of the Company, or any Stockholder, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a cost
in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities, except in the ordinary course of business consistent with
past practice;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its Properties or Company Assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any Company
Assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05 hereof;
(i) written up or written down the carrying value of any of the
Company Assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices followed
or changed the costing system or depreciation methods of accounting for the
Company Assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
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<PAGE> 32
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity except as permitted by
Section 1.05;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of the Company's capital stock except as
permitted by Section 1.05;
(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which the
Company or any Subsidiary is a party (the "Company Contracts") set forth in
Schedule 3.12, neither the Company nor any Subsidiary has entered into, nor is
the capital stock, the assets or the business of the Company or any Subsidiary
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in
the ordinary course of business;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company, any Subsidiary and any
Affiliate;
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(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company or any Subsidiary;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23 hereof; or
(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of the Company or any Subsidiary.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not received
notice of any plan or intention of any other party to any Company Contract to
exercise any right to cancel or terminate any Company Contract. The Company does
not currently contemplate, and has no reason to believe any person or entity
currently contemplates, any amendment or change to any Company Contract. None of
the customers, joint venture partners or suppliers of the Company has refused,
or communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will maintain
through the Closing Date, comprehensive insurance coverage with respect to all
completed operations of the Company and each Subsidiary. The Company has
previously made available to GRS all insurance policies of the Company. All of
such policies are valid and enforceable against the Company, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity).
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Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) The Company owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 3.14(a) is a
true and correct description of all Proprietary Rights.
(b) The Company and each Subsidiary has the sole and exclusive
right to use the Proprietary Rights without infringing or violating the rights
of any third parties and, upon the consummation of the Stock Purchase, GRS will
have the right to use all Proprietary Rights without any obligation to pay any
additional amounts whatsoever. Use of the Proprietary Rights does not require
the consent of any other person and the Proprietary Rights are freely
transferable. No claim has been asserted by any person to the ownership of or
right to use any Proprietary Right or challenging or questioning the validity or
effectiveness of any license or agreement constituting a part of any Proprietary
Right. Each of the Proprietary Rights is valid and subsisting, has not been
canceled, abandoned or otherwise terminated and, if applicable, has been duly
issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by the
Company and each Subsidiary is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company and each
Subsidiary has good and marketable title to the Company Assets, including,
without limitation, those reflected on the Company Balance Sheet (other than
those since disposed of in the ordinary course of business), free and clear of
all security interests, liens, charges and other encumbrances, except for (i)
liens for taxes not yet due and payable or being contested in good faith in
appropriate proceedings, and (ii) encumbrances that are incidental to the
conduct of its businesses or ownership of property, not incurred in connection
with the borrowing of money or the obtaining of credit, and which do not in the
aggregate materially detract from the value of the assets affected or materially
impair their use by the Company or any Subsidiary. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company or any Subsidiary are in operating condition and repair, normal wear and
tear excepted, are adequate and sufficient for the Company's and each
Subsidiary's business and conform in all material respects with all applicable
ordinances, regulations and laws relating to their use and operation.
(c) A listing of all real property leases, their terms and total
lease payments is attached hereto as Schedule 3.15(c). The Company and each
Subsidiary enjoys peaceful and undisturbed possession under all real property
leases under which the Company and each Subsidiary is operating, and all such
leases are valid and subsisting and none of them is in default, except for those
defaults which, individually or in the aggregate, would not have a material
adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company and each Subsidiary has all
material franchises, Permits, licenses and other rights and privileges necessary
to permit it to own its properties and to conduct its businesses as presently
conducted. The business and operations of the Company and each Subsidiary have
been and are being conducted in accordance in all material respects with all
applicable laws, rules and regulations, and neither the Company or any
Subsidiary is in violation of any judgment, law or regulation except where any
such violation would not have a material adverse effect on the Company's
consolidated results of operations, business, assets or financial condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in
Schedule 3.17, there are no claims, actions, suits, investigations or
proceedings against the Company or any Subsidiary pending or, to the Knowledge
of the Company or any Subsidiary, threatened in any court or before or by any
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<PAGE> 35
Governmental Authority, or before any arbitrator, that could reasonably be
expected to have a materialadverse effect (whether covered by insurance or not)
on the business, operations, prospects, Properties, securities or financial
condition of the Company or any Subsidiary. Except as otherwise set forth in
Schedule 3.17, neither the Company or any Subsidiary is in default under, and no
condition exists (whether covered by insurance or not) that with or without
notice or lapse of time or both would (i) constitute a default under, or breach
or violation of, any Company Contract of the Company and each Subsidiary or any
Legal Requirement or Permit applicable to the Company or any Subsidiary, or (ii)
accelerate or permit the acceleration of the performance required under, or give
any other party the right to terminate, any Company Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition (a "Material Adverse Effect") of the Company or any
Subsidiary.
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of the
Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the business of the Company
and each Subsidiary (the "Company Business") is or was, or at which the business
or, to the Knowledge of the Company, its predecessors was, located which would
have a Material Adverse Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which Company Business is or was, or, to knowledge of the Company, at which the
business of its predecessors was, located which would have a Material Adverse
Effect on the Company. With respect to underground storage tanks, Schedule
3.18(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of the
Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of the Company, threat of a "release" of any Hazardous Substance
on, from or under any premises from which (i) the Company's operations have been
or are being conducted related to the Company Business. or (ii) to the Knowledge
of the Company, the operations of any predecessor of the Company or any
Subsidiary which would have a Material Adverse Effect on the Company or any
Subsidiary.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company or any
Subsidiary with Environmental Law, or with any order, decree, judgment,
injunction, notice or demand issued, entered, promulgated or approved
thereunder, or which may give rise to any liability under applicable law
including, without limitation, any Environmental Law, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, notice of
violation, study or investigation, based on or related to the manufacture,
process, distribution, use, treatment, storage, disposal, transport or handling,
or the emission, discharge, release or threatened release into the environment
of Hazardous Substances by the Company or, to the Knowledge of the Company, by
any predecessor of the Company, as a result of any act or omission of the
Company or any Subsidiary or predecessors related to the Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the Company's
and, to the Knowledge of the Company, its predecessor's, Hazardous Substances
disposal and recycling practices
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related to the Company Business have been accomplished in material compliance
with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall not
be interpreted to imply that GRS has constructive knowledge regarding any aspect
of the Company Business with respect to environmental matters nor to limit the
scope of any of the Company's or any Stockholders' representations under this
Agreement. No such due diligence examination or related activities of, or on
behalf of, GRS however, shall constitute a waiver or relinquishment by GRS of
its right to rely upon the Company's or any Stockholders' representations,
warranties, covenants and agreements as made herein or pursuant hereto, and no
such disclosure shall constitute an assumption by GRS of any conditions or
liabilities, and such disclosure shall not relieve the Company or any
Stockholder of its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company or any Subsidiary has an account, credit line or safe deposit
box or vault, (ii) the names of all persons authorized to draw thereon or to
have access to any safe deposit box or vault, (iii) the purpose of each such
account, safe deposit box or vault, and (iv) the names of all persons authorized
by proxies, powers of attorney or other like instrument to act on behalf of the
Company or any Subsidiary in matters concerning any of its business or affairs.
Except as otherwise set forth in Schedule 3.19, no such proxies, powers of
attorney or other like instruments are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth all
the Company's and each Subsidiary's material suppliers, together with the dollar
amount of goods purchased by the Company from each such supplier during the
twelve month period ended March 31, 1998, as well as each of the principal
customers of the Company and each Subsidiary. Except as otherwise set forth in
Schedule 3.20, since December 31, 1997, there has been no material adverse
change in the business relationship of the Company or any Subsidiary with any
supplier or customer named in Schedule 3.20. No customer or supplier named in
Schedule 3.20 has terminated or materially altered, or notified the Company or
any Subsidiary of any intention to terminate or materially alter, its
relationship with the Company, and the Company has no reason to believe that any
such customer or supplier will terminate or materially alter its relationship
with the Company or any Subsidiary or to materially decrease its services or
supplies to the Company or any Subsidiary or its direct or indirect usage of the
services of the Company or any Subsidiary. For purposes of Sections 3.20 and
3.23, "material suppliers" refers to suppliers from whom the Company purchased
five percent (5%) or more of the total amount of the goods purchased by the
Company or any Subsidiary during the twelve month period ended March 31, 1998,
and "principal customers" refers to customers who accounted for 5% or more of
the Company's total consolidated revenues during the twelve month period ended
March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company, any Subsidiary or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by the Company, any Subsidiary or the Stockholders to GRS or its
counsel, do not contain any untrue statement of material fact or omit any
material fact necessary in order to make the statements therein not misleading;
provided, however, certain materials provided to GRS contain projections and
estimates of future events, and such projections and estimates have been based
upon certain assumptions that management of the Company made in good faith and
believed are reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set forth
in Schedule 3.23, no director or executive officer of the Company or any
Subsidiary or their respective spouses or children, owns directly or indirectly,
on an individual or joint basis, any material interest in, or serves as an
officer or director of, any principal customer or material supplier which has a
business relationship with the
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Company or any Subsidiary or any organization that has a material contract or
arrangement with the Company or any Subsidiary.
Section 3.24 Investments in Competitors. No director or executive officer
of the Company or any Subsidiary owns directly or indirectly any material
interest or has any investment equal to 5% or more of the outstanding voting
securities in any corporation, business or other person that is a direct
competitor of the Company or any Subsidiary.
Section 3.25 Certain Payments. Neither the Company or any Subsidiary, nor
any director, officer or employee of the Company or any Subsidiary, has paid or
caused to be paid, directly or indirectly, in connection with the business of
the Company: (a) to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or (b) any
material contribution to any political party or candidate (other than from
personal funds of directors, officers or employees not reimbursed by their
respective employers or as otherwise permitted by applicable law).
Section 3.26 Government Inquiries. Except as set forth on Schedule 3.26,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company or any Subsidiary
from, or any material statement, report or other document filed by the Company
or any Subsidiary with, the federal government or any federal administrative
agency (including but not limited to, the Justice Department, Internal Revenue
Service, Department of Labor, Occupational Safety and Health Administration,
Federal Trade Commission, National Labor Relations Board, and Interstate
Commerce Commission), any state securities administrator or any local or state
taxing authority.
Section 3.27 Other Transactions. Neither the Company or any Subsidiary has
entered into any agreements or arrangements and there are no pending offers or
discussions concerning or providing for the merger or consolidation of the
Company or all or any substantial portion of its assets, the sale by the Company
or any Subsidiary or any Stockholder of any securities of the Company or any
Subsidiary or any similar transaction affecting the Company or any Subsidiary or
the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company and each Subsidiary has timely filed all
federal income Tax Returns, and all other material Tax Returns which it is
required to file under applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in all
material respects;
(iii) the Company and each Subsidiary has paid all Taxes due
and owing by it (whether or not such Taxes are required to be shown on a Tax
Return) and has withheld and paid over to the appropriate taxing authority all
Taxes which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third party, except where the amounts
of such unpaid Taxes or the amounts that have not been withheld and paid over do
not, in the aggregate, exceed $25,000;
(iv) the accrual for Taxes on the Closing Date Unaudited
Balance Sheet is sufficient to pay in full all liabilities for Taxes of the
Company and each Subsidiary related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company have been
filed through March 31, 1997, and, as of the date hereof, none of such Tax
Returns has been audited; and
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<PAGE> 38
(vi) the Company and each Subsidiary has disclosed in its
federal income Tax Returns, or has substantial authority for, all positions
taken therein that could give rise to a substantial understatement of federal
income tax within the meaning of IRC Section 6662.
(b) To the Knowledge of the Company, no claim has been made by a
taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company and each Subsidiary is or may be subject to taxation by that
jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local Tax
audits or administrative or judicial proceedings pending or being conducted with
respect to the Company or any Subsidiary;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company or any Subsidiary from any foreign, federal, state or
local taxing authority; and
(iii) there are no material unresolved claims concerning the
Company's or any Subsidiary's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company or any Subsidiary, except where such waiver would not have
a material adverse effect on the Company or any Subsidiary.
(e) Neither the Company nor any Subsidiary has executed or entered
into a closing agreement pursuant to IRC Section 7121 or any predecessor
provision thereof or any similar provision of state, local or foreign law; nor
has the Company agreed to or is required to make any adjustments pursuant to IRC
Section 481(a) or any similar provision of state, local or foreign law by reason
of a change in accounting method initiated by the Company or any Subsidiary. The
Company has no knowledge that the IRS has proposed any such adjustment or change
in accounting method, or has any knowledge with respect to any application
pending with any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of the Company.
(f) Neither the Company nor any Subsidiary has made an election
under IRC Section 341(f).
(g) Neither the Company nor any Subsidiary is liable for the Taxes
of another person.
(h) Neither the Company nor any Subsidiary is a party to any Tax
sharing agreement.
(l) Neither the Company nor any Subsidiary has made any payments
nor is it obligated to make payments nor is it a party to an agreement that
could obligate it to make any payments that would not be deductible under IRC
Section 280G.
(m) The following provisions shall govern the allocation of
responsibility as between GRS and the Company for certain tax matters following
the Closing Date:
(i) Tax Periods Ending on or Before the Closing Date. The
Company shall prepare or cause to be prepared and file or cause to be filed all
federal and state income Tax Returns for the Company and its Subsidiaries, if
any, for tax periods ending on or prior to the Closing Date which are filed
after the Closing Date. The Company shall permit GRS to review, comment and
approve each such Tax Return described in the preceding sentence prior to
filing.
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<PAGE> 39
(n) GRS, the Company and its Subsidiaries, if any, and the Stockholders
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this Section
3.28 and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding an making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder.
(o) All transfer, documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) imposed upon the
Stockholders by the United States, the State of Georgia, or other local taxing
authority within the State of Georgia in connection with this Agreement, shall
be paid by Stockholders when due, and the Stockholders will, at their own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, GRS will, and will cause its
Affiliates to join in the execution of any such Tax Returns and other
documentation.
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<PAGE> 40
EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such Stockholder
shall own beneficially and of record, free and clear of any lien, option or
other encumbrance, the shares of Company Common Stock set forth opposite such
Stockholders' name on Exhibit A hereof, and, upon consummation of the Stock
Purchase, GRS will acquire good and valid title thereto, free and clear of any
lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such Stockholder
has the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement and to perform fully such
Stockholders' obligations hereunder. This Agreement has been duly executed and
delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common Stock to
be issued to it pursuant to the Stock Purchase (the "GRS Shares") for its own
account and not on behalf of any other person; such Stockholder is aware and
acknowledges that the GRS Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be offered or sold
unless the GRS Shares are registered under the Securities Act or an exemption
from the registration requirements of the Securities Act is available;
<PAGE> 41
(b) Such Stockholder has been furnished all information that it
deems necessary to enable it to evaluate the merits and risks of an investment
in GRS; such Stockholder has had a reasonable opportunity to ask questions of
and receive answers from GRS concerning GRS and the GRS Shares, and all such
questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i) any
rights in and to the GRS Shares, which rights were obtained through or from such
Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in financial
and business matters (including knowledge and expertise in the roofing industry)
that it is capable of evaluating the merits and risks involved in an investment
in the GRS Shares: and such Stockholder is financially able to bear the economic
risk of the investment in the GRS Shares, including a total loss of such
investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal or
state agency has made any finding of determination regarding the fairness of the
offering of the GRS Shares for investment, or any recommendation or endorsement
of the offering of the GRS Shares;
(h) Except as permitted by the Lock-Up Agreement, such Stockholder
is acquiring the GRS Shares for investment, with no present intention of
dividing or allowing others to participate in such investment or of reselling,
or otherwise participating, directly or indirectly, in a distribution of the GRS
Shares, and shall not make any sale, transfer or pledge thereof without
registration under the Securities Act and any applicable securities laws of any
state or unless an exemption from registration is available;
(i) Except as set forth herein, no representations or warranties
have been made to such Stockholder by GRS or any agent, employee or Affiliate of
GRS, and in entering into this transaction such Stockholder is not relying upon
any information, other than from the results of independent investigation by
such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Except as permitted by the Lock-Up Agreement, such Stockholder
will not sell, assign or transfer any of the GRS Shares except (i) pursuant to
an effective registration statement under the Securities Act, (ii) in a
transaction which, in the opinion of the general counsel of GRS or other counsel
reasonably satisfactory to GRS, is not required to be registered under the
Securities Act.
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EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate Documents.
(a) GRS is a corporation duly organized, validly existing and in
good standing under the laws of Florida, and is not required to be qualified to
do business as a foreign corporation in any other jurisdiction where the failure
to so qualify would have a material adverse effect on GRS. GRS has all required
corporate power and authority to own its properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of GRS, copies
of which are attached as Schedule 5.01(a), are complete and reflect all
amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made available
to the Stockholder for review contain a complete and accurate record of all
stockholders of GRS, and all material actions of the stockholders and directors
(and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized capital
stock of GRS consists of 100,000,000 shares of which 90,000,000 have been
designated as GRS Common Stock and 10,000,000 have been designated as Preferred
Stock. All of the presently outstanding shares of capital stock of GRS have been
validly authorized and issued and are fully paid and nonassessable. Except as
set forth on Schedule 5.03, GRS has not issued any other shares of its capital
stock and there are no outstanding options, warrants, subscriptions or other
rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights affecting
the issuance or sale of the capital stock of GRS.
<PAGE> 43
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions
or provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver, consent,
action, approval or authorization of, or registration, declaration, notice or
filing with, any private non-governmental third party or any Governmental
Authority. Any and all consents required to be obtained by GRS as set forth in
Schedule 5.05 shall be obtained and copies thereof delivered to the Company and
the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no suit,
action or other proceeding is pending or, to the Knowledge of GRS, threatened
before any Governmental Authority seeking to restrain GRS or prohibit its entry
into this Agreement or prohibit the Closing, or seeking damages against GRS or
its Properties, as a result of the consummation of the transaction contemplated
by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in Schedule
5.08, GRS' balance sheet at October 31, 1997 and 1996 (the "GRS Balance Sheets")
and the related statements of income, stockholders' equity and cash flow for the
fiscal years ended October 31, 1997, 1996 and 1995 (the "GRS Financial
Statements") reflect all liabilities of GRS as determined in accordance with
generally accepted accounting principles arising out of transactions effected or
events occurring on or prior to the date of the GRS Balance Sheet, except for
liabilities not exceeding $10,000 in the aggregate. All reserves shown in the
GRS Financial Statements are appropriate and reasonable to provide for losses
thereby contemplated. Except as set forth in the GRS Financial Statements, GRS
is not liable upon or with respect to, or obligated in any other way to provide
funds in respect of or to guarantee or assume in any manner, any debt,
obligation or dividend of any person, corporation, association, partnership,
joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in Schedule
5.09, the accounts receivable reflected on the GRS Balance Sheet and all
accounts receivable arising between December 31, 1997 and the date hereof, arose
from bona fide transactions in the ordinary course of business, and the goods
and services involved have been sold, delivered and performed to the account of
the obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle GRS to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim GRS Balance Sheet, no defense or setoff to
any such account has been asserted by the account obligor.
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Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of GRS, regardless of
compensation levels, and other employees who are currently compensated at a rate
in excess of $50,000 per year (including any reasonably anticipated bonus) or
who earned in excess of $50,000 during GRS' fiscal year ended October 31, 1996
(collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a) contains
a complete and accurate description of (i) all increases in compensation of the
GRS Key Employees during the fiscal years of GRS ending October 31, 1997 and
October 31, 1996, respectively, and (ii) any promised increases in compensation
of the GRS Key Employees of GRS that have not yet been effected.
(b) Schedule 5.10(b) contains a complete and accurate list of all
Compensation Plans sponsored by GRS or to which GRS contributes on behalf of its
employees, other than Employee Benefit Plans listed in Schedule 5.11. As used in
this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 5.10 and in Section 5.10(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans, Employment Agreements or employee policies
and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any union,
labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key Employee
has indicated his or her desire or intent to terminate employment with GRS, and
GRS has no present intent of terminating the employment of any GRS Key Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
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<PAGE> 45
Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment exists
with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and maintained
in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or ruling
from the Internal Revenue Service for each Employee Benefit Plan intended to be
qualified within the meaning of Section 401 (a) of the Code and/or tax exempt
within the meaning of Section 501(a) of the Code, which letter or ruling is
current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical, dental
or life insurance benefits to or on behalf of any of its employees who may
retire or any of its former employees who have retired from employment with GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in Schedule
5.12, from the date of the GRS Balance Sheet to the date of this Agreement, GRS
has not:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of GRS or any stockholder of GRS, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a cost
in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities, except in the ordinary course of business consistent with
past practice;
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<PAGE> 46
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets, except in
the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of its
assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of its
assets, except in the ordinary course of business consistent with past practice;
(j) changed any accounting principles methods or practices followed
or changed the costing system or depreciation methods of accounting for its
assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or its assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights paid any dividends or made
any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
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Section 5.13 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which GRS is a
party (the "GRS Contracts") set forth in Schedule 5.13, GRS has not entered
into, nor is the capital stock, the assets or the business of GRS bound by,
whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in
the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24; or
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<PAGE> 48
(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and
true, correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice of
any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has no reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available to
the Stockholders all insurance policies of GRS. All of such policies are valid
and enforceable against GRS, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and copyrights
(collectively "Proprietary Rights"), if any, necessary to conduct its business,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Schedule 5.15(a) is a true and
correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the Proprietary
Rights without infringing or violating the rights of any third parties. Use of
the Proprietary Rights does not require the consent of any other person and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or right to use any Proprietary Right or challenging
or questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right. Each of the Proprietary Rights is
valid and subsisting, has not been canceled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by GRS is
set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the
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<PAGE> 49
ordinary course of business), free and clear of all security interests, liens,
charges and other encumbrances, except for (i) liens for taxes not yet due and
payable or being contested in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of its businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and total
lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful and
undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in Schedule
5.18, there are no claims, actions, suits, investigations or proceedings against
GRS pending or, to the Knowledge of GRS, threatened in any court or before or by
any Governmental Authority, or before any arbitrator, that could reasonably be
expected to have a material adverse effect (whether covered by insurance or not)
on the business, operations, prospects, Properties, securities or financial
condition of GRS. Except as otherwise set forth in Schedule 5.18, GRS is not in
default under, and no condition exists (whether covered by insurance or not)
that with or without notice or lapse of time or both would (i) constitute a
default under, or breach or violation of, any Legal Requirement, or Permit
applicable to GRS or any GRS Contract applicable to GRS, or (ii) accelerate or
permit the acceleration of the performance required under, or give any other
party the right to terminate, any GRS Contract, other than defaults, breaches,
violations or accelerations that would not have a material adverse effect on the
business, operations, prospects, Properties, securities or financial condition
of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of GRS,
there are no PCBs, TCE, PCE, or asbestos containing materials generated, used,
treated, stored, maintained, disposed of, or otherwise deposited in, or located
on any premises at which GRS' business (the "GRS Business") is or was, or at
which the business or, to the Knowledge of GRS, its predecessors was, located,
which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which the GRS Business is or was, or, to knowledge of GRS, at which the business
of its predecessors was, located, which would have a Material Adverse Effect on
GRS. With respect to underground storage tanks, Schedule 5.19(b) sets forth the
size, location, construction, installation date, use and testing history of all
underground storage tanks (whether or not excluded from regulation under
Environmental Law), including all underground storage tanks in use, out of
service, closed, abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of GRS,
there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the best
knowledge of GRS, threat of a "release" of
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<PAGE> 50
any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor their
respective predecessors have received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and, to
the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth all of
GRS' material suppliers, together with the dollar amount of goods purchased by
GRS from each such supplier during the twelve month period ended December 31,
1997 and the four month period ended April 30, 1998, as well as each of the
principal customers of GRS. Except as otherwise set forth in Schedule 5.21,
since December 31, 1997, there has been no material adverse change in the
business relationship of GRS with any supplier or customer named in Schedule
5.21. No customer or supplier named in Schedule 5.21 has terminated or
materially altered, or notified GRS of any intention to terminate or materially
alter, its relationship with GRS and GRS has no reason to believe that any such
customer or supplier will terminate or materially alter its relationship with
GRS or to materially decrease its services or supplies to GRS or its direct or
indirect usage of the services or products of GRS. For purposes of Sections 5.21
and 5.24 "material suppliers" refers to suppliers from whom GRS purchased five
percent (5%) or more of the total amount of the goods purchased by GRS during
the twelve month period ended December 31, 1997 and the four month period ended
April 31, 1998, and "principal customers" refers to customers who accounted
9
<PAGE> 51
for 5% or more of GRS' revenues during the twelve month period ended December
31, 1997 and the four month period ended March 31, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by GRS to the Stockholders or their counsel, do not contain any untrue
statement of material fact or omit any material fact necessary in order to make
the statements therein not misleading; provided, however, certain materials
provided to the Stockholders contain projections and estimates of future events,
and such projections and estimates have been based upon certain assumptions that
management of GRS made in good faith and believed are reasonable at the time
such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set forth
in Schedule 5.24, no director or executive officer of GRS or their respective
spouses or children, owns directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
principal customer or material supplier which has a business relationship with
GRS or any organization that has a material contract or arrangement with GRS.
Section 5.25 Investments in Competitors. No director or executive officer
of GRS owns directly or indirectly any material interests or has any investment
equal to 5% or more of the outstanding voting securities in any corporation,
business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer or
employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule 5.27,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and all other
material Tax Returns which it is required to file under applicable laws and
regulations;
(ii) all such Tax Returns are true and accurate in all
material respects;
(iii) has paid all Taxes due and owing by it (whether or not
such Taxes are required to be shown on a Tax Return) and has withheld and paid
over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
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(iv) the accrual for Taxes on the Unaudited GRS Balance
Sheet (excluding any amount recorded which is attributable to timing differences
between book and Tax income) would be adequate to pay all material Tax
liabilities of GRS if its current tax year were treated as ending on the date of
the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been filed
through the date hereof, and, as of the date hereof, none of such Tax Returns
has been audited.
(b) To the Knowledge of GRS, no claim has been made by a taxing
authority in a jurisdiction where GRS does not file Tax Returns that GRS is or
may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being conducted with
respect to GRS;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by GRS from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning GRS'
Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC Section 481(a) or any similar provision
of state, local or foreign law by reason of a change in accounting method
initiated by GRS. GRS has no knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any knowledge with respect to
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC Section 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(l) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC Section 280G.
Section 5.29 Participation in Secondary Offering. In the event that after
the Offering GRS files a registration statement with the Securities and Exchange
Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such
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number of shares of GRS Common Stock owned by the Stockholders as shall equal
(i)(A) the total number of shares of GRS Common Stock owned by such Stockholders
divided by (B) the total number of shares of GRS Common Stock owned by all
shareholders of the Founding Companies, multiplied by (ii)the total number of
shares of GRS Common Stock owned by shareholders of the Company which are to be
included in the Secondary Offering.
12
<PAGE> 1
EXHIBIT 2.8
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
ADVANCED ROOFING, INC.
AND
ALL OF THE STOCKHOLDERS
OF
ADVANCED ROOFING, INC.
----------------------------
MAY 20, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................4
1.01 Sale and Purchase of Company Common Stock................................................................4
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Purchase Price Adjustment................................................................................3
1.05 Excluded Assets..........................................................................................4
1.06 Stockholders' Representative.............................................................................4
ARTICLE II - CLOSING..............................................................................................5
2.01 Closing..................................................................................................5
2.02 Deliveries by Stockholders to GRS........................................................................5
2.03 Deliveries by GRS........................................................................................5
2.04 Termination in Absence of Closing........................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS..................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS.................................................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................7
6.01 GRS' Access to Information and Assets....................................................................7
6.02 Company's Conduct of Business and Operations.............................................................7
6.03 General Restrictions.....................................................................................8
6.04 Notice Regarding Changes.................................................................................9
6.05 Consents and Best Efforts................................................................................9
6.06 Casualty Loss...........................................................................................10
6.07 Employee Matters........................................................................................10
6.08 No Solicitation.........................................................................................10
6.09 Employment Agreement....................................................................................10
6.10 Lock-Up Agreement.......................................................................................10
6.11 Non-Competition Agreement...............................................................................10
6.12 Included Assets.........................................................................................10
6.13 Real Estate Lease.......................................................................................11
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................11
7.01 Conditions to Obligations of All Parties................................................................11
7.02 Conditions to Obligations of Stockholders...............................................................11
7.03 Conditions to Obligations of GRS........................................................................12
ARTICLE VIII - SURVIVAL..........................................................................................14
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................14
ARTICLE IX - INDEMNIFICATION.....................................................................................14
9.01 Obligation of the Stockholders to Indemnify.............................................................14
9.02 Obligation of GRS to Indemnify..........................................................................14
9.03 Notice and Opportunity to Defend........................................................................14
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
9.04 Limitations on Indemnification..........................................................................15
9.05 Set-Off Rights..........................................................................................16
ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................16
10.01 Further Assurances......................................................................................16
10.02 Publicity...............................................................................................17
10.03 Access to Records.......................................................................................17
10.04 Airplane................................................................................................17
ARTICLE XI - MISCELLANEOUS.......................................................................................17
11.01 Brokers.................................................................................................17
11.02 Costs and Expenses......................................................................................17
11.03 Notices.................................................................................................17
11.04 Governing Law...........................................................................................18
11.05 Representations and Warranties..........................................................................18
11.06 Entire Agreement, Amendments and Waivers................................................................19
11.07 Binding Effect and Assignment...........................................................................19
11.08 Remedies................................................................................................19
11.09 Exhibits and Schedules..................................................................................19
11.10 Multiple Counterparts...................................................................................19
11.11 References..............................................................................................19
11.12 Survival................................................................................................19
11.13 Attorneys' Fees.........................................................................................19
11.14 Disclosures.............................................................................................20
11.15 Recharacterization of Loans.............................................................................20
ARTICLE XII - DEFINITIONS........................................................................................20
12.01 Affiliate...............................................................................................20
12.02 Collateral Agreements...................................................................................20
12.03 Company Assets..........................................................................................20
12.04 Contract Retention......................................................................................20
12.05 Current Assets..........................................................................................20
12.06 Current Liabilities.....................................................................................21
12.07 Damages.................................................................................................21
12.08 Environmental Law.......................................................................................21
12.09 GAAP....................................................................................................21
12.10 Governmental Authorities................................................................................21
12.11 Hazardous Substances....................................................................................21
12.12 Knowledge...............................................................................................21
12.13 Legal Requirements......................................................................................21
12.14 Permits.................................................................................................22
12.15 Properties..............................................................................................22
12.16 Proportionate Share.....................................................................................22
12.17 Regulations.............................................................................................22
12.18 Taxes...................................................................................................22
12.19 Tax Returns.............................................................................................22
12.20 Used....................................................................................................22
12.21 Deferred Income Taxes...................................................................................22
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for Robert Kornahrens
Exhibit H - Noncompetition Agreement for Deborah Kornahrens
Exhibit I - Real Estate Lease
Exhibit J - Opinion of Baker & McKenzie
Exhibit K - Opinion of Tripp, Scott, Conklin & Smith
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 20, 1998, by and among (i) General Roofing Services,
Inc., a Florida corporation (the "Buyer" or "GRS"),(ii) Advanced Roofing, Inc.,
a Florida corporation (the "Company"), and (iii) all of the stockholders of the
Company (the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS purchase
all of the issued and outstanding capital stock of the Company, consisting of 90
shares (the "Shares") of common stock, $1.00 par value ("Company Common Stock"),
upon the terms and subject to the conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange within
the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01 Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase, acquire
and accept from each Stockholder, the number of shares of Company Common Stock
set forth opposite the name of each such Stockholder on Exhibit A hereto under
the heading "Number of Shares of Company Common Stock Purchased," collectively
constituting all of the issued and outstanding shares of Company Common Stock.
The sale and purchase of the Company Common Stock pursuant to this Agreement is
sometimes hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a),
at the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Sections 1.02 and 1.03 hereof.
<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares
of Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $7,350,000. The Purchase Price shall be
subject to adjustment as provided in Section 1.02(b) of this Agreement and shall
be allocated among the Stockholders in accordance with their respective
ownership interests as set forth on Exhibit A hereof. The Purchase Price, as so
adjusted, shall be delivered to the Stockholders, in accordance with their
respective Proportionate Share, and to the Escrow Agent (as defined in Section
1.03(b)), subject to and in accordance with Section 1.03 hereof. The amount of
the Purchase Price allocated to each outstanding share of Company Common Stock
is hereinafter referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $1,050,000
(such adjustment is referred to herein as the "Net Book Value Adjustment");
provided, that the Net Book Value as determined pursuant to the Closing Date
Unaudited Balance Sheet shall not be less than $0 (the "Minimum Net Book
Value"). For purposes of this Agreement, Net Book Value shall mean the excess of
the Company's total assets over the Company's total liabilities determined in
accordance with GAAP, provided that the Closing Date Unaudited Balance Sheet
shall be a pro forma balance sheet calculated in the same manner as the pro
forma balance sheet for the Company was calculated for 1995, 1996 and 1997 by
Deloitte & Touche LLP. The Purchase Price, as adjusted in accordance with this
Section 1.02(b), shall be referred to as the "Adjusted Purchase Price."
(c) The Stockholders shall cause to be prepared and delivered
to GRS at least fifteen days prior to the Closing Date (i) an unaudited balance
sheet of the Company forecasted as of the Closing Date (the "Closing Date
Unaudited Balance Sheet"), (ii) a calculation of the Purchase Price Adjustment,
if any, determined pursuant to Section 1.02(b) above, and (iii) a certificate
executed by the Company's Chief Financial Officer (or another duly authorized
officer of the Company) to the effect that the Closing Date Unaudited Balance
Sheet has been prepared from the books and records of the Company and in a
manner consistent with the preparation of the Company Financial Statements (as
defined in Section 3.06 hereof).
Section 1.03 Delivery of Purchase Price. At the Closing, the Adjusted
Purchase Price, shall be paid upon the surrender pursuant to Section 1.01(b) of
a certificate or certificates representing all of the issued and outstanding
shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $3,596,250, minus (ii) the
amount of the Purchase Price Adjustment, if any, shall be paid directly to the
holders thereof by wire transfer in New York Clearing House Funds in accordance
with Exhibit A hereto.
(b) An aggregate of $3,753,750 shall be paid by the delivery
to (A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of GRS' common stock, par value $.01 per share ("GRS Common Stock"), as
shall have a value equal to $1,470,000 (the "Escrow Fund"), based upon the
initial public offering price of the GRS Common Stock to be sold in its initial
public offering (the "Offering") and (B) the Stockholders in accordance with
Exhibit A hereto, of such number of shares of GRS Common Stock as shall have a
value equal to $2,283,750 based upon the initial public offering price of the
GRS Common Stock to be sold in the Offering. The shares of GRS Common Stock to
be so held in escrow shall be held by the Escrow Agent for a period of one year
following the Closing in accordance with the terms of an Escrow Agreement in the
form of Exhibit B hereto (the "Escrow Agreement"), and shall thereafter be
restricted from transfer for an additional one-year period in accordance with
the terms, and subject to the
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conditions, of a Lock-Up Agreement in the form of Exhibit C hereto (the "Lock-Up
Agreement"). The Stockholders shall receive cash in lieu of fractional shares.
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933
ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE
TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b), if
any, and at least 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Purchase Price Adjustment,
if any, and the cash portion of the Adjusted Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by
GRS to the Stockholders of a Purchase Price Notice, the Stockholders may deliver
to GRS a written notice advising GRS that the Stockholders believe that the
proposed Purchase Price Adjustment, is not correct. If the Stockholders shall
not object thereto in a written notice delivered to GRS within five (5) business
days after the Stockholders' receipt of the Purchase Price Notice, the Adjusted
Purchase Price as set forth in the Purchase Price Notice, if any, shall become
final and shall not be subject to further review, challenge or adjustment absent
fraud.
(ii) In the event that GRS submits the Purchase Price
Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the disagreements
with respect to the proposed Purchase Price Adjustment prior to the Closing,
then such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing roofing or construction
companies and selected by mutual agreement of the Stockholders and GRS (the
"Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the event
that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination not more than five (5) days after such referral. The costs and
expenses of the services of the Settlement
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Accountants shall be paid equally by the Company and GRS. Pending the final
determination by the Settlement Accountants of the Purchase Price Adjustment if
any (the "Final Determination"), the difference between the determination by the
Stockholders and GRS of the Purchase Price Adjustment, if any, shall be withheld
from the cash portion of the Purchase Price to be delivered pursuant to Section
1.03(a) and shall be paid in accordance with and upon the Final Determination.
Any such dispute shall not delay the Closing.
(c) After the Final Determination of the Adjusted Purchase
Price pursuant to Sections 1.04(b)(i) or (ii) above, as applicable, the amount
of the adjustment determined pursuant thereto shall be deducted from the cash
portion of the Purchase Price and allocated among the Stockholders in accordance
with their respective Proportionate Share.
Section 1.05 Excluded Assets. Prior to the Closing, the Company shall
be permitted to distribute to the Stockholders as a dividend those assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are not
required by the Company in the conduct of its operations and which are listed in
Schedule 1.05 hereto.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean Robert Kornahrens or any person appointed as a
successor Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all
obligations under this Agreement have been discharged (including all
indemnification obligations hereunder and all obligations under the Escrow
Agreement), the Stockholders who, immediately prior to the Closing, held Company
Common Stock representing an aggregate number of shares of Company Common Stock
which exceeded 50% of the amount of such Company Common Stock outstanding
immediately prior to such time (a "Majority"), may, from time to time upon
written notice to the Stockholders' Representative and GRS, remove the
Stockholders' Representative or appoint a new Stockholders' Representative to
fill any vacancy created by the death, incapacitation, resignation or removal of
the Stockholders' Representative. Furthermore, if the Stockholders'
Representative dies, becomes incapacitated, resigns or is removed by a Majority,
the Majority shall appoint a successor Stockholders' Representative to fill the
vacancy so created. If the Majority is required to but has not appointed a
successor Stockholders' Representative within 20 business days from a request by
GRS to appoint a successor Stockholders' Representative, GRS shall have the
right to appoint a Stockholders' Representative to fill any vacancy so created,
and shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right and power to execute the Escrow
Agreement on their behalf with such changes or amendments thereto as the
Stockholders' Representative shall determine to be necessary or desirable in his
sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
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(d) GRS shall have no liability to any Stockholder or
otherwise arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders or with the Stockholders'
Representative. GRS may rely entirely on its dealings with, and notices to and
from, the Stockholders' Representative to satisfy any obligations it might have
to the Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued
and outstanding shares of Company Common
Stock in proper form for transfer to GRS;
(ii) the resignations of all members of the board
directors of the Company as set forth in
Section 7.03(l);
(iii) the stock books, stock ledgers, minute books
and corporate seals of the Company;
(iv) a certificate executed by the Company to the
effect that the conditions set forth in
Sections 7.03(b) through 7.03(i), have been
satisfied;
(v) the opinion of counsel set forth in Section
7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant
to Section 7.03(n).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available
funds to the Stockholders the payment
described in Section 1.03(a) as being
required to be paid by GRS at Closing;
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<PAGE> 10
(ii) by delivery to the Stockholders the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Stockholders at Closing;
(iii) by delivery to the Escrow Agent the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Escrow Agent at Closing;
(iv) a certified copy of all necessary corporate
action on behalf of GRS approving its
execution, delivery and performance of this
Agreement and the Collateral Agreements to
which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized
officer of GRS to the effect that the
conditions set forth in Sections 7.02(b) and
7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section
7.02(d);
(vii) the executed Collateral Agreements to which
it is a party; and
(viii) an opinion letter from Deloitte & Touche
LLP, which provides that (i) the
consummation of the transactions described
in this Agreement will qualify as a Section
351 Plan of Exchange within the meaning of
the Internal Revenue Code, (ii) the exchange
of Company Common Stock for GRS Common Stock
will not at the Closing result in the
recognition of gain or loss for federal
income tax purposes (but may result in the
recognition of gain or loss upon the
subsequent sale or other disposition of such
shares of GRS Common Stock) and (iii) the
cash portion of the Purchase Price will at
the Closing result in the recognition of a
gain or loss for federal income tax
purposes.
Section 2.04 Termination in Absence of Closing. If by the close of
business on September 30, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability of
or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party to
perform its obligations under this Article II on such date; provided, however,
that any termination pursuant to this Section 2.04 shall not relieve any party
hereto who was responsible for Closing having not occurred as described in
clauses (i) or (ii) above of any liability for (x) such party's willful breach
of the provisions of this Agreement, or (y) if all of the conditions to such
party's obligations set forth in Article VII have been satisfied or waived in
writing by the date scheduled for the Closing pursuant to Section 2.01, the
failure of such party to perform its obligations under this Article II on such
date. Notwithstanding the foregoing, the Stockholders expressly acknowledge and
agree that market and economic conditions are impossible to predict, and
although GRS intends to proceed with the Offering in an expeditious manner at
this time, GRS shall not be liable to the Stockholders or the Company if the
Closing has not occurred because the Offering has not been consummated prior to
the Termination Date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense, to have access to the
books, records, employees, counsel, accountants, and other representatives of
the Company at all times reasonably requested by GRS for the purpose of
conducting an investigation ("GRS' Due Diligence Investigation") of the
Company's financial condition, corporate status, operations, business and
Properties. The Stockholders shall make available to GRS for examination and
reproduction, at GRS' own expense, all documents and data of every kind and
character relating to the Company in possession or control of, or subject to
reasonable access by, the Stockholders or the Company, including, without
limitation, all files, records, data and information relating to the Company
Assets (whether stored in paper, magnetic or other storage media) and all
agreements, instruments, contracts, assignments, certificates, orders, and
amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets. If for any reason the
Closing does not occur on or before September 30, 1998, then GRS shall return
and shall cause all of its representatives to return to the Company all
information, documents and any other items in their possession about or relating
to the Company.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, or the purchase of
assets from a related company, the Company shall (a) conduct its business in the
ordinary course, (b) use its best efforts to keep available to the Company the
services of present employees, (c) maintain and operate Company Assets in a good
and workmanlike manner, (d) pay or cause to be paid all costs and expenses
(including but not limited to insurance premiums) incurred in connection
therewith in a
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timely manner, (e) use reasonable efforts to keep all Company Contracts listed
or required to be listed on Schedule 3.12 in full force and effect, (f) comply
with all of the covenants contained in all such Company Contracts, (g) maintain
in force until the Closing Date insurance policies (subject to the provisions of
Section 6.06) equivalent to those in effect on the date hereof, and (h) comply
in all material respects with all applicable Legal Requirements. Except as
otherwise contemplated in this Agreement, the Stockholders shall use their best
efforts to preserve the present relationships of the Company with persons having
significant business relations therewith.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS, the
Company shall not:
(i) (A) except as permitted by Sections 1.05 and
3.02 hereof, declare, set aside or pay any dividends on, or make any
other distribution (whether in cash, stock or property) in respect of,
any of its capital stock, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in view of or in substitution for shares of
its capital stock, or (C) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities;
(iii) amend its Articles of Incorporation or By-laws
(or similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation,
partnership, joint venture, association or other business organization
or division thereof or (B) any assets that are material, individually
or in the aggregate, to the Company, except purchases of assets in the
ordinary course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of, or agree to sell, transfer, lease,
mortgage, encumber or otherwise dispose of, any Properties except (A)
in the ordinary course of business consistent with past practice, or
(B) pursuant to any Company Contract or except as permitted by Sections
1.05 and 3.02 hereof;
(vi) (A) incur any indebtedness for borrowed money
except in conjunction with permitted capital expenditures, or guarantee
any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities
of the Company, guarantee any debt securities of another person, enter
into any "keep well" or other agreements to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of the foregoing, except for borrowings
incurred in the ordinary course of business consistent with past
practice, or (B) make any loans, advances or capital contributions to,
or investments in, any other person;
(vii) make or agree to make any new capital
expenditure or expenditures which, individually, is in excess of
$25,000 or, in the aggregate, are in excess of $50,000 (other than
those required pursuant to currently outstanding Company Contracts or
in the ordinary course of business consistent with past practice);
(viii) make any material tax election or settle or
compromise any material tax liability;
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(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Company
Financial Statements (or the notes thereto) or incurred in the ordinary
course of business consistent with past practice, or waive any material
benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which the Company
is a party;
(x) except in the ordinary course of business
consistent with past practice, modify, amend or terminate any Company
Contract;
(xi) except in the ordinary course of business
consistent with past practice, enter into any contracts, agreements,
arrangements or understandings relating to performance by third parties
of the Company's services;
(xii) except as required to comply with applicable
law (A) adopt, enter into, terminate or amend any benefit plan or other
arrangement for the benefit or welfare of any director, officer or
current or former employee, (B) increase in any manner the compensation
or fringe benefits of, or pay any bonus to, any director, officer or
employee (except in a manner consistent with past practice), (C) pay
any benefit not provided for under any benefit plan, (D) grant any
awards under any bonus, incentive, performance or other compensation
plan or arrangement or benefit plan (including the grant of stock
options, stock appreciation rights, stock based or stock related
awards, performance units or restricted stock, or the removal of
existing restrictions in any benefit plans or agreement or awards made
thereunder) or (E) take any action to fund or in any other way secure
the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take
any of, the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto
shall use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of the conditions to such
other party's obligation to consummate the transactions contemplated hereby, as
specified in Article VII of this Agreement, to be fully satisfied.
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Section 6.06 Casualty Loss. If, between the date of this Agreement and
the Closing, any of the Properties of the Company shall be destroyed or damaged
in whole or in part by fire, earthquake, flood, other casualty or any other
cause (a "Casualty Loss"), then the Stockholders shall, at GRS' election, (i)
cause the Company to cause such Properties to be repaired or replaced prior to
the Closing with Property of substantially the same condition and function, (ii)
cause the Company to deposit in a separate account an amount sufficient to cause
such Property to be so repaired or replaced, (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred, or
(iv) provide an opinion of counsel stating that the loss should be covered by
the Company's insurance or a letter from the insurance company that the loss is
covered by the policy.
Section 6.07 Employee Matters. The Stockholders shall take (or cause
the Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company, or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before Closing, Robert
Kornahrens shall have entered into an employment agreement in the form of
Exhibit G (the "Employment Agreement"), which shall include non-competition
provisions, to take effect on and after the Closing Date.
Section 6.10 Lock-Up Agreement. On or before Closing, the Stockholders
shall have entered into the Lock-Up Agreement.
Section 6.11 Noncompetition Agreement. On or before Closing, Deborah
Kornahrens shall have entered into a noncompetition agreement (the
"Noncompetition Agreement"), in the Form of Exhibit H, to take effect on or
after the Closing Date.
Section 6.12 Included Assets. The Stockholders agree they shall cause
the assets listed on Schedule 6.12 hereof to be assets that are owned by the
Company prior to Closing and that they will be included on the Closing Date
Unaudited Balance Sheet, which shall reflect any cost associated with those
assets becoming assets of the Company.
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Section 6.13 Real Estate Lease. On or before Closing, the Company,
Robert Kornahrens and Deborah Kornahrens shall have entered into a lease of the
real property utilized by the Company pursuant to a Lease Agreement in the form
of Exhibit I, to take effect on and after the Closing Date.
ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the date of the Closing; provided, however,
that no provision of this Agreement shall be construed as requiring any party to
accept, in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no transfers of
licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any
statute, rule, regulation, decree, ruling, injunction or other order issued by
any Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in
this Agreement qualified by materiality shall be true and correct in all
respects at Closing and all other representations and warranties of GRS
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if such representations and warranties were made at
and as of the Closing, except for changes contemplated by the terms of this
Agreement except as and to the extent that the facts and conditions upon which
such representations and warranties are based are expressly required or
permitted to be changed by the terms thereof, and GRS shall have performed and
satisfied in all material respects all covenants and agreements required by this
Agreement to be performed and satisfied by GRS at or prior to the Closing;
provided, however, that no Stockholder shall be entitled to refuse to consummate
the transaction in reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the
Stockholders or the Company) shall be pending or threatened before any
Governmental Authority seeking to restrain the Stockholders from effectuating
the Stock Purchase or prohibit the Closing or seeking Damages against the
Stockholders or the Company as a result of the consummation of the transactions
contemplated by this Agreement.
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(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
H. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and
the Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) The Stockholders shall have had the opportunity to review
and comment upon the registration statement relating to the Offering.
(i) GRS shall have furnished the Stockholders and the Company with an
opinion letter from Deloitte & Touche which provides that (i) the consummation
of the transactions described in this Agreement will qualify as a Section 351
Plan of Exchange within the meaning of the Internal Revenue Code, (ii) the
exchange of Company Common Stock for GRS Common Stock will not at the Closing
result in the recognition of gain or loss for federal income tax purposes (but
may result in the recognition of gain or loss upon the subsequent sale or other
disposition of such GRS Common Stock, is not a recognizable event and (iii) the
cash portion of the Purchase Price will at the Closing result in the recognition
of a gain or loss for federal income tax purposes.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS
to carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered
to GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of GRS) shall be
pending or threatened before any court or governmental agency seeking to
restrain GRS or prohibit the Closing or seeking Damages against GRS, the
Stockholders, the Company or its Properties as a result of the consummation of
the transactions contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase
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rights or consent requirements with respect to the transactions contemplated by
this Agreement that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from
the date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations,
prospects or financial condition of the Company that had or would reasonably be
likely to have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company
(whether or not covered by insurance) that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company.
(f) GRS shall have received the opinion of Tripp, Scott,
Conklin & Smith ("Sellers' Counsel"), counsel to the Company and the
Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit K. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall be equal to or
greater than the Minimum Net Book Value.
(i) The Stockholders shall have executed and delivered to GRS
the Escrow Agreement.
(j) GRS shall have received the executed Employment Agreement.
(k) GRS shall have received the resignation of all of the
members of the board of directors of the Company effective as of the Closing
Date.
(l) All proceedings to be taken by Stockholders and the
Company in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in form and substance to GRS
and its counsel, and GRS and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request.
(m) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company), except where the failure to have obtained
any such consent would not have an adverse effect on the Company or GRS
following the Closing.
(n) GRS shall be satisfied in its sole and absolute discretion
with GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(o) GRS shall have determined, in its reasonable discretion,
that all agreements between the Company and the Stockholders shall be on terms
as favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(q) The Offering shall have been consummated on or before the
Termination Date.
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ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company
and the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
knowledge, and the other party or parties (or any of them) are not aware, that
such representation or warranty is untrue or incorrect in any material respect.
All such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
The Basket Exclusions shall survive the Closing until the expiration of the
applicable statute of limitations, except for Section 5.29, which shall survive
indefinitely.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to
the limitations contained in Article VIII and Article IX hereof, the
Stockholders, jointly and severally, agree to indemnify, defend and hold
harmless GRS (and its Affiliates, successors and assigns and their respective
officers and directors) from and against all losses, liabilities, damages,
deficiencies, costs or expenses (including interest, penalties and reasonable
attorneys' fees and disbursements, but offset by any proceeds from insurance and
taking into account the present value of any tax savings to GRS or the Company
resulting from such losses, liabilities, damages, deficiencies, costs or
expenses) ("Losses") based upon, arising out of or otherwise in respect of (i)
any inaccuracy in or any breach of any representation, warranty, covenant or
agreement of the Company or the Stockholders contained in this Agreement and not
known by GRS at or before Closing, (ii) liabilities for Taxes and (iii) any
liability arising out of any subsequent adjustment by any tax authorities with
respect to items attributable to periods prior to the Closing Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by
any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a claim
or the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
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(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at their
own expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any such compromise or settlement consented to by
GRS , shall be borne and paid by the Stockholders. The parties agree to
cooperate fully with one another in the defense, compromise or settlement of any
Asserted Liability.
Section 9.04 Limitations on Indemnification. The indemnification
provided for in Sections 9.01 and 9.02 shall be subject to the following
limitations:
(i) The Stockholders shall not be obligated to pay
any amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS or as to which GRS (or its directors or executive
officers) had actual knowledge at or prior to the Closing.
(ii) Neither GRS, the Company nor the Stockholders
shall be obligated to pay any amounts for indemnification under this Article IX,
except those based upon, arising out of or otherwise in respect of Sections
3.02, 3.13, 3.21, 3.28, 5.22, 5.29, 9.01 (ii) and (iii), 11.01 and 11.02 and
Article IV hereof (the "Basket Exclusions"), until the aggregate indemnification
payments, exclusive of the Basket Exclusions, equals one percent (1%) of the
Purchase Price (the "Basket Amount"), whereupon GRS, or the Company and
Stockholders, as the case may be, shall be obligated to pay any indemnification
payments, including the Basket Amount, in full. It is expressly understood that
the Basket Amount shall serve as a "trigger" for indemnification and not as a
"deductible" (for example, if the indemnity claims for which GRS or the
Stockholders would, but for the provisions of this subparagraph (ii), be liable
is in the aggregate amount of $100,000, and 1% of the Purchase Price is $70,000,
the Stockholders would then be liable for the entire $100,000 and not just
$70,000). This Section 9.04(ii) will not apply to any breach of any
representations and warranties of which any party had actual Knowledge at
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any time prior to the date on which such representation and warranty is made or
any intentional breach by any party of any covenant or obligation, and GRS or
the Stockholders, as the case may be, will be jointly and severally liable for
all damages with respect to such breaches.
(iii) GRS, the Company and Stockholders shall be
obligated to pay the Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to whether the aggregate amount of
all other indemnification payments shall have exceeded, in the aggregate, the
Basket Amount.
(iv) Notwithstanding anything to the contrary in
this Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund. In addition, except
with respect to the Basket Exclusions, no Losses may be claimed by GRS unless
they are properly claimed under the Escrow Agreement on or before one (1) year
after the Closing Date.
(v) After the Closing, the indemnification rights
set forth in this Article IX shall be each party's sole and exclusive remedy
against the other party for any breach of any representation, warranty or
covenant contained in this Agreement. Notwithstanding the foregoing, nothing
herein shall prevent any party from bringing an action based upon allegations of
fraud in connection with this Agreement. In the event an action based upon
allegations of fraud is brought, the prevailing party's attorneys' fees and
costs shall be paid by the nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses
with respect to accounts receivable reflected on the Closing Date Unaudited
Balance Sheet only if and to the extent that such accounts receivable, except
for Contract Retention, remain uncollected 180 days from the Closing Date.
Contract Retention will be considered uncollectible, and be deemed a Loss, if it
remains uncollected 350 days from the Closing Date. GRS shall be deemed to have
suffered Losses in an amount equal to the amount of such accounts receivable and
Contract Retention which have not been collected within the time periods
specified above. Any Losses claimed on such accounts receivable or Contract
Retention will be credited back to the Escrow Fund based on the foregoing
formula to the extent such accounts receivable or Contract Retention are
recovered within the period of the Escrow Agreement. To the extent that GRS
suffers Losses from the failure to collect accounts receivable of the Company or
Contract Retention and such Losses result in a set-off from the Escrow Fund, the
related accounts receivable or Contract Retention shall be assigned to the
Stockholders following, and to the extent of, such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to
Section 9.04 and, paragraph (b) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
first be satisfied against the Escrow Fund pursuant to the Escrow Agreement, and
except for a breach of the representations and warranties of Article IV or with
respect to the Basket Exclusions, shall only be satisfied against the Escrow
Fund.
(b) GRS shall follow the procedure set forth in the Escrow
Agreement to pursue a claim for its Losses.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be
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reasonably requested by any other party hereto to carry out the transactions
contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or
make, or cause to have issued or made, any public release or announcement
concerning this Agreement or the transactions contemplated hereby, without the
advance approval in writing of the form and substance thereof by each of the
other parties, and the parties shall endeavor jointly to agree on the text of
any announcement or circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each
of the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
Section 10.04 Airplane. Within 30 days following the Closing, GRS
agrees to cause the Company to transfer title to GRS or an Affiliate of GRS of
that certain airplane owned by the Company, as directed by GRS.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur,
(i) each Stockholder shall jointly and severally indemnify and hold harmless GRS
and the Company from and against any and all liability for any brokers or
finders' fees arising with respect to brokers or finders retained or engaged by
the Company or any of the Stockholders in respect of the transactions
contemplated by this Agreement, and (ii) GRS shall indemnify and hold harmless
the Stockholders from and against any and all liability for any brokers' or
finders' fees arising with respect to brokers or finders retained or engaged by
GRS in respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
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GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: To such Stockholder
Robert Kornahrens
Advanced Roofing, Inc.
4345 N.E. 12th Terrace
Ft. Lauderdale, FL 33334
Telecopy No.:(954) 566-2967
With a copy to:
Tripp, Scott, Conklin & Smith
110 S.E. 6th Street
Ft. Lauderdale, FL 33301
Attention: Dennis Dustin Smith, Esq.
Telecopy No.: (954) 761-8475
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
Section 11.05 Representations and Warranties. Each of the
representations and warranties of each of the parties to this Agreement shall be
deemed to have been made at the date hereof and at and as of the Closing Date.
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Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this
Agreement are cumulative, and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies. Such rights and remedies are given in addition to any other
rights and remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference. Disclosure of a specific item in any one schedule shall be deemed
restricted only to the Section to which such disclosure specifically relates
except where (i) there is an explicit cross-reference to another Schedule, and
(ii) GRS could reasonably be expected to ascertain the scope of the modification
to a representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used
in this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which
contemplates performance or the existence of obligations after the Closing Date,
and any and all representations and warranties set forth in this Agreement,
shall not be deemed to be merged into or waived by the execution and delivery of
the instruments executed at the Closing, but shall expressly survive Closing for
the time period set forth in Section 8.01 hereof and shall be binding upon the
party or parties obligated thereby in accordance with the terms of this
Agreement, subject to any limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
19
<PAGE> 24
Section 11.14 Disclosures. Any information disclosed to GRS on a
schedule, although not on a disclosure schedule for which it would be
appropriate, shall be considered included on all disclosure schedules that would
be appropriate for such information. Further, any information specifically
identified on any financial statement shall be considered included on any
applicable disclosure schedule and deemed to be incorporated by reference
therein. The Company shall deliver all disclosure schedules to GRS no later than
seven days from the date of this Agreement.
Section 11.15 Recharacterization of Loans. Any expenses incurred by the
Company prior to the date hereof which are recharacterized as loans to the
Stockholders, shall be treated for purposes of this Agreement as a distribution
to the Stockholders and no amount shall be due to the Company by the
Stockholders with respect thereto.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined in
this Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect
to any person, any other person controlling, controlled by or under common
control with such Person. The term "Control" as used in the preceding sentence
means, with respect to a corporation, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to any person other
than a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements"
shall mean any or all of the following agreements, the forms of which are
attached hereto as exhibits to this Agreement:
Exhibit B -- Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for Robert Kornahrens
Exhibit H - Noncompetition Agreement for Deborah Kornahrens
Exhibit I - Real Estate Lease
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean,
with respect to the Company, all of the Properties, Company Contracts, and
Permits, that were Used by the Company as of the Balance Sheet Date and those
Used by the Company at any time after that date until the Closing Date, except
for the Excluded Assets.
Section 12.04 Contract Retention. The term "Contract Retention" shall
mean any amounts withheld by customers from contract progress billing until
final and satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean,
with respect to the Company, cash and other assets that are expected to be
converted into cash, sold or exchanged within
20
<PAGE> 25
one year from the Closing Date, including marketable securities, receivables,
inventory and current prepayments.
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Damages. The term "Damages" shall mean any and all
damages, liabilities, obligations, penalties, fines, judgments, claims,
deficiencies, losses, costs, expenses and assessments (including without
limitation income and other Taxes, interest, penalties and attorneys' and
accountants' fees and disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers with respect to the representation
being made, and such knowledge of any such persons as reasonably should have
obtained upon due investigation and inquiry into the representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
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<PAGE> 26
Section 12.14 Permits. The term "Permits" shall mean any and all
permits or orders under any Legal Requirement or otherwise granted by any
Governmental Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and
all regulations promulgated by the Department of the Treasury pursuant to the
Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss.59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes"
shall mean the deferred tax assets and liabilities required to be recorded under
GAAP to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By: /S/ Gregg Wallick
------------------------------
Gregg Wallick, President
ADVANCED ROOFING, INC.
By: /s/
------------------------------
22
<PAGE> 27
STOCKHOLDERS:
/s/
----------------------------------
Deborah E. Kornahrens, as Trustee,
U/A dated the 8th day of November
1994, "The Deborah E. Kornahrens
Revocable Living Trust"
/s/
----------------------------------
Robert P. Kornahrens, as Trustee,
U/A dated the 8th day of November
1994, "The Robert P. Kornahrens
Revocable Living Trust"
23
<PAGE> 28
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of Company Percentage (%)
Name Common Stock Purchased of Ownership
---- --------------------------- --------------
<S> <C> <C>
Deborah E. Kornahrens, Trustee,
U/A dated the 8th day of November
1994, "The Deborah E. Kornahrens
Revocable Living Trust".................. 80 88.9%
Robert P. Kornahrens, Trustee,
U/A dated the 8th day of November
1994, "The Robert P. Kornahrens
Revocable Living Trust".................. 10 11.1%
Total....................... 90 100%
== ====
</TABLE>
<PAGE> 29
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Florida, and is not required to
be qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been
made available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in
any partnership or joint venture, or own any outstanding capital stock of any
other corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized
capital stock of the Company consists of 1,000 shares of Company Common Stock.
The issued and outstanding shares of Company Common Stock are owned of record
and beneficially by the Stockholders shown on Exhibit A hereof. All of the
presently outstanding shares of capital stock of the Company have been validly
authorized and issued and are fully paid and nonassessable. The Company has not
issued any other shares of its capital stock and there are no outstanding
options, warrants, subscriptions or other rights or obligations to purchase or
acquire any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, except as set forth on Schedule 3.02. Except as
contemplated under this Agreement, there are no agreements to which the Company
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock. Except for possible dividends to be
issued in connection with the Excluded Assets as described in Section 1.05 and
dividends related to the payment of the Stockholders' tax liabilities with
respect to earnings of the Company up to the Closing Date, each and all of which
shall be subject to the prior written approval of GRS, no dividends are accrued
but unpaid on any capital stock of the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set
forth in Schedule 3.04 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the Articles of Incorporation or bylaws of the
Company;
<PAGE> 30
(ii) violate any Legal Requirements applicable to
the Company;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to the Company;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of the Company;
or
(v) require any of the Stockholders or the Company
to obtain or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority. Any and all consents required to be
obtained by the Company as set forth in Schedule 3.04 shall be obtained and
copies thereof delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no
suit, action or other proceeding is pending or, to the Knowledge of the Company
or the Stockholders, threatened before any Governmental Authority seeking to
restrain any of the Stockholders or prohibit their entry into this Agreement or
prohibit the Closing, or seeking damages against the Company or its Properties,
as a result of the consummation of the transactions contemplated by this
Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true
and correct copies of the Company's (i) Closing Date Unaudited Balance Sheet,
(ii) unaudited balance sheets prepared by the Company with the assistance of
GRS' accounting firm, Deloitte & Touche LLP on a pro forma basis as of December
31, 1997 (the "Interim Company Balance Sheet") and the related statements of
income and stockholders' equity for the twelve (12) months ended December 31,
1997 (the "Interim Company Financial Statements"), as well as (iii) the
Company's balance sheet and statements of income, stockholders' equity and cash
flow as of and for each of the two (2) fiscal years ended December 31, 1995 and
1996 also prepared with the assistance of Deloitte & Touche LLP (the "Company
Financial Statements"). The Company Financial Statements (i) have been prepared
from the books and records of the Company, with the assistance of Deloitte &
Touche LLP on a basis of how the Company would have performed if all changes and
adjustments expected to be made by the Company prior to the Closing had been in
effect prior to January 1995 (ii) present fairly the financial condition of the
Company and its results of operations as at and for the respective periods then
ended on a pro forma basis, and (iii) have been prepared in accordance with GAAP
on a pro forma basis.
Section 3.07 Liabilities and Obligations. Except as set forth in
Schedule 3.07, the Company Financial Statements reflect all liabilities of the
Company as determined in accordance with generally accepted accounting
principles arising out of transactions effected or events occurring on or prior
to the date of the Interim Company Balance Sheet, except for liabilities not
exceeding $10,000 in the aggregate. All reserves shown in the Company Financial
Statements are appropriate and reasonable to provide for losses thereby
contemplated. Except as set forth in the Company Financial Statements (including
the Notes thereto), the Company is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in
Schedule 3.08, the accounts receivable reflected on the Interim Company Balance
Sheet and all accounts receivable arising between the date of the Interim
Company Balance Sheet (the "Interim Company Balance Sheet Date") and the date
hereof, arose from bona fide transactions in the ordinary course of business,
and the goods and services involved have been sold, delivered and performed to
the account of the obligors, and no further filings (with Governmental
Authorities, insurers or others) are required to be made, no further goods are
required to be provided and no further services are required to be rendered in
order to complete
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<PAGE> 31
the sales, fully render the services and entitle the Company to collect the
accounts receivable in full. Except for the Company's line of credit, with
SunTrust Bank, South Florida, N.A. for $500,000 of which $300,000 is currently
outstanding, for which all receivables are pledged as security, no such account
has been assigned or pledged to any other person, firm or corporation, and,
except only to the extent fully reserved against as set forth in the Interim
Company Balance Sheet, no defense or setoff to any such account has been
asserted by the account obligor.
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ended December 31, 1996 and December 31, 1997,
respectively, and (ii) any promised increases in compensation of the Company Key
Employees that have not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of
all Compensation Plans sponsored by the Company or to which the Company
contributes on behalf of its employees, and which will be in effect at the time
of Closing, other than Employee Benefit Plans listed in Schedule 3.10. As used
herein, "Compensation Plans" shall mean and include, without limitation, plans,
arrangements or practices that provide for severance pay, deferred compensation,
incentive, bonus or performance awards, and stock ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 3.09(c) and in Section
3.09(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate
list of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company (i) has been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), (i) the Company
has not been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit and
(iii)
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<PAGE> 32
the employees of the Company have not threatened to organize or join a union,
labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency. No prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter
or ruling from the Internal Revenue Service for each Employee Benefit Plan
intended to be qualified within the meaning of Section 401 (a) of the Code
and/or tax exempt within the meaning of Section 501(a) of the Code, which letter
or ruling is current and covers all required amendments to each such Employee
Benefit Plan through the Closing Date. No proceedings exist or, to the Knowledge
of the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) The Company has no obligation or commitment to provide
medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with the Company other than COBRA benefits.
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<PAGE> 33
Section 3.11 Absence of Certain Changes. Except as set forth in
Schedule 3.11 or in reference to the Excluded Assets or assets being purchased
from related entities by the Company, from the Interim Company Balance Sheet
Date to the date of this Agreement, the Company has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company, or any Stockholder, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any
Company Assets (whether or not covered by insurance) that has materially
adversely affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05;
(i) written up or written down the carrying value of any of
the Company Assets, except in the ordinary course of business consistent with
past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or
Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
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<PAGE> 34
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights or paid any
dividends or made any distribution to the holders of the Company's capital
stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which the Company is a party (the "Company Contracts") set forth in Schedule
3.12, the Company has not entered into, nor is the capital stock, the assets or
the business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any
Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company;
6
<PAGE> 35
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not
received notice of any plan or intention of any other party to any Company
Contract to exercise any right to cancel or terminate any Company Contract. The
Company does not currently contemplate, and has no reason to believe any person
or entity currently contemplates, any amendment or change to any Company
Contract. None of the customers, joint venture partners or suppliers of the
Company has refused, or communicated that it will or may refuse, to purchase or
supply goods or services, as the case may be, or has communicated that it will
or may substantially reduce the amounts of goods or services that it is willing
to purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will
maintain through the Closing Date, the insurance coverage it currently has in
effect with respect to all of its completed operations. The Company has
previously made available to GRS all insurance policies of the Company. All of
such policies are valid and enforceable against the Company, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity).
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<PAGE> 36
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) The Company owns all patents, trade-marks, service marks
and copyrights (collectively "Proprietary Rights"), if any, necessary to conduct
its business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 3.14(a) is a
true and correct description of all Proprietary Rights.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock Purchase, GRS will have the
right to use all Proprietary Rights without any obligation to pay any additional
amounts whatsoever. Use of the Proprietary Rights does not require the consent
of any other person and the Proprietary Rights are freely transferable. No claim
has been asserted by any person to the ownership of or right to use any
Proprietary Right or challenging or questioning the validity or effectiveness of
any license or agreement constituting a part of any Proprietary Right. Each of
the Proprietary Rights is valid and subsisting, has not been canceled, abandoned
or otherwise terminated and, if applicable, has been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
the Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has
good and marketable title to the Company Assets, including, without limitation,
those reflected on the Interim Company Balance Sheet (other than those since
disposed of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 3.15(c). The Company enjoys
peaceful and undisturbed possession under all real property leases under which
the Company is operating, and all such leases are valid and subsisting and none
of them is in default, except for those defaults which, individually or in the
aggregate, would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material
franchises, Permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its businesses as presently
conducted. The business and operations of the Company have been and are being
conducted in accordance in all material respects with all applicable laws, rules
and regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in
Schedule 3.17, there are no claims, actions, suits, investigations or
proceedings against the Company pending or, to the Knowledge of the Company,
threatened in any court or before or by any Governmental Authority, or before
any arbitrator, that could reasonably be expected to have a material adverse
effect (whether covered by insurance or not) on the business, operations,
prospects, Properties, securities or financial condition of the
8
<PAGE> 37
Company. Except as otherwise set forth in Schedule 3.17, the Company is not in
default under, and no condition exists (whether covered by insurance or not)
that with or without notice or lapse of time or both would (i) constitute a
default under, or breach or violation of, any Company Contract or any Legal
Requirement or Permit applicable to the Company, or (ii) accelerate or permit
the acceleration of the performance required under, or give any other party the
right to terminate, any Company Contract, other than defaults, breaches,
violations or accelerations that would not have a material adverse effect on the
business, operations, prospects, Properties, securities or financial condition
(a "Material Adverse Effect") of the Company.
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of
the Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located, other than those materials that are
generally used in the roofing industry, which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which Company Business is or was, or, to knowledge of the Company,
at which the business of its predecessors was, located which would have a
Material Adverse Effect on the Company. With respect to underground storage
tanks, Schedule 3.18(b) sets forth the size, location, construction,
installation date, use and testing history of all underground storage tanks
(whether or not excluded from regulation under Environmental Law), including all
underground storage tanks in use, out of service, closed, abandoned,
decommissioned, or sold to a third party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of
the Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to
the best knowledge of the Company, threat of a "release" of any Hazardous
Substance on, from or under any premises from which (i) the Company's operations
have been or are being conducted related to the Company Business. or (ii) to the
Knowledge of the Company, the operations of any predecessor of the Company which
would have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the
Company's and, to the Knowledge of the Company, its predecessor's, Hazardous
Substances disposal and recycling practices related to the Company Business have
been accomplished in material compliance with all applicable Environmental Laws.
9
<PAGE> 38
The Company's representation(s) with respect to this Section 3.18 shall
not be interpreted to imply that GRS has constructive knowledge regarding any
aspect of the Company Business with respect to environmental matters nor to
limit the scope of any of the Company's or any Stockholders' representations
under this Agreement.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or safe deposit box or vault, (ii)
the names of all persons authorized to draw thereon or to have access to any
safe deposit box or vault, (iii) the purpose of each such account, safe deposit
box or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of the Company in matters
concerning any of its business or affairs. Except as otherwise set forth in
Schedule 3.19, no such proxies, powers of attorney or other like instruments are
irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth
all the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve (12) month
period ended December 31, 1997 and the three (3) month period ended March 31,
1998, as well as each of the principal customers of the Company. Except as
otherwise set forth in Schedule 3.20, since December 31, 1997, there has been no
material adverse change in the business relationship of the Company with any
supplier or customer named in Schedule 3.20. No customer or supplier named in
Schedule 3.20 has terminated or materially altered, or notified the Company of
any intention to terminate or materially alter, its relationship with the
Company, and the Company has no reason to believe that any such customer or
supplier will terminate or materially alter its relationship with the Company or
to materially decrease its services or supplies to the Company or its direct or
indirect usage of the services of the Company. For purposes of Sections 3.20 and
3.23, "material suppliers" refers to suppliers from whom the Company purchased
five percent (5%) or more of the total amount of the goods purchased by the
Company during the twelve (12) month period ended December 31, 1997 and the
three (3) month period ended March 31, 1998, and "principal customers" refers to
customers who accounted for 5% or more of the Company's total revenues during
the twelve (12) month period ended December 31, 1997 and the three (3) month
period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by the Company or the Stockholders to GRS or its counsel,
do not contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set
forth in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. No director or executive
officer of the Company owns directly or indirectly any material interest or has
any investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of the
Company.
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<PAGE> 39
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate (other than from personal funds of directors,
officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law).
Section 3.26 Government Inquiries. Except as set forth on Schedule
3.26, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any
Stockholder has entered into any agreements or arrangements and there are no
pending offers or discussions concerning or providing for the merger or
consolidation of the Company or all or any substantial portion of its assets,
the sale by the Company or any Stockholder of any securities of the Company or
any similar transaction affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income
Tax Returns, and all other material Tax Returns which it is required to file
under applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Closing Date
Unaudited Balance Sheet is sufficient to pay in full all liabilities for Taxes
of the Company related to periods prior to the Closing but will not include
adjustments, if any, necessary to reflect the change in the Company's tax status
from an "S Corporation" to a "C Corporation";
(v) the federal income Tax Returns of the Company
have been filed through December 31, 1997, and, as of the date hereof, none of
such Tax Returns has been audited.
(vi) the Company has been a validly existing S
corporation within the meaning of Sections 1361 and 1362 of the Code) at all
times since October 8, 1983 and will continue to be an S corporation up to and
including the date immediately preceding the Closing Date; and
(b) To the Knowledge of the Company, no claim has been made by
a taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
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<PAGE> 40
(i) there are no foreign, federal, state or local
Tax audits or administrative or judicial proceedings pending or being conducted
with respect to the Company;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority; and
(iii) there are no material unresolved claims
concerning the Company's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company, except where such waiver would not have a material adverse
effect on the Company.
(e) The Company has not executed or entered into a closing
agreement pursuant to IRC ss. 7121 or any predecessor provision thereof or any
similar provision of state, local or foreign law; nor has the Company agreed to
or is required to make any adjustments pursuant to IRC ss. 481(a) or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company. The Company has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC ss. 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(i) The Company has not made any payments nor is it obligated
to make payments nor is it a party to an agreement that could obligate it to
make any payments that would not be deductible under IRC ss. 280G.
(j) The Stockholders shall direct the preparation by the
Company and permit GRS to review, comment on and approve the federal and state
income Tax Returns for the period ending on or before the Closing Date, and
shall make such revisions to such Tax Returns as are reasonably requested by
GRS. To the extent permitted by applicable law, the Stockholders shall include
any income, gain, loss, deduction or other tax items for such period on their
individual income Tax Returns in a manner consistent with the Schedule K-ls
furnished by the Company to the Stockholders for such periods.
(k) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including New York City Transfer Tax, if
applicable, and any similar Tax imposed in other states and subdivisions), shall
be paid by the Stockholders when due, and the Stockholders will, at their
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, GRS will, and will
cause its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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<PAGE> 41
EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such
Stockholder shall own beneficially and of record, free and clear of any lien,
option or other encumbrance, the shares of Company Common Stock set forth
opposite such Stockholders' name on Exhibit A hereof, and, upon consummation of
the Stock Purchase, GRS will acquire good and valid title thereto, free and
clear of any lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such
Stockholder has the full legal right and power and all authority and approval
required to enter into, execute and deliver this Agreement and to perform fully
such Stockholders' obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common
Stock to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for
its own account and not on behalf of any other person; such Stockholder is aware
and acknowledges that the GRS Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold unless the GRS Shares are registered under the Securities Act or
an exemption from the registration requirements of the Securities Act is
available;
<PAGE> 42
(b) Such Stockholder has been furnished all information that
it deems necessary to enable it to evaluate the merits and risks of an
investment in GRS; such Stockholder has had a reasonable opportunity to ask
questions of and receive answers from GRS concerning GRS and the GRS Shares, and
all such questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i)
any rights in and to the GRS Shares, which rights were obtained through or from
such Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in
financial and business matters (including knowledge and expertise in the roofing
industry) that it is capable of evaluating the merits and risks involved in an
investment in the GRS Shares: and such Stockholder is financially able to bear
the economic risk of the investment in the GRS Shares, including a total loss of
such investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal
or state agency has made any finding of determination regarding the fairness of
the offering of the GRS Shares for investment, or any recommendation or
endorsement of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of the GRS Shares, and shall not make
any sale, transfer or pledge thereof without registration under the Securities
Act and any applicable securities laws of any state or unless an exemption from
registration is available;
(i) Except as set forth herein, no representations or
warranties have been made to such Stockholder by GRS or any agent, employee or
Affiliate of GRS, and in entering into this transaction such Stockholder is not
relying upon any information, other than from the results of independent
investigation by such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of
the GRS Shares except (i) pursuant to an effective registration statement under
the Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS or other counsel reasonably satisfactory to GRS, is not required
to be registered under the Securities Act.
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<PAGE> 43
EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate
Documents.
(a) GRS is a corporation duly organized, validly existing and
in good standing under the laws of Florida, and is not required to be qualified
to do business as a foreign corporation in any other jurisdiction where the
failure to so qualify would have a material adverse effect on GRS. GRS has all
required corporate power and authority to own its properties and to carry on its
business as presently conducted. The Articles of Incorporation and By-laws of
GRS, copies of which are attached as Schedule 5.01(a), are complete and reflect
all amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have
any subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized
capital stock of GRS consists of 100,000,000 shares, of which 90,000,000 have
been designated as GRS Common Stock and 10,000,000 have been designated as
Preferred Stock. All of the presently outstanding shares of capital stock of GRS
have been validly authorized and issued and are fully paid and nonassessable.
Except as set forth on Schedule 5.03, GRS has not issued any other shares of its
capital stock and there are no outstanding options, warrants, subscriptions or
other rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
<PAGE> 44
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms,
conditions or provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to
GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private non-governmental third party or any
Governmental Authority. Any and all consents required to be obtained by GRS as
set forth in Schedule 5.05 shall be obtained and copies thereof delivered to the
Company and the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no
suit, action or other proceeding is pending or, to the Knowledge of GRS,
threatened before any Governmental Authority seeking to restrain GRS or prohibit
its entry into this Agreement or prohibit the Closing, or seeking damages
against GRS or its Properties, as a result of the consummation of the
transaction contemplated by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in
Schedule 5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS
Balance Sheets") and the related statements of income, stockholders' equity and
cash flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in
Schedule 5.09, the accounts receivable reflected on the GRS Balance Sheet and
all accounts receivable arising between December 31, 1997 and the date hereof,
arose from bona fide transactions in the ordinary course of business, and the
goods and services involved have been sold, delivered and performed to the
account of the obligors, and no further filings (with Governmental Authorities,
insurers or others) are required to be made, no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle GRS to collect
the accounts receivable in full. No such account has been assigned or pledged to
any other person, firm or corporation, and, except only to the extent fully
reserved against as set forth in the Interim GRS Balance Sheet, no defense or
setoff to any such account has been asserted by the account obligor.
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Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of GRS, regardless
of compensation levels, and other employees who are currently compensated at a
rate in excess of $50,000 per year (including any reasonably anticipated bonus)
or who earned in excess of $50,000 during GRS' fiscal year ended October 31,
1996 (collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a)
contains a complete and accurate description of (i) all increases in
compensation of the GRS Key Employees during the fiscal years of GRS ending
October 31, 1997 and October 31, 1996, respectively, and (ii) any promised
increases in compensation of the GRS Key Employees that have not yet been
effected.
(b) Schedule 5.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by GRS or to which GRS contributes on behalf of
its employees, other than Employee Benefit Plans listed in Schedule 5.11. As
used in this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 5.10(c) and in Section
5.10(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which GRS is a party.
(d) GRS has provided to the Company and the Stockholders a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key
Employee has indicated his or her desire or intent to terminate employment with
GRS, and GRS has no present intent of terminating the employment of any GRS Key
Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
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Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment exists
with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in
Schedule 5.12, from the date of the GRS Balance Sheet to the date of this
Agreement, GRS has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of GRS or any stockholder of GRS, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
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(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of
its assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of
its assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or its
assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights, paid any
dividends or made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
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Section 5.13 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which GRS is a party (the "GRS Contracts") set forth in Schedule 5.13, GRS has
not entered into, nor is the capital stock, the assets or the business of GRS
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24; or
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(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice
of any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has no reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available
to the Stockholders all insurance policies of GRS. All of such policies are
valid and enforceable against GRS, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. Use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
GRS is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the
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ordinary course of business), free and clear of all security interests, liens,
charges and other encumbrances, except for (i) liens for taxes not yet due and
payable or being contested in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of its businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful
and undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in
Schedule 5.18, there are no claims, actions, suits, investigations or
proceedings against GRS pending or, to the Knowledge of GRS, threatened in any
court or before or by any Governmental Authority, or before any arbitrator, that
could reasonably be expected to have a material adverse effect (whether covered
by insurance or not) on the business, operations, prospects, Properties,
securities or financial condition of GRS. Except as otherwise set forth in
Schedule 5.18, GRS is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any Legal
Requirement or Permit applicable to GRS or any GRS Contract applicable to GRS,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any GRS Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of
GRS, there are no PCBs, TCE, PCE, or asbestos containing materials generated,
used, treated, stored, maintained, disposed of, or otherwise deposited in, or
located on any premises at which GRS' business (the "GRS Business") is or was,
or at which the business or, to the Knowledge of GRS, its predecessors was,
located, which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which the GRS Business is or was, or, to knowledge of GRS, at which
the business of its predecessors was, located, which would have a Material
Adverse Effect on GRS. With respect to underground storage tanks, Schedule
5.19(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of
GRS, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of GRS, threat of a "release" of
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any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor its
respective predecessors have received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and,
to the Knowledge of GRS, its predecessor's, Hazardous Substances disposal and
recycling practices related to the GRS Business have been accomplished in
material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth
all of GRS' material suppliers, together with the dollar amount of goods
purchased by GRS from each such supplier during the twelve month period ended
December 31, 1997 and the four month period ended April 30, 1998, as well as
each of the principal customers of GRS. Except as otherwise set forth in
Schedule 5.21, since December 31, 1997, there has been no material adverse
change in the business relationship of GRS with any supplier or customer named
in Schedule 5.21. No customer or supplier named in Schedule 5.21 has terminated
or materially altered, or notified GRS of any intention to terminate or
materially alter, its relationship with GRS and GRS has no reason to believe
that any such customer or supplier will terminate or materially alter its
relationship with GRS or to materially decrease its services or supplies to GRS
or its direct or indirect usage of the services or products of GRS. For purposes
of Sections 5.21 and 5.24 hereof "material suppliers" refers to suppliers from
whom GRS purchased five percent (5%) or more of the total amount of the goods
purchased by GRS during the twelve month period ended December 31, 1997 and the
four month period ended April 30, 1998, and "principal customers" refers to
customers who accounted for 5% or more of GRS' revenues during the twelve month
period ended December 31, 1997 and the four month period ended April 30, 1998.
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Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by GRS to the Stockholders or their counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to the Stockholders contain projections and
estimates of future events, and such projections and estimates have been based
upon certain assumptions that management of GRS made in good faith and believed
are reasonable at the time such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set
forth in Schedule 5.24, no director or executive officer of GRS or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with GRS or any organization that has a material contract or arrangement with
GRS.
Section 5.25 Investments in Competitors. No director or executive
officer of GRS owns directly or indirectly any material interests or has any
investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer
or employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule
5.27, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.29 hereto, GRS:
(i) has filed all federal income Tax Returns, and
all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
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(iv) the accrual for Taxes on the Unaudited GRS
Balance Sheet (excluding any amount recorded which is attributable to timing
differences between book and Tax income) would be adequate to pay all material
Tax liabilities of GRS if its current tax year were treated as ending on the
date of the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited.
(b) To the Knowledge of GRS, no claim has been made by a
taxing authority in a jurisdiction where GRS does not file Tax Returns that GRS
is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local
tax audits or administrative or judicial proceedings pending or being conducted
with respect to GRS;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by GRS from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims
concerning GRS' Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC ss. 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC ss. 481(a) or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by GRS. GRS has no knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any knowledge with respect to any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC ss. 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC ss. 280G.
Section 5.29 Participation in Secondary Offering. In the event that
after the Offering GRS files a registration statement with the Securities and
Exchange Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such number of shares of GRS Common
Stock owned by the Stockholders as shall equal (i)(A) the total
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<PAGE> 54
number of shares of GRS Common Stock owned by such Stockholders divided by (B)
the total number of shares of GRS Common Stock owned by all shareholders of the
Founding Companies, multiplied by (ii) the total number of shares of GRS Common
Stock owned by shareholders of the Company which are to be included in the
Secondary Offering.
12
<PAGE> 1
EXHIBIT 2.9
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
BLACKMORE & BUCKNER ROOFING, INC.
AND
ALL OF THE STOCKHOLDERS
OF
BLACKMORE & BUCKNER ROOFING, INC.
----------------------------
MAY 12, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................1
1.01 Sale and Purchase of Company Common Stock................................................................1
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Purchase Price Adjustment................................................................................3
1.05 Excluded Assets..........................................................................................4
1.06 Stockholders' Representative.............................................................................4
1.07 Earn-Out.................................................................................................5
ARTICLE II - CLOSING..............................................................................................6
2.01 Closing..................................................................................................6
2.02 Deliveries by Stockholders to GRS........................................................................6
2.03 Deliveries by GRS........................................................................................6
2.04 Termination in Absence of Closing........................................................................7
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS..................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................8
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS.................................................................8
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................8
6.01 GRS' Access to Information and Assets....................................................................8
6.02 Company's Conduct of Business and Operations.............................................................8
6.03 General Restrictions.....................................................................................8
6.04 Notice Regarding Changes................................................................................10
6.05 Consents and Best Efforts...............................................................................10
6.06 Casualty Loss...........................................................................................10
6.07 Employee Matters........................................................................................10
6.08 No Solicitation.........................................................................................10
6.09 Employment Agreements...................................................................................11
6.09 Employment Agreements...................................................................................11
6.10 Lock-Up Agreement.......................................................................................11
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................11
7.01 Conditions to Obligations of All Parties................................................................11
7.02 Conditions to Obligations of Stockholders...............................................................11
7.03 Conditions to Obligations of GRS........................................................................12
ARTICLE VIII - SURVIVAL..........................................................................................14
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................14
ARTICLE IX - INDEMNIFICATION.....................................................................................14
9.01 Obligation of the Stockholders to Indemnify.............................................................14
9.02 Obligation of GRS to Indemnify..........................................................................14
9.03 Notice and Opportunity to Defend........................................................................14
9.04 Limitations on Indemnification..........................................................................15
9.05 Set-Off Rights..........................................................................................16
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................17
10.01 Further Assurances......................................................................................17
10.02 Publicity...............................................................................................17
10.03 Access to Records.......................................................................................17
ARTICLE XI - MISCELLANEOUS.......................................................................................17
11.01 Brokers.................................................................................................17
11.02 Costs and Expenses......................................................................................17
11.03 Notices.................................................................................................17
11.04 Governing Law...........................................................................................18
11.05 Representations and Warranties..........................................................................18
11.06 Entire Agreement, Amendments and Waivers................................................................18
11.07 Binding Effect and Assignment...........................................................................19
11.08 Remedies................................................................................................19
11.09 Exhibits and Schedules..................................................................................19
11.10 Multiple Counterparts...................................................................................19
11.11 References..............................................................................................19
11.12 Survival................................................................................................19
11.13 Attorneys' Fees.........................................................................................19
ARTICLE XII - DEFINITIONS........................................................................................20
12.01 Affiliate...............................................................................................20
12.02 Collateral Agreements...................................................................................20
12.03 Company Assets..........................................................................................20
12.04 Contract Retention......................................................................................20
12.05 Current Assets..........................................................................................20
12.06 Current Liabilities.....................................................................................20
12.07 Damages.................................................................................................20
12.08 Environmental Law.......................................................................................21
12.09 GAAP....................................................................................................21
12.10 Governmental Authorities................................................................................21
12.11 Hazardous Substances....................................................................................21
12.12 Knowledge...............................................................................................21
12.13 Legal Requirements......................................................................................21
12.14 Permits.................................................................................................21
12.15 Properties..............................................................................................21
12.16 Proportionate Share.....................................................................................21
12.17 Regulations.............................................................................................21
12.18 Taxes...................................................................................................21
12.19 Tax Returns.............................................................................................21
12.20 Used....................................................................................................21
12.21 Deferred Income Taxes...................................................................................21
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for Stephen Buckner
Exhibit H - Employment Agreement for Donald Parrish
Exhibit I - Noncompetition Agreement for Leslie Buckner
Exhibit J - Noncompetition Agreement for Marilyn Parrish
Exhibit K - Opinion of Baker & McKenzie
Exhibit L - Opinion of Dale & Eke P.C.
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 12, 1998, by and among (i) General Roofing Services, Inc.
a Florida corporation (the "Buyer" or "GRS"),(ii) Blackmore & Buckner Roofing,
Inc., an Indiana corporation (the "Company"), and (iii) all of the stockholders
of the Company (the "Stockholder" or the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS purchase
all of the issued and outstanding capital stock of the Company, consisting of
29,014 shares (the "Shares") of common stock, no par value ("Company Common
Stock"), upon the terms and subject to the conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange within
the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, the Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase, acquire
and accept from the Stockholder, the number of shares of Company Common Stock
set forth opposite the name of the Stockholder on Exhibit A hereto under the
heading "Number of Shares of Company Common Stock Purchased", constituting all
of the issued and outstanding shares of Company Common Stock. The sale and
purchase of the Company Common Stock pursuant to this Agreement is sometimes
hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a),
at the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholder's Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding
shares of Company Common Stock to be purchased by GRS hereunder (the "Purchase
Price") shall be an aggregate amount equal to $3,290,829. The Purchase Price
shall be subject to adjustment as provided in this Agreement and shall be
allocated among the Stockholders in accordance with their respective ownership
interests as set forth on Exhibit A hereof. The Purchase Price, as so adjusted,
shall be delivered to the Stockholders in accordance with their respective
Proportionate Share and to the Escrow Agent (as defined in Section 1.03(b)),
subject to and in accordance with Section 1.03 hereof. The amount of the
Purchase Price allocated to each outstanding share of Company Common Stock is
hereinafter referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $1,112,899
(such adjustment is referred to herein as the "Net Book Value Adjustment");
provided, that the Net Book Value as determined pursuant to the Closing Date
Unaudited Balance Sheet shall not be less than $530,821 (the "Minimum Net Book
Value"). For purposes of this Agreement, Net Book Value shall mean the excess of
the Company's total assets over the Company's total liabilities determined in
accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered
to GRS within fifteen days prior to the Closing Date (i) an unaudited balance
sheet of the Company forecasted as of the Closing Date (the "Closing Date
Unaudited Balance Sheet"), (ii) a calculation of the Purchase Price Adjustment,
if any, determined pursuant to Section 1.02(b) above, and (iii) a certificate
executed by the Company's Chief Financial Officer (or another duly authorized
officer of the Company) to the effect that the Closing Date Unaudited Balance
Sheet has been prepared from the books and records of the Company and in a
manner consistent with the preparation of the Company Financial Statements (as
defined in Section 3.06 hereof), except that Deferred Income Taxes have been
reflected in the same manner as if the Company was a "C" corporation.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section 1.01(b)
of a certificate or certificates representing all of the issued and outstanding
shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $1,480,873, representing
forty-five percent (45%) of the Purchase Price, minus (ii) the amount of the
Purchase Price Adjustment, if any, shall be paid directly to the holders thereof
by wire transfer in New York Clearing House Funds in accordance with Exhibit A
hereto.
(b) An aggregate of $1,809,956 shall be paid by the delivery
to (A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of the GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $658,166, representing twenty percent (20%) of
the Purchase Price (the "Escrow Fund"), based upon the public offering price of
the GRS Common Stock to be sold in its initial public offering (the "Offering")
and (B) to the Stockholders in accordance with Exhibit A hereto, of such number
of shares of GRS Common Stock as shall have a value equal to $1,151,790 based
upon the public offering price of the GRS Common Stock to be sold in the
Offering. The shares of GRS Common Stock to be so held in escrow shall be held
by the Escrow Agent for a period of one year following the Closing in accordance
with the terms of an Escrow Agreement in the form of Exhibit B hereto (the
"Escrow Agreement"), and shall thereafter be restricted from transfer for an
additional one-year period in accordance with the terms, and subject to the
conditions, of a Lock-Up Agreement in the form of Exhibit C hereto (the "Lock-Up
Agreement"). The Stockholders shall receive cash in lieu of fractional shares.
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
2
<PAGE> 7
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933
ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE
TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b), if
any, and within 10 days prior to the Closing, GRS shall notify the Stockholders
in writing of its determination of the Purchase Price Adjustment, if any, and
the cash portion of the Purchase Price to be paid to the Stockholders on the
Closing Date (the "Purchase Price Notice"), subject to Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by
GRS to the Stockholders of a Purchase Price Notice, the Stockholders may deliver
to GRS a written notice advising GRS either that the Stockholders (A) agree with
the calculation of the Purchase Price Adjustment, or (B) believe that one or
more adjustments are required. If the Stockholders shall concur with the
calculation of the Purchase Price Adjustment, if any, or if the Stockholders
shall not object thereto in a written notice delivered to GRS within five (5)
business days after the Stockholders' receipt of the Purchase Price Notice, the
Purchase Price as set forth in the Purchase Price Notice, if any, shall become
final and shall not be subject to further review, challenge or adjustment absent
fraud.
(ii) In the event that GRS submits the Purchase Price
Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the disagreements
with respect to the proposed Purchase Price Adjustment prior to the Closing,
then such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing roofing or construction
companies and selected by mutual agreement of Stockholders and GRS (the
"Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the event
that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination not more than five (5) days after such referral. The costs and
expenses of the services of the Settlement Accountants shall be paid equally by
the Company and GRS. Pending the final determination by the Settlement
Accountants of the Purchase Price Adjustment, if any, (the "Final
Determination"), the difference between the determination by the Stockholder and
GRS of the Purchase Price Adjustment, if any, shall be withheld from the cash
portion of the Purchase Price to be delivered pursuant to Section 1.03(a) and
shall be paid in accordance with and upon the Final Determination. Any such
dispute shall not delay the Closing.
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<PAGE> 8
(c) After the final determination of the Purchase Price
pursuant to Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the
adjustment determined pursuant thereto shall be deducted from the cash portion
of the Purchase Price and allocated among the Stockholders in accordance with
their respective Proportionate Share.
Section 1.05 Excluded Assets. Prior to the Closing, the Company shall
be permitted to distribute to the Stockholders as a dividend those assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are not
required by the Company in the conduct of its operations and which are listed in
Schedule 1.05 hereto.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean Leslie S. Buckner or any person appointed as a
successor Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all
obligations under this Agreement have been discharged (including all
indemnification obligations hereunder and all obligations under the Escrow
Agreement), the Stockholders who, immediately prior to the Closing, held Company
Common Stock representing an aggregate number of shares of Company Common Stock
which exceeded 50% of the amount of such Company Common Stock outstanding
immediately prior to such time (a "Majority"), may, from time to time upon
written notice to the Stockholders' Representative and GRS, remove the
Stockholders' Representative or appoint a new Stockholders' Representative to
fill any vacancy created by the death, incapacitation, resignation or removal of
the Stockholders' Representative. Furthermore, if the Stockholders'
Representative dies, becomes incapacitated, resigns or is removed by a Majority,
the Majority shall appoint a successor Stockholders' Representative to fill the
vacancy so created. If the Majority is required to but has not appointed a
successor Stockholders' Representative within 20 business days from a request by
GRS to appoint a successor Stockholders' Representative, GRS shall have the
right to appoint a Stockholders' Representative to fill any vacancy so created,
and shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right and power to execute the Escrow
Agreement on their behalf with such changes or amendments thereto as the
Stockholders' Representative shall determine to be necessary or desirable in his
sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
(d) GRS shall have no liability to any Stockholder or
otherwise arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders or with the Stockholders'
Representative. GRS may rely entirely on its dealings with, and notices to and
from, the Stockholders' Representative to satisfy any obligations it might have
to the Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders,
4
<PAGE> 9
unless such Claims allegedly occurred as a result of the willful misconduct or
negligence by the Stockholders' Representative.
Section 1.07 Earn-Out.
(a) As additional consideration for the sale of the Company
Common Stock, subject to the provisions of Section 1.07(c), if the Company's
EBIT (as defined and determined pursuant to Section 1.07(b) hereof) for the 12
month period following the month in which the Closing occurs (the "Earn-Out
Period"), is equal to or exceeds $435,586, as determined by reference to the
financial statements of the Company prepared in accordance with GAAP, GRS shall
deliver to the Stockholders within 60 days of the last day of the Earn-Out
Period for allocation among the Stockholders in accordance with their respective
Proportionate Share an amount (the "Earn-Out Amount") equal to (i) the Company's
EBIT in excess of $435,586, up to a maximum EBIT of $467,586 multiplied by (ii)
six (6). The Earn-Out Amount shall be paid in (i) cash by wire transfer of
immediately available funds, (ii) by the delivery of such number of shares of
GRS Common Stock as shall have a value equal to the Earn-Out Amount as computed
in accordance with Section 1.07(e) hereof, or (iii) a combination of cash and
GRS Common Stock, the form of such consideration to be determined by the
Stockholders' Representative.
(b) For purposes of this Section 1.07, "EBIT" shall mean the
combined net income of the Company before interest and federal and state income
taxes, and general corporate overhead allocations, modified as follows:
(i) to the extent included in the combined net income
of the Company, excluding the effect of the following items;
(A) the gain or loss from any sale, exchange
or other disposition of assets other than in the ordinary course of business
consistent with past practice.
(B) any extraordinary gain or loss;
(C) any reserves or adjustments to reserves
which are not consistent with past practices of the Company; and
(D) any other adjustments agreed to in
writing by GRS and the Stockholders.
(c) Within 30 days after the last day of the Earn-Out Period,
GRS shall prepare and deliver to the Stockholders' Representative a statement
setting forth in reasonable detail the computation of EBIT, including
identification of all excluded items and adjustments and all necessary
calculations in accordance with Section 1.07(b) hereof. The calculation of EBIT
shall be used in determining the amounts to be paid under this Section 1.07
unless the holders of at least 50% of the Shares on the date hereof give GRS
notice (the "EBIT Dispute Notice") that such Stockholders dispute GRS'
calculation of EBIT within ten (10) days after the initial determination of EBIT
has been given to the Stockholders, which notice shall set forth in reasonable
detail the exclusions or calculations being disputed in good faith (the
"Disputed Matters"). In the event an EBIT Dispute Notice is timely given to GRS,
GRS and the Stockholders shall have fifteen (15) days to resolve the dispute
and, if not resolved, the dispute shall be submitted to an internationally
recognized "Big Six" accounting firm or its successor (other than GRS'
accountants and the Stockholders' accountants (the "EBIT Arbitrator"), selected
by GRS and the Stockholders which shall be instructed to arbitrate such disputed
item(s) and determine EBIT within thirty (30) days. If within five days
following the expiration of such fifteen (15) day period, GRS and the
Stockholders have failed to agree in writing upon the selection of the EBIT
Arbitrator or any EBIT Arbitrator selected by them has not agreed to perform the
services called for hereunder, the EBIT Arbitrator shall thereupon be selected
by the American Arbitration Association (the "AAA"), with preference being given
by the AAA in making such selection to any one of the "Big Six" accounting firms
willing to perform such services. The EBIT Arbitrator shall consider only the
Disputed Matters. The resolution of disputes by the EBIT Arbitrator shall be set
forth in writing and shall be conclusive and binding upon and non-appealable by
the parties, and the determination of EBIT shall become final upon the date of
such resolution, and may be entered as a final judgment in any court of proper
jurisdiction. The fees and expenses of the EBIT Arbitrator with respect to
5
<PAGE> 10
settlement of each Disputed Matter shall, to the extent such fees and expenses
are allocable, be borne in each such instance by the party against whom the
award of the EBIT Arbitrator is made, and if allocation is not feasible in any
such instance, then such fees and expenses shall be borne by the parties in
reverse proportion to the number of Disputed Matters settled in their respective
favor by the EBIT Arbitrator.
(d) Notwithstanding anything in this Agreement to the
contrary, if an EBIT Dispute Notice has been delivered with respect to any
payment to be made under this Section 1.07, and the dispute has not been
resolved by the payment due date, (i) the amount not in dispute shall be paid as
required hereunder, and (ii) GRS shall have no obligation to pay any amount
until ten (10) days after the date on which the dispute is resolved.
(e) In the event that the Stockholders' Representative elects
to receive GRS Common Stock as payment, in whole or in part, of the Earn-Out
Amount, the number of shares of GRS Common Stock to be so delivered shall be
based upon the average closing price of GRS Common Stock as quoted on the Nasdaq
Stock Market's National Market on the last five (5) business days of the
Earn-Out Period.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued
and outstanding shares of Company Common
Stock in proper form for transfer to GRS;
(ii) the resignations of all members of the board
directors of the Company as set forth in
Section 7.03(m);
(iii) the stock books, stock ledgers, minute books
and corporate seals of the Company;
(iv) a certificate executed by the Company to the
effect that the conditions set forth in
Sections 7.03(b) through 7.03(i), have been
satisfied;
(v) the opinion of counsel set forth in Section
7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant
to Section 7.03(o).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available
funds to the Stockholders the payment
described in Section 1.03(a) as being
required to be paid by GRS at Closing;
6
<PAGE> 11
(ii) by delivery to the Stockholders the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Stockholders at Closing;
(iii) by delivery to the Escrow Agent the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Escrow Agent at Closing;
(iv) a certified copy of all necessary corporate
action on behalf of GRS approving its
execution, delivery and performance of this
Agreement and the Collateral Agreements to
which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized
officer of GRS to the effect that the
conditions set forth in Sections 7.02(b) and
7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section
7.02(d); and
(vii) the executed Collateral Agreements to which
it is a party.
(viii) an opinion letter from Deloitte & Touche to
GRS which provides that the consummation of
the transactions described in this Agreement
will qualify as a Section 351 Plan of
Exchange within the meaning of the Internal
Revenue Code.
Section 2.04 Termination in Absence of Closing. If by the close of
business on December 31, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability of
or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party to
perform its obligations under this Article II on such date; provided, however,
that any termination pursuant to this Section 2.04 shall not relieve any party
hereto who was responsible for Closing having not occurred as described in
clauses (i) or (ii) above of any liability for (x) such party's willful breach
of the provisions of this Agreement, or (y) if all of the conditions to such
party's obligations set forth in Article VII have been satisfied or waived in
writing by the date scheduled for the Closing pursuant to Section 2.01, the
failure of such party to perform its obligations under this Article II on such
date. Notwithstanding the foregoing, the Stockholders expressly acknowledge and
agree that market and economic conditions are impossible to predict, and
although GRS intends to proceed with the Offering in an expeditious manner at
this time, GRS shall not be liable to the Stockholders or the Company if the
Closing has not occurred because the Offering has not been consummated prior to
the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense, to have access to the
books, records, employees, counsel, accountants, and other representatives of
the Company at all times reasonably requested by GRS for the purpose of
conducting an investigation ("GRS' Due Diligence Investigation") of the
Company's financial condition, corporate status, operations, business and
Properties. The Stockholders shall make available to GRS for examination and
reproduction, at GRS' own expense, all documents and data of every kind and
character relating to the Company in possession or control of, or subject to
reasonable access by, the Stockholders or the Company, including, without
limitation, all files, records, data and information relating to the Company
Assets (whether stored in paper, magnetic or other storage media) and all
agreements, instruments, contracts, assignments, certificates, orders, and
amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and workmanlike manner, (d) pay or cause to
be paid all costs and expenses (including but not limited to insurance premiums)
incurred in connection therewith in a timely manner, (e) use reasonable efforts
to keep all Company Contracts listed or required to be listed on Schedule 3.12
in full force and effect, (f) comply with all of the covenants contained in all
such Company Contracts, (g) maintain in force until the Closing Date insurance
policies (subject to the provisions of Section 6.06) equivalent to those in
effect on the date hereof, and (h) comply in all material respects with all
applicable Legal Requirements. Except as otherwise contemplated in this
Agreement, the Stockholders shall use their best efforts to preserve the present
relationships of the Company with persons having significant business relations
therewith.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS, the
Company shall not:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof, declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of
its capital stock, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in
respect of, in view of or in substitution for shares of its capital
stock, or (C) purchase, redeem or otherwise acquire any
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shares of capital stock of the Company or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities;
(iii) amend its Articles of Incorporation or By-laws
(or similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation,
partnership, joint venture, association or other business organization
or division thereof or (B) any assets that are material, individually
or in the aggregate, to the Company, except purchases of assets in the
ordinary course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of, or agree to sell, transfer, lease,
mortgage, encumber or otherwise dispose of, any Properties except (A)
in the ordinary course of business consistent with past practice, or
(B) pursuant to any Company Contract or except as permitted by Sections
1.05 and 3.02 hereof;
(vi) (A) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company, guarantee any debt securities of another
person, enter into any "keep well" or other agreements to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of the foregoing, except for
borrowings incurred in the ordinary course of business consistent with
past practice, or (B) make any loans, advances or capital contributions
to, or investments in, any other person;
(vii) make or agree to make any new capital
expenditure or expenditures which, individually is in excess of $25,000
or, in the aggregate, are in excess of $50,000 (other than those
required pursuant to currently outstanding Company Contracts or in the
ordinary course of business consistent with past practice);
(viii) make any material tax election or settle or
compromise any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with
past practice or in the accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Company
Financial Statements (or the notes thereto) or incurred in the ordinary
course of business consistent with past practice, or waive any material
benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which the Company
is a party;
(x) except in the ordinary course of business
consistent with past practice, modify, amend or terminate any Company
Contract;
(xi) except in the ordinary course of business
consistent with past practice, enter into any contracts, agreements,
arrangements or understandings relating to performance by third parties
of the Company's services;
(xii) except as required to comply with applicable
law (A) adopt, enter into, terminate or amend any benefit plan or other
arrangement for the benefit or welfare of any director, officer or
current or former employee, (B) increase in any manner the compensation
or fringe benefits of, or pay any bonus to, any director, officer or
employee (except in a manner consistent with past practice), (C) pay
any benefit not provided for under any benefit plan, (D)
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<PAGE> 14
grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or benefit plan (including the grant
of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or the removal
of existing restrictions in any benefit plans or agreement or awards
made thereunder) or (E) take any action to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take
any of, the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto
shall use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of the conditions to such
other party's obligation to consummate the transactions contemplated hereby as
specified in Article VII of this Agreement to be fully satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and
the Closing, any of the Properties of the Company shall be destroyed or damaged
in whole or in part by fire, earthquake, flood, other casualty or any other
cause (a "Casualty Loss"), then the Stockholders shall, at GRS' election, (i)
cause the Company to cause such Properties to be repaired or replaced prior to
the Closing with Property of substantially the same condition and function, (ii)
cause the Company to deposit in a separate account an amount sufficient to cause
such Property to be so repaired or replaced, or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause
the Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to, (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
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other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company, or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before Closing, Stephen
Buckner and Donald Parrish shall have entered into employment agreements in the
form of Exhibits G and H (the "Employment Agreements"), which shall include
noncompetition provisions, to take effect on and after the Closing Date.
Section 6.10 Noncompetition Agreement. On or before Closing, Leslie
Buckner and Marilyn Parrish shall have entered into noncompetition agreements in
the form of Exhibits I and J (the "Noncompetition Agreements"), to take effect
on and after the Closing Date.
Section 6.11 Lock-Up Agreement. On or before Closing, the Stockholders
shall have entered into the Lock-Up Agreement.
ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the date of the Closing; provided, however,
that no provision of this Agreement shall be construed as requiring any party to
accept, in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no transfers of
licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any
statute, rule, regulation, decree, ruling, injunction or other order issued by
any Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in
this Agreement qualified by materiality shall be true and correct in all
respects at Closing and all other representations and
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warranties of GRS contained in this Agreement shall be true and correct in all
material respects at and as of the Closing, as if such representations and
warranties were made at and as of the Closing, except for changes contemplated
by the terms of this Agreement except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms thereof, and GRS
shall have performed and satisfied in all material respects all covenants and
agreements required by this Agreement to be performed and satisfied by GRS at or
prior to the Closing; provided, however, that no Stockholder shall be entitled
to refuse to consummate the transaction in reliance upon its own breach or
failure to perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the
Stockholders or the Company) shall be pending or threatened before any
Governmental Authority seeking to restrain the Stockholders from effectuating
the Stock Purchase or prohibit the Closing or seeking Damages against the
Stockholders or the Company as a result of the consummation of the transactions
contemplated by this Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
H. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and
the Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) GRS shall have furnished the Stockholders and the Company
with an opinion letter from Deloitte & Touche to GRS which provides that the
consummation of the transactions described in this Agreement will qualify as a
Section 351 Plan of Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS
to carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered
to GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of GRS) shall be
pending or threatened before any court or governmental agency seeking to
restrain GRS or prohibit the Closing or seeking Damages against GRS, the
Stockholders, the Company or its Properties as a result of the consummation of
the transactions contemplated by this Agreement.
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(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from
the date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations,
prospects or financial condition of the Company that had or would reasonably be
likely to have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company
(whether or not covered by insurance) that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company.
(f) GRS shall have received the opinion of Dale & Eke P.C.
("Sellers' Counsel"), counsel to the Company and the Stockholders, dated as of
the Closing Date, in form and substance reasonably satisfactory to GRS, as to
the matters set forth on Exhibit L. In rendering such opinion, Sellers' Counsel
may rely as to factual matters on certificates of officers, directors and
shareholders of the Company and on certificates of governmental officials, and
as to legal matters on opinions of other counsel reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall be equal to or
greater than the Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined
by reference to the Closing Date Unaudited Balance Sheet shall not be less than
$616,253. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness determined in accordance with GAAP.
(j) The Stockholders shall have executed and delivered to GRS
the Escrow Agreement.
(k) GRS shall have received the executed Employment
Agreements.
(l) GRS shall have received the executed Noncompetition
Agreements.
(m) GRS shall have received the resignation of all of the
members of the board of directors of the Company, effective as of the Closing
Date.
(n) All proceedings to be taken by Stockholders and the
Company in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in form and substance to GRS
and its counsel, and GRS and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request.
(o) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company), except where the failure to have obtained
any such consent would not have an adverse effect on the Company or GRS
following the Closing.
(p) GRS shall be satisfied in its sole and absolute discretion
with GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
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(q) GRS shall have determined, in its reasonable discretion,
that all agreements between the Company, and the Stockholders, shall be on terms
as favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(r) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company
and the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
knowledge, and the other party or parties (or any of them) are not aware, that
such representation or warranty is untrue or incorrect in any material respect.
All such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to
the limitations contained in Article VIII and Article IX hereof, the
Stockholders, jointly and severally, agree to indemnify, defend and hold
harmless GRS (and its Affiliates, successors and assigns and their respective
officers and directors) from and against all losses, liabilities, damages,
deficiencies, costs or expenses (including interest, penalties and reasonable
attorneys' fees and disbursements, but offset by any proceeds from insurance and
taking into account the present value of any tax savings to GRS or the Company
resulting from such losses, liabilities, damages, deficiencies, costs or
expenses) ("Losses") based upon, arising out of or otherwise in respect of (i)
any inaccuracy in or any breach of any representation, warranty, covenant or
agreement of the Company or the Stockholders contained in this Agreement, (ii)
liabilities for Taxes and (iii) any liability arising out of any subsequent
adjustment by any tax authorities with respect to items attributable to periods
prior to the Closing Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by
any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a claim
or the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
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(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at their
own expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any such compromise or settlement consented to by
GRS, shall be borne and paid by the Stockholders. The parties agree to cooperate
fully with one another in the defense, compromise or settlement of any Asserted
Liability.
Section 9.04 Limitations on Indemnification. The indemnification
provided for in Sections 9.01 and 9.02 shall be subject to the following
limitations:
(i) The Stockholders shall not be obligated to pay
any amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders
shall be obligated to pay any amounts for indemnification under this Article IX,
except those based upon, arising out of or otherwise in respect of Sections
3.02, 3.13, 3.21, 3.28, 5.22, 9.01 (ii) and (iii), 11.01 and 11.02 and Article
IV hereof (the "Basket Exclusions"), until the aggregate indemnification
payments, exclusive of the Basket Exclusions, equals one percent (1%) of the
Purchase Price (the "Basket Amount"), whereupon GRS, or the Company and
Stockholders, as the case may be, shall be obligated to pay any indemnification
payments including the Basket Amount in full. It is expressly understood that
the Basket Amount shall serve as a "trigger" for indemnification and not as a
"deductible" (for example, if the indemnity claims for which GRS or the
Stockholders would, but for the provisions of this subparagraph (ii), be liable
is in the aggregate amount of $100,000, and 1% of the Purchase Price is $70,000,
the Stockholders would then be liable for the entire $100,000 and not just
$30,000). This Section 9.04(ii) will not apply to any breach of any
representations and warranties of which any party had actual Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by any party of any covenant or obligation, and GRS or the
Stockholders, as the case may be, will be jointly and severally liable for all
damages with respect to such breaches.
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<PAGE> 20
(iii) GRS, the Company and Stockholders shall be
obligated to pay the Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to whether the aggregate amount of
all other indemnification payments shall have exceeded, in the aggregate, the
Basket Amount.
(iv) Notwithstanding anything to the contrary in
this Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights
set forth in this Article IX shall be each party's sole and exclusive remedy
against the other party for any breach of any representation, warranty or
covenant contained in this Agreement. Notwithstanding the foregoing, nothing
herein shall prevent any party from bringing an action based upon allegations of
fraud in connection with this Agreement. In the event an action based upon
allegations of fraud is brought, the prevailing party's attorneys' fees and
costs shall be paid by the nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses
with respect to accounts receivable reflected on the Closing Date Unaudited
Balance Sheet only if and to the extent that such accounts receivable, except
for Contract Retention, remain uncollected 180 days from the Closing Date.
Contract Retention will be considered uncollectible, and be deemed a Loss, if it
remains uncollected 350 days from the Closing Date. Because the Purchase Price
is predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers losses from the failure to collect accounts
receivable of the Company or Contract Retention and such losses result in a
set-off from the Escrow Fund, the related accounts receivable or Contract
Retention shall be assigned to the Stockholders following, and to the extent of,
such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to
Section 9.04 and, paragraphs (b) and (c) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
first be satisfied against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15)
days' notice (the "GRS Notice") of its intention to deduct or set-off any
amounts pursuant to this Section 9.05, including in such notice a description of
GRS' indemnification claim. If none of the Stockholders object in writing to
such deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
16
<PAGE> 21
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or
make, or cause to have issued or made, any public release or announcement
concerning this Agreement or the transactions contemplated hereby, without the
advance approval in writing of the form and substance thereof by each of the
other parties, and the parties shall endeavor jointly to agree on the text of
any announcement or circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each
of the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur,
(i) each Stockholder shall jointly and severally indemnify and hold harmless GRS
and the Company from and against any and all liability for any brokers or
finders' fees arising with respect to brokers or finders retained or engaged by
the Company or any of the Stockholders in respect of the transactions
contemplated by this Agreement, , and (ii) GRS shall indemnify and hold harmless
the Stockholders from and against any and all liability for any brokers' or
finders' fees arising with respect to brokers or finders retained or engaged by
GRS in respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
17
<PAGE> 22
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDER: Stephen Buckner
Blackmore & Buckner Roofing Co.
1256 Roosevelt Avenue
Indianapolis, Indiana 46202
Telecopy No.: (317) 263-0727
With a copy to:
Dale & Eke P.C.
9100 Keystone Crossing, Suite 400
Indianapolis, Indiana 46240
Attention: Jeff Rainbolt
Telecopy No.: (317) 574-9426
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
Section 11.05 Representations and Warranties. Each of the
representations and warranties of each of the parties to this Agreement shall be
deemed to have been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or
18
<PAGE> 23
other agreements between the parties in connection with the subject matter
hereof except as set forth specifically herein or contemplated hereby. No
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this
Agreement are cumulative, and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies. Such rights and remedies are given in addition to any other
rights and remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference. Disclosure of a specific item in any one schedule shall be deemed
restricted only to the Section to which such disclosure specifically relates
except where (i) there is an explicit cross-reference to another Schedule, and
(ii) GRS could reasonably be expected to ascertain the scope of the modification
to a representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and is used
in this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which
contemplates performance or the existence of obligations after the Closing Date,
and any and all representations and warranties set forth in this Agreement,
shall not be deemed to be merged into or waived by the execution and delivery of
the instruments executed at the Closing, but shall expressly survive Closing for
the time period set forth in Section 8.01 hereof and shall be binding upon the
party or parties obligated thereby in accordance with the terms of this
Agreement, subject to any limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
19
<PAGE> 24
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined in
this Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect
to any person, any other person controlling, controlled by or under common
control with such person. The term "Control" as used in the preceding sentence
means, with respect to a corporation, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to any person other
than a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements"
shall mean any or all of the following agreements, the forms of which are
attached hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for Stephen Buckner
Exhibit H - Employment Agreement for Donald Parrish
Exhibit I - Noncompetition Agreement for Leslie Buckner
Exhibit J - Noncompetition Agreement for Marilyn Parrish
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean,
with respect to the Company, all of the Properties, Company Contracts, and
Permits, that were Used by the Company as of the Balance Sheet Date and those
Used by the Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall
mean any amounts withheld by customers from contract progress billing until
final and satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean,
with respect to the Company, cash and other assets that are expected to be
converted into cash, sold or exchanged within one year from the Closing Date,
including marketable securities, receivables, inventory and current prepayments.
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Damages. The term "Damages" shall mean any and all
damages, liabilities, obligations, penalties, fines, judgments, claims,
deficiencies, losses, costs, expenses and assessments (including without
limitation income and other Taxes, interest, penalties and attorneys' and
accountants' fees and disbursements).
20
<PAGE> 25
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers with respect to the representation
being made, and such knowledge of any such persons as reasonably should have
obtained upon due investigation and inquiry into the representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all
permits or orders under any Legal Requirement or otherwise granted by any
Governmental Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
21
<PAGE> 26
Section 12.17 Regulations. The term "Regulations" shall mean any and
all regulations promulgated by the Department of the Treasury pursuant to the
Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss.59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes"
shall mean the deferred tax assets and liabilities required to be recorded under
GAAP to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg Wallick
---------------------------------
Gregg Wallick, President
BLACKMORE & BUCKNER ROOFING, INC.
By: /s/ Stephen Buckner
---------------------------------
Stephen Buckner
President
STOCKHOLDER:
/s/ Stephen Buckner
------------------------------------
Stephen Buckner
/s/ Leslie Buckner
------------------------------------
Leslie Buckner
/s/ Donald Parish
------------------------------------
Donald Parrish
<PAGE> 27
EXHIBIT A
<TABLE>
<CAPTION>
Percentage
Number of Shares of Company (%) of
Name Common Stock Purchased Ownership
---- ---------------------- ---------
<S> <C> <C>
Stephen A. Buckner.......................................9,880 34.05%
Donald D. Parrish........................................9,728 33.53%
Leslie S. Buckner........................................4,861 16.75%
Marilyn Parrish..........................................4,545 15.67%
Total..........................................29,014 100%
</TABLE>
2
<PAGE> 28
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Indiana, and is not required to
be qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company , copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been
made available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in
any partnership or joint venture, or own any outstanding capital stock of any
other corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized
capital stock of the Company consists of 40,000 shares of Company Common Stock.
The issued and outstanding shares of Company Common Stock are owned of record
and beneficially by the Stockholders shown on Exhibit A hereof. All of the
presently outstanding shares of capital stock of the Company have been validly
authorized and issued and are fully paid and nonassessable. The Company has not
issued any other shares of its capital stock and there are no outstanding
options, warrants, subscriptions or other rights or obligations to purchase or
acquire any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, except as set forth on Schedule 3.02. Except as
contemplated under this Agreement, there are no agreements to which the Company
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock. Except for possible dividends to be
issued in connection with the Excluded Assets as described in Section 1.05 and
dividends related to the payment of the Stockholders' tax liabilities with
respect to earnings of the Company up to the Closing Date, each and all of which
shall be subject to the prior written approval of GRS, no dividends are accrued
but unpaid on any capital stock of the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set
forth in Schedule 3.04 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the Articles of Incorporation or bylaws of the
Company;
(ii) violate any Legal Requirements applicable to the
Company ;
<PAGE> 29
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to the Company;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of the Company;
or
(v) require any of the Stockholders or the Company
to obtain or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority. Any and all consents required to be
obtained by the Company as set forth in Schedule 3.04 shall be obtained and
copies thereof delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no
suit, action or other proceeding is pending or, to the Knowledge of the Company
or the Stockholders, threatened before any Governmental Authority seeking to
restrain any of the Stockholders or prohibit their entry into this Agreement or
prohibit the Closing, or seeking damages against the Company or its Properties,
as a result of the consummation of the transactions contemplated by this
Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true
and correct copies of the Company's (i) Closing Date Unaudited Balance Sheet,
(ii) unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
three months ended March 31, 1998 (the "Interim Company Financial Statements"),
as well as (iii) the Company's balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended December 31, 1997 (the "Company Financial Statements"). The Company
Financial Statements (i) have been prepared from the books and records of the
Company, (ii) present fairly the financial condition of the Company and its
results of operations as at and for the respective periods then ended, and (iii)
have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in
Schedule 3.07, the Company Financial Statements reflect all liabilities of the
Company as determined in accordance with generally accepted accounting
principles arising out of transactions effected or events occurring on or prior
to the date of the Interim Company Balance Sheet, except for liabilities not
exceeding $10,000 in the aggregate. All reserves shown in the Company Financial
Statements are appropriate and reasonable to provide for losses thereby
contemplated. Except as set forth in the Company Financial Statements (including
the Notes thereto), the Company is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in
Schedule 3.08, the accounts receivable reflected on the Interim Company Balance
Sheet and all accounts receivable arising between the date of the Interim
Company Balance Sheet (the "Interim Company Balance Sheet Date") and the date
hereof, arose from bona fide transactions in the ordinary course of business,
and the goods and services involved have been sold, delivered and performed to
the account of the obligors, and no further filings (with Governmental
Authorities, insurers or others) are required to be made, no further goods are
required to be provided and no further services are required to be rendered in
order to complete the sales and fully render the services and to entitle the
Company to collect the accounts receivable in full. No such account has been
assigned or pledged to any other person, firm or corporation, and, except only
to the extent fully reserved against as set forth in the Interim Company Balance
Sheet, no defense or setoff to any such account has been asserted by the account
obligor.
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Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ended December 31, 1997 and 1996, respectively, and (ii)
any promised increases in compensation of the Company Key Employees that have
not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of
all Compensation Plans sponsored by the Company or to which the Company
contributes on behalf of its employees, other than Employee Benefit Plans listed
in Schedule 3.10. As used herein, "Compensation Plans" shall mean and include,
without limitation, plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 3.09(c) and in Section
3.09(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate
list of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company (i) has been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), (i) the Company
has not been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit, and
(iii) the employees of the Company have not threatened to organize or join a
union, labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
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Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency. No prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter
or ruling from the Internal Revenue Service for each Employee Benefit Plan
intended to be qualified within the meaning of Section 401 (a) of the Code
and/or tax exempt within the meaning of Section 501(a) of the Code, which letter
or ruling is current and covers all required amendments to each such Employee
Benefit Plan through the Closing Date. No proceedings exist or, to the Knowledge
of the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) The Company has no obligation or commitment to provide
medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in
Schedule 3.11, from the Interim Company Balance Sheet Date to the date of this
Agreement, the Company has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company, or any Stockholder, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
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(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any
Company Assets (whether or not covered by insurance) that has materially
adversely affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05;
(i) written up or written down the carrying value of any of
the Company Assets, except in the ordinary course of business consistent with
past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or
Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights or paid any
dividends or made any distribution to the holders of the Company's capital
stock;
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(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which the Company is a party (the "Company Contracts") set forth in Schedule
3.12, the Company has not entered into, nor is the capital stock, the assets or
the business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any
Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
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(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not
received notice of any plan or intention of any other party to any Company
Contract to exercise any right to cancel or terminate any Company Contract. The
Company does not currently contemplate, and has no reason to believe any person
or entity currently contemplates, any amendment or change to any Company
Contract. None of the customers, joint venture partners or suppliers of the
Company has refused, or communicated that it will or may refuse, to purchase or
supply goods or services, as the case may be, or has communicated that it will
or may substantially reduce the amounts of goods or services that it is willing
to purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will
maintain through the Closing Date, comprehensive insurance coverage with respect
to all of its completed operations. The Company has previously made available to
GRS all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except as set forth on Schedule 3.14(a), the Company owns
all patents, trade-marks, service marks and copyrights (collectively
"Proprietary Rights"), if any, necessary to conduct its business, or possesses
adequate licenses or other rights, if any, therefor, without conflict with the
rights of others. Set forth in Schedule 3.14(a) is a true and correct
description of all Proprietary Rights.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock Purchase, GRS will have the
right to use all Proprietary Rights without any obligation to pay any additional
amounts whatsoever. Use of the Proprietary Rights does not require the consent
of any other person and
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the Proprietary Rights are freely transferable. No claim has been asserted by
any person to the ownership of or right to use any Proprietary Right or
challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
the Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has
good and marketable title to the Company Assets, including, without limitation,
those reflected on the Interim Company Balance Sheet (other than those since
disposed of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 3.15(c). The Company enjoys
peaceful and undisturbed possession under all real property leases under which
the Company is operating, and all such leases are valid and subsisting and none
of them is in default, except for those defaults which, individually or in the
aggregate, would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material
franchises, Permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its businesses as presently
conducted. The business and operations of the Company have been and are being
conducted in accordance in all material respects with all applicable laws, rules
and regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in
Schedule 3.17, there are no claims, actions, suits, investigations or
proceedings against the Company pending or, to the Knowledge of the Company,
threatened in any court or before or by any Governmental Authority, or before
any arbitrator, that could reasonably be expected to have a material adverse
effect (whether covered by insurance or not) on the business, operations,
prospects, Properties, securities or financial condition of the Company. Except
as otherwise set forth in Schedule 3.17, the Company is not in default under,
and no condition exists (whether covered by insurance or not) that with or
without notice or lapse of time or both would (i) constitute a default under, or
breach or violation of, any Company Contract of the Company or any Legal
Requirement or Permit applicable to the Company, or (ii) accelerate or permit
the acceleration of the performance required under, or give any other party the
right to terminate, any Company Contract, other than defaults, breaches,
violations or accelerations that would not have a material adverse effect on the
business, operations, prospects, Properties, securities or financial condition
(a "Material Adverse Effect") of the Company.
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Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of
the Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which Company Business is or was, or, to knowledge of the Company,
at which the business of its predecessors was, located which would have a
Material Adverse Effect on the Company. With respect to underground storage
tanks, Schedule 3.18(b) sets forth the size, location, construction,
installation date, use and testing history of all underground storage tanks
(whether or not excluded from regulation under Environmental Law), including all
underground storage tanks in use, out of service, closed, abandoned,
decommissioned, or sold to a third party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of
the Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to
the best knowledge of the Company, threat of a "release" of any Hazardous
Substance on, from or under any premises from which (i) the Company's operations
have been or are being conducted related to the Company Business. or (ii) to the
Knowledge of the Company, the operations of any predecessor of the Company which
would have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the
Company's and, to the Knowledge of the Company, its predecessor's, Hazardous
Substances disposal and recycling practices related to the Company Business have
been accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall
not be interpreted to imply that GRS has constructive knowledge regarding any
aspect of the Company Business with respect to environmental matters nor to
limit the scope of any of the Company's or any Stockholders' representations
under this Agreement. No such due diligence examination or related activities
of, or on behalf of, GRS however, shall constitute a waiver or relinquishment by
GRS of its right to rely upon the Company's or any Stockholders'
representations, warranties, covenants and agreements as made herein or pursuant
hereto, and no such disclosure shall constitute an assumption by GRS of any
conditions or liabilities, and such disclosure shall not relieve the Company or
any Stockholder of its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or safe deposit box or vault, (ii)
the names of all persons authorized to draw thereon or to have access to any
safe deposit box or vault, (iii) the purpose of each such account, safe deposit
box or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of
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the Company in matters concerning any of its business or affairs. Except as
otherwise set forth in Schedule 3.19, no such proxies, powers of attorney or
other like instruments are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth
all the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve month period
ended December 31, 1997, as well as each of the principal customers of the
Company. Except as otherwise set forth in Schedule 3.20, since December 31,
1997, there has been no material adverse change in the business relationship of
the Company with any supplier or customer named in Schedule 3.20. No customer or
supplier named in Schedule 3.20 has terminated or materially altered, or
notified the Company of any intention to terminate or materially alter, its
relationship with the Company, and the Company has no reason to believe that any
such customer or supplier will terminate or materially alter its relationship
with the Company or to materially decrease its services or supplies to the
Company or its direct or indirect usage of the services of the Company. For
purposes of Sections 3.20 and 3.23, "material suppliers" refers to suppliers
from whom the Company purchased five percent (5%) or more of the total amount of
the goods purchased by the Company during the twelve month period ended December
31, 1997 and the three month period ended March 31, 1998, and "principal
customers" refers to customers who accounted for 5% or more of the Company's
total revenues during the twelve month period ended December 31, 1997 and the
three month period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by the Company or the Stockholders to GRS or its counsel,
do not contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set
forth in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. No director or executive
officer of the Company owns directly or indirectly any material interest or has
any investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of the
Company.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate (other than from personal funds of directors,
officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law).
Section 3.26 Government Inquiries. Except as set forth on Schedule
3.26, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal
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Trade Commission, National Labor Relations Board, and Interstate Commerce
Commission), any state securities administrator or any local or state taxing
authority.
Section 3.27 Other Transactions. Neither the Company nor any
Stockholder has entered into any agreements or arrangements and there are no
pending offers or discussions concerning or providing for the merger or
consolidation of the Company or all or any substantial portion of its assets,
the sale by the Company or any Stockholder of any securities of the Company or
any similar transaction affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income
Tax Returns, and all other material Tax Returns which it is required to file
under applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Closing Date
Unaudited Balance Sheet is sufficient to pay in full all liabilities for Taxes
of the Company related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company
have been filed through the date hereof, and, as of the date hereof, none of
such Tax Returns has been audited.
(vi) the Company has been a validly existing S
corporation within the meaning of Sections 1361 and 1362 of the Code at all
times since October 1986, and will continue to be an S corporation up to and
including the date immediately preceding the Closing Date; and
(vii) the Company has disclosed in its federal income
Tax Returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC ss. 6662.
(b) To the Knowledge of the Company, no claim has been made by
a taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local
Tax audits or administrative or judicial proceedings pending or being conducted
with respect to the Company;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority; and
(iii) there are no material unresolved claims
concerning the Company's Tax liability.
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(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company, except where such waiver would not have a material adverse
effect on the Company.
(e) The Company has not executed or entered into a closing
agreement pursuant to IRC ss. 7121 or any predecessor provision thereof or any
similar provision of state, local or foreign law; nor has the Company agreed to
or is required to make any adjustments pursuant to IRC ss. 481(a) or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company. The Company has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC ss. 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(i) The Company has not made any payments nor is it obligated
to make payments nor is it a party to an agreement that could obligate it to
make any payments that would not be deductible under IRC ss. 280G.
(j) The Company shall prepare and permit GRS to review,
comment on and approve the federal and state income Tax Returns for the period
ending on or before the Closing Date, and shall make such revisions to such Tax
Returns as are reasonably requested by GRS. To the extent permitted by
applicable law, the Stockholders shall include any income, gain, loss, deduction
or other tax items for such period on their individual income Tax Returns in a
manner consistent with the Schedule K-1s furnished by the Company to the
Stockholders for such periods.
(k) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any New York State Gains Tax, New York
City Transfer Tax, if applicable, and any similar Tax imposed in other states
and subdivisions), shall be paid by the Stockholders when due, and the
Stockholders will, at their expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes and fees, and, if required by
applicable law, GRS will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
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EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such
Stockholder shall own beneficially and of record, free and clear of any lien,
option or other encumbrance, the shares of Company Common Stock set forth
opposite such Stockholders' name on Exhibit A hereof, and, upon consummation of
the Stock Purchase, GRS will acquire good and valid title thereto, free and
clear of any lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such
Stockholder has the full legal right and power and all authority and approval
required to enter into, execute and deliver this Agreement and to perform fully
such Stockholders' obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common
Stock to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for
its own account and not on behalf of any other person; such Stockholder is aware
and acknowledges that the GRS Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold unless the GRS Shares are registered under the Securities Act or
an exemption from the registration requirements of the Securities Act is
available;
(b) Such Stockholder has been furnished all information that
it deems necessary to enable it to evaluate the merits and risks of an
investment in GRS; such Stockholder has had a
<PAGE> 41
reasonable opportunity to ask questions of and receive answers from GRS
concerning GRS and the GRS Shares, and all such questions, if any, have been
answered to the full satisfaction of such Stockholder;
(c) No person or entity other than such Stockholder has (i)
any rights in and to the GRS Shares, which rights were obtained through or from
such Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in
financial and business matters (including knowledge and expertise in the roofing
industry) that it is capable of evaluating the merits and risks involved in an
investment in the GRS Shares: and such Stockholder is financially able to bear
the economic risk of the investment in the GRS Shares, including a total loss of
such investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal
or state agency has made any finding of determination regarding the fairness of
the offering of the GRS Shares for investment, or any recommendation or
endorsement of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of the GRS Shares, and shall not make
any sale, transfer or pledge thereof without registration under the Securities
Act and any applicable securities laws of any state or unless an exemption from
registration is available;
(i) Except as set forth herein, no representations or
warranties have been made to such Stockholder by GRS or any agent, employee or
Affiliate of GRS, and in entering into this transaction such Stockholder is not
relying upon any information, other than from the results of independent
investigation by such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of
the GRS Shares except (i) pursuant to an effective registration statement under
the Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS or other counsel reasonably satisfactory to GRS, is not required
to be registered under the Securities Act.
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EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate
Documents.
(a) GRS is a corporation duly organized, validly existing and
in good standing under the laws of Florida, and is not required to be qualified
to do business as a foreign corporation in any other jurisdiction where the
failure to so qualify would have a material adverse effect on GRS. GRS has all
required corporate power and authority to own its properties and to carry on its
business as presently conducted. The Articles of Incorporation and By-laws of
GRS, copies of which are attached as Schedule 5.01(a), are complete and reflect
all amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have
any subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized
capital stock of GRS consists of 100,000,000 shares of which 90,000,000 have
been designated as GRS Common Stock and 10,000,000 have been designated as
Preferred Stock. All of the presently outstanding shares of capital stock of GRS
have been validly authorized and issued and are fully paid and nonassessable.
Except as set forth on Schedule 5.03, GRS has not issued any other shares of its
capital stock and there are no outstanding options, warrants, subscriptions or
other rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
<PAGE> 43
(i) violate or conflict with any of the terms,
conditions or provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to
GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private non-governmental third party or any
Governmental Authority. Any and all consents required to be obtained by GRS as
set forth in Schedule 5.05 shall be obtained and copies thereof delivered to the
Company and the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no
suit, action or other proceeding is pending or, to the Knowledge of GRS,
threatened before any Governmental Authority seeking to restrain GRS or prohibit
its entry into this Agreement or prohibit the Closing, or seeking damages
against GRS or its Properties, as a result of the consummation of the
transaction contemplated by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in
Schedule 5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS
Balance Sheets") and the related statements of income, stockholders' equity and
cash flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in
Schedule 5.09, the accounts receivable reflected on the GRS Balance Sheet and
all accounts receivable arising between December 31, 1997 and the date hereof,
arose from bona fide transactions in the ordinary course of business, and the
goods and services involved have been sold, delivered and performed to the
account of the obligors, and no further filings (with Governmental Authorities,
insurers or others) are required to be made, no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle GRS to collect
the accounts receivable in full. No such account has been assigned or pledged to
any other person, firm or corporation, and, except only to the extent fully
reserved against as set forth in the Interim GRS Balance Sheet, no defense or
setoff to any such account has been asserted by the account obligor.
Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of GRS, regardless
of compensation levels, and other employees
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who are currently compensated at a rate in excess of $50,000 per year (including
any reasonably anticipated bonus) or who earned in excess of $50,000 during GRS'
fiscal year ended December 31, 1996 (collectively, the "GRS Key Employees"). In
addition, Schedule 5.10(a) contains a complete and accurate description of (i)
all increases in compensation of the GRS Key Employees during the fiscal years
of GRS ending December 31, 1997 and December 31, 1996, respectively, and (ii)
any promised increases in compensation of the GRS Key Employees of GRS that have
not yet been effected.
(b) Schedule 5.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by GRS or to which GRS contributes on behalf of
its employees, other than Employee Benefit Plans listed in Schedule 5.11. As
used in this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 5.10(c) and in Section
5.10(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key
Employee has indicated his or her desire or intent to terminate employment with
GRS, and GRS has no present intent of terminating the employment of any GRS Key
Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee Benefit Plans previously sponsored or contributed
to on behalf of its employees within the three years preceding the date hereof.
No unwritten amendment exists with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a
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material adverse effect on GRS. No Employee Benefit Plan is currently the
subject of an audit, investigation, enforcement action or other similar
proceeding conducted by any state or federal agency. No prohibited transactions
(within the meaning of Section 4975 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (the "Code")) have occurred
with respect to any Employee Benefit Plan. No pending or, to the Knowledge of
GRS, threatened, claims, suits or other proceedings exist with respect to any
Employee Benefit Plan other than normal benefit claims filed by participants or
beneficiaries.
(c) GRS has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in
Schedule 5.12, from the date of the GRS Balance Sheet to the date of this
Agreement, GRS has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of GRS or any stockholder of GRS, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
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<PAGE> 46
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of
its assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of
its assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or its
assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights paid any
dividends or made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 5.13 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which GRS is a party (the "GRS Contracts") set forth in Schedule 5.13, GRS has
not entered into, nor is the capital stock, the assets or the business of GRS
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
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(ii) deed of trust or other security agreement,
except in the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the
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GRS Contracts. The GRS Contracts are in full force and effect and are valid and
enforceable obligations of GRS, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). GRS has not received notice of
any material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice
of any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available
to the Stockholders all insurance policies of GRS. All of such policies are
valid and enforceable against GRS, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. Use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
GRS is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the ordinary course of business), free and
clear of all security interests, liens, charges and other encumbrances, except
for (i) liens for taxes not yet due and payable or being contested in good faith
in appropriate proceedings, and (ii) encumbrances that are incidental to the
conduct of its businesses or ownership of property, not incurred in connection
with the borrowing of money or the obtaining of credit, and which do not in the
aggregate materially detract from the value of the assets affected or materially
impair their use by GRS. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by GRS are in good operating
condition and repair, normal wear and tear excepted, are adequate and sufficient
for GRS' business and conform in all material respects with all applicable
ordinances, regulations and laws relating to their use and operation.
7
<PAGE> 49
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful
and undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in
Schedule 5.18, there are no claims, actions, suits, investigations or
proceedings against GRS pending or, to the Knowledge of GRS, threatened in any
court or before or by any Governmental Authority, or before any arbitrator, that
could reasonably be expected to have a material adverse effect (whether covered
by insurance or not) on the business, operations, prospects, Properties,
securities or financial condition of GRS. Except as otherwise set forth in
Schedule 5.18, GRS is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any Legal
Requirement, or Permit applicable to GRS or any GRS Contract applicable to GRS,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any GRS Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of
GRS, there are no PCBs, TCE, PCE, or asbestos containing materials generated,
used, treated, stored, maintained, disposed of, or otherwise deposited in, or
located on any premises at which GRS' business (the "GRS Business") is or was,
or at which the business or, to the Knowledge of GRS, its predecessors was,
located, which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which the GRS Business is or was, or, to knowledge of GRS, at which
the business of its predecessors was, located, which would have a Material
Adverse Effect on GRS. With respect to underground storage tanks, Schedule
5.19(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of
GRS, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of GRS, threat of a "release" of any Hazardous Substance on, from
or under any premises from which (i) GRS' operations have been or are being
conducted related to the GRS Business. or (ii) to the Knowledge of GRS, the
operations of any predecessor of GRS, which would have a Material Adverse Effect
on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor
their respective predecessors have received written notice alleging any
potential liability with respect to the contamination, investigation, or cleanup
of any site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction,
8
<PAGE> 50
notice or demand issued, entered, promulgated or approved thereunder, or which
may give rise to any liability under applicable law including, without
limitation, any Environmental Law, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, notice of violation, study or
investigation, based on or related to the manufacture, process, distribution,
use, treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the environment of Hazardous
Substances by GRS or, to the Knowledge of GRS, any predecessor, as a result of
any act or omission of GRS or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and,
to the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth
all of GRS' material suppliers, together with the dollar amount of goods
purchased by GRS from each such supplier during the twelve month period ended
December 31, 1997 and the three month period ended March 31, 1998, as well as
each of the principal customers of GRS. Except as otherwise set forth in
Schedule 5.21, since December 31, 1997, there has been no material adverse
change in the business relationship of GRS with any supplier or customer named
in Schedule 5.21. No customer or supplier named in Schedule 5.21 has terminated
or materially altered, or notified GRS of any intention to terminate or
materially alter, its relationship with GRS and GRS has no reason to believe
that any such customer or supplier will terminate or materially alter its
relationship with GRS or to materially decrease its services or supplies to GRS
or its direct or indirect usage of the services or products of GRS. For purposes
of Sections 5.21 and 5.24 "material suppliers" refers to suppliers from whom GRS
purchased five percent (5%) or more of the total amount of the goods purchased
by GRS during the twelve month period ended December 31, 1997 and the three
month period ended March 31, 1998, and "principal customers" refers to customers
who accounted for 5% or more of GRS' revenues during the twelve month period
ended December 31, 1997 and the three month period ended March 31, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by GRS to the Stockholders or their counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to the Stockholders contain projections and
estimates of future events, and such
9
<PAGE> 51
projections and estimates have been based upon certain assumptions that
management of GRS made in good faith and believed are reasonable at the time
such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set
forth in Schedule 5.24, no director or executive officer of GRS or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with GRS or any organization that has a material contract or arrangement with
GRS.
Section 5.25 Investments in Competitors. No director or executive
officer of GRS owns directly or indirectly any material interests or has any
investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer
or employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule
5.27, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.29 hereto, GRS:
(i) has filed all federal income Tax Returns, and
all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Unaudited GRS
Balance Sheet (excluding any amount recorded which is attributable to timing
differences between book and Tax income) would be adequate to pay all material
Tax liabilities of GRS if its current tax year were treated as ending on the
date of the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited.
(b) To the Knowledge of GRS, no claim has been made by a
taxing authority in a jurisdiction where GRS does not file Tax Returns that GRS
is or may be subject to taxation by that jurisdiction.
10
<PAGE> 52
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local
tax audits or administrative or judicial proceedings pending or being conducted
with respect to GRS;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by GRS from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims
concerning GRS' Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC ss. 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC ss. 481(a) or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by GRS. GRS has no knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any knowledge with respect to any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC ss. 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC ss. 280G.
Section 5.29 Participation in Secondary Offering. In the event that
after the Offering GRS files a registration statement with the Securities and
Exchange Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such number of shares of GRS Common
Stock owned by the Stockholders as shall equal (i)(A) the total number of shares
of GRS Common Stock owned by such Stockholders divided by (B) the total number
of shares of GRS Common Stock owned by all shareholders of the Founding
Companies, multiplied by (ii) the total number of shares of GRS Common Stock
owned by shareholders of the Company which are to be included in the Secondary
Offering.
11
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12
<PAGE> 1
EXHIBIT 2.10
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
WRIGHT-BROWN ROOFING COMPANY
AND
THE STOCKHOLDERS
OF
WRIGHT-BROWN ROOFING COMPANY
----------------------------
MAY 13, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................1
1.01 Sale and Purchase of Company Common Stock................................................................1
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Purchase Price Adjustment................................................................................3
1.05 Excluded Assets..........................................................................................4
1.06 Stockholders' Representative.............................................................................4
ARTICLE II - CLOSING..............................................................................................5
2.01 Closing..................................................................................................5
2.02 Deliveries by Stockholders to GRS........................................................................5
2.03 Deliveries by GRS........................................................................................6
2.04 Termination in Absence of Closing........................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS.............................................................................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS.................................................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................7
6.01 GRS' Access to Information and Assets....................................................................7
6.02 Company's Conduct of Business and Operations.............................................................7
6.03 General Restrictions.....................................................................................8
6.04 Notice Regarding Changes.................................................................................9
6.05 Consents and Best Efforts................................................................................9
6.06 Casualty Loss...........................................................................................10
6.07 Employee Matters........................................................................................10
6.08 No Solicitation.........................................................................................10
6.09 Employment Agreements...................................................................................10
6.10 Lock-Up Agreement.......................................................................................10
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................11
7.01 Conditions to Obligations of All Parties................................................................11
7.02 Conditions to Obligations of Stockholders...............................................................11
7.03 Conditions to Obligations of GRS........................................................................12
ARTICLE VIII - SURVIVAL..........................................................................................13
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................13
ARTICLE IX - INDEMNIFICATION.....................................................................................14
9.01 Obligation of the Stockholders to Indemnify.............................................................14
9.02 Obligation of GRS to Indemnify..........................................................................14
9.03 Notice and Opportunity to Defend........................................................................14
9.04 Limitations on Indemnification..........................................................................15
9.05 Set-Off Rights..........................................................................................16
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION> PAGE
----
<S> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................17
10.01 Further Assurances......................................................................................17
10.02 Publicity...............................................................................................17
10.03 Access to Records.......................................................................................17
ARTICLE XI - MISCELLANEOUS.......................................................................................17
11.01 Brokers.................................................................................................17
11.02 Costs and Expenses......................................................................................17
11.03 Notices.................................................................................................17
11.04 Governing Law...........................................................................................17
11.05 Representations and Warranties..........................................................................18
11.06 Entire Agreement, Amendments and Waivers................................................................19
11.07 Binding Effect and Assignment...........................................................................19
11.08 Remedies................................................................................................19
11.09 Exhibits and Schedules..................................................................................19
11.10 Multiple Counterparts...................................................................................19
11.11 References..............................................................................................19
11.12 Survival................................................................................................19
11.13 Attorneys' Fees.........................................................................................20
ARTICLE XII - DEFINITIONS........................................................................................20
12.01 Affiliate...............................................................................................20
12.02 Collateral Agreements...................................................................................20
12.03 Company Assets..........................................................................................20
12.04 Contract Retention......................................................................................20
12.05 Current Assets..........................................................................................20
12.06 Current Liabilities.....................................................................................20
12.07 Damages.................................................................................................21
12.08 Environmental Law.......................................................................................21
12.09 GAAP....................................................................................................21
12.10 Governmental Authorities................................................................................21
12.11 Hazardous Substances....................................................................................21
12.12 Knowledge...............................................................................................21
12.13 Legal Requirements......................................................................................21
12.14 Permits.................................................................................................21
12.15 Properties..............................................................................................21
12.16 Proportionate Share.....................................................................................21
12.17 Regulations.............................................................................................22
12.18 Taxes...................................................................................................22
12.19 Tax Returns.............................................................................................22
12.20 Used....................................................................................................22
12.21 Deferred Income Taxes...................................................................................22
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and Thomas E.
Brown, Jr.
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for Thomas E. Brown, Jr.
Exhibit H - Employment Agreement for Terry Mudge
Exhibit I - Opinion of Baker & McKenzie
Exhibit J - Opinion of Williams, Williams, Ruby & Plunkett, P.C.
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of May 13, 1998, by and among (i) General Roofing Services, Inc. a Florida
corporation (the "Buyer" or "GRS"),(ii) Wright-Brown Roofing Company, a
Michigan corporation (the "Company"), and (iii) all of the stockholders of the
Company (each, a "Stockholder" and collectively, the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS
purchase all of the issued and outstanding capital stock of the Company,
consisting of 5,000 shares (the "Shares") of common stock, par value $1.00 per
share ("Company Common Stock"), upon the terms and subject to the conditions
hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange
within the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to such
use shall have the respective meanings given such terms in Article XII hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this Agreement,
at the Closing referred to in Section 2.01 hereof, the Stockholders shall sell,
transfer, convey and deliver to GRS, and GRS shall purchase, acquire and accept
from the Stockholders, the number of shares of Company Common Stock set forth
opposite the name of the Stockholders on Exhibit A hereto under the heading
"Number of Shares of Company Common Stock Purchased", constituting all of the
issued and outstanding shares of Company Common Stock. The sale and purchase of
the Company Common Stock pursuant to this Agreement is sometimes hereinafter
referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a), at the
Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares of
Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $8,500,735. The Purchase Price shall be
subject to adjustment as provided in this Agreement and shall be allocated among
the Stockholders in accordance with their respective ownership interests as set
forth on Exhibit A hereof. The Purchase Price, as so adjusted, shall be
delivered to the Stockholders in accordance with their respective Proportionate
Share and to the Escrow Agent (as defined in Section 1.03(b) hereof), subject to
and in accordance with Section 1.03 hereof. The amount of the Purchase Price
allocated to each outstanding share of Company Common Stock is hereinafter
referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $2,077,125
(the "Target Net Book Value") (such adjustment is referred to herein as the "Net
Book Value Adjustment"); provided, that the Net Book Value as determined
pursuant to the Closing Date Unaudited Balance Sheet shall not be less than
$34,632 (the "Minimum Net Book Value"). For purposes of this Agreement, Net Book
Value shall mean the excess of the Company's total assets over the Company's
total liabilities, determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered
to GRS within fifteen days prior to the Closing Date (i) an unaudited balance
sheet of the Company forecasted as of the Closing Date (the "Closing Date
Unaudited Balance Sheet"), (ii) a calculation of the Purchase Price Adjustment,
if any, determined pursuant to Section 1.02(b) above, and (iii) a certificate
executed by the Company's Chief Financial Officer (or another duly authorized
officer of the Company) to the effect that the Closing Date Unaudited Balance
Sheet has been prepared from the books and records of the Company and in a
manner consistent with the preparation of the Company Financial Statements (as
defined in Section 3.06 hereof), except that Deferred income Taxes have been
reflected in the same manner as if the Company was a "C" corporation.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section
1.01(b) hereof of a certificate or certificates representing all of the issued
and outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $3,825,331, representing
forty-five percent (45%) of the Purchase Price, minus (ii) the amount of the
Purchase Price Adjustment, if any, shall be paid directly to the holders thereof
by wire transfer in New York Clearing House Funds in accordance with Exhibit A
hereto.
(b) An aggregate of $4,675,404 shall be paid by the delivery to
(A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of the GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $1,700,147, representing twenty percent (20%) of
the Purchase Price (the "Escrow Fund"), based upon the public offering price of
the GRS Common Stock to be sold in its initial public offering (the "Offering")
and (B) to the Stockholders in accordance with Exhibit A hereto, of such number
of shares of GRS Common Stock as shall have a value equal to $2,975,257 based
upon the public offering price of the GRS Common Stock to be sold in the
Offering. The shares of GRS Common Stock to be so held in escrow shall be held
by the Escrow Agent for a period of one year following the Closing in accordance
with the terms of an Escrow Agreement in the form of Exhibit B hereto (the
"Escrow Agreement"), and shall thereafter be restricted from transfer for an
additional one-year period
2
<PAGE> 7
in accordance with the terms, and subject to the conditions, of a Lock-Up
Agreement in the form of Exhibit C hereto (the "Lock-Up Agreement"). The
Stockholders shall receive cash in lieu of fractional shares.
(c) Each certificate evidencing shares of GRS Common Stock issued
in connection with the Stock Purchase shall bear the following restrictive
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933 ACT"), NOR
UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED,
SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE
1933 ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO
THE HOLDER OF SUCH SHARES, WHICH OPINION IS SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH SECURITIES MAY BE TRANSFERRED,
SOLD, ASSIGNED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE
1933 ACT OR APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the calculation
of the Purchase Price Adjustment pursuant to Section 1.02(b) hereof, if any, and
within 10 days prior to the Closing, GRS shall notify the Stockholders in
writing of its determination of the Purchase Price Adjustment, if any, and the
cash portion of the Purchase Price to be paid to the Stockholders on the Closing
Date (the "Purchase Price Notice"), subject to Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the Purchase
Price Adjustment. The following clauses (i) and (ii) set forth the procedures
for resolving disputes among the parties with respect to the determination of
the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by GRS to the
Stockholders of a Purchase Price Notice, the Stockholders may deliver to GRS a
written notice advising GRS either that the Stockholders (A) agree with the
calculation of the Purchase Price Adjustment, or (B) believe that one or more
adjustments are required. If the Stockholders shall concur with the calculation
of the Purchase Price Adjustment, if any, or if the Stockholders shall not
object thereto in a written notice delivered to GRS within five (5) business
days after the Stockholders' receipt of the Purchase Price Notice, the Purchase
Price as set forth in the Purchase Price Notice, if any, shall become final and
shall not be subject to further review, challenge or adjustment absent fraud.
(ii) In the event that GRS timely submits the Purchase Price
Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the disagreements
with respect to the proposed Purchase Price Adjustment prior to the Closing,
then such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing roofing or construction
companies and selected by mutual agreement of Stockholders and GRS (the
"Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the event
that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination
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not more than five (5) days after such referral. The costs and expenses of the
services of the Settlement Accountants shall be paid equally by the Company and
GRS. Pending the final determination by the Settlement Accountants of the
Purchase Price Adjustment, if any, (the "Final Determination"), the difference
between the determination by the Stockholders and GRS of the Purchase Price
Adjustment, if any, shall be withheld from the cash portion of the Purchase
Price to be delivered pursuant to Section 1.03(a) and shall be paid in
accordance with and upon the Final Determination. Any such dispute shall not
delay the Closing.
(c) After the final determination of the Purchase Price pursuant to
Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the adjustment
determined pursuant thereto shall be deducted from the cash portion of the
Purchase Price and allocated among the Stockholders in accordance with their
respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those tangible assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are not
required by the Company in the conduct of its operations and which are listed in
Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall such
distributions be made to the extent that the Closing Net Book Value would be
less than the Minimum Net Book Value.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders' Representative"
shall mean Thomas E. Brown, Jr., or any person appointed as a successor
Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all obligations
under this Agreement have been discharged (including all indemnification
obligations hereunder and all obligations under the Escrow Agreement), the
Stockholders who, immediately prior to the Closing, held Company Common Stock
representing an aggregate number of shares of Company Common Stock which
exceeded 50% of the amount of such Company Common Stock outstanding immediately
prior to such time (a "Majority"), may, from time to time upon written notice to
the Stockholders' Representative and GRS, remove the Stockholders'
Representative or appoint a new Stockholders' Representative to fill any vacancy
created by the death, incapacitation, resignation or removal of the
Stockholders' Representative. Furthermore, if the Stockholders' Representative
dies, becomes incapacitated, resigns or is removed by a Majority, the Majority
shall appoint a successor Stockholders' Representative to fill the vacancy so
created. If the Majority is required to but has not appointed a successor
Stockholders' Representative within 20 business days from a request by GRS to
appoint a successor Stockholders' Representative, GRS shall have the right to
appoint a Stockholders' Representative to fill any vacancy so created, and shall
advise all those who were holders of Company Common Stock immediately prior to
the Closing of such appointment by written notice. A copy of any appointment by
the Majority of any successor Stockholders' Representative shall be provided to
GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to take
any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
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absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right and power to execute the Escrow
Agreement on their behalf with such changes or amendments thereto as the
Stockholders' Representative shall determine to be necessary or desirable in his
sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
(d) GRS shall have no liability to any Stockholder or otherwise
arising out of the acts or omissions of the Stockholders' Representative or any
disputes among the Stockholders or with the Stockholders' Representative. GRS
may rely entirely on its dealings with, and notices to and from, the
Stockholders' Representative to satisfy any obligations it might have to the
Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless the
Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued and
outstanding shares of Company Common Stock in proper
form for transfer to GRS;
(ii) the resignations of all members of the board directors
of the Company as set forth in Section 7.03(l);
(iii) the stock books, stock ledgers, minute books and
corporate seals of the Company;
(iv) a certificate executed by the Company to the effect that
the conditions set forth in Sections 7.03(b) through
7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section 7.03(f);
(vi) the executed Collateral Agreements; and
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(vii) evidence of the consents required pursuant to Section
7.03(n).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available funds to the
Stockholders the payment described in Section 1.03(a) as
being required to be paid by GRS at Closing;
(ii) by delivery to the Stockholders the shares of GRS Common
Stock described in Section 1.03(b) as being required to
be delivered by GRS to the Stockholders at Closing;
(iii) by delivery to the Escrow Agent the shares of GRS Common
Stock described in Section 1.03(b) as being required to
be delivered by GRS to the Escrow Agent at Closing;
(iv) a certified copy of all necessary corporate action on
behalf of GRS approving its execution, delivery and
performance of this Agreement and the Collateral
Agreements to which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized officer of GRS
to the effect that the conditions set forth in Sections
7.02(b) and 7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section 7.02(d);
(vii) the executed Collateral Agreements to which it is a
party; and
(viii) evidence that: (a) the Stockholders have been released
from all personal guarantees relating to any obligations
of the Company, including but not limited to, any bank
loans, lines of credit, and/or performance bonds (the
"Personal Guarantees and Obligations") and (b) GRS shall
indemnify and hold harmless the Stockholders from and
against any personal liability or obligations relating
to or arising out of any Personal Guarantees or
Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of
business on September 30, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability
of or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party
to perform its obligations under this Article II on such date; provided,
however, that any termination pursuant to this Section 2.04 shall not relieve
any party hereto who was responsible for Closing having not occurred as
described in clauses (i) or (ii) above of any liability for (x) such party's
willful breach of the provisions of this Agreement, or (y) if all of the
conditions to such party's obligations set forth in Article VII have been
satisfied or waived in writing by the date scheduled for the Closing pursuant to
Section 2.01, the failure of such party to perform its obligations under this
Article II on such date. Notwithstanding the foregoing, the Stockholders
expressly acknowledge and agree that market and economic conditions are
impossible to predict, and although GRS intends to proceed with the Offering in
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an expeditious manner at this time, GRS shall not be liable to the Stockholders
or the Company if the Closing has not occurred because the Offering has not
been consummated prior to the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text
of which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense, to have access to the
books, records, employees, counsel, accountants, and other representatives of
the Company at all times reasonably requested by GRS for the purpose of
conducting an investigation ("GRS' Due Diligence Investigation") of the
Company's financial condition, corporate status, operations, business and
Properties. The Stockholders shall make available to GRS for examination and
reproduction, at GRS' own expense, all documents and data of every kind and
character relating to the Company in possession or control of, or subject to
reasonable access by, the Stockholders or the Company, including, without
limitation, all files, records, data and information relating to the Company
Assets (whether stored in paper, magnetic or other storage media) and all
agreements, instruments, contracts, assignments, certificates, orders, and
amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and workmanlike manner, (d) pay or cause
to be paid all costs and expenses (including but not limited to
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insurance premiums) incurred in connection therewith in a timely manner, (e) use
reasonable efforts to keep all Company Contracts listed or required to be listed
on Schedule 3.12 in full force and effect, (f) comply with all of the covenants
contained in all such Company Contracts, (g) maintain in force until the Closing
Date insurance policies (subject to the provisions of Section 6.06) equivalent
to those in effect on the date hereof, and (h) comply in all material respects
with all applicable Legal Requirements. Except as otherwise contemplated in this
Agreement, the Stockholders shall use their best efforts to preserve the present
relationships of the Company with persons having significant business relations
therewith.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS, the
Company shall not:
(i)(A)except as permitted by Sections 1.05 and 3.02 hereof,
declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of
its capital stock, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in
respect of, in view of or in substitution for shares of its capital
stock, or (C) purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) except as disclosed on Schedule 6.03(ii), issue, deliver, sell,
pledge or otherwise encumber any shares of its capital stock, any other
voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities;
(iii) amend its Articles of Incorporation or By-laws (or similar
organizational documents);
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any business of any corporation, partnership, joint
venture, association or other business organization or division thereof
or (B) any assets that are material, individually or in the aggregate, to
the Company or any Subsidiary, except purchases of assets in the ordinary
course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
otherwise dispose of, or agree to sell, transfer, lease, mortgage,
encumber or otherwise dispose of, any Properties except (A) in the
ordinary course of business consistent with past practice, or (B)
pursuant to any Company Contract or except as permitted by Sections 1.05
and 3.02 hereof;
(vi) except as permitted by Section 1.05 hereof, (A) incur any
indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of the
foregoing, except for borrowings incurred in the ordinary course of
business consistent with past practice, or (B) make any loans, advances
or capital contributions to, or investments in, any other person;
(vii) make or agree to make any new capital expenditure or
expenditures which, individually is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 (other than those required pursuant
to currently outstanding Company Contracts or in the ordinary course of
business consistent with past practice);
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(viii) make any material tax election or settle or compromise any
material tax liability;
(ix) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the Financial Statements (or the
notes thereto) or incurred in the ordinary course of business consistent
with past practice, or waive any material benefits of, or agree to modify
in any material respect, any confidentiality, standstill or similar
agreements to which the Company is a party;
(x) except in the ordinary course of business consistent with past
practice, modify, amend or terminate any Company Contract;
(xi) except in the ordinary course of business consistent with past
practice, enter into any contracts, agreements, arrangements or
understandings relating to performance by third parties of the Company's
services;
(xii) except as required to comply with applicable law (A) adopt,
enter into, terminate or amend any benefit plan or other arrangement for
the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except in a
manner consistent with past practice), (C) pay any benefit not provided
for under any benefit plan, (D) except as permitted under Section
6.03(ii) hereof grant any awards under any bonus, incentive, performance
or other compensation plan or arrangement or benefit plan (including the
grant of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or the removal of
existing restrictions in any benefit plans or agreement or awards made
thereunder) or (E) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take any of, the
foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto shall
use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are
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necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of the conditions to such
other party's obligation to consummate the transactions contemplated hereby as
specified in Article VII of this Agreement to be fully satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and
the Closing, any of the Properties of the Company shall be destroyed or damaged
in whole or in part by fire, earthquake, flood, other casualty or any other
cause which materially affects the ability of the Company to conduct its
business (a "Casualty Loss"), then the Stockholders may, if requested by GRS,
(i) cause the Company to cause such Properties to be repaired or replaced prior
to the Closing with Property of substantially the same condition and function,
(ii) cause the Company to deposit in a separate account an amount sufficient to
cause such Property to be so repaired or replaced, or (iii) enter into
contractual arrangements with the Company satisfactory to GRS so that the
Company will have at the Closing the same economic value as if such casualty had
not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause the
Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to, (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before the Closing, Thomas E.
Brown, Jr. and Terry Mudge shall each have entered into an employment agreement
in the form of Exhibits G and H (the "Employment Agreements"), which shall
include non- competition provisions, to take effect on and after the Closing
Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the
Stockholders shall have entered into the Lock-Up Agreement.
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ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to be
made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the date of the Closing; provided, however,
that no provision of this Agreement shall be construed as requiring any party to
accept, in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no transfers of
licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any statute,
rule, regulation, decree, ruling, injunction or other order issued by any
Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this
Agreement are subject, at the option of the Stockholders, to the satisfaction,
or waiver by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified copy
of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in this
Agreement qualified by materiality shall be true and correct in all respects at
Closing and all other representations and warranties of GRS contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing, as if such representations and warranties were made at and as of the
Closing, except for changes contemplated by the terms of this Agreement except
as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms thereof, and GRS shall have performed and satisfied in
all material respects all covenants and agreements required by this Agreement to
be performed and satisfied by GRS at or prior to the Closing; provided, however,
that no Stockholder shall be entitled to refuse to consummate the transaction in
reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Stockholders or the
Company) shall be pending or threatened before any Governmental Authority
seeking to restrain the Stockholders from effectuating the Stock Purchase or
prohibit the Closing or seeking Damages against the Stockholders or the Company
as a result of the consummation of the transactions contemplated by this
Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
I. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
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(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and the
Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) GRS shall have furnished the Stockholders and the Company with
an Opinion Letter from Deloite & Touche which provides that the consummation of
the transactions described in this Agreement will qualify as a Section 351 Plan
of Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS to
carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered to
GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of GRS) shall be pending or
threatened before any court or governmental agency seeking to restrain GRS or
prohibit the Closing or seeking Damages against GRS, the Stockholders, the
Company or its Properties as a result of the consummation of the transactions
contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from the
date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations, prospects or
financial condition of the Company that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company (whether or
not covered by insurance) that had or would reasonably be likely to have a
material adverse effect on the business, operations, prospects, Properties,
securities or financial condition of the Company.
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(f) GRS shall have received the opinion of Williams, Williams, Ruby
& Plunkett, P.C. ("Sellers' Counsel"), counsel to the Company and the
Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit J. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by reference to
the Closing Date Unaudited Balance Sheet shall be equal to or greater than the
Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall not be less than
$1,130,376. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness, determined in accordance with GAAP.
(j) The Stockholders shall have executed and delivered to GRS the
Escrow Agreement.
(k) GRS shall have received the executed Employment Agreements for
Thomas E. Brown, Jr. and Terry Mudge.
(l) GRS shall have received the resignation of all of the members
of the board of directors of the Company, effective as of the Closing Date.
(m) All proceedings to be taken by Stockholders, the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to GRS and its counsel, and
GRS and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(n) GRS shall have received written evidence, in form and substance
satisfactory to GRS, of the consent to the transactions contemplated by this
Agreement of all governmental, quasi-governmental and private third parties
(including, without limitation, persons or other entities leasing real or
personal property to the Company), except where the failure to have obtained any
such consent would not have an adverse effect on the Company or GRS following
the Closing.
(o) GRS shall be satisfied in its sole and absolute discretion with
GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(p) GRS shall have determined, in its reasonable discretion, that
all agreements between the Company and the Stockholders, shall be on terms as
favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(q) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company
and the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto
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pursuant to such investigation or right of investigation, each of GRS, on the
one hand, and the Company and the Stockholders, on the other hand, has the right
to rely fully upon the representations, warranties, covenants and agreements of
GRS or the Company and the Stockholders, as the case may be, contained in this
Agreement, or in any certificate delivered pursuant to any of the foregoing;
provided, that no party hereto shall be entitled to rely on any representation
or warranty made by any other party hereto herein to the extent that such party
has actual knowledge, and the other party or parties (or any of them) are not
aware, that such representation or warranty is untrue or incorrect in any
material respect. All such representations, warranties, covenants and agreements
shall survive the execution and delivery of this Agreement and the Closing
hereunder, and, except as otherwise specifically provided in this Agreement and,
except for all representations and warranties of the Stockholders contained in
Article IV and except with respect to the Basket Exclusions (as defined in
Section 9.04), shall thereafter terminate and expire on the first anniversary of
the Closing Date. The Basket Exclusions shall survive the Closing indefinitely,
other than Section 3.28, which shall survive for the applicable statute of
limitations.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to the
limitations contained in Article VIII and Article IX hereof, the Stockholders,
jointly and severally, agree to indemnify, defend and hold harmless GRS (and
its Affiliates, successors and assigns and their respective officers and
directors) from and against all losses, liabilities, damages, deficiencies,
costs or expenses (including interest, penalties and reasonable attorneys' fees
and disbursements, but offset by any proceeds from insurance and taking into
account the present value of any tax savings to GRS or the Company resulting
from such losses, liabilities, damages, deficiencies, costs or expenses)
("Losses") based upon, arising out of or otherwise in respect of (i) any
inaccuracy in or any breach of any representation, warranty, covenant or
agreement of the Company or the Stockholders contained in this Agreement, (ii)
liabilities for Taxes incurred by the Company with respect to actions prior to
the Closing Date and (iii) any liability arising out of any subsequent
adjustment by any tax authorities with respect to items attributable to periods
prior to the Closing Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim or circumstances
which, with the lapse of time, would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails
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to notify the Indemnitee of its election as herein provided or contests its
obligation to indemnify under this Agreement, the Indemnitee may pay, compromise
or defend such Asserted Liability. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnitee may settle or compromise any claim over
the objection of the other, provided, however, that consent to settlement or
compromise shall not be unreasonably withheld. In any event, the Indemnitee and
the Indemnifying Party may participate, at their own expense, in the defense of
such Asserted Liability. If the Indemnifying Party chooses to defend the claim,
the Indemnitee shall make available to the Indemnifying Party any books, records
or other documents within its control that are necessary or appropriate for such
defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at their
own expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any such compromise or settlement consented to by
GRS, shall be borne and paid by the Stockholders. The parties agree to cooperate
fully with one another in the defense, compromise or settlement of any Asserted
Liability.
Section 9.04 Limitations on Indemnification. The indemnification
provided for in Sections 9.01 and 9.02 shall be subject to the following
limitations:
(i) The Stockholders shall not be obligated to pay any
amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders shall be
obligated to pay any amounts for indemnification under this Article IX, except
those based upon, arising out of or otherwise in respect of Sections 3.02, 3.21,
3.28, 5.22, 5.29, 9.01 (ii) and (iii), 11.01 and 11.02 and Article IV hereof
(the "Basket Exclusions"), until the aggregate indemnification payments,
exclusive of the Basket Exclusions, equals one percent (1%) of the Purchase
Price (the "Basket Amount"), whereupon GRS, or the Company and Stockholders, as
the case may be, shall be obligated to pay any indemnification payments,
including the Basket Amount, in full. It is expressly understood that the Basket
Amount shall serve as a "trigger" for indemnification and not as a "deductible"
(for example, if the indemnity claims for which GRS or the Stockholders would,
but for the provisions of this subparagraph (ii), be liable is in the
aggregate amount of $100,000, and 1% of the Purchase Price is $70,000, the
Stockholders would then be liable for the entire $100,000 and not just
$30,000). This Section 9.04(ii) will not apply to any breach of any
representations and warranties of which any party had actual Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by any party of any covenant or obligation, and GRS or the
Stockholders, as the case may be, will be jointly and severally liable for all
damages with respect to such breaches.
(iii) GRS, the Company and Stockholders shall be obligated to
pay the Basket Exclusions without regard to the individual or aggregate amounts
thereof and without regard to
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whether the aggregate amount of all other indemnification payments shall have
exceeded, in the aggregate, the Basket Amount.
(iv) Notwithstanding anything to the contrary in this
Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights set forth
in this Article IX shall be each party's sole and exclusive remedy against the
other party for any breach of any representation, warranty or covenant contained
in this Agreement. Notwithstanding the foregoing, nothing herein shall prevent
any party from bringing an action based on allegations of fraud in connection
with this Agreement. In the event an action based upon allegations of fraud is
brought, the prevailing party's attorneys' fees and costs shall be paid by the
nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses with respect
to accounts receivable reflected on the Closing Date Unaudited Balance Sheet
only if and to the extent that such accounts receivable, except for Contract
Retention, remain uncollected 180 days from the Closing Date. Contract Retention
will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses from the failure to collect accounts
receivable of the Company or Contract Retention and such Losses result in a
set-off from the Escrow Fund, the related accounts receivable or Contract
Retention shall be assigned to the Stockholders following, and to the extent of,
such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to Section
9.04 and, paragraphs (b) and (c) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
be satisfied first against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15) days'
notice (the "GRS Notice") of its intention to deduct or set-off any amounts
pursuant to this Section 9.05, including in such notice a description of GRS'
indemnification claim. If none of the Stockholders object in writing to such
deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount
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sufficient to equal a return at the rate of ten percent (10%) per annum on the
disputed amount from the date payment of such amount was originally due through
the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties, and
the parties shall endeavor jointly to agree on the text of any announcement or
circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each of
the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur, (i)
each Stockholder shall jointly and severally indemnify and hold harmless GRS and
the Company from and against any and all liability for any brokers or finders'
fees arising with respect to brokers or finders retained or engaged by the
Company or any of the Stockholders in respect of the transactions contemplated
by this Agreement, and (ii) GRS shall indemnify and hold harmless the
Stockholders from and against any and all liability for any brokers' or finders'
fees arising with respect to brokers or finders retained or engaged by GRS in
respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence or
other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing
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and delivered personally or mailed by registered or certified mail, postage
prepaid and return receipt requested, or by telecopier, as follows:
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
-----------------
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
The Stockholders: Thomas E. Brown, Jr.
Wright-Brown Roofing Company
11710 Cloverdale Avenue
Detroit, Michigan 48204
Telecopy No.: (313) 933-5250
With a copy to: R. Jamison Williams, Jr., Esq.
-------------- Williams, Williams, Ruby & Plunkett, P.C.
380 N. Woodward Avenue
Suite 300
Birmingham, Michigan 48009
Telecopy No.: (248) 642-0856
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall
be effective upon actual receipt if received during the recipient's normal
business hours, or at the beginning of the recipient's next normal business day
after receipt if not received during the recipient's normal business hours.
All Notices by telecopier shall be confirmed by the sender thereof promptly
after transmission in writing by registered mail or personal delivery.
Anything to the contrary contained herein notwithstanding, Notices to any party
hereto shall not be deemed effective with respect to such party until such
Notice would, but for this sentence, be effective both as to such party and as
to all other persons to whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
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Section 11.05 Representations and Warranties. Each of the representations
and warranties of each of the parties to this Agreement shall be deemed to have
been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns; but neither this Agreement nor any
of the rights, benefits or obligations hereunder shall be assigned, by
operation of law or otherwise, by any party hereto without the prior written
consent of the other party. Nothing in this Agreement, express or implied, is
intended to confer upon any person or entity other than the parties hereto and
their respective permitted successors and assigns, any rights, benefits or
obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this Agreement
are cumulative, and the use of any one right or remedy by any party hereto shall
not preclude or constitute a waiver of its right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights and
remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference. Disclosure of a specific item in any one schedule shall be deemed
restricted only to the Section to which such disclosure specifically relates
except where (i) there is an explicit cross-reference to another Schedule, and
(ii) GRS could reasonably be expected to ascertain the scope of the
modification to a representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used in
this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing for the
time period set forth in Section 8.01 hereof and shall be binding upon the party
or parties obligated thereby in accordance with the terms of this Agreement,
subject to any limitations expressly set forth in this Agreement.
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Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined
in this Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect to
any person, any other Person controlling, controlled by or under common control
with such person. The term "Control" as used in the preceding sentence means,
with respect to a corporation, the right to exercise, directly or indirectly,
more than fifty percent (50%) of the voting rights attributable to the shares of
the controlled corporation and, with respect to any person other than a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements" shall
mean any or all of the following agreements, the forms of which are attached
hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for Thomas E. Brown, Jr.
Exhibit H - Employment Agreement for Terry Mudge
and any and all other agreements, instruments or documents required or
expressly provided under this Agreement to be executed and delivered in
connection with the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean, with
respect to the Company, all of the Properties, Company Contracts, and Permits,
that were Used by the Company as of the Balance Sheet Date and those Used by the
Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall mean
any amounts withheld by customers from contract progress billing until final and
satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean, with
respect to the Company, cash and other assets that are expected to be converted
into cash, sold or exchanged within one year from the Closing Date, including
marketable securities, receivables, inventory and current prepayments .
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
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Section 12.07 Damages. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation income and
other Taxes, interest, penalties and attorneys' and accountants' fees and
disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers who are stockholders with respect to
the representation being made, and such knowledge of any such persons as
reasonably should have obtained upon due investigation and inquiry into the
representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all permits or
orders under any Legal Requirement or otherwise granted by any Governmental
Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
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Section 12.17 Regulations. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes" shall
mean the deferred tax assets and liabilities required to be recorded under GAAP
to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By:/s/ Gregg Wallick
----------------------------------------
Gregg Wallick, President
WRIGHT-BROWN ROOFING COMPANY
By:/s/ Thomas E. Brown, Jr.
----------------------------------------
Thomas E. Brown, Jr.
President
STOCKHOLDERS:
/s/ Thomas E. Brown, Jr.
-------------------------------------------
Thomas E. Brown, Jr.
/s/ Lawrence M. Pronek
-------------------------------------------
Lawrence M. Pronek
/s/ James Carey
-------------------------------------------
James Carey
/s/ Terry M. Mudge
-------------------------------------------
Terry M. Mudge
22
<PAGE> 27
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares
Of Company Common Stock Percentage of
Name Purchased Ownership
- ---- ----------------------- -------------
<S> <C> <C>
Thomas E. Brown, Jr., Trustee
Thomas E. Brown, Jr. Revocable
Living Trust U/T/A 09/16/80 4,750 95%
Lawrence M. Pronek 75 1.5%
James Carey 75 1.5%
Terry M. Mudge 100 2.0%
Total 5,000 100%
</TABLE>
<PAGE> 28
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THOMAS E. BROWN, JR.
The Company and Thomas E. Brown, Jr., jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of Michigan, and is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been made
available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in any
partnership or joint venture, or own any outstanding capital stock of any other
corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized capital
stock of the Company consists of 50,000 shares of Company Common Stock. The
issued and outstanding shares of Company Common Stock are owned of record and
beneficially by the Stockholders shown on Exhibit A hereof. All of the presently
outstanding shares of capital stock of the Company have been validly authorized
and issued and are fully paid and nonassessable. The Company has not issued any
other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, except as set forth on Schedule 3.02. Except as
contemplated under this Agreement, there are no agreements to which the Company
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock. Except for possible dividends to be
issued in connection with the Excluded Assets as described in Section 1.05 and
dividends related to the payment of the Stockholders' tax liabilities with
respect to earnings of the Company up to the Closing Date, no dividends are
accrued but unpaid on any capital stock of the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set
forth in Schedule 3.04 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms, conditions or
provisions of the Articles of Incorporation or bylaws of the Company;
<PAGE> 29
(ii) violate any Legal Requirements applicable to the Company;
(iii) violate, conflict with, result in a breach of, constitute
a default under (whether with or without notice or the lapse of time or both),
or accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any Company Contract or Permit
applicable to the Company;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of the Company; or
(v) require any of the Stockholders or the Company to obtain
or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority. Any and all consents required to be
obtained by the Company as set forth in Schedule 3.04 shall be obtained and
copies thereof delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no suit,
action or other proceeding is pending or, to the Knowledge of the Company or the
Stockholders, threatened before any Governmental Authority seeking to restrain
any of the Stockholders or prohibit their entry into this Agreement or prohibit
the Closing, or seeking damages against the Company or its Properties, as a
result of the consummation of the transactions contemplated by this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true and
correct copies of the Company's (i) Closing Date Unaudited Balance Sheet, (ii)
unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
three months ended March 31, 1998 (the "Interim Company Financial Statements"),
as well as (iii) the Company's balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended December 31, 1997 (the "Company Financial Statements"). The Company
Financial Statements (i) have been prepared from the books and records of the
Company, (ii) present fairly the financial condition of the Company and its
results of operations as at and for the respective periods then ended, and (iii)
have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in Schedule
3.07, the Company Financial Statements reflect all liabilities of the Company
as determined in accordance with generally accepted accounting principles
arising out of transactions effected or events occurring on or prior to the
date of the Interim Company Balance Sheet, except for liabilities not exceeding
$10,000 in the aggregate. All reserves shown in the Company Financial
Statements are appropriate and reasonable to provide for losses thereby
contemplated. Except as set forth in the Company Financial Statements
(including the Notes thereto), the Company is not liable upon or with respect
to, or obligated in any other way to provide funds in respect of or to
guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in
Schedule 3.08, the accounts receivable reflected on the Interim Company Balance
Sheet and all accounts receivable arising between the date of the Interim
Company Balance Sheet (the "Interim Company Balance Sheet Date") and the date
hereof, arose from bona fide transactions in the ordinary course of business,
and the goods and services involved have been sold, delivered and performed to
the account of the obligors, and no further filings (with Governmental
Authorities, insurers or others) are required to be made, no further goods are
required to be provided and no further services are required to be rendered in
order to complete the sales and fully render the services and to entitle the
Company to collect the accounts receivable in full. No such account has been
assigned or pledged to any other person, firm or corporation, and, except only
to the extent fully reserved against as set forth in the Interim Company
Balance Sheet, no defense or setoff to any such account has been asserted by
the account obligor.
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<PAGE> 30
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of the Company ,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ended December 31, 1997 and 1996, respectively, and (ii)
any promised increases in compensation of the Company Key Employees that have
not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of all
Compensation Plans sponsored by the Company or to which the Company contributes
on behalf of its employees, other than Employee Benefit Plans listed in Schedule
3.10. As used herein, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 3.09(c) and in Section 3.09(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate list
of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company (i) has been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), (i) the Company has
not been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit, and
(iii) the employees of the Company have not threatened to organize or join a
union, labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
3
<PAGE> 31
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and maintained
in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency. No prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of the
Company, have been threatened that could result in the revocation of any such
favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) The Company has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in Schedule
3.11, from the Interim Company Balance Sheet Date to the date of this
Agreement, the Company has not:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of the Company, or any Stockholder, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
4
<PAGE> 32
(b) contracted for the purchase of any capital assets having a cost
in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities, except in the ordinary course of business consistent with
past practice;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its Properties or Company Assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any Company
Assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05 hereof;
(i) written up or written down the carrying value of any of the
Company Assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices followed
or changed the costing system or depreciation methods of accounting for the
Company Assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of the Company's capital stock;
5
<PAGE> 33
(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which the
Company is a party (the "Company Contracts") set forth in Schedule 3.12, the
Company has not entered into, nor is the capital stock, the assets or the
business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in
the ordinary course of business;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
6
<PAGE> 34
(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or transaction
in which an interest is held by any person or entity referred to in Section 3.23
hereof; or
(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid
and enforceable obligations of the Company, except as such enforceability may
be limited by any applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally,
and except as the availability of equity remedies may be limited by the
application of general principles of equity (regardless of whether such
equitable principles are applied in a proceeding at law or in equity). The
Company has not received notice of any material default with respect to any
Company Contracts. For the purposes of this Section 3.12(a), the term
"material" shall mean a condition the existence or breach of which could result
in damage or loss to the Company valued in excess of $5,000 individually or
$25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not received
notice of any plan or intention of any other party to any Company Contract to
exercise any right to cancel or terminate any Company Contract. The Company does
not currently contemplate, and has no reason to believe any person or entity
currently contemplates, any amendment or change to any Company Contract. None of
the customers, joint venture partners or suppliers of the Company has refused,
or communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will maintain
through the Closing Date, comprehensive insurance coverage with respect to all
of its completed operations. The Company has previously made available to GRS
all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable
principles are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except as set forth on Schedule 3.14(a), the Company owns all
patents, trade-marks, service marks and copyrights (collectively "Proprietary
Rights"), if any, necessary to conduct its business, or possesses adequate
licenses or other rights, if any, therefor, without conflict with the rights of
others. Set forth in Schedule 3.14(a) is a true and correct description of all
Proprietary Rights.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock
7
<PAGE> 35
Purchase, GRS will have the right to use all Proprietary Rights without any
obligation to pay any additional amounts whatsoever. Use of the Proprietary
Rights does not require the consent of any other person and the Proprietary
Rights are freely transferable. No claim has been asserted by any person to
the ownership of or right to use any Proprietary Right or challenging or
questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right. Each of the Proprietary Rights
is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by the
Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has good
and marketable title to the Company Assets, including, without limitation, those
reflected on the Interim Company Balance Sheet (other than those since disposed
of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and total
lease payments is attached hereto as Schedule 3.15(c). The Company enjoys
peaceful and undisturbed possession under all real property leases under which
the Company is operating, and all such leases are valid and subsisting and none
of them is in default, except for those defaults which, individually or in the
aggregate, would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its properties and to conduct its businesses as presently conducted. The
business and operations of the Company have been and are being conducted in
accordance in all material respects with all applicable laws, rules and
regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in Schedule
3.17, there are no claims, actions, suits, investigations or proceedings against
the Company pending or, to the Knowledge of the Company, threatened in any court
or before or by any Governmental Authority, or before any arbitrator, that could
reasonably be expected to have a material adverse effect (whether covered by
insurance or not) on the business, operations, prospects, Properties, securities
or financial condition of the Company. Except as otherwise set forth in Schedule
3.17, the Company is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any
Company Contract of the Company or any Legal Requirement or Permit applicable to
the Company, or (ii) accelerate or permit the acceleration of the performance
required under, or give any other party the right to terminate, any Company
Contract, other than defaults, breaches, violations or accelerations that would
not have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition (a "Material Adverse Effect") of
the Company.
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<PAGE> 36
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of the
Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which Company Business is or was, or, to knowledge of the Company, at which the
business of its predecessors was, located which would have a Material Adverse
Effect on the Company. With respect to underground storage tanks, Schedule
3.18(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of the
Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of the Company, threat of a "release" of any Hazardous Substance
on, from or under any premises from which (i) the Company's operations have been
or are being conducted related to the Company Business. or (ii) to the Knowledge
of the Company, the operations of any predecessor of the Company which would
have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the Company's
and, to the Knowledge of the Company, its predecessor's, Hazardous Substances
disposal and recycling practices related to the Company Business have been
accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall
not be interpreted to imply that GRS has constructive knowledge regarding any
aspect of the Company Business with respect to environmental matters nor to
limit the scope of any of the Company's or any Stockholders' representations
under this Agreement. No such due diligence examination or related activities
of, or on behalf of, GRS however, shall constitute a waiver or relinquishment
by GRS of its right to rely upon the Company's or any Stockholders'
representations, warranties, covenants and agreements as made herein or
pursuant hereto, and no such disclosure shall constitute an assumption by GRS
of any conditions or liabilities, and such disclosure shall not relieve the
Company or any Stockholder of its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or
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safe deposit box or vault, (ii) the names of all persons authorized to draw
thereon or to have access to any safe deposit box or vault, (iii) the purpose
of each such account, safe deposit box or vault, and (iv) the names of all
persons authorized by proxies, powers of attorney or other like instrument to
act on behalf of the Company in matters concerning any of its business or
affairs. Except as otherwise set forth in Schedule 3.19, no such proxies,
powers of attorney or other like instruments are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth all
the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve month period
ended December 31, 1997, as well as each of the principal customers of the
Company. Except as otherwise set forth in Schedule 3.20, since December 31,
1997, there has been no material adverse change in the business relationship of
the Company with any supplier or customer named in Schedule 3.20. No customer or
supplier named in Schedule 3.20 has terminated or materially altered, or
notified the Company of any intention to terminate or materially alter, its
relationship with the Company, and the Company has no reason to believe that any
such customer or supplier will terminate or materially alter its relationship
with the Company or to materially decrease its services or supplies to the
Company or its direct or indirect usage of the services of the Company. For
purposes of Sections 3.20 and 3.23, "material suppliers" refers to suppliers
from whom the Company purchased five percent (5%) or more of the total amount of
the goods purchased by the Company during the twelve month period ended December
31, 1997 and the three month period ended March 31, 1998, and "principal
customers" refers to customers who accounted for 5% or more of the Company's
total revenues during the twelve month period ended December 31, 1997 and the
three month period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by the Company or the Stockholders to GRS or its counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set forth
in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. Except as provided in Schedule
3.24, no director or executive officer of the Company owns directly or
indirectly any material interest or has any investment equal to 5% or more of
the outstanding voting securities in any corporation, business or other person
that is a direct competitor of the Company or any Subsidiary.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate (other than from personal funds of directors,
officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law).
Section 3.26 Government Inquiries. Except as set forth on Schedule 3.26,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the
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<PAGE> 38
Company from, or any material statement, report or other document filed by the
Company with, the federal government or any federal administrative agency
(including but not limited to, the Justice Department, Internal Revenue
Service, Department of Labor, Occupational Safety and Health Administration,
Federal Trade Commission, National Labor Relations Board, and Interstate
Commerce Commission), any state securities administrator or any local or state
taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any Stockholder
has entered into any agreements or arrangements and there are no pending offers
or discussions concerning or providing for the merger or consolidation of the
Company or all or any substantial portion of its assets, the sale by the Company
or any Stockholder of any securities of the Company or any similar transaction
affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income Tax
Returns, and all other material Tax Returns which it is required to file under
applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in all material
respects;
(iii) has paid all Taxes due and owing by it (whether or not
such Taxes are required to be shown on a Tax Return) and has withheld and paid
over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Closing Date Unaudited
Balance Sheet is sufficient to pay in full all liabilities for Taxes of the
Company related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited.
(vi) the Company has been a validly existing S corporation
within the meaning of Sections 1361 and 1362 of the Code at all times since
1992, and will continue to be an S corporation up to and including the date
immediately preceding the Closing Date; and
(vii) the Company has disclosed in its federal income Tax
Returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC Section 6662.
(b) To the Knowledge of the Company, no claim has been made by a
taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local Tax audits
or administrative or judicial proceedings pending or being conducted with
respect to the Company;
(ii) no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by the
Company from any foreign, federal, state or local taxing authority; and
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<PAGE> 39
(iii) there are no material unresolved claims concerning the
Company's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company, except where such waiver would not have a material adverse
effect on the Company.
(e) The Company has not executed or entered into a closing
agreement pursuant to IRC Section 7121 or any predecessor provision thereof or
any similar provision of state, local or foreign law; nor has the Company agreed
to or is required to make any adjustments pursuant to IRC Section 481(a) or any
similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company. The Company has no knowledge that
the IRS has proposed any such adjustment or change in accounting method, or has
any knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC Section 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(i) The Company has not made any payments nor is it obligated to
make payments nor is it a party to an agreement that could obligate it to make
any payments that would not be deductible under IRC Section 280G.
(j) The Company shall prepare or cause to be prepared and file or
cause to be filed all federal and state income Tax Returns for the Company for
tax periods ending on or prior to the Closing Date which are filed after the
Closing Date. The Company shall permit GRS to review and comment on each such
Tax Return described in the preceding sentence prior to filing. To the extent
permitted by applicable law, the Stockholders shall include any income, gain,
loss, deduction or other tax items for such period on their individual income
Tax Returns in a manner consistent with the Schedule K-1s furnished by the
Company to the Stockholders for such periods.
(k) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any New York State Gains Tax, New York
City Transfer Tax, if applicable, and any similar Tax imposed in other states
and subdivisions), shall be paid by the Stockholders when due, and the
Stockholders will, at their expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes and fees, and, if required by
applicable law, GRS will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
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<PAGE> 40
EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such Stockholder
shall own beneficially and of record, free and clear of any lien, option or
other encumbrance, the shares of Company Common Stock set forth opposite such
Stockholders' name on Exhibit A hereof, and, upon consummation of the Stock
Purchase, GRS will acquire good and valid title thereto, free and clear of any
lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such Stockholder
has the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement and to perform fully such
Stockholders' obligations hereunder. This Agreement has been duly executed and
delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common Stock to
be issued to it pursuant to the Stock Purchase (the "GRS Shares") for its own
account and not on behalf of any other person; such Stockholder is aware and
acknowledges that the GRS Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be offered or sold
unless the GRS Shares are registered under the Securities Act or an exemption
from the registration requirements of the Securities Act is available;
<PAGE> 41
(b) Such Stockholder has been furnished all information that it deems
necessary to enable it to evaluate the merits and risks of an investment in GRS;
such Stockholder has had a reasonable opportunity to ask questions of and
receive answers from GRS concerning GRS and the GRS Shares, and all such
questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i) any rights in
and to the GRS Shares, which rights were obtained through or from such
Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in financial and
business matters (including knowledge and expertise in the roofing industry)
that it is capable of evaluating the merits and risks involved in an investment
in the GRS Shares: and such Stockholder is financially able to bear the
economic risk of the investment in the GRS Shares, including a total loss of
such investment;
(e) Such Stockholder represents that it has adequate means of providing
for its current needs and has no need for liquidity in its investment in the
GRS Shares; such Stockholder has no reason to anticipate any material change in
its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS Shares is an
investment involving a risk of loss and that there is no guarantee that such
Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal or state
agency has made any finding of determination regarding the fairness of the
offering of the GRS Shares for investment, or any recommendation or endorsement
of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for investment, with no
present intention of dividing or allowing others to participate in such
investment or of reselling, or otherwise participating, directly or indirectly,
in a distribution of the GRS Shares, and shall not make any sale, transfer or
pledge thereof without registration under the Securities Act and any applicable
securities laws of any state or unless an exemption from registration is
available;
(i) Except as set forth herein, no representations or warranties have been
made to such Stockholder by GRS or any agent, employee or Affiliate of GRS, and
in entering into this transaction such Stockholder is not relying upon any
information, other than from the results of independent investigation by such
Stockholder;
(j) Such Stockholder understands that the GRS Shares are being offered to
it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that GRS is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Stockholder set forth herein in
order to determine the applicability of such exemptions and the suitability of
such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of the GRS
Shares except (i) pursuant to an effective registration statement under the
Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS, Sellers' Counsel or other counsel reasonably satisfactory to
GRS, is not required to be registered under the Securities Act.
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EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate Documents.
(a) GRS is a corporation duly organized, validly existing and in
good standing under the laws of Florida, and is not required to be qualified to
do business as a foreign corporation in any other jurisdiction where the failure
to so qualify would have a material adverse effect on GRS. GRS has all required
corporate power and authority to own its properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of GRS, copies
of which are attached as Schedule 5.01(a), are complete and reflect all
amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made available
to the Stockholder for review contain a complete and accurate record of all
stockholders of GRS, and all material actions of the stockholders and directors
(and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized capital
stock of GRS consists of 100,000,000 shares of which 90,000,000 have been
designated as GRS Common Stock and 10,000,000 have been designated as Preferred
Stock. All of the presently outstanding shares of capital stock of GRS have been
validly authorized and issued and are fully paid and nonassessable. Except as
set forth on Schedule 5.03, GRS has not issued any other shares of its capital
stock and there are no outstanding options, warrants, subscriptions or other
rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
<PAGE> 43
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth in
Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to GRS;
(iii) violate, conflict with, result in a breach of, constitute
a default under (whether with or without notice or the lapse of time or both),
or accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any contract or Permit applicable to
GRS;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver, consent,
action, approval or authorization of, or registration, declaration, notice or
filing with, any private non-governmental third party or any Governmental
Authority. Any and all consents required to be obtained by GRS as set forth in
Schedule 5.05 shall be obtained and copies thereof delivered to the Company and
the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no
suit, action or other proceeding is pending or, to the Knowledge of GRS,
threatened before any Governmental Authority seeking to restrain GRS or
prohibit its entry into this Agreement or prohibit the Closing, or seeking
damages against GRS or its Properties, as a result of the consummation of the
transaction contemplated by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in Schedule
5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS Balance
Sheets") and the related statements of income, stockholders' equity and cash
flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in Schedule
5.09, the accounts receivable reflected on the GRS Balance Sheet and all
accounts receivable arising between December 31, 1997 and the date hereof, arose
from bona fide transactions in the ordinary course of business, and the goods
and services involved have been sold, delivered and performed to the account of
the obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle GRS to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim GRS Balance Sheet, no defense or setoff to
any such account has been asserted by the account obligor.
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Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of GRS, regardless
of compensation levels, and other employees who are currently compensated at a
rate in excess of $50,000 per year (including any reasonably anticipated bonus)
or who earned in excess of $50,000 during GRS' fiscal year ended October 31,
1996 (collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a)
contains a complete and accurate description of (i) all increases in
compensation of the GRS Key Employees during the fiscal years of GRS ending
October 31, 1997 and October 31, 1996, respectively, and (ii) any promised
increases in compensation of the GRS Key Employees of GRS that have not yet been
effected.
(b) Schedule 5.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by GRS or to which GRS contributes on behalf of
its employees, other than Employee Benefit Plans listed in Schedule 5.11. As
used in this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 5.10(c) and in Section
5.10(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key
Employee has indicated his or her desire or intent to terminate employment with
GRS, and GRS has no present intent of terminating the employment of any GRS Key
Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
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<PAGE> 45
Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment
exists with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and maintained
in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or ruling
from the Internal Revenue Service for each Employee Benefit Plan intended to be
qualified within the meaning of Section 401 (a) of the Code and/or tax exempt
within the meaning of Section 501(a) of the Code, which letter or ruling is
current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical, dental
or life insurance benefits to or on behalf of any of its employees who may
retire or any of its former employees who have retired from employment with GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in Schedule
5.12, from the date of the GRS Balance Sheet to the date of this Agreement, GRS
has not:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of GRS or any stockholder of GRS, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a cost
in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities, except in the ordinary course of business consistent with
past practice;
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<PAGE> 46
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets, except in
the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of its
assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of its
assets, except in the ordinary course of business consistent with past practice;
(j) changed any accounting principles methods or practices followed
or changed the costing system or depreciation methods of accounting for its
assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or its assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights paid any dividends or made
any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
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<PAGE> 47
Section 5.13 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which GRS is a
party (the "GRS Contracts") set forth in Schedule 5.13, GRS has not entered
into, nor is the capital stock, the assets or the business of GRS bound by,
whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in the
ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or transaction
in which an interest is held by a person or entity that is an Affiliate of GRS;
(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property and involving more than $25,000 in the
aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
6
<PAGE> 48
(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The
GRS Contracts are in full force and effect and are valid and enforceable
obligations of GRS, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as
the availability of equity remedies may be limited by the application of
general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). GRS has not received notice
of any material default with respect to any GRS Contracts. For the purposes of
this Section 5.13(a), the term "material" shall mean a condition the existence
or breach of which could result in damage or loss to GRS valued in excess of
$5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice of
any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available to
the Stockholders all insurance policies of GRS. All of such policies are valid
and enforceable against GRS, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and copyrights
(collectively "Proprietary Rights"), if any, necessary to conduct its business,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Schedule 5.15(a) is a true and
correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the Proprietary
Rights without infringing or violating the rights of any third parties. Use of
the Proprietary Rights does not require the consent of any other person and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or right to use any Proprietary Right or challenging
or questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right. Each of the Proprietary Rights is
valid and subsisting, has not been canceled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by GRS is
set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the
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<PAGE> 49
ordinary course of business), free and clear of all security interests, liens,
charges and other encumbrances, except for (i) liens for taxes not yet due and
payable or being contested in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of its businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by GRS are in good operating condition and repair, normal
wear and tear excepted, are adequate and sufficient for GRS' business and
conform in all material respects with all applicable ordinances, regulations
and laws relating to their use and operation.
(c) A listing of all real property leases, their terms and total
lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful and
undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any
such violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in Schedule
5.18, there are no claims, actions, suits, investigations or proceedings against
GRS pending or, to the Knowledge of GRS, threatened in any court or before or by
any Governmental Authority, or before any arbitrator, that could reasonably be
expected to have a material adverse effect (whether covered by insurance or not)
on the business, operations, prospects, Properties, securities or financial
condition of GRS. Except as otherwise set forth in Schedule 5.18, GRS is not in
default under, and no condition exists (whether covered by insurance or not)
that with or without notice or lapse of time or both would (i) constitute a
default under, or breach or violation of, any Legal Requirement, or Permit
applicable to GRS or any GRS Contract applicable to GRS, or (ii) accelerate or
permit the acceleration of the performance required under, or give any other
party the right to terminate, any GRS Contract, other than defaults, breaches,
violations or accelerations that would not have a material adverse effect on the
business, operations, prospects, Properties, securities or financial condition
of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of GRS,
there are no PCBs, TCE, PCE, or asbestos containing materials generated, used,
treated, stored, maintained, disposed of, or otherwise deposited in, or located
on any premises at which GRS' business (the "GRS Business") is or was, or at
which the business or, to the Knowledge of GRS, its predecessors was, located,
which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which the GRS Business is or was, or, to knowledge of GRS, at which the business
of its predecessors was, located, which would have a Material Adverse Effect on
GRS. With respect to underground storage tanks, Schedule 5.19(b) sets forth the
size, location, construction, installation date, use and testing history of all
underground storage tanks (whether or not excluded from regulation under
Environmental Law), including all underground storage tanks in use, out of
service, closed, abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of GRS,
there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the best
knowledge of GRS, threat of a "release" of
8
<PAGE> 50
any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or
(ii) to the Knowledge of GRS, the operations of any predecessor of GRS, which
would have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor their
respective predecessors have received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and, to
the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge
regarding any aspect of the GRS Business with respect to environmental matters
nor to limit the scope of any of GRS' representations under this Agreement. No
such due diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule
5.20, no such proxies, powers of attorney or other like instruments are
irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth all
of GRS' material suppliers, together with the dollar amount of goods purchased
by GRS from each such supplier during the twelve month period ended December
31, 1997 and the four month period ended April 30, 1998, as well as each of the
principal customers of GRS. Except as otherwise set forth in Schedule 5.21,
since December 31, 1997, there has been no material adverse change in the
business relationship of GRS with any supplier or customer named in Schedule
5.21. No customer or supplier named in Schedule 5.21 has terminated or
materially altered, or notified GRS of any intention to terminate or materially
alter, its relationship with GRS and GRS has no reason to believe that any such
customer or supplier will terminate or materially alter its relationship with
GRS or to materially decrease its services or supplies to GRS or its direct or
indirect usage of the services or products of GRS. For purposes of Sections
5.21 and 5.24 hereof "material suppliers" refers to suppliers from whom GRS
purchased five percent (5%) or more of the total amount of the goods purchased
by GRS during the twelve month period ended October 31, 1997 and the four month
period ended April 30, 1998, and "principal customers" refers to customers who
accounted for
9
<PAGE> 51
5% or more of GRS' revenues during the twelve month period ended December 31,
1997 and the six month period ended April 30, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by GRS to the Stockholders or their counsel, do not contain any untrue
statement of material fact or omit any material fact necessary in order to make
the statements therein not misleading; provided, however, certain materials
provided to the Stockholders contain projections and estimates of future events,
and such projections and estimates have been based upon certain assumptions that
management of GRS made in good faith and believed are reasonable at the time
such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set
forth in Schedule 5.24, no director or executive officer of GRS or their
respective spouses or children, owns directly or indirectly, on an individual
or joint basis, any material interest in, or serves as an officer or director
of, any principal customer or material supplier which has a business
relationship with GRS or any organization that has a material contract or
arrangement with GRS.
Section 5.25 Investments in Competitors. No director or executive officer
of GRS owns directly or indirectly any material interests or has any investment
equal to 5% or more of the outstanding voting securities in any corporation,
business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer or
employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule 5.27,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and all other
material Tax Returns which it is required to file under applicable laws and
regulations;
(ii) all such Tax Returns are true and accurate in all
material respects;
(iii) has paid all Taxes due and owing by it (whether or not
such Taxes are required to be shown on a Tax Return) and has withheld and paid
over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
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(iv) the accrual for Taxes on the Unaudited GRS Balance Sheet
(excluding any amount recorded which is attributable to timing differences
between book and Tax income) would be adequate to pay all material Tax
liabilities of GRS if its current tax year were treated as ending on the date of
the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been filed
through the date hereof, and, as of the date hereof, none of such Tax Returns
has been audited.
(b) To the Knowledge of GRS, no claim has been made by a taxing
authority in a jurisdiction where GRS does not file Tax Returns that GRS is or
may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local tax audits
or administrative or judicial proceedings pending or being conducted with
respect to GRS;
(ii) no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by GRS
from any foreign, federal, state or local taxing authority; and
(iii)there are no material unresolved claims concerning GRS'
Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC Section 481(a) or any similar provision
of state, local or foreign law by reason of a change in accounting method
initiated by GRS. GRS has no knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any knowledge with respect to
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC Section 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC Section 280G.
Section 5.29 Participation in Secondary Offering. In the event that after
the Offering GRS files a registration statement with the Securities and Exchange
Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such number of shares of GRS Common
Stock owned by the Stockholders as shall equal (i)(A) the total number of shares
of GRS Common Stock owned by such Stockholders divided by (B) the total number
of shares of GRS Common Stock owned by all shareholders of the Founding
Companies, multiplied by (ii) the total number of shares of GRS Common Stock
owned by shareholders of the Company which are to be included in the Secondary
Offering.
11
<PAGE> 1
EXHIBIT 2.11
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
C.E.I. WEST ROOFING COMPANY, INC.
AND
ALL OF THE STOCKHOLDERS
OF
C.E.I. WEST ROOFING COMPANY, INC.
----------------------------
MAY 13, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES..............................................1
1.01 Sale and Purchase of Company Common Stock...................................1
1.02 Purchase Price..............................................................2
1.03 Delivery of Purchase Price..................................................2
1.04 Purchase Price Adjustment...................................................3
1.05 Excluded Assets and Distribution of Assets..................................4
1.06 Stockholders' Representative................................................4
ARTICLE II - CLOSING.................................................................5
2.01 Closing.....................................................................5
2.02 Deliveries by Stockholders to GRS...........................................5
2.03 Deliveries by GRS...........................................................6
2.04 Termination in Absence of Closing...........................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS.................................. 7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER......................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS....................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING............................................7
6.01 GRS' Access to Information and Assets.......................................7
6.02 Company's Conduct of Business and Operations................................7
6.03 General Restrictions........................................................8
6.04 Notice Regarding Changes....................................................9
6.05 Consents and Best Efforts...................................................9
6.06 Casualty Loss..............................................................10
6.07 Employee Matters...........................................................10
6.08 No Solicitation............................................................10
6.09 Employment Agreements......................................................10
6.11 Lock-Up Agreement..........................................................10
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS......................11
7.01 Conditions to Obligations of All Parties...................................11
7.02 Conditions to Obligations of Stockholders..................................11
7.03 Conditions to Obligations of GRS...........................................12
ARTICLE VIII - SURVIVAL.............................................................13
8.01 Survival of Representations and Warranties of the Company and the
Stockholders...............................................................13
ARTICLE IX - INDEMNIFICATION........................................................14
9.01 Obligation of the Stockholders to Indemnify................................14
9.02 Obligation of GRS to Indemnify.............................................14
9.03 Notice and Opportunity to Defend...........................................14
9.04 Limitations on Indemnification.............................................15
9.05 Set-Off Rights.............................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS................................................17
10.01 Further Assurances.........................................................17
10.02 Publicity..................................................................17
10.03 Access to Records..........................................................17
ARTICLE XI - MISCELLANEOUS..........................................................17
11.01 Brokers....................................................................17
11.02 Costs and Expenses.........................................................17
11.03 Notices....................................................................18
11.04 Governing Law..............................................................18
11.05 Representations and Warranties.............................................19
11.06 Entire Agreement, Amendments and Waivers...................................19
11.07 Binding Effect and Assignment..............................................19
11.08 Remedies...................................................................19
11.09 Exhibits and Schedules.....................................................19
11.10 Multiple Counterparts......................................................19
11.11 References.................................................................19
11.12 Survival...................................................................19
11.13 Attorneys' Fees............................................................20
ARTICLE XII - DEFINITIONS...........................................................20
12.01 Affiliate..................................................................20
12.02 Collateral Agreements......................................................20
12.03 Company Assets.............................................................20
12.04 Contract Retention.........................................................20
12.04 Current Assets.............................................................20
12.05 Current Liabilities........................................................20
12.06 Damages....................................................................21
12.07 Environmental Law..........................................................21
12.09 GAAP.......................................................................21
12.10 Governmental Authorities...................................................21
12.01 Hazardous Substances.......................................................21
12.12 Knowledge..................................................................21
12.13 Legal Requirements.........................................................21
12.14 Permits....................................................................21
12.15 Properties.................................................................21
12.16 Proportionate Share........................................................22
12.17 Regulations................................................................22
12.18 Taxes......................................................................22
12.19 Tax Returns................................................................22
12.20 Used.......................................................................22
12.21 Used.......................................................................22
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for Frederic Holland
Exhibit H - Employment Agreement for Michael McClane
Exhibit I - Opinion of Baker & McKenzie
Exhibit J - Opinion of Williams, Williams, Ruby & Plunkett, P.C.
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 13, 1998, by and among (i) General Roofing Services, Inc.
a Florida corporation (the "Buyer" or "GRS"),(ii) C.E.I. West Roofing Company,
Inc., a Colorado corporation (the "Company"), and (iii) all of the stockholders
of the Company (the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable for
their welfare and best interests that the Stockholders sell and GRS
purchase all of the issued and outstanding capital stock of the Company,
consisting of 24,745 shares (the "Shares") of common stock, par value
$1.00 per share ("Company Common Stock), upon the terms and subject to the
conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby and as part
of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding
Companies") throughout the United States, and such transactions are
intended to conform to, and one being made, in connection with a Section
351 Plan of Exchange within the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to such
use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this Agreement,
at the Closing referred to in Section 2.01 hereof, each Stockholder shall sell,
transfer, convey and deliver to GRS, and GRS shall purchase, acquire and accept
from each Stockholder, the number of shares of Company Common Stock set forth
opposite the name of each such Stockholder on Exhibit A hereto under the heading
"Number of Shares of Company Common Stock Purchased", constituting all of the
issued and outstanding shares of Company Common Stock. The sale and purchase of
the Company Common Stock pursuant to this Agreement is sometimes hereinafter
referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a), at the
Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
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Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares of
Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $7,687,696. The Purchase Price shall be
subject to adjustment as provided in this Agreement and shall be allocated among
the Stockholders in accordance with their respective ownership interests as set
forth on Exhibit A hereof. The Purchase Price, as so adjusted, shall be
delivered to the Stockholders in accordance with their respective Proportionate
Share and to the Escrow Agent (as defined in Section 1.03(b) hereof), subject to
and in accordance with Section 1.03 hereof. The amount of the Purchase Price
allocated to each outstanding share of Company Common Stock is hereinafter
referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $2,319,996
(the "Target Net Book Value") (such adjustment is referred to herein as the "Net
Book Value Adjustment"); provided, that the Net Book Value as determined
pursuant to the Closing Date Unaudited Balance Sheet shall not be less than
$1,239,800 (the "Minimum Net Book Value"). For purposes of this Agreement, Net
Book Value shall mean the excess of the Company's total assets over the
Company's total liabilities, determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered to
GRS within fifteen days prior to the Closing Date (i) an unaudited consolidated
balance sheet of the Company forecasted as of the Closing Date (the "Closing
Date Unaudited Balance Sheet"), (ii) a calculation of the Purchase Price
Adjustment, if any, determined pursuant to Section 1.02(b) above, and (iii) a
certificate executed by the Company's Chief Financial Officer (or another duly
authorized officer of the Company) to the effect that the Closing Date Unaudited
Balance Sheet has been prepared from the books and records of the Company and in
a manner consistent with the preparation of the Company Financial Statements (as
defined in Section 3.06 hereof), except that Deferred income Taxes have been
reflected in the same manner as if the Company was a "C" corporation.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section
1.01(b) hereof of a certificate or certificates representing all of the issued
and outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $3,459,463, minus (ii) the
amount of the Purchase Price Adjustment, if any, shall be paid directly to the
holders thereof by wire transfer in New York Clearing House Funds in accordance
with Exhibit A hereto.
(b) An aggregate of $4,228,233 shall be paid by the delivery to (A)
an escrow agent (the "Escrow Agent") selected by GRS and reasonably acceptable
to the Stockholders, on behalf of the Stockholders, of such number of shares of
the GRS' common stock, par value $.01 per share ("GRS Common Stock"), as shall
have a value equal to $1,537,539, representing twenty percent (20%) of the
Purchase Price (the "Escrow Fund"), based upon the public offering price of the
GRS Common Stock to be sold in its initial public offering (the "Offering") and
(B) to the Stockholders in accordance with Exhibit A hereto, of such number of
shares of GRS Common Stock as shall have a value equal to $2,690,694 based upon
the public offering price of the GRS Common Stock to be sold in the Offering.
The shares of GRS Common Stock to be so held in escrow shall be held by the
Escrow Agent for a period of one year following the Closing in accordance with
the terms of an Escrow Agreement in the form of Exhibit B hereto (the "Escrow
Agreement"), and shall thereafter be restricted from transfer for an additional
one-year period
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in accordance with the terms, and subject to the conditions, of a Lock-Up
Agreement in the form of Exhibit C hereto (the "Lock-Up Agreement"). The
Stockholders shall receive cash in lieu of fractional shares.
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (the
"1933 ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND
SHALL NOT BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED
UNTIL EITHER (I) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS DECLARED EFFECTIVE UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER
COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH OPINION IS
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b) hereof,
if any, and within 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Purchase Price Adjustment,
if any, and the cash portion of the Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by GRS to
the Stockholders of a Purchase Price Notice, the Stockholders may deliver to GRS
a written notice advising GRS either that the Stockholders (A) agree with the
calculation of the Purchase Price Adjustment, or (B) believe that one or more
adjustments are required. If the Stockholders shall concur with the calculation
of the Purchase Price Adjustment, if any, or if the Stockholders shall not
object thereto in a written notice delivered to GRS within five (5) business
days after the Stockholders' receipt of the Purchase Price Notice, the Purchase
Price as set forth in the Purchase Price Notice, if any, shall become final and
shall not be subject to further review, challenge or adjustment absent fraud.
(ii) In the event that GRS timely submits the Purchase
Price Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the disagreements
with respect to the proposed Purchase Price Adjustment prior to the Closing,
then such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing roofing or construction
companies and selected by mutual agreement of Stockholders and GRS (the
"Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the event
that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination
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not more than five (5) days after such referral. The costs and expenses of the
services of the Settlement Accountants shall be paid equally by the Company and
GRS. Pending the final determination by the Settlement Accountants of the
Purchase Price Adjustment, if any (the "Final Determination"), the difference
between the determination by the Stockholders and GRS of the Purchase Price
Adjustment, if any, shall be withheld from the cash portion of the Purchase
Price to be delivered pursuant to Section 1.03(a) and shall be paid in
accordance with and upon the Final Determination. Any such dispute shall not
delay the Closing.
(c) After the final determination of the Purchase Price pursuant to
Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the adjustment
determined pursuant thereto shall be deducted from the cash portion of the
Purchase Price and allocated among the Stockholders in accordance with their
respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those tangible assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are not
required by the Company in the conduct of its operations and which are listed in
Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall
distributions be made to the extent that the Closing Net Book Value would be
less than the Minimum Net Book Value.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders' Representative"
shall mean George Cook or any person appointed as a successor Stockholders'
Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all obligations
under this Agreement have been discharged (including all indemnification
obligations hereunder and all obligations under the Escrow Agreement), the
Stockholders who, immediately prior to the Closing, held Company Common Stock
representing an aggregate number of shares of Company Common Stock which
exceeded 50% of the amount of such Company Common Stock outstanding immediately
prior to such time (a "Majority"), may, from time to time upon written notice to
the Stockholders' Representative and GRS, remove the Stockholders'
Representative or appoint a new Stockholders' Representative to fill any vacancy
created by the death, incapacitation, resignation or removal of the
Stockholders' Representative. Furthermore, if the Stockholders' Representative
dies, becomes incapacitated, resigns or is removed by a Majority, the Majority
shall appoint a successor Stockholders' Representative to fill the vacancy so
created. If the Majority is required to but has not appointed a successor
Stockholders' Representative within 20 business days from a request by GRS to
appoint a successor Stockholders' Representative, GRS shall have the right to
appoint a Stockholders' Representative to fill any vacancy so created, and shall
advise all those who were holders of Company Common Stock immediately prior to
the Closing of such appointment by written notice. A copy of any appointment by
the Majority of any successor Stockholders' Representative shall be provided to
GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to take
any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
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absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform his rights and obligations hereunder. The Stockholders hereby
grant the Stockholders' Representative the right and power to execute the Escrow
Agreement on their behalf with such changes or amendments thereto as the
Stockholders' Representative shall determine to be necessary or desirable in his
sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
(d) GRS shall have no liability to any Stockholder or otherwise
arising out of the acts or omissions of the Stockholders' Representative or any
disputes among the Stockholders or with the Stockholders' Representative. GRS
may rely entirely on its dealings with, and notices to and from, the
Stockholders' Representative to satisfy any obligations it might have to the
Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless the
Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the
issued and outstanding shares of Company Common Stock in
proper form for transfer to GRS;
(ii) the resignations of all members of the board directors
of the Company as set forth in Section 7.03(l);
(iii) the stock books, stock ledgers,
minute books and corporate seals of the Company;
(iv) a certificate executed by the Company to the effect that
the conditions set forth in Sections
7.03(b) through 7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section 7.03(f);
(vi) the executed Collateral Agreements; and
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(vii) evidence of the consents required pursuant to Section
7.03(n).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available funds to the
Stockholders the payment described in Section 1.03(a)
as being required to be paid by GRS at Closing;
(ii) by delivery to the Stockholders the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Stockholders at
Closing;
(iii) by delivery to the Escrow Agent the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Escrow Agent at
Closing;
(iv) a certified copy of all necessary corporate action on
behalf of GRS approving its execution, delivery and
performance of this Agreement and the Collateral
Agreements to which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized officer of GRS
to the effect that the conditions set forth in Sections
7.02(b) and 7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section 7.02(d);
(vii) the executed Collateral Agreements to which it is a
party; and
(viii) evidence that: (a) the Stockholders have been released
from all personal guarantees relating to any
obligations of the Company, including but not limited
to, any bank loans, lines of credit, and/or performance
bonds (the "Personal Guarantees and Obligations") and
(b) GRS shall indemnify and hold harmless the
Stockholders from and against any personal liability or
obligations relating to or arising out of any Personal
Guarantees or Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of
business on September 30, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability
of or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party
to perform its obligations under this Article II on such date; provided,
however, that any termination pursuant to this Section 2.04 shall not relieve
any party hereto who was responsible for Closing having not occurred as
described in clauses (i) or (ii) above of any liability for (x) such party's
willful breach of the provisions of this Agreement, or (y) if all of the
conditions to such party's obligations set forth in Article VII have been
satisfied or waived in writing by the date scheduled for the Closing pursuant
to Section 2.01, the failure of such party to perform its obligations under
this Article II on such date. Notwithstanding the foregoing, the Stockholders
expressly acknowledge and agree that market and economic conditions are
impossible to predict, and although GRS intends to proceed with the Offering in
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an expeditious manner at this time, GRS shall not be liable to the Stockholders
or the Company if the Closing has not occurred because the Offering has not
been consummated prior to the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text
of which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders shall
permit GRS and its authorized employees, agents, accountants, legal counsel and
other representatives, at GRS' own expense, to have access to the books,
records, employees, counsel, accountants, and other representatives of the
Company at all times reasonably requested by GRS for the purpose of conducting
an investigation ("GRS' Due Diligence Investigation") of the Company's financial
condition, corporate status, operations, business and Properties. The
Stockholders shall make available to GRS for examination and reproduction, at
GRS' own expense, all documents and data of every kind and character relating to
the Company in possession or control of, or subject to reasonable access by, the
Stockholders or the Company, including, without limitation, all files, records,
data and information relating to the Company Assets (whether stored in paper,
magnetic or other storage media) and all agreements, instruments, contracts,
assignments, certificates, orders, and amendments thereto. Also, the Company
shall allow GRS, at GRS' own expense, access to, and the right to inspect, the
Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The Stockholders
shall keep GRS advised as to all material operations and proposed material
operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and workmanlike manner, (d) pay or cause to
be paid all costs and expenses (including but not limited to
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insurance premiums) incurred in connection therewith in a timely manner, (e) use
reasonable efforts to keep all Company Contracts listed or required to be listed
on Schedule 3.12 in full force and effect, (f) comply with all of the covenants
contained in all such Company Contracts, (g) maintain in force until the Closing
Date insurance policies (subject to the provisions of Section 6.06) equivalent
to those in effect on the date hereof, and (h) comply in all material respects
with all applicable Legal Requirements. Except as otherwise contemplated in this
Agreement, the Stockholders shall use their best efforts to preserve the present
relationships of the Company with persons having significant business relations
therewith.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS, the
Company shall not:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof, declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of its
capital stock, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
view of or in substitution for shares of its capital stock, or
(C) purchase, redeem or otherwise acquire any shares of capital stock of
the Company or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) except as disclosed on Schedule 6.03 (ii), issue,
deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws (or
similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business of any corporation, partnership,
joint venture, association or other business organization or division
thereof or (B) any assets that are material, individually or in the
aggregate, to the Company, except purchases of assets in the ordinary
course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
otherwise dispose of, or agree to sell, transfer, lease, mortgage, encumber
or otherwise dispose of, any Properties except (A) in the ordinary course
of business consistent with past practice, or (B) pursuant to any Company
Contract or except as permitted by Sections 1.05 and 3.02 hereof;
(vi) except as permitted by Section 1.05 hereof, (A) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of the foregoing,
except for borrowings incurred in the ordinary course of business
consistent with past practice, or (B) make any loans, advances or capital
contributions to, or investments in, any other person;
(vii) make or agree to make any new capital expenditure or
expenditures which, individually is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 (other than those required pursuant to
currently outstanding Company Contracts or in the ordinary course of
business consistent with past practice);
(viii) make any material tax election or settle or compromise
any material tax liability;
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(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the Company Financial Statements
(or the notes thereto) or incurred in the ordinary course of business
consistent with past practice, or waive any material benefits of, or agree
to modify in any material respect, any confidentiality, standstill or
similar agreements to which the Company is a party;
(x) except in the ordinary course of business consistent
with past practice, modify, amend or terminate any Company Contract;
(xi) except in the ordinary course of business consistent
with past practice, enter into any contracts, agreements, arrangements or
understandings relating to performance by third parties of the Company's
services;
(xii) except as required to comply with applicable law (A)
adopt, enter into, terminate or amend any benefit plan or other arrangement
for the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except in a
manner consistent with past practice), (C) pay any benefit not provided for
under any benefit plan, (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan
(including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock, or
the removal of existing restrictions in any benefit plans or agreement or
awards made thereunder) or (E) take any action to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take any of,
the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto shall
use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of
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the conditions to such other party's obligation to consummate the transactions
contemplated hereby as specified in Article VII of this Agreement to be fully
satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and the
Closing, any of the Properties of the Company shall be destroyed or damaged in
whole or in part by fire, earthquake, flood, other casualty or any other cause
which materially affects the ability of the Company to conduct its business (a
"Casualty Loss"), then the Stockholders may, if requested by GRS, (i) cause the
Company to cause such Properties to be repaired or replaced prior to the Closing
with Property of substantially the same condition and function, (ii) cause the
Company to deposit in a separate account an amount sufficient to cause such
Property to be so repaired or replaced, or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause the
Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to, (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company, or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before the Closing, Frederic
Holland and Michael McClane shall have each entered into an employment agreement
in the form of Exhibits G and H (the "Employment Agreements"), which shall
include, non-competition provisions, to take effect on and after the Closing
Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the Stockholders
shall have entered into the Lock-Up Agreement.
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ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to be
made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the date of the Closing; provided, however,
that no provision of this Agreement shall be construed as requiring any party to
accept, in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company, or GRS conducts or proposes to conduct its business, and no transfers
of licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any statute,
rule, regulation, decree, ruling, injunction or other order issued by any
Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this
Agreement are subject, at the option of the Stockholders, to the satisfaction,
or waiver by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified copy
of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in this
Agreement qualified by materiality shall be true and correct in all respects at
Closing and all other representations and warranties of GRS contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing, as if such representations and warranties were made at and as of the
Closing, except for changes contemplated by the terms of this Agreement except
as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms thereof, and GRS shall have performed and satisfied in
all material respects all covenants and agreements required by this Agreement to
be performed and satisfied by GRS at or prior to the Closing; provided, however,
that no Stockholder shall be entitled to refuse to consummate the transaction in
reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Stockholders or the
Company) shall be pending or threatened before any Governmental Authority
seeking to restrain the Stockholders from effectuating the Stock Purchase or
prohibit the Closing or seeking Damages against the Stockholders or the Company
as a result of the consummation of the transactions contemplated by this
Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
I. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
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(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and the
Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) GRS shall have furnished the Stockholders and the Company with
an Opinion Letter from Deloite & Touche which provides that the consummation of
the transactions described in this Agreement will qualify as a Section 351 Plan
of Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. . The obligations of GRS
to carry out the transactions contemplated by this Agreement are subject, at
the option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered to
GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of GRS) shall be pending or
threatened before any court or governmental agency seeking to restrain GRS or
prohibit the Closing or seeking Damages against GRS, the Stockholders, the
Company or its Properties as a result of the consummation of the transactions
contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from the
date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations, prospects or
financial condition of the Company that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company (whether or
not covered by insurance) that had or would reasonably be likely to have a
material adverse effect on the business, operations, prospects, Properties,
securities or financial condition of the Company.
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(f) GRS shall have received the opinion of Williams, Williams, Ruby
& Plunkett, P.C. ("Sellers' Counsel") counsel to the Company and the
Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit J. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by reference to
the Closing Unaudited Balance Sheet shall be equal to or greater than the
Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall not be less than
$824,140. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness, determined in accordance with GAAP.
(j) The Stockholders shall have executed and delivered to GRS the
Escrow Agreement.
(k) GRS shall have received the executed Employment Agreements for
Frederic Holland and Michael McClane.
(l) GRS shall have received the resignation of all of the members
of the board of directors of the Company effective as of the Closing Date.
(m) All proceedings to be taken by Stockholders and the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to GRS and its counsel, and
GRS and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(n) GRS shall have received written evidence, in form and substance
satisfactory to GRS, of the consent to the transactions contemplated by this
Agreement of all governmental, quasi-governmental and private third parties
(including, without limitation, persons or other entities leasing real or
personal property to the Company), except where the failure to have obtained any
such consent would not have an adverse effect on the Company or GRS following
the Closing.
(o) GRS shall be satisfied in its sole and absolute discretion with
GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(p) GRS shall have determined, in its reasonable discretion, that
all agreements between the Company and the Stockholders shall be on terms as
favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(q) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company and
the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other
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party hereto and notwithstanding any knowledge of facts determined or
determinable by any party hereto pursuant to such investigation or right of
investigation, each of GRS, on the one hand, and the Company and the
Stockholders, on the other hand, has the right to rely fully upon the
representations, warranties, covenants and agreements of GRS or the Company and
the Stockholders, as the case may be, contained in this Agreement, or in any
certificate delivered pursuant to any of the foregoing; provided, that no party
hereto shall be entitled to rely on any representation or warranty made by any
other party hereto herein to the extent that such party has actual knowledge,
and the other party or parties (or any of them) are not aware, that such
representation or warranty is untrue or incorrect in any material respect. All
such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
The Basket Exclusions shall survive the Closing indefinitely, other than Section
3.28, which shall survive for the applicable statute of limitations.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to the
limitations contained in Article VIII and Article IX hereof, the Stockholders,
jointly and severally, agree to indemnify, defend and hold harmless GRS (and its
Affiliates, successors and assigns and their respective officers and directors)
from and against all losses, liabilities, damages, deficiencies, costs or
expenses (including interest, penalties and reasonable attorneys' fees and
disbursements, but offset by any proceeds from insurance and taking into account
the present value of any tax savings to GRS or the Company resulting from such
losses, liabilities, damages, deficiencies, costs or expenses) ("Losses") based
upon, arising out of or otherwise in respect of (i) any inaccuracy in or any
breach of any representation, warranty, covenant or agreement of the Company or
the Stockholders contained in this Agreement, (ii) liabilities for Taxes
incurred by the Company with respect to actions prior to the Closing Date and
(iii) any liability arising out of any subsequent adjustment by any tax
authorities with respect to items attributable to periods prior to the Closing
Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim or circumstances
which, with the lapse of time, would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to
Section 9.01 or 9.02 (the "Indemnifying Party"). The Claims Notice shall
describe the Asserted Liability in reasonable detail, and shall indicate the
amount (estimated, if necessary and to the extent feasible) of the Loss that has
been or may be suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such
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Asserted Liability. If the Indemnifying Party elects to compromise or defend
such Asserted Liability, it shall within thirty (30) days (or sooner, if the
nature of the Asserted Liability so requires) notify the Indemnitee of its
intent to do so, and the Indemnitee shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against, such Asserted
Liability. If the Indemnifying Party elects not to compromise or defend the
Asserted Liability, fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnify under this Agreement, the
Indemnitee may pay, compromise or defend such Asserted Liability.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any claim over the objection of the other, provided,
however, that consent to settlement or compromise shall not be unreasonably
withheld. In any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in the defense of such Asserted Liability. If
the Indemnifying Party chooses to defend the claim, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section 9.03(b) to
the contrary notwithstanding, in the case of any Asserted Liability by any
supplier, distributor, sales agent or customer of the Company with respect to
the business conducted by the Company prior to the Closing in connection with
which GRS may make a claim against the Stockholders for indemnification pursuant
to Section 9.01, GRS shall give a Claims Notice with respect thereto but, unless
GRS and the Indemnifying Party otherwise agree, the Stockholders shall have the
exclusive right at its option to defend, at their own expense, any such matter,
subject to the duty of the Stockholders to consult with GRS and its attorneys in
connection with such defense and provided that no such matter shall be
compromised or settled by the Stockholders without the prior consent of GRS,
which consent shall not be unreasonably withheld. GRS shall have the right to
recommend in good faith to the Stockholders proposals to compromise or settle
claims brought by a supplier, distributor or customer, and the Stockholders
agree to present such proposed compromises or settlements to such supplier,
distributor or customer. All amounts required to be paid in connection with any
such Asserted Liability pursuant to the determination of any court, governmental
or regulatory body or arbitrator, and all amounts required to be paid in
connection with any such compromise or settlement consented to by GRS, shall be
borne and paid by the Stockholders. The parties agree to cooperate fully with
one another in the defense, compromise or settlement of any Asserted Liability.
Section 9.04 Limitations on Indemnification. The indemnification provided
for in Sections 9.01 and 9.02 shall be subject to the following limitations:
(i) The Stockholders shall not be obligated to pay any
amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders shall be
obligated to pay any amounts for indemnification under this Article IX, except
those based upon, arising out of or otherwise in respect of Sections 3.02, 3.21,
5.22, 5.29, 3.28, 9.01 (ii) and (iii), 11.01 and 11.02 and Article IV hereof
(the "Basket Exclusions"), until the aggregate indemnification payments,
exclusive of the Basket Exclusions, equals one percent (1%) of the Purchase
Price (the "Basket Amount"), whereupon GRS, or the Company and Stockholders, as
the case may be, shall be obligated to pay any indemnification payments,
including the Basket Amount, in full. It is expressly understood that the Basket
Amount shall serve as a "trigger" for indemnification and not as a "deductible"
(for example, if the indemnity claims for which GRS or the Stockholders would,
but for the provisions of this subparagraph (ii), be liable is in the aggregate
amount of $100,000, and 1% of the Purchase Price is $70,000, the Stockholders
would then be liable for the entire $100,000 and not just $30,000.00). This
Section 9.04(ii) will not apply to any breach of any representations and
warranties of which any party had actual Knowledge at any time prior to the date
on which such representation and warranty is made or any intentional breach by
any party of any covenant or obligation, and GRS or the Stockholders, as the
case may be, will be jointly and severally liable for all damages with respect
to such breaches.
(iii) GRS, the Company and Stockholders shall be obligated
to pay the Basket Exclusions without regard to the individual or aggregate
amounts thereof and without regard to
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whether the aggregate amount of all other indemnification payments shall have
exceeded, in the aggregate, the Basket Amount.
(iv) Notwithstanding anything to the contrary in this
Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights set forth
in this Article IX shall be each party's sole and exclusive remedy against the
other party for any breach of any representation, warranty or covenant contained
in this Agreement. Notwithstanding the foregoing, nothing herein shall prevent
any party from bringing an action based upon allegations of fraud in connection
with this Agreement. In the event an action based upon allegations of fraud is
brought, the prevailing party's attorneys' fees and costs shall be paid by the
nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses with
respect to accounts receivable reflected on the Closing Date Unaudited Balance
Sheet only if and to the extent that such accounts receivable, except for
Contract Retention, remain uncollected 180 days from the Closing Date. Contract
Retention will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses form the failure to collect accounts
receivable of the Company or Contract Retention and such Losses result in a
set-off from the Escrow Fund, the related accounts receivable or Contract
Retention shall be assigned to the Stockholders following, and to the extent of,
such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to Section 9.04
and, paragraphs (b) and (c) of this Section 9.05, any claims for indemnification
by GRS against the Stockholders (or any of them) hereunder shall be satisfied
first against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15) days'
notice (the "GRS Notice") of its intention to deduct or set-off any amounts
pursuant to this Section 9.05, including in such notice a description of GRS'
indemnification claim. If none of the Stockholders object in writing to such
deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
(c) If any of the Stockholders timely object in writing to the set-off
proposed in the GRS Notice, and if GRS and the objecting Stockholder(s) are
unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such
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dispute and (ii) pay to the party to which such payment or set-off is determined
to be payable an amount sufficient to equal a return at the rate of ten percent
(10%) per annum on the disputed amount from the date payment of such amount was
originally due through the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties, and
the parties shall endeavor jointly to agree on the text of any announcement or
circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each of
the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur, (i)
each Stockholder shall jointly and severally indemnify and hold harmless GRS and
the Company from and against any and all liability for any brokers or finders'
fees arising with respect to brokers or finders retained or engaged by the
Company or any of the Stockholders in respect of the transactions contemplated
by this Agreement, and (ii) GRS shall indemnify and hold harmless the
Stockholders from and against any and all liability for any brokers' or finders'
fees arising with respect to brokers or finders retained or engaged by GRS in
respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
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Section 11.03 Notices. Any notice, request, instruction, correspondence or
other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: George Cook
2140 Industrial Drive
P.O. Box 200
Howell, Michigan 48843 With a copy to:
With a copy to:
Williams, Williams, Ruby & Plunkett, P.C.
380 North Old Woodward Avenue
Birmingham, Michigan 48009
Attention: R.J. Williams, Jr.
Telecopy No.: (248) 642-0856
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
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Section 11.05 Representations and Warranties. Each of the representations
and warranties of each of the parties to this Agreement shall be deemed to have
been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this Agreement
are cumulative, and the use of any one right or remedy by any party hereto shall
not preclude or constitute a waiver of its right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights and
remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules referred
to herein are attached hereto and incorporated herein by this reference.
Disclosure of a specific item in any one schedule shall be deemed restricted
only to the Section to which such disclosure specifically relates except where
(i) there is an explicit cross-reference to another Schedule, and (ii) GRS could
reasonably be expected to ascertain the scope of the modification to a
representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used in
this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing for the
time period set forth in Section 8.01 hereof and shall be binding upon the party
or parties obligated thereby in accordance with the terms of this Agreement,
subject to any limitations expressly set forth in this Agreement.
19
<PAGE> 24
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective meanings
ascribed to such terms in this Article XII, unless otherwise defined in this
Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect to
any person, any other person controlling, controlled by or under common control
with such person. The term "Control" as used in the preceding sentence means,
with respect to a corporation, the right to exercise, directly or indirectly,
more than fifty percent (50%) of the voting rights attributable to the shares of
the controlled corporation and, with respect to any person other than a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements" shall
mean any or all of the following agreements, the forms of which are attached
hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for Frederic Holland
Exhibit H - Emkployment Agreement for Michael McClane
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean, with
respect to the Company, all of the Properties, Company Contracts, and Permits,
that were Used by the Company as of the Balance Sheet Date and those Used by the
Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall mean
any amounts withheld by customers from contract progress billing until final and
satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean, with
respect to the Company, cash and other assets that are expected to be converted
into cash, sold or exchanged within one year from the Closing Date, including
marketable securities, receivables, inventory and current prepayments .
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
20
<PAGE> 25
Section 12.07 Damages. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation income and
other Taxes, interest, penalties and attorneys' and accountants' fees and
disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistant with past practices (except
for the ommission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers who are stockholders with respect to
the representation being made, and such knowledge of any such persons as
reasonably should have obtained upon due investigation and inquiry into the
representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all permits or
orders under any Legal Requirement or otherwise granted by any Governmental
Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
21
<PAGE> 26
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes" shall
mean the deferred tax assets and liabilities required to be recorded under GAAP
to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By:/s/ Gregg Wallick
--------------------------------
Gregg Wallick, President
C.E.I. WEST ROOFING COMPANY, INC.
By:/s/ Ronald H. Martin
--------------------------------
Ronald H. Martin
President
STOCKHOLDERS:
/s/ Frederic E. Holland
-----------------------------------
Frederic E. Holland
/s/ John C. Cook
-----------------------------------
John C. Cook
/s/ George J. Cook
-----------------------------------
George J. Cook
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<PAGE> 27
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of Company Percentage
Name Common Stock Purchased of Ownership
- ---- --------------------------- ------------
<S> <C> <C>
Frederick E. Holland 10,605 42.858%
John C. Cook 7,070 28.571%
George J. Cook 7,070 28.571%
------ -------
Total 24,745 100%
</TABLE>
<PAGE> 28
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of Colorado, and is not required to be qualified
to do business as a foreign corporation in any other jurisdiction where the
failure to so qualify would have a material adverse effect on the Company. The
Company has all required corporate power and authority to own its Properties and
to carry on its business as presently conducted. The Articles of Incorporation
and By-laws of the Company, copies of which are attached as Schedule 3.01(a),
are complete and reflect all amendments thereto through the date hereof.
(b) The stock and minute books of the Company that have been made
available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in any
partnership or joint venture, or own any outstanding capital stock of any other
corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized capital stock
of the Company consists of 10,000 shares of Voting and 50,000 shares of
Non-Voting Company Common Stock. The issued and outstanding shares of Company
Common Stock are owned of record and beneficially by the Stockholders shown on
Exhibit A hereof. All of the presently outstanding shares of capital stock of
the Company have been validly authorized and issued and are fully paid and
nonassessable. The Company has not issued any other shares of its capital stock
and there are no outstanding options, warrants, subscriptions or other rights or
obligations to purchase or acquire any of such shares, nor any outstanding
securities convertible into or exchangeable for such shares, except as set forth
on Schedule 3.02. Except as contemplated under this Agreement, there are no
agreements to which the Company is a party regarding the issuance, registration,
voting or transfer of its outstanding shares of its capital stock. Except for
possible dividends to be issued in connection with the Excluded Assets as
described in Section 1.05 and dividends related to the payment of the
Stockholders' tax liabilities with respect to earnings of the Company up to the
Closing Date, each and all of which shall be subject to the prior written
approval of GRS, no dividends are accrued but unpaid on any capital stock of the
Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set forth
in Schedule 3.04 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the Articles of Incorporation or bylaws of the Company;
<PAGE> 29
(ii) violate any Legal Requirements applicable to the Company;
(iii) violate, conflict with, result in a breach of, constitute a
default under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any Company Contract or Permit
applicable to the Company;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of the Company; or
(v) require any of the Stockholders or the Company to obtain or
make any waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third party or
any Governmental Authority. Any and all consents required to be obtained by the
Company as set forth in Schedule 3.04 shall be obtained and copies thereof
delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no suit,
action or other proceeding is pending or, to the Knowledge of the Company or the
Stockholders, threatened before any Governmental Authority seeking to restrain
any of the Stockholders or prohibit their entry into this Agreement or prohibit
the Closing, or seeking damages against the Company or its Properties, as a
result of the consummation of the transactions contemplated by this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true and
correct copies of the Company's (i) Closing Date Unaudited Balance Sheet, (ii)
unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
three months ended March 31, 1998 (the "Interim Company Financial Statements"),
as well as (iii) the Company's balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended December 31, 1997 (the "Company Financial Statements"). The Company
Financial Statements (i) have been prepared from the books and records of the
Company, (ii) present fairly the financial condition of the Company and its
results of operations as at and for the respective periods then ended, and (iii)
have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in Schedule
3.07, the Company Financial Statements reflect all liabilities of the Company as
determined in accordance with generally accepted accounting principles arising
out of transactions effected or events occurring on or prior to the date of the
Interim Company Balance Sheet, except for liabilities not exceeding $10,000 in
the aggregate. All reserves shown in the Company Financial Statements are
appropriate and reasonable to provide for losses thereby contemplated. Except as
set forth in the Company Financial Statements (including the Notes thereto), the
Company is not liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner, any debt,
obligation or dividend of any person, corporation, association, partnership,
joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in Schedule
3.08, the accounts receivable reflected on the Interim Company Balance Sheet and
all accounts receivable arising between the date of the Interim Company Balance
Sheet (the "Interim Company Balance Sheet Date") and the date hereof, arose from
bona fide transactions in the ordinary course of business, and the goods and
services involved have been sold, delivered and performed to the account of the
obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle the Company to collect the
accounts receivable in full. No such account has been assigned or pledged to any
other person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim Company Balance Sheet, no defense or setoff
to any such account has been asserted by the account obligor.
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<PAGE> 30
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ending December 31, 1997 and 1996, respectively, and (ii)
any promised increases in compensation of the Company Key Employees that have
not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of all
Compensation Plans sponsored by the Company or to which the Company contributes
on behalf of its employees, other than Employee Benefit Plans listed in Schedule
3.10. As used herein, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 3.09(c) and in Section 3.09(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate list of
all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of the Company, except as set forth in Schedule
3.09(f), the Company (i) has been and is in material compliance with all laws,
rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), (i) the Company has not
ever been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit and
(iii) the employees of the Company have not threatened to organize or join a
union, labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key Employee
has indicated his or her desire or intent to terminate employment with the
Company, and the Company has no present intent of terminating the employment of
any Company Key Employee.
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<PAGE> 31
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and maintained in
compliance with all laws, rules and regulations, except for such noncompliance
that would not have a material adverse effect on the Company. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of the Company, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of the
Company, have been threatened that could result in the revocation of any such
favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of Section
412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of ERISA)
for which the notice requirement has not been waived has occurred with respect
to any Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(f) The Company has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in Schedule
3.11, from the Interim Company Balance Sheet Date to the date of this Agreement,
the Company has not:
(a) suffered any material adverse change, whether or not caused by any
deliberate act or omission of the Company, or any Stockholder, in its condition
(financial or otherwise), operations, assets, liabilities, business or
prospects;
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<PAGE> 32
(b) contracted for the purchase of any capital assets having a cost in
excess of $25,000 or paid any capital expenditures in excess of $25,000, except
in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold any
debt securities, except in the ordinary course of business consistent with past
practice;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its Properties or Company Assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any Company
Assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the ordinary
course of business consistent with past practice or as permitted by Section 1.05
hereof;
(i) written up or written down the carrying value of any of the
Company Assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices followed or
changed the costing system or depreciation methods of accounting for the Company
Assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the ordinary
course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or entity
except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of the Company's capital stock;
5
<PAGE> 33
(r) entered into any material agreement with any person or group, or
modified or amended in any material respect the terms of any material existing
agreement except in the ordinary course of business consistent with past
practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which the
Company is a party (the "Company Contracts") set forth in Schedule 3.12, the
Company has not entered into, nor is the capital stock, the assets or the
business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in the
ordinary course of business;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation relating
to indebtedness for borrowed money or money lent or to be lent to another,
except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any Affiliate;
(xi) agreement relating to any material matter or transaction in
which an interest is held by a person or entity that is an Affiliate of the
Company;
(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property and involving more than $25,000 in the
aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
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<PAGE> 34
(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $5,000 or that terminates more than thirty
(30) days after the date hereof, except in the ordinary course of business;
(xvi) agreement relating to any material matter or transaction in
which an interest is held by any person or entity referred to in Section 3.23
hereof; or
(xvii) any other agreement or commitment not made in the ordinary
course of business that is material to the business or financial condition of
the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not received notice of
any plan or intention of any other party to any Company Contract to exercise any
right to cancel or terminate any Company Contract. The Company does not
currently contemplate, and has no reason to believe any person or entity
currently contemplates, any amendment or change to any Company Contract. None of
the customers, joint venture partners or suppliers of the Company has refused,
or communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will maintain
through the Closing Date, comprehensive insurance coverage with respect to all
of its completed operations. The Company has previously made available to GRS
all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except for the trademarked logo "CEI", with double underlining
trades over and under the capitalized letters, which is owned by CEI Industries,
Inc., the Company owns all patents, trade-marks, service marks and copyrights
(collectively "Proprietary Rights"), if any, necessary to conduct its business,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Schedule 3.14(a) is a true and
correct description of all Proprietary Rights.
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<PAGE> 35
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock Purchase, GRS will have the
right to use all Proprietary Rights without any obligation to pay any additional
amounts whatsoever. Use of the Proprietary Rights does not require the consent
of any other person and the Proprietary Rights are freely transferable. No claim
has been asserted by any person to the ownership of or right to use any
Proprietary Right or challenging or questioning the validity or effectiveness of
any license or agreement constituting a part of any Proprietary Right. Each of
the Proprietary Rights is valid and subsisting, has not been canceled, abandoned
or otherwise terminated and, if applicable, has been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by the
Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has good and
marketable title to the Company Assets, including, without limitation, those
reflected on the Interim Company Balance Sheet (other than those since disposed
of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and total lease
payments is attached hereto as Schedule 3.15(c). The Company enjoys peaceful and
undisturbed possession under all real property leases under which the Company is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its properties and to conduct its businesses as presently conducted. The
business and operations of the Company have been and are being conducted in
accordance in all material respects with all applicable laws, rules and
regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in Schedule
3.17, there are no claims, actions, suits, investigations or proceedings against
the Company pending or, to the Knowledge of the Company, threatened in any court
or before or by any Governmental Authority, or before any arbitrator, that could
reasonably be expected to have a material adverse effect (whether covered by
insurance or not) on the business, operations, prospects, Properties, securities
or financial condition of the Company. Except as otherwise set forth in Schedule
3.17, the Company is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any
Company Contract or any Legal Requirement or Permit applicable to the Company,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any Company Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the
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<PAGE> 36
business, operations, prospects, Properties, securities or financial condition
(a "Material Adverse Effect") of the Company.
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of the
Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which Company Business is or was, or, to knowledge of the Company, at which the
business of its predecessors was, located which would have a Material Adverse
Effect on the Company. With respect to underground storage tanks, Schedule
3.18(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of the
Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of the Company, threat of a "release" of any Hazardous Substance
on, from or under any premises from which (i) the Company's operations have been
or are being conducted related to the Company Business. or (ii) to the Knowledge
of the Company, the operations of any predecessor of the Company which would
have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the Company's and,
to the Knowledge of the Company, its predecessor's, Hazardous Substances
disposal and recycling practices related to the Company Business have been
accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall not
be interpreted to imply that GRS has constructive knowledge regarding any aspect
of the Company Business with respect to environmental matters nor to limit the
scope of any of the Company's or any Stockholders' representations under this
Agreement. No such due diligence examination or related activities of, or on
behalf of, GRS however, shall constitute a waiver or relinquishment by GRS of
its right to rely upon the Company's or any Stockholders' representations,
warranties, covenants and agreements as made herein or pursuant hereto, and no
such disclosure shall constitute an assumption by GRS of any conditions or
liabilities, and such disclosure shall not relieve the Company or any
Stockholder of its duties and obligations hereunder.
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<PAGE> 37
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or safe deposit box or vault, (ii)
the names of all persons authorized to draw thereon or to have access to any
safe deposit box or vault, (iii) the purpose of each such account, safe deposit
box or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of the Company in matters
concerning any of its business or affairs. Except as otherwise set forth in
Schedule 3.19, no such proxies, powers of attorney or other like instruments are
irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth all
the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve month period
ended December 31, 1997 and the three month period ended March 31, 1998, as well
as each of the principal customers of the Company. Except as otherwise set forth
in Schedule 3.20, since December 31, 1997, there has been no material adverse
change in the business relationship of the Company with any supplier or customer
named in Schedule 3.20. No customer or supplier named in Schedule 3.20 has
terminated or materially altered, or notified the Company of any intention to
terminate or materially alter, its relationship with the Company, and the
Company has no reason to believe that any such customer or supplier will
terminate or materially alter its relationship with the Company or to materially
decrease its services or supplies to the Company or its direct or indirect usage
of the services of the Company. For purposes of Sections 3.20 and 3.23,
"material suppliers" refers to suppliers from whom the Company purchased five
percent (5%) or more of the total amount of the goods purchased by the Company
during the twelve month period ended December 31, 1997 and the three month
period ended March 31, 1998, and "principal customers" refers to customers who
accounted for 5% or more of the Company's total revenues during the twelve month
period ended December 31, 1997 and the three month period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by the Company or the Stockholders to GRS or its counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set forth
in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. Except as provided in Schedule
3.24, no director or executive officer of the Company owns directly or
indirectly any material interest or has any investment equal to 5% or more of
the outstanding voting securities in any corporation, business or other person
that is a direct competitor of the Company.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate
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<PAGE> 38
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 3.26 Government Inquiries. Except as set forth on Schedule 3.26,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any Stockholder
has entered into any agreements or arrangements and there are no pending offers
or discussions concerning or providing for the merger or consolidation of the
Company or all or any substantial portion of its assets, the sale by the Company
or any Stockholder of any securities of the Company or any similar transaction
affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income Tax Returns,
and all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in all material
respects;
(iii) has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and has withheld and paid over
to the appropriate taxing authority all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party, except where the amounts of such unpaid Taxes or the amounts that have
not been withheld and paid over do not, in the aggregate, exceed $25,000;
(iv) the accrual for Taxes on the Closing Date Unaudited Balance
Sheet is sufficient to pay in full all liabilities for Taxes of the Company
related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company have been filed
through the date hereof, and, as of the date hereof, none of such Tax Returns
has been audited.
(vi) the Company has been a validly existing S corporation within
the meaning of Sections 1361 and 1362 of the Code at all times since 1986, and
will continue to be an S corporation up to and including the date immediately
preceding the Closing Date; and
(vii) the Company has disclosed in its federal income Tax
Returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC Section 6662.
(b) To the Knowledge of the Company, no claim has been made by a
taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local Tax audits or
administrative or judicial proceedings pending or being conducted with respect
to the Company;
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(ii) no information related to Tax matters has been requested by
any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by the
Company from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning the
Company's Tax liability.
(d) No waivers of statutes of limitation have been given or requested
with respect to the Company in connection with any Tax Returns covering the
Company, except where such waiver would not have a material adverse effect on
the Company.
(e) The Company has not executed or entered into a closing agreement
pursuant to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has the Company agreed to or is
required to make any adjustments pursuant to IRC Section 481(a) or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company. The Company has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC Section 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(i) The Company has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC Section 280G.
(j) The Company shall prepare or cause to be prepared and file or
cause to be filed all federal and state income Tax Returns for the Company for
tax periods ending on or prior to the Closing Date which are filed after the
Closing Date. The Company shall permit GRS to review and comment on each such
Tax Return described in the preceding sentence prior to filing. To the extent
permitted by applicable law, the Stockholders shall include any income, gain,
loss, deduction or other tax items for such period on their individual income
Tax Returns in a manner consistent with the Schedule K-1s furnished by the
Company to the Stockholders for such periods.
(k) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including New York City Transfer Tax, if
applicable, and any similar Tax imposed in other states and subdivisions), shall
be paid by the Stockholders when due, and the Stockholders will, at their
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, GRS will, and will
cause its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such Stockholder
shall own beneficially and of record, free and clear of any lien, option or
other encumbrance, the shares of Company Common Stock set forth opposite such
Stockholders' name on Exhibit A hereof, and, upon consummation of the Stock
Purchase, GRS will acquire good and valid title thereto, free and clear of any
lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such Stockholder
has the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement and to perform fully such
Stockholders' obligations hereunder. This Agreement has been duly executed and
delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common Stock to be
issued to it pursuant to the Stock Purchase (the "GRS Shares") for its own
account and not on behalf of any other person; such Stockholder is aware and
acknowledges that the GRS Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be offered or sold
unless the GRS Shares are registered under the Securities Act or an exemption
from the registration requirements of the Securities Act is available;
<PAGE> 41
(b) Such Stockholder has been furnished all information that it deems
necessary to enable it to evaluate the merits and risks of an investment in GRS;
such Stockholder has had a reasonable opportunity to ask questions of and
receive answers from GRS concerning GRS and the GRS Shares, and all such
questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i) any rights in
and to the GRS Shares, which rights were obtained through or from such
Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in financial and
business matters (including knowledge and expertise in the roofing industry)
that it is capable of evaluating the merits and risks involved in an investment
in the GRS Shares: and such Stockholder is financially able to bear the economic
risk of the investment in the GRS Shares, including a total loss of such
investment;
(e) Such Stockholder represents that it has adequate means of providing for
its current needs and has no need for liquidity in its investment in the GRS
Shares; such Stockholder has no reason to anticipate any material change in its
financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS Shares is an
investment involving a risk of loss and that there is no guarantee that such
Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal or state
agency has made any finding of determination regarding the fairness of the
offering of the GRS Shares for investment, or any recommendation or endorsement
of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for investment, with no
present intention of dividing or allowing others to participate in such
investment or of reselling, or otherwise participating, directly or indirectly,
in a distribution of the GRS Shares, and shall not make any sale, transfer or
pledge thereof without registration under the Securities Act and any applicable
securities laws of any state or unless an exemption from registration is
available;
(i) Except as set forth herein, no representations or warranties have been
made to such Stockholder by GRS or any agent, employee or Affiliate of GRS, and
in entering into this transaction such Stockholder is not relying upon any
information, other than from the results of independent investigation by such
Stockholder;
(j) Such Stockholder understands that the GRS Shares are being offered to
it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that GRS is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Stockholder set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of the GRS
Shares except (i) pursuant to an effective registration statement under the
Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS, Sellers' Counsel or other counsel reasonably satisfactory to
GRS, is not required to be registered under the Securities Act.
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<PAGE> 42
EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate Documents.
(a) GRS is a corporation duly organized, validly existing and in good
standing under the laws of Florida, and is not required to be qualified to do
business as a foreign corporation in any other jurisdiction where the failure to
so qualify would have a material adverse effect on GRS. GRS has all required
corporate power and authority to own its properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of GRS, copies
of which are attached as Schedule 5.01(a), are complete and reflect all
amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made available
to the Stockholder for review contain a complete and accurate record of all
stockholders of GRS, and all material actions of the stockholders and directors
(and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized capital
stock of GRS consists of 100,000,000 shares of which 90,000,000 have been
designated as GRS Common Stock and 10,000,000 have been designated as
Preferred Stock. All of the presently outstanding shares of capital stock of
GRS have been validly authorized and issued and are fully paid and
nonassessable. Except as set forth on Schedule 5.03, GRS has not issued any
other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares. No dividends are accrued but unpaid on any
capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
<PAGE> 43
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver, consent,
action, approval or authorization of, or registration, declaration, notice or
filing with, any private non-governmental third party or any Governmental
Authority. Any and all consents required to be obtained by GRS as set forth in
Schedule 5.05 shall be obtained and copies thereof delivered to the Company and
the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no suit,
action or other proceeding is pending or, to the Knowledge of GRS, threatened
before any Governmental Authority seeking to restrain GRS or prohibit its entry
into this Agreement or prohibit the Closing, or seeking damages against GRS or
its Properties, as a result of the consummation of the transaction contemplated
by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in Schedule
5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS Balance
Sheets") and the related statements of income, stockholders' equity and cash
flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in Schedule
5.09, the accounts receivable reflected on the GRS Balance Sheet and all
accounts receivable arising between December 31, 1997 and the date hereof, arose
from bona fide transactions in the ordinary course of business, and the goods
and services involved have been sold, delivered and performed to the account of
the obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle GRS to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim GRS Balance Sheet, no defense or setoff to
any such account has been asserted by the account obligor.
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Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of GRS, regardless of
compensation levels, and other employees who are currently compensated at a rate
in excess of $50,000 per year (including any reasonably anticipated bonus) or
who earned in excess of $50,000 during GRS' fiscal year ended October 31, 1996
(collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a) contains
a complete and accurate description of (i) all increases in compensation of the
GRS Key Employees during the fiscal years of GRS ending October 31, 1997 and
October 31, 1996, respectively, and (ii) any promised increases in compensation
of the GRS Key Employees of GRS that have not yet been effected.
(b) Schedule 5.10(b) contains a complete and accurate list of all
Compensation Plans sponsored by GRS or to which GRS contributes on behalf of its
employees, other than Employee Benefit Plans listed in Schedule 5.11. As used in
this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 5.10(c) and in Section 5.10(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a complete
and accurate list of all significant written employee policies and procedures.
(e) To the Knowledge of GRS, no unwritten material amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans, Employment Agreements or employee policies
and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule 5.10(f),
GRS (i) has been and is in material compliance with all laws, rules, regulations
and ordinances respecting employment and employment practices, terms and
conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any union,
labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key Employee has
indicated his or her desire or intent to terminate employment with GRS, and GRS
has no present intent of terminating the employment of any GRS Key Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
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Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment exists
with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and maintained in
compliance with all laws, rules and regulations, except for such noncompliance
that would not have a material adverse effect on GRS. No Employee Benefit Plan
is currently the subject of an audit, investigation, enforcement action or other
similar proceeding conducted by any state or federal agency. No prohibited
transactions (within the meaning of Section 4975 of the Internal Revenue Code of
1986, as amended, and the regulations promulgated thereunder (the "Code")) have
occurred with respect to any Employee Benefit Plan. No pending or, to the
Knowledge of GRS, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(c) GRS has received a favorable determination letter or ruling from
the Internal Revenue Service for each Employee Benefit Plan intended to be
qualified within the meaning of Section 401 (a) of the Code and/or tax exempt
within the meaning of Section 501(a) of the Code, which letter or ruling is
current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of Section
412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of ERISA)
for which the notice requirement has not been waived has occurred with respect
to any Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(f) GRS has no obligation or commitment to provide medical, dental or
life insurance benefits to or on behalf of any of its employees who may retire
or any of its former employees who have retired from employment with GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in Schedule
5.12, from the date of the GRS Balance Sheet to the date of this Agreement, GRS
has not:
(a) suffered any material adverse change, whether or not caused by any
deliberate act or omission of GRS or any stockholder of GRS, in its condition
(financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a cost in
excess of $25,000 or paid any capital expenditures in excess of $25,000, except
in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold any
debt securities, except in the ordinary course of business consistent with past
practice;
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(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets, except in
the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of its assets
(whether or not covered by insurance) that has materially adversely affected, or
could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the ordinary
course of business consistent with past practice;
(i) written up or written down the carrying value of any of its
assets, except in the ordinary course of business consistent with past practice;
(j) changed any accounting principles methods or practices followed or
changed the costing system or depreciation methods of accounting for its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or its assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the ordinary
course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or entity
except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights paid any dividends or made
any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or group, or
modified or amended in any material respect the terms of any material existing
agreement except in the ordinary course of business consistent with past
practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
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Section 5.13 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which GRS is a
party (the "GRS Contracts") set forth in Schedule 5.13, GRS has not entered
into, nor is the capital stock, the assets or the business of GRS bound by,
whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in the
ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
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(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice of any
plan or intention of any other party to any GRS Contract to exercise any right
to cancel or terminate any GRS Contract. GRS does not currently contemplate, and
has no reason to believe any person or entity currently contemplates, any
amendment or change to any GRS Contract. None of the customers, joint venture
partners or suppliers of GRS has refused, or communicated that it will or may
refuse, to purchase or supply goods or services, as the case may be, or has
communicated that it will or may substantially reduce the amounts of goods or
services that it is willing to purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available to
the Stockholders all insurance policies of GRS. All of such policies are valid
and enforceable against GRS, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and copyrights
(collectively "Proprietary Rights"), if any, necessary to conduct its business,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Schedule 5.15(a) is a true and
correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the Proprietary Rights
without infringing or violating the rights of any third parties. Use of the
Proprietary Rights does not require the consent of any other person and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or right to use any Proprietary Right or challenging
or questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right. Each of the Proprietary Rights is
valid and subsisting, has not been canceled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by GRS is
set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the
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ordinary course of business), free and clear of all security interests, liens,
charges and other encumbrances, except for (i) liens for taxes not yet due and
payable or being contested in good faith inappropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of its businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and total lease
payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful and
undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in Schedule
5.18, there are no claims, actions, suits, investigations or proceedings against
GRS pending or, to the Knowledge of GRS, threatened in any court or before or by
any Governmental Authority, or before any arbitrator, that could reasonably be
expected to have a material adverse effect (whether covered by insurance or not)
on the business, operations, prospects, Properties, securities or financial
condition of GRS. Except as otherwise set forth in Schedule 5.18, GRS is not in
default under, and no condition exists (whether covered by insurance or not)
that with or without notice or lapse of time or both would (i) constitute a
default under, or breach or violation of, any Legal Requirement or Permit
applicable to GRS or any GRS Contract applicable to GRS, or (ii) accelerate or
permit the acceleration of the performance required under, or give any other
party the right to terminate, any GRS Contract, other than defaults, breaches,
violations or accelerations that would not have a material adverse effect on the
business, operations, prospects, Properties, securities or financial condition
of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of GRS,
there are no PCBs, TCE, PCE, or asbestos containing materials generated, used,
treated, stored, maintained, disposed of, or otherwise deposited in, or located
on any premises at which GRS' business (the "GRS Business") is or was, or at
which the business or, to the Knowledge of GRS, its predecessors was, located,
which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which the GRS Business is or was, or, to knowledge of GRS, at which the business
of its predecessors was, located, which would have a Material Adverse Effect on
GRS. With respect to underground storage tanks, Schedule 5.19(b) sets forth the
size, location, construction, installation date, use and testing history of all
underground storage tanks (whether or not excluded from regulation under
Environmental Law), including all underground storage tanks in use, out of
service, closed, abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of GRS,
there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the best
knowledge of GRS, threat of a "release" of
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any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor their
respective predecessors have received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and, to the
Knowledge of GRS, their respective predecessor's, Hazardous Substances disposal
and recycling practices related to the GRS Business have been accomplished in
material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth all of
GRS' material suppliers, together with the dollar amount of goods purchased by
GRS from each such supplier during the twelve month period ended December 31,
1997 and the four month period ended April 30, 1998, as well as each of the
principal customers of GRS. Except as otherwise set forth in Schedule 5.21,
since December 31, 1997, there has been no material adverse change in the
business relationship of GRS with any supplier or customer named in Schedule
5.21. No customer or supplier named in Schedule 5.21 has terminated or
materially altered, or notified GRS of any intention to terminate or materially
alter, its relationship with GRS and GRS has no reason to believe that any such
customer or supplier will terminate or materially alter its relationship with
GRS or to materially decrease its services or supplies to GRS or its direct or
indirect usage of the services or products of GRS. For purposes of Sections 5.21
and 5.24 hereof "material suppliers" refers to suppliers from whom GRS purchased
five percent (5%) or more of the total amount of the goods purchased by GRS
during the twelve month period ended December 31, 1997 and the four month period
ended April 30, 1998, and "principal customers" refers to customers who
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accounted for 5% or more of GRS' total consolidated revenues during the twelve
month period ended December 31, 1997 and the four month period ended April 30,
1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by GRS to the Stockholders or their counsel, do not contain any untrue
statement of material fact or omit any material fact necessary in order to make
the statements therein not misleading; provided, however, certain materials
provided to the Stockholders contain projections and estimates of future events,
and such projections and estimates have been based upon certain assumptions that
management of GRS made in good faith and believed are reasonable at the time
such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set forth
in Schedule 5.24, no director or executive officer of GRS or their respective
spouses or children, owns directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
principal customer or material supplier which has a business relationship with
GRS or any organization that has a material contract or arrangement with GRS.
Section 5.25 Investments in Competitors. No director or executive officer
of GRS owns directly or indirectly any material interests or has any investment
equal to 5% or more of the outstanding voting securities in any corporation,
business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer or
employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule 5.27,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and all other
material Tax Returns which it is required to file under applicable laws and
regulations;
(ii) all such Tax Returns are true and accurate in all material
respects;
(iii) has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and has withheld and paid over
to the appropriate taxing authority all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party, except where the amounts of such unpaid Taxes or the amounts that have
not been withheld and paid over do not, in the aggregate, exceed $25,000;
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(iv) the accrual for Taxes on the Unaudited GRS Balance Sheet
(excluding any amount recorded which is attributable to timing differences
between book and Tax income) would be adequate to pay all material Tax
liabilities of GRS if its current tax year were treated as ending on the date of
the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been filed through
the date hereof, and, as of the date hereof, none of such Tax Returns has been
audited.
(b) To the Knowledge of GRS, no claim has been made by a taxing
authority in a jurisdiction where GRS does not file Tax Returns that GRS is or
may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with respect
to GRS;
(ii) no information related to Tax matters has been requested by
any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by GRS
from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning GRS' Tax
liability.
(d) No waivers of statutes of limitation have been given or requested
with respect to GRS in connection with any Tax Returns covering GRS, except
where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement pursuant
to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC Section 481(a) or any similar provision
of state, local or foreign law by reason of a change in accounting method
initiated by GRS. GRS has no knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any knowledge with respect to
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC Section 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(i) GRS has not made any payments nor is it obligated to make payments
nor is it a party to an agreement that could obligate it to make any payments
that would not be deductible under IRC Section 280G.
Section 5.29 Participation in Secondary Offering. In the event that after
the Offering GRS files a registration statement with the Securities and Exchange
Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such
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<PAGE> 53
number of shares of GRS Common Stock owned by the Stockholders as shall equal
(i)(A) the total number of shares of GRS Common Stock owned by such Stockholders
divided by (B) the total number of shares of GRS Common Stock owned by all
shareholders of the Founding Companies, multiplied by (ii) the total number of
shares of GRS Common Stock owned by shareholders of the Company which are to be
included in the Secondary Offering.
12
<PAGE> 1
EXHIBIT 2.12
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
C.E.I. ROOFING, INC.
AND
ALL OF THE STOCKHOLDERS
OF
C.E.I. ROOFING, INC.
----------------------------
MAY 13, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................1
1.01 Sale and Purchase of Company Common Stock................................................................1
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Purchase Price Adjustment................................................................................3
1.05 Excluded Assets and Distribution of Assets...............................................................4
1.06 Stockholders' Representative.............................................................................4
ARTICLE II - CLOSING..............................................................................................5
2.01 Closing..................................................................................................5
2.02 Deliveries by Stockholders to GRS........................................................................5
2.03 Deliveries by GRS........................................................................................6
2.04 Termination in Absence of Closing........................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS..................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS.................................................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................7
6.01 GRS' Access to Information and Assets....................................................................7
6.02 Company's Conduct of Business and Operations.............................................................7
6.03 General Restrictions.....................................................................................8
6.04 Notice Regarding Changes.................................................................................9
6.05 Consents and Best Efforts................................................................................9
6.06 Casualty Loss...........................................................................................10
6.07 Employee Matters........................................................................................10
6.08 No Solicitation.........................................................................................10
6.09 Employment Agreements...................................................................................10
6.10 Lock-Up Agreement.......................................................................................10
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................11
7.01 Conditions to Obligations of All Parties................................................................11
7.02 Conditions to Obligations of Stockholders...............................................................11
7.03 Conditions to Obligations of GRS........................................................................12
ARTICLE VIII - SURVIVAL..........................................................................................13
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................13
ARTICLE IX - INDEMNIFICATION.....................................................................................14
9.01 Obligation of the Stockholders to Indemnify.............................................................14
9.02 Obligation of GRS to Indemnify..........................................................................14
9.03 Notice and Opportunity to Defend........................................................................14
9.04 Limitations on Indemnification..........................................................................15
9.05 Set-Off Rights..........................................................................................16
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................17
10.01 Further Assurances......................................................................................17
10.02 Publicity...............................................................................................17
10.03 Access to Records.......................................................................................17
ARTICLE XI - MISCELLANEOUS.......................................................................................17
11.01 Brokers.................................................................................................17
11.02 Costs and Expenses......................................................................................17
11.03 Notices.................................................................................................17
11.04 Governing Law...........................................................................................18
11.05 Representations and Warranties..........................................................................19
11.06 Entire Agreement, Amendments and Waivers................................................................19
11.07 Binding Effect and Assignment...........................................................................19
11.08 Remedies................................................................................................19
11.09 Exhibits and Schedules..................................................................................19
11.10 Multiple Counterparts...................................................................................19
11.11 References..............................................................................................19
11.12 Survival................................................................................................19
11.13 Attorneys' Fees.........................................................................................20
ARTICLE XII - DEFINITIONS........................................................................................20
12.01 Affiliate...............................................................................................20
12.02 Collateral Agreements...................................................................................20
12.03 Company Assets..........................................................................................20
12.04 Contract Retention......................................................................................20
12.05 Current Assets..........................................................................................20
12.06 Current Liabilities.....................................................................................20
12.07 Damages.................................................................................................21
12.08 Environmental Law.......................................................................................21
12.08 GAAP....................................................................................................21
12.10 Governmental Authorities................................................................................21
12.11 Hazardous Substances....................................................................................21
12.12 Knowledge...............................................................................................21
12.13 Legal Requirements......................................................................................21
12.14 Permits.................................................................................................21
12.15 Properties..............................................................................................21
12.16 Proportionate Share.....................................................................................22
12.17 Regulations.............................................................................................22
12.18 Taxes...................................................................................................22
12.19 Tax Returns.............................................................................................22
12.20 Used....................................................................................................22
12.21 Deferred Income Taxes...................................................................................22
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for Doug Reader
Exhibit H - Employment Agreement for George Cook
Exhibit I - Opinion of Baker & McKenzie
Exhibit J - Opinion of Williams, Williams, Ruby & Plunkett, P.C.
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 13, 1998, by and among (i) General Roofing Services, Inc.
a Florida corporation (the "Buyer" or "GRS"),(ii) C.E.I. Roofing, Inc., a Texas
corporation (the "Company"), and (iii) all of the stockholders of the Company
(the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS
purchase all of the issued and outstanding capital stock of the
Company, consisting of 133,166 shares (the "Shares") of common stock,
par value $1.00 per share ("Company Common Stock), upon the terms and
subject to the conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding
capital stock of additional commercial roofing companies (the "Founding
Companies") throughout the United States, and such transactions are
intended to conform to, and are being made, in connection with a
Section 351 Plan of Exchange within the meaning of the Internal Revenue
Code.
C. Capitalized terms used herein which have not been defined prior to such
use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase, acquire
and accept from each Stockholder, the number of shares of Company Common Stock
set forth opposite the name of each such Stockholder on Exhibit A hereto under
the heading "Number of Shares of Company Common Stock Purchased", constituting
all of the issued and outstanding shares of Company Common Stock. The sale and
purchase of the Company Common Stock pursuant to this Agreement is sometimes
hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a),
at the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding
shares of Company Common Stock to be purchased by GRS hereunder (the "Purchase
Price") shall be an aggregate amount equal to $7,088,529. The Purchase Price
shall be subject to adjustment as provided in this Agreement and shall be
allocated among the Stockholders in accordance with their respective ownership
interests as set forth on Exhibit A hereof. The Purchase Price, as so adjusted,
shall be delivered to the Stockholders in accordance with their respective
Proportionate Share and to the Escrow Agent (as defined in Section 1.03(b)
hereof), subject to and in accordance with Section 1.03 hereof. The amount of
the Purchase Price allocated to each outstanding share of Company Common Stock
is hereinafter referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the "Purchase Price
Adjustment") to the extent that the Net Book Value of the Company as shown on
the Closing Date Unaudited Balance Sheet referred to in Section 1.02(c), below
(the "Closing Net Book Value"), is less than $1,722,729 (the "Target Net Book
Value") (such adjustment is referred to herein as the "Net Book Value
Adjustment"); provided, that the Net Book Value as determined pursuant to the
Closing Date Unaudited Balance Sheet shall not be less than $807,438 (the
"Minimum Net Book Value"). For purposes of this Agreement, Net Book Value shall
mean the excess of the Company's total assets over the Company's total
liabilities, determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered
to GRS within fifteen days prior to the Closing Date (i) an unaudited
consolidated balance sheet of the Company forecasted as of the Closing Date (the
"Closing Date Unaudited Balance Sheet"), (ii) a calculation of the Purchase
Price Adjustment, if any, determined pursuant to Section 1.02(b) above, and
(iii) a certificate executed by the Company's Chief Financial Officer (or
another duly authorized officer of the Company) to the effect that the Closing
Date Unaudited Balance Sheet has been prepared from the books and records of the
Company and in a manner consistent with the preparation of the Company Financial
Statements (as defined in Section 3.06 hereof), except that Deferred income
Taxes have been reflected in the same manner as if the Company was a "C"
corporation.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section 1.01(b)
hereof of a certificate or certificates representing all of the issued and
outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $3,189,838, representing
forty-five percent (45%) of the Purchase Price, minus (ii) the amount of the
Purchase Price Adjustment, if any, shall be paid directly to the holders thereof
by wire transfer in New York Clearing House Funds in accordance with Exhibit A
hereto.
(b) An aggregate of $3,898,691 shall be paid by the delivery
to (A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of the GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $1,417,706, representing twenty percent (20%) of
the Purchase Price (the "Escrow Fund"), based upon the public offering price of
the GRS Common Stock to be sold in its initial public offering (the "Offering")
and (B) to the Stockholders in accordance with Exhibit A hereto, of such number
of shares of GRS Common Stock as shall have a value equal to $2,480,985 based
upon the public offering price of the GRS Common Stock to be sold in the
Offering. The shares of GRS Common Stock to be so held in escrow shall be held
by the Escrow Agent for a period of one year following the Closing in accordance
with the terms of an Escrow Agreement in the form of Exhibit B hereto (the
"Escrow Agreement"), and shall thereafter be restricted from transfer for an
additional one-year period
2
<PAGE> 7
in accordance with the terms, and subject to the conditions, of a Lock-Up
Agreement in the form of Exhibit C hereto (the "Lock-Up Agreement"). The
Stockholders shall receive cash in lieu of fractional shares.
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933
ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE
TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b) hereof,
if any, and within 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Purchase Price Adjustment,
if any, and the cash portion of the Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by
GRS to the Stockholders of a Purchase Price Notice, the Stockholders may deliver
to GRS a written notice advising GRS either that the Stockholders (A) agree with
the calculation of the Purchase Price Adjustment, or (B) believe that one or
more adjustments are required. If the Stockholders shall concur with the
calculation of the Purchase Price Adjustment, if any, or if the Stockholders
shall not object thereto in a written notice delivered to GRS within five (5)
business days after the Stockholders' receipt of the Purchase Price Notice, the
Purchase Price as set forth in the Purchase Price Notice, if any, shall become
final and shall not be subject to further review, challenge or adjustment absent
fraud.
(ii) In the event that GRS timely submits the
Purchase Price Notice and the Stockholders timely object to the proposed
Purchase Price Adjustment, and the Stockholders and GRS are unable to resolve
the disagreements with respect to the proposed Purchase Price Adjustment prior
to the Closing, then such disagreements shall be referred to a recognized firm
of independent certified public accountants experienced in auditing roofing or
construction companies and selected by mutual agreement of Stockholders and GRS
(the "Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the event
that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination
3
<PAGE> 8
not more than five (5) days after such referral. The costs and expenses of the
services of the Settlement Accountants shall be paid equally by the Company and
GRS. Pending the final determination by the Settlement Accountants of the
Purchase Price Adjustment, if any, (the "Final Determination") the difference
between the determination by the Stockholders and GRS of the Purchase Price
Adjustment, if any, shall be withheld from the cash portion of the Purchase
Price to be delivered pursuant to Section 1.03 (a) and shall be paid in
accordance with and upon the Final Determination. Any such dispute shall not
delay the Closing.
(c) After the final determination of the Purchase Price
pursuant to Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the
adjustment determined pursuant thereto shall be deducted from the cash portion
of the Purchase Price and allocated among the Stockholders in accordance with
their respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those tangible assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are not
required by the Company in the conduct of its operations and which are listed in
Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall such
distributions be made to the extent that the Closing Net Book Value would be
less then the Minimum Net Book Value.
Section 1.06 Stockholders' Representative. .
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean George Cook or any person appointed as a successor
Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all
obligations under this Agreement have been discharged (including all
indemnification obligations hereunder and all obligations under the Escrow
Agreement), the Stockholders who, immediately prior to the Closing, held Company
Common Stock representing an aggregate number of shares of Company Common Stock
which exceeded 50% of the amount of such Company Common Stock outstanding
immediately prior to such time (a "Majority"), may, from time to time upon
written notice to the Stockholders' Representative and GRS, remove the
Stockholders' Representative or appoint a new Stockholders' Representative to
fill any vacancy created by the death, incapacitation, resignation or removal of
the Stockholders' Representative. Furthermore, if the Stockholders'
Representative dies, becomes incapacitated, resigns or is removed by a Majority,
the Majority shall appoint a successor Stockholders' Representative to fill the
vacancy so created. If the Majority is required to but has not appointed a
successor Stockholders' Representative within 20 business days from a request by
GRS to appoint a successor Stockholders' Representative, GRS shall have the
right to appoint a Stockholders' Representative to fill any vacancy so created,
and shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in
4
<PAGE> 9
connection therewith, to hire or retain, at the sole expense of the
Stockholders, such counsel, investment bankers, accountants, representatives and
other professional advisors as he determines in his sole and absolute discretion
to be necessary, advisable or appropriate in order to carry out and perform his
rights and obligations hereunder. The Stockholders hereby grant the
Stockholders' Representative the right and power to execute the Escrow Agreement
on their behalf with such changes or amendments thereto as the Stockholders'
Representative shall determine to be necessary or desirable in his sole and
absolute discretion. Any party receiving an Instrument from the Stockholders'
Representative shall have the right to rely in good faith upon such Instrument,
and to act in accordance with the Instrument without independent investigation.
(d) GRS shall have no liability to any Stockholder or
otherwise arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders or with the Stockholders'
Representative. GRS may rely entirely on its dealings with, and notices to and
from, the Stockholders' Representative to satisfy any obligations it might have
to the Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued
and outstanding shares of Company Common
Stock in proper form for transfer to GRS;
(ii) the resignations of all members of the board
directors of the Company as set forth in
Section 7.03(l);
(iii) the stock books, stock ledgers, minute books
and corporate seals of the Company;
(iv) a certificate executed by the Company to the
effect that the conditions set forth in
Sections 7.03(b) through 7.03(i), have been
satisfied;
(v) the opinion of counsel set forth in Section
7.03(f);
5
<PAGE> 10
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant
to Section 7.03(n).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available
funds to the Stockholders the payment
described in Section 1.03(a) as being
required to be paid by GRS at Closing;
(ii) by delivery to the Stockholders the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Stockholders at Closing;
(iii) by delivery to the Escrow Agent the shares
of GRS Common Stock described in Section
1.03(b) as being required to be delivered by
GRS to the Escrow Agent at Closing;
(iv) a certified copy of all necessary corporate
action on behalf of GRS approving its
execution, delivery and performance of this
Agreement and the Collateral Agreements to
which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized
officer of GRS to the effect that the
conditions set forth in Sections 7.02(b) and
7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section
7.02(d);
(vii) the executed Collateral Agreements to which
it is a party; and
(viii) evidence that: (a) the Stockholders have
been released from all personal guarantees
relating to any obligations of the Company,
including but not limited to, any bank
loans, lines of credit, and/or performance
bonds (the "Personal Guarantees and
Obligations") and (b) GRS shall indemnify
and hold harmless the Stockholders from and
against any personal liability or
obligations relating to or arising out of
any Personal Guarantees or Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of
business on September 30, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability of
or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party to
perform its obligations under this Article II on such date; provided, however,
that any termination pursuant to this Section 2.04 shall not relieve any party
hereto who was responsible for Closing having not occurred as described in
clauses (i) or (ii) above of any liability for (x) such party's willful breach
of the provisions of this Agreement, or (y) if all of the conditions to such
party's obligations set forth in Article VII have been satisfied or waived in
writing by the date scheduled for the Closing pursuant to Section 2.01, the
failure of such party to perform its obligations under this Article II on such
date. Notwithstanding the foregoing, the Stockholders expressly acknowledge and
agree that market and
6
<PAGE> 11
economic conditions are impossible to predict, and although GRS intends to
proceed with the Offering in an expeditious manner at this time, GRS shall not
be liable to the Stockholders or the Company if the Closing has not occurred
because the Offering has not been consummated prior to the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense, to have access to the
books, records, employees, counsel, accountants, and other representatives of
the Company at all times reasonably requested by GRS for the purpose of
conducting an investigation ("GRS' Due Diligence Investigation") of the
Company's financial condition, corporate status, operations, business and
Properties. The Stockholders shall make available to GRS for examination and
reproduction, at GRS' own expense, all documents and data of every kind and
character relating to the Company in possession or control of, or subject to
reasonable access by, the Stockholders or the Company, including, without
limitation, all files, records, data and information relating to the Company
Assets (whether stored in paper, magnetic or other storage media) and all
agreements, instruments, contracts, assignments, certificates, orders, and
amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and
7
<PAGE> 12
workmanlike manner, (d) pay or cause to be paid all costs and expenses
(including but not limited to insurance premiums) incurred in connection
therewith in a timely manner, (e) use reasonable efforts to keep all Company
Contracts listed or required to be listed on Schedule 3.12 in full force and
effect, (f) comply with all of the covenants contained in all such Company
Contracts, (g) maintain in force until the Closing Date insurance policies
(subject to the provisions of Section 6.06) equivalent to those in effect on the
date hereof, and (h) comply in all material respects with all applicable Legal
Requirements. Except as otherwise contemplated in this Agreement, the
Stockholders shall use their best efforts to preserve the present relationships
of the Company with persons having significant business relations therewith.
Section 6.03 General Restrictions. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of GRS, the
Company shall not:
(i) (A) except as permitted by Sections 1.05 and
3.02 hereof, declare, set aside or pay any dividends on, or make any
other distribution (whether in cash, stock or property) in respect of,
any of its capital stock, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in view of or in substitution for shares of
its capital stock, or (C) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) except as disclosed on Schedule 6.03 (ii),
issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws
(or similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation,
partnership, joint venture, association or other business organization
or division thereof or (B) any assets that are material, individually
or in the aggregate, to the Company, except purchases of assets in the
ordinary course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of, or agree to sell, transfer, lease,
mortgage, encumber or otherwise dispose of, any Properties except (A)
in the ordinary course of business consistent with past practice, or
(B) pursuant to any Company Contract or except as permitted by Sections
1.05 and 3.02 hereof;
(vi) except as permitted by Section 1.05 hereof, (A)
incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company,
guarantee any debt securities of another person, enter into any "keep
well" or other agreements to maintain any financial statement condition
of another person or enter into any arrangement having the economic
effect of the foregoing, except for borrowings incurred in the ordinary
course of business consistent with past practice, or (B) make any
loans, advances or capital contributions to, or investments in, any
other person;
(vii) make or agree to make any new capital
expenditure or expenditures which, individually is in excess of $25,000
or, in the aggregate, are in excess of $50,000 (other than those
required pursuant to currently outstanding Company Contracts or in the
ordinary course of business consistent with past practice);
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(viii) make any material tax election or settle or
compromise any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Company
Financial Statements (or the notes thereto) or incurred in the ordinary
course of business consistent with past practice, or waive any material
benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which the Company
is a party;
(x) except in the ordinary course of business
consistent with past practice, modify, amend or terminate any Company
Contract;
(xi) except in the ordinary course of business
consistent with past practice, enter into any contracts, agreements,
arrangements or understandings relating to performance by third parties
of the Company's services;
(xii) except as required to comply with applicable
law (A) adopt, enter into, terminate or amend any benefit plan or other
arrangement for the benefit or welfare of any director, officer or
current or former employee, (B) increase in any manner the compensation
or fringe benefits of, or pay any bonus to, any director, officer or
employee (except in a manner consistent with past practice), (C) pay
any benefit not provided for under any benefit plan, (D) grant any
awards under any bonus, incentive, performance or other compensation
plan or arrangement or benefit plan (including the grant of stock
options, stock appreciation rights, stock based or stock related
awards, performance units or restricted stock, or the removal of
existing restrictions in any benefit plans or agreement or awards made
thereunder) or (E) take any action to fund or in any other way secure
the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take
any of, the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto
shall use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such
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actions and doing such things as any other party hereto may reasonably request
in order to cause any of the conditions to such other party's obligation to
consummate the transactions contemplated hereby as specified in Article VII of
this Agreement to be fully satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and
the Closing, any of the Properties of the Company shall be destroyed or damaged
in whole or in part by fire, earthquake, flood, other casualty or any other
cause which materially affects the ability of the Company to conduct its
business (a "Casualty Loss"), then the Stockholders may, if requested by GRS,
(i) cause the Company to cause such Properties to be repaired or replaced prior
to the Closing with Property of substantially the same condition and function,
(ii) cause the Company to deposit in a separate account an amount sufficient to
cause such Property to be so repaired or replaced, or (iii) enter into
contractual arrangements with the Company satisfactory to GRS so that the
Company will have at the Closing the same economic value as if such casualty had
not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause
the Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to, (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company, or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before the Closing, Doug
Reader and George Cook shall each have entered into an employment agreement in
the form of Exhibits G and H (the "Employment Agreements"), which shall include,
non-competition provisions, to take effect on and after the Closing Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the
Stockholders shall have entered into the Lock-Up Agreement.
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ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby shall have been issued,
and all such orders, permits, waivers, authorizations, exemptions or approvals
shall be in full force and effect on the date of the Closing; provided, however,
that no provision of this Agreement shall be construed as requiring any party to
accept, in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no transfers of
licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any
statute, rule, regulation, decree, ruling, injunction or other order issued by
any Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations
of the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in
this Agreement qualified by materiality shall be true and correct in all
respects at Closing and all other representations and warranties of GRS
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if such representations and warranties were made at
and as of the Closing, except for changes contemplated by the terms of this
Agreement except as and to the extent that the facts and conditions upon which
such representations and warranties are based are expressly required or
permitted to be changed by the terms thereof, and GRS shall have performed and
satisfied in all material respects all covenants and agreements required by this
Agreement to be performed and satisfied by GRS at or prior to the Closing;
provided, however, that no Stockholder shall be entitled to refuse to consummate
the transaction in reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the
Stockholders or the Company) shall be pending or threatened before any
Governmental Authority seeking to restrain the Stockholders from effectuating
the Stock Purchase or prohibit the Closing or seeking Damages against the
Stockholders or the Company as a result of the consummation of the transactions
contemplated by this Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
I. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
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(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and
the Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) GRS shall have furnished the Stockholders and the Company
with an Opinion Letter from Deloite & Touche which provides that the
consummation of the transactions described in this Agreement will qualify as a
Section 351 Plan of Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. . The
obligations of GRS to carry out the transactions contemplated by this Agreement
are subject, at the option of GRS, to the satisfaction, or waiver by GRS, of the
following conditions:
(a) All of the Company Common Stock shall have been tendered
to GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of GRS) shall be
pending or threatened before any court or governmental agency seeking to
restrain GRS or prohibit the Closing or seeking Damages against GRS, the
Stockholders, the Company or its Properties as a result of the consummation of
the transactions contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from
the date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations,
prospects or financial condition of the Company that had or would reasonably be
likely to have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company
(whether or not covered by insurance) that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company.
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(f) GRS shall have received the opinion of Williams, Williams,
Ruby & Plunkett, P.C., ("Sellers' Counsel") counsel to the Company and the
Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit J. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by
reference to the Closing Unaudited Balance Sheet shall be equal to or greater
than the Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined
by reference to the Closing Date Unaudited Balance Sheet shall not be less than
$488,858. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness, determined in accordance with GAAP.
(j) The Stockholders shall have executed and delivered to GRS
the Escrow Agreement.
(k) GRS shall have received the executed Employment Agreements
for Doug Reader and George Cook.
(l) GRS shall have received the resignation of all of the
members of the board of directors of the Company effective as of the Closing
Date.
(m) All proceedings to be taken by Stockholders and the
Company in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in form and substance to GRS
and its counsel, and GRS and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request.
(n) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company), except where the failure to have obtained
any such consent would not have an adverse effect on the Company or GRS
following the Closing.
(o) GRS shall be satisfied in its sole and absolute discretion
with GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(p) GRS shall have determined, in its reasonable discretion,
that all agreements between the Company and the Stockholders shall be on terms
as favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(q) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company
and the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other
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party hereto and notwithstanding any knowledge of facts determined or
determinable by any party hereto pursuant to such investigation or right of
investigation, each of GRS, on the one hand, and the Company and the
Stockholders, on the other hand, has the right to rely fully upon the
representations, warranties, covenants and agreements of GRS or the Company and
the Stockholders, as the case may be, contained in this Agreement, or in any
certificate delivered pursuant to any of the foregoing; provided, that no party
hereto shall be entitled to rely on any representation or warranty made by any
other party hereto herein to the extent that such party has actual knowledge,
and the other party or parties (or any of them) are not aware, that such
representation or warranty is untrue or incorrect in any material respect. All
such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
The Basket Exclusions shall survive the Closing indefinitely, other than Section
3.28, which shall survive for the applicable statute of limitation.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to
the limitations contained in Article VIII and Article IX hereof, the
Stockholders, jointly and severally, agree to indemnify, defend and hold
harmless GRS (and its Affiliates, successors and assigns and their respective
officers and directors) from and against all losses, liabilities, damages,
deficiencies, costs or expenses (including interest, penalties and reasonable
attorneys' fees and disbursements, but offset by any proceeds from insurance and
taking into account the present value of any tax savings to GRS or the Company
resulting from such losses, liabilities, damages, deficiencies, costs or
expenses) ("Losses") based upon, arising out of or otherwise in respect of (i)
any inaccuracy in or any breach of any representation, warranty, covenant or
agreement of the Company or the Stockholders contained in this Agreement, (ii)
liabilities for Taxes incurred by the Company with respect to actions prior to
the Closing Date and (iii) any liability arising out of any subsequent
adjustment by any tax authorities with respect to items attributable to periods
prior to the Closing Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by
any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a claim
or the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such
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Asserted Liability. If the Indemnifying Party elects not to compromise or defend
the Asserted Liability, fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnify under this Agreement, the
Indemnitee may pay, compromise or defend such Asserted Liability.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any claim over the objection of the other, provided,
however, that consent to settlement or compromise shall not be unreasonably
withheld. In any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in the defense of such Asserted Liability. If
the Indemnifying Party chooses to defend the claim, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at their
own expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any such compromise or settlement consented to by
GRS, shall be borne and paid by the Stockholders. The parties agree to cooperate
fully with one another in the defense, compromise or settlement of any Asserted
Liability.
Section 9.04 Limitations on Indemnification. The indemnification
provided for in Sections 9.01 and 9.02 shall be subject to the following
limitations:
(i) The Stockholders shall not be obligated to pay
any amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders
shall be obligated to pay any amounts for indemnification under this Article IX,
except those based upon, arising out of or otherwise in respect of Sections
3.02, 3.21, 3.28, 5.22, 5.29, 9.01 (ii) and (iii), 11.01 and 11.02 and Article
IV hereof (the "Basket Exclusions"), until the aggregate indemnification
payments, exclusive of the Basket Exclusions, equals one percent (1%) of the
Purchase Price (the "Basket Amount"), whereupon GRS, or the Company and
Stockholders, as the case may be, shall be obligated to pay any indemnification
payments, including the Basket Amount, in full. It is expressly understood that
the Basket Amount shall serve as a "trigger" for indemnification and not as a
"deductible" (for example, if the indemnity claims for which GRS or the
Stockholders would, but for the provisions of this subparagraph (ii), be liable
is in the aggregate amount of $100,000, and 1% of the Purchase Price is $70,000,
the Stockholders would then be liable for the entire $100,000 and not just
$30,000). This Section 9.04(ii) will not apply to any breach of any
representations and warranties of which any party had actual Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by any party of any covenant or obligation, and GRS or the
Stockholders, as the case may be, will be jointly and severally liable for all
damages with respect to such breaches.
(iii) GRS, the Company and Stockholders shall be
obligated to pay the Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to
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whether the aggregate amount of all other indemnification payments shall have
exceeded, in the aggregate, the Basket Amount.
(iv) Notwithstanding anything to the contrary in this
Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights
set forth in this Article IX shall be each party's sole and exclusive remedy
against the other party for any breach of any representation, warranty or
covenant contained in this Agreement. Notwithstanding the foregoing, nothing
herein shall prevent any party from bringing an action based upon allegations of
fraud in connection with this Agreement. In the event an action based on
allegations of fraud is brought, the prevailing party's attorneys' fees and
costs shall be paid by the nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses with
respect to accounts receivable reflected on the Closing Date Unaudited Balance
Sheet only if and to the extent that such accounts receivable, except for
Contract Retention, remain uncollected 180 days from the Closing Date. Contract
Retention will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses from the failure to collect accounts
receivable of the Company or Contract Retention and such Losses result in a
set-off from the Escrow Fund, the related accounts receivable or Contract
Retention shall be assigned to the Stockholders following, and to the extent of,
such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to
Section 9.04 and, paragraphs (b) and (c) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
be satisfied first against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15)
days' notice (the "GRS Notice") of its intention to deduct or set-off any
amounts pursuant to this Section 9.05, including in such notice a description of
GRS' indemnification claim. If none of the Stockholders object in writing to
such deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount
16
<PAGE> 21
sufficient to equal a return at the rate of ten percent (10%) per annum on the
disputed amount from the date payment of such amount was originally due through
the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or
make, or cause to have issued or made, any public release or announcement
concerning this Agreement or the transactions contemplated hereby, without the
advance approval in writing of the form and substance thereof by each of the
other parties, and the parties shall endeavor jointly to agree on the text of
any announcement or circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each
of the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur,
(i) each Stockholder shall jointly and severally indemnify and hold harmless GRS
and the Company from and against any and all liability for any brokers or
finders' fees arising with respect to brokers or finders retained or engaged by
the Company or any of the Stockholders in respect of the transactions
contemplated by this Agreement, and (ii) GRS shall indemnify and hold harmless
the Stockholders from and against any and all liability for any brokers' or
finders' fees arising with respect to brokers or finders retained or engaged by
GRS in respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing
17
<PAGE> 22
and delivered personally or mailed by registered or certified mail, postage
prepaid and return receipt requested, or by telecopier, as follows:
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: _______________
George Cook
2140 Industrial Drive
P.O. Box 200
Howell, Michigan 48843
With a copy to:
Williams, Williams, Ruby & Plunkett, P.C.
380 North Old Woodward Avenue
Birmingham, Michigan 48009
Attention: R.J. Williams, Jr.
Telecopy No.: (248) 642-0856
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
18
<PAGE> 23
Section 11.05 Representations and Warranties. Each of the
representations and warranties of each of the parties to this Agreement shall be
deemed to have been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this
Agreement are cumulative, and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies. Such rights and remedies are given in addition to any other
rights and remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference. Disclosure of a specific item in any one schedule shall be deemed
restricted only to the Section to which such disclosure specifically relates
except where (i) there is an explicit cross-reference to another Schedule, and
(ii) GRS could reasonably be expected to ascertain the scope of the modification
to a representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used
in this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which
contemplates performance or the existence of obligations after the Closing Date,
and any and all representations and warranties set forth in this Agreement,
shall not be deemed to be merged into or waived by the execution and delivery of
the instruments executed at the Closing, but shall expressly survive Closing for
the time period set forth in Section 8.01 hereof and shall be binding upon the
party or parties obligated thereby in accordance with the terms of this
Agreement, subject to any limitations expressly set forth in this Agreement.
19
<PAGE> 24
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined in
this Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect
to any person, any other person controlling, controlled by or under common
control with such person. The term "Control" as used in the preceding sentence
means, with respect to a corporation, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to any person other
than a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements"
shall mean any or all of the following agreements, the forms of which are
attached hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for Doug Reader
Exhibit H - Employment Agreement for George Cook
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean,
with respect to the Company, all of the Properties, Company Contracts, and
Permits, that were Used by the Company as of the Balance Sheet Date and those
Used by the Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract
Retention" shall mean any amounts withheld by customers from contract progress
billing until final and satisfactory contract completion as determined by such
customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean,
with respect to the Company, cash and other assets that are expected to be
converted into cash, sold or exchanged within one year from the Closing Date,
including marketable securities, receivables, inventory and current prepayments.
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
20
<PAGE> 25
Section 12.07 Damages. The term "Damages" shall mean any and all
damages, liabilities, obligations, penalties, fines, judgments, claims,
deficiencies, losses, costs, expenses and assessments (including without
limitation income and other Taxes, interest, penalties and attorneys' and
accountants' fees and disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers who are stockholders with respect to
the representation being made, and such knowledge of any such persons as
reasonably should have obtained upon due investigation and inquiry into the
representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all
permits or orders under any Legal Requirement or otherwise granted by any
Governmental Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
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<PAGE> 26
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and
all regulations promulgated by the Department of the Treasury pursuant to the
Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss.59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes"
shall mean the deferred tax assets and liabilities required to be recorded under
GAAP to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg Wallick
-------------------------------
Gregg Wallick, President
C.E.I. ROOFING, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
STOCKHOLDERS:
/s/ Douglas A. Reader
-----------------------------------
Douglas A. Reader
/s/ John C. Cook
-----------------------------------
John C. Cook
/s/ George C. Cook
-----------------------------------
George J. Cook
22
<PAGE> 27
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of Company
Name Common Stock Purchased Percentage (%) of Ownership
---- --------------------------- ---------------------------
<S> <C> <C>
Douglas A. Reader 56,582 42.50%
John C. Cook 38,292 28.75%
George J. Cook 38,292 28.75%
Total 133,166 100%
======= =====
</TABLE>
<PAGE> 28
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Texas, and is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been
made available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in
any partnership or joint venture, or own any outstanding capital stock of any
other corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized
capital stock of the Company consists of 10,000 shares of Voting and 150,000
shares of Non-Voting Company Common Stock. The issued and outstanding shares of
Company Common Stock are owned of record and beneficially by the Stockholders
shown on Exhibit A hereof. All of the presently outstanding shares of capital
stock of the Company have been validly authorized and issued and are fully paid
and nonassessable. The Company has not issued any other shares of its capital
stock and there are no outstanding options, warrants, subscriptions or other
rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares, except
as set forth on Schedule 3.02. Except as contemplated under this Agreement,
there are no agreements to which the Company is a party regarding the issuance,
registration, voting or transfer of its outstanding shares of its capital stock.
Except for possible dividends to be issued in connection with the Excluded
Assets as described in Section 1.05 and dividends related to the payment of the
Stockholders' tax liabilities with respect to earnings of the Company up to the
Closing Date, each and all of which shall be subject to the prior written
approval of GRS, no dividends are accrued but unpaid on any capital stock of the
Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set
forth in Schedule 3.04 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the Articles of Incorporation or bylaws of the
Company;
<PAGE> 29
(ii) violate any Legal Requirements applicable to
the Company;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to the Company;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of the Company;
or
(v) require any of the Stockholders or the Company
to obtain or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority. Any and all consents required to be
obtained by the Company as set forth in Schedule 3.04 shall be obtained and
copies thereof delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no
suit, action or other proceeding is pending or, to the Knowledge of the Company
or the Stockholders, threatened before any Governmental Authority seeking to
restrain any of the Stockholders or prohibit their entry into this Agreement or
prohibit the Closing, or seeking damages against the Company or its Properties,
as a result of the consummation of the transactions contemplated by this
Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true
and correct copies of the Company's (i) Closing Date Unaudited Balance Sheet,
(ii) unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
three months ended March 31, 1998 (the "Interim Company Financial Statements"),
as well as (iii) the Company's balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended December 31, 1997 (the "Company Financial Statements"). The Company
Financial Statements (i) have been prepared from the books and records of the
Company, (ii) present fairly the financial condition of the Company and its
results of operations as at and for the respective periods then ended, and (iii)
have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in
Schedule 3.07, the Company Financial Statements reflect all liabilities of the
Company as determined in accordance with generally accepted accounting
principles arising out of transactions effected or events occurring on or prior
to the date of the Interim Company Balance Sheet, except for liabilities not
exceeding $10,000 in the aggregate. All reserves shown in the Company Financial
Statements are appropriate and reasonable to provide for losses thereby
contemplated. Except as set forth in the Company Financial Statements (including
the Notes thereto), the Company is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in
Schedule 3.08, the accounts receivable reflected on the Interim Company Balance
Sheet and all accounts receivable arising between the date of the Interim
Company Balance Sheet (the "Interim Company Balance Sheet Date") and the date
hereof, arose from bona fide transactions in the ordinary course of business,
and the goods and services involved have been sold, delivered and performed to
the account of the obligors, and no further filings (with Governmental
Authorities, insurers or others) are required to be made, no further goods are
required to be provided and no further services are required to be rendered in
order to complete the sales and fully render the services and to entitle the
Company to collect the accounts receivable in full. No such account has been
assigned or pledged to any other person, firm or corporation, and, except only
to the extent fully reserved against as set forth in the Interim Company Balance
Sheet, no defense or setoff to any such account has been asserted by the account
obligor.
2
<PAGE> 30
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ending December 31, 1997 and 1996, respectively, and (ii)
any promised increases in compensation of the Company Key Employees that have
not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of
all Compensation Plans sponsored by the Company or to which the Company
contributes on behalf of its employees, other than Employee Benefit Plans listed
in Schedule 3.10. As used herein, "Compensation Plans" shall mean and include,
without limitation, plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 3.09(c) and in Section
3.09(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate
list of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company (i) has been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09(g), (i) the Company
has not ever been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit and
(iii) the employees of the Company have not threatened to organize or join a
union, labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
3
<PAGE> 31
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency. No prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter
or ruling from the Internal Revenue Service for each Employee Benefit Plan
intended to be qualified within the meaning of Section 401 (a) of the Code
and/or tax exempt within the meaning of Section 501(a) of the Code, which letter
or ruling is current and covers all required amendments to each such Employee
Benefit Plan through the Closing Date. No proceedings exist or, to the Knowledge
of the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) The Company has no obligation or commitment to provide
medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in
Schedule 3.11, from the Interim Company Balance Sheet Date to the date of this
Agreement, the Company has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company, or any Stockholder, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
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(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any
Company Assets (whether or not covered by insurance) that has materially
adversely affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05 hereof;
(i) written up or written down the carrying value of any of
the Company Assets, except in the ordinary course of business consistent with
past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or
Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights or paid any
dividends or made any distribution to the holders of the Company's capital
stock;
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(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which the Company is a party (the "Company Contracts") set forth in Schedule
3.12, the Company has not entered into, nor is the capital stock, the assets or
the business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any
Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
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(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23 hereof; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not
received notice of any plan or intention of any other party to any Company
Contract to exercise any right to cancel or terminate any Company Contract. The
Company does not currently contemplate, and has no reason to believe any person
or entity currently contemplates, any amendment or change to any Company
Contract. None of the customers, joint venture partners or suppliers of the
Company has refused, or communicated that it will or may refuse, to purchase or
supply goods or services, as the case may be, or has communicated that it will
or may substantially reduce the amounts of goods or services that it is willing
to purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will
maintain through the Closing Date, comprehensive insurance coverage with respect
to all of its completed operations. The Company has previously made available to
GRS all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except for the trademarked logo "CEI", with double
underlining trades over and under the capitalized letters, which is owned by CEI
Industries, Inc., the Company owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 3.14(a) is a
true and correct description of all Proprietary Rights.
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<PAGE> 35
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock Purchase, GRS will have the
right to use all Proprietary Rights without any obligation to pay any additional
amounts whatsoever. Use of the Proprietary Rights does not require the consent
of any other person and the Proprietary Rights are freely transferable. No claim
has been asserted by any person to the ownership of or right to use any
Proprietary Right or challenging or questioning the validity or effectiveness of
any license or agreement constituting a part of any Proprietary Right. Each of
the Proprietary Rights is valid and subsisting, has not been canceled, abandoned
or otherwise terminated and, if applicable, has been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
the Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has
good and marketable title to the Company Assets, including, without limitation,
those reflected on the Interim Company Balance Sheet (other than those since
disposed of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 3.15(c). The Company enjoys
peaceful and undisturbed possession under all real property leases under which
the Company is operating, and all such leases are valid and subsisting and none
of them is in default, except for those defaults which, individually or in the
aggregate, would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material
franchises, Permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its businesses as presently
conducted. The business and operations of the Company have been and are being
conducted in accordance in all material respects with all applicable laws, rules
and regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in
Schedule 3.17, there are no claims, actions, suits, investigations or
proceedings against the Company pending or, to the Knowledge of the Company,
threatened in any court or before or by any Governmental Authority, or before
any arbitrator, that could reasonably be expected to have a material adverse
effect (whether covered by insurance or not) on the business, operations,
prospects, Properties, securities or financial condition of the Company. Except
as otherwise set forth in Schedule 3.17, the Company is not in default under,
and no condition exists (whether covered by insurance or not) that with or
without notice or lapse of time or both would (i) constitute a default under, or
breach or violation of, any Company Contract or any Legal Requirement or Permit
applicable to the Company, or (ii) accelerate or permit the acceleration of the
performance required under, or give any other party the right to terminate, any
Company Contract, other than defaults, breaches, violations or accelerations
that would not have a material adverse effect on the
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business, operations, prospects, Properties, securities or financial condition
(a "Material Adverse Effect") of the Company.
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of
the Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which Company Business is or was, or, to knowledge of the Company,
at which the business of its predecessors was, located which would have a
Material Adverse Effect on the Company. With respect to underground storage
tanks, Schedule 3.18(b) sets forth the size, location, construction,
installation date, use and testing history of all underground storage tanks
(whether or not excluded from regulation under Environmental Law), including all
underground storage tanks in use, out of service, closed, abandoned,
decommissioned, or sold to a third party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of
the Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to
the best knowledge of the Company, threat of a "release" of any Hazardous
Substance on, from or under any premises from which (i) the Company's operations
have been or are being conducted related to the Company Business. or (ii) to the
Knowledge of the Company, the operations of any predecessor of the Company which
would have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the
Company's and, to the Knowledge of the Company, its predecessor's, Hazardous
Substances disposal and recycling practices related to the Company Business have
been accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall
not be interpreted to imply that GRS has constructive knowledge regarding any
aspect of the Company Business with respect to environmental matters nor to
limit the scope of any of the Company's or any Stockholders' representations
under this Agreement. No such due diligence examination or related activities
of, or on behalf of, GRS however, shall constitute a waiver or relinquishment by
GRS of its right to rely upon the Company's or any Stockholders'
representations, warranties, covenants and agreements as made herein or pursuant
hereto, and no such disclosure shall constitute an assumption by GRS of any
conditions or liabilities, and such disclosure shall not relieve the Company or
any Stockholder of its duties and obligations hereunder.
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Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or safe deposit box or vault, (ii)
the names of all persons authorized to draw thereon or to have access to any
safe deposit box or vault, (iii) the purpose of each such account, safe deposit
box or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of the Company in matters
concerning any of its business or affairs. Except as otherwise set forth in
Schedule 3.19, no such proxies, powers of attorney or other like instruments are
irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth
all the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve month period
ended December 31, 1997 and the three month period ended March 31, 1998, as well
as each of the principal customers of the Company. Except as otherwise set forth
in Schedule 3.20, since December 31, 1997, there has been no material adverse
change in the business relationship of the Company with any supplier or customer
named in Schedule 3.20. No customer or supplier named in Schedule 3.20 has
terminated or materially altered, or notified the Company of any intention to
terminate or materially alter, its relationship with the Company, and the
Company has no reason to believe that any such customer or supplier will
terminate or materially alter its relationship with the Company or to materially
decrease its services or supplies to the Company or its direct or indirect usage
of the services of the Company. For purposes of Sections 3.20 and 3.23,
"material suppliers" refers to suppliers from whom the Company purchased five
percent (5%) or more of the total amount of the goods purchased by the Company
during the twelve month period ended December 31, 1997 and the three month
period ended March 31, 1998, and "principal customers" refers to customers who
accounted for 5% or more of the Company's total revenues during the twelve month
period ended December 31, 1997 and the three month period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by the Company or the Stockholders to GRS or its counsel,
do not contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set
forth in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. Except as provided in Schedule
3.24, no director or executive officer of the Company owns directly or
indirectly any material interest or has any investment equal to 5% or more of
the outstanding voting securities in any corporation, business or other person
that is a direct competitor of the Company.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate
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(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 3.26 Government Inquiries. Except as set forth on Schedule
3.26, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any
Stockholder has entered into any agreements or arrangements and there are no
pending offers or discussions concerning or providing for the merger or
consolidation of the Company or all or any substantial portion of its assets,
the sale by the Company or any Stockholder of any securities of the Company or
any similar transaction affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income
Tax Returns, and all other material Tax Returns which it is required to file
under applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Closing Date
Unaudited Balance Sheet is sufficient to pay in full all liabilities for Taxes
of the Company related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company
have been filed through the date hereof, and, as of the date hereof, none of
such Tax Returns has been audited.
(vi) the Company has been a validly existing S
corporation within the meaning of Sections 1361 and 1362 of the Code at all
times since January 1, 1987, and will continue to be an S corporation up to and
including the date immediately preceding the Closing Date; and
(vii) the Company has disclosed in its federal income
tax returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC ss. 6662.
(b) To the Knowledge of the Company, no claim has been made by
a taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local
Tax audits or administrative or judicial proceedings pending or being conducted
with respect to the Company;
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(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority; and
(iii) there are no material unresolved claims
concerning the Company's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company, except where such waiver would not have a material adverse
effect on the Company.
(e) The Company has not executed or entered into a closing
agreement pursuant to IRC ss. 7121 or any predecessor provision thereof or any
similar provision of state, local or foreign law; nor has the Company agreed to
or is required to make any adjustments pursuant to IRC ss. 481(a) or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company. The Company has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC ss. 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(i) The Company has not made any payments nor is it obligated
to make payments nor is it a party to an agreement that could obligate it to
make any payments that would not be deductible under IRC ss. 280G.
(j) The Company shall prepare or cause to be prepared and file
or cause to be filed all federal and state income Tax Returns for the Company
for tax periods ending on or prior to the Closing Date which are filed after the
Closing Date. The Company shall permit GRS to review and comment on each such
Tax Return described in the preceding sentence prior to filing. To the extent
permitted by applicable law, the Stockholders shall include any income, gain,
loss, deduction or other tax items for such period on their individual income
Tax Returns in a manner consistent with the Schedule K-1s furnished by the
Company to the Stockholders for such periods.
(k) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including New York City Transfer Tax, if
applicable, and any similar Tax imposed in other states and subdivisions), shall
be paid by the Stockholders when due, and the Stockholders will, at their
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, GRS will, and will
cause its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such
Stockholder shall own beneficially and of record, free and clear of any lien,
option or other encumbrance, the shares of Company Common Stock set forth
opposite such Stockholders' name on Exhibit A hereof, and, upon consummation of
the Stock Purchase, GRS will acquire good and valid title thereto, free and
clear of any lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such
Stockholder has the full legal right and power and all authority and approval
required to enter into, execute and deliver this Agreement and to perform fully
such Stockholders' obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common
Stock to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for
its own account and not on behalf of any other person; such Stockholder is aware
and acknowledges that the GRS Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold unless the GRS Shares are registered under the Securities Act or
an exemption from the registration requirements of the Securities Act is
available;
<PAGE> 41
(b) Such Stockholder has been furnished all information that
it deems necessary to enable it to evaluate the merits and risks of an
investment in GRS; such Stockholder has had a reasonable opportunity to ask
questions of and receive answers from GRS concerning GRS and the GRS Shares, and
all such questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i)
any rights in and to the GRS Shares, which rights were obtained through or from
such Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in
financial and business matters (including knowledge and expertise in the roofing
industry) that it is capable of evaluating the merits and risks involved in an
investment in the GRS Shares: and such Stockholder is financially able to bear
the economic risk of the investment in the GRS Shares, including a total loss of
such investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal
or state agency has made any finding of determination regarding the fairness of
the offering of the GRS Shares for investment, or any recommendation or
endorsement of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of the GRS Shares, and shall not make
any sale, transfer or pledge thereof without registration under the Securities
Act and any applicable securities laws of any state or unless an exemption from
registration is available;
(i) Except as set forth herein, no representations or
warranties have been made to such Stockholder by GRS or any agent, employee or
Affiliate of GRS, and in entering into this transaction such Stockholder is not
relying upon any information, other than from the results of independent
investigation by such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of
the GRS Shares except (i) pursuant to an effective registration statement under
the Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS, Sellers' Counsel or other counsel reasonably satisfactory to
GRS, is not required to be registered under the Securities Act.
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EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate
Documents.
(a) GRS is a corporation duly organized, validly existing and
in good standing under the laws of Florida, and is not required to be qualified
to do business as a foreign corporation in any other jurisdiction where the
failure to so qualify would have a material adverse effect on GRS. GRS has all
required corporate power and authority to own its properties and to carry on its
business as presently conducted. The Articles of Incorporation and By-laws of
GRS, copies of which are attached as Schedule 5.01(a), are complete and reflect
all amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have
any subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized
capital stock of GRS consists of 100,000,000 shares of which 90,000,000 have
been designated as GRS Common Stock and 10,000,000 have been designated as
Preferred Stock. All of the presently outstanding shares of capital stock of GRS
have been validly authorized and issued and are fully paid and nonassessable.
Except as set forth on Schedule 5.03, GRS has not issued any other shares of its
capital stock and there are no outstanding options, warrants, subscriptions or
other rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
<PAGE> 43
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms,
conditions or provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to
GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private non-governmental third party or any
Governmental Authority. Any and all consents required to be obtained by GRS as
set forth in Schedule 5.05 shall be obtained and copies thereof delivered to the
Company and the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no
suit, action or other proceeding is pending or, to the Knowledge of GRS,
threatened before any Governmental Authority seeking to restrain GRS or prohibit
its entry into this Agreement or prohibit the Closing, or seeking damages
against GRS or its Properties, as a result of the consummation of the
transaction contemplated by this Agreement.
Section 5.07 [Reserved.]
Section 5.08 Liabilities and Obligations. Except as set forth in
Schedule 5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS
Balance Sheets") and the related statements of income, stockholders' equity and
cash flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in
Schedule 5.09, the accounts receivable reflected on the GRS Balance Sheet and
all accounts receivable arising between December 31, 1997 and the date hereof,
arose from bona fide transactions in the ordinary course of business, and the
goods and services involved have been sold, delivered and performed to the
account of the obligors, and no further filings (with Governmental Authorities,
insurers or others) are required to be made, no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle GRS to collect
the accounts receivable in full. No such account has been assigned or pledged to
any other person, firm or corporation, and, except only to the extent fully
reserved against as set forth in the Interim GRS Balance Sheet, no defense or
setoff to any such account has been asserted by the account obligor.
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<PAGE> 44
Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of GRS, regardless
of compensation levels, and other employees who are currently compensated at a
rate in excess of $50,000 per year (including any reasonably anticipated bonus)
or who earned in excess of $50,000 during GRS' fiscal year ended October 31,
1996 (collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a)
contains a complete and accurate description of (i) all increases in
compensation of the GRS Key Employees during the fiscal years of GRS ending
October 31, 1997 and October 31, 1996, respectively, and (ii) any promised
increases in compensation of the GRS Key Employees of GRS that have not yet been
effected.
(b) Schedule 5.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by GRS or to which GRS contributes on behalf of
its employees, other than Employee Benefit Plans listed in Schedule 5.11. As
used in this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of
all Employment Agreements. As used in this Section 5.10(c) and in Section
5.10(e) hereof, "Employment Agreements" shall mean and include, without
limitation, employee leasing agreements, employee services agreements and
noncompetition agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and is in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any
union, labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key
Employee has indicated his or her desire or intent to terminate employment with
GRS, and GRS has no present intent of terminating the employment of any GRS Key
Employee.
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Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee Benefit Plans previously sponsored or contributed
to on behalf of its employees within the three years preceding the date hereof.
No unwritten amendment exists with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in
Schedule 5.12, from the date of the GRS Balance Sheet to the date of this
Agreement, GRS has not:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of GRS or any stockholder of GRS, in
its condition (financial or otherwise), operations, assets, liabilities,
business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
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(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business consistent
with past practice;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of
its assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of
its assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or its
assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights paid any
dividends or made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
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(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
Section 5.13 Commitments. (a) Except the material contracts,
agreements, commitments and other arrangements, whether oral or written, to
which GRS is a party (the "GRS Contracts") set forth in Schedule 5.13, GRS has
not entered into, nor is the capital stock, the assets or the business of GRS
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation
agreement or arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that
involves either an unperformed commitment in excess of $5,000 or that terminates
more than thirty (30) days after the date hereof, except in the ordinary course
of business;
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(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
(xvii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice
of any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has no reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available
to the Stockholders all insurance policies of GRS. All of such policies are
valid and enforceable against GRS, except as such enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. Use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
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Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by
GRS is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the ordinary course of business), free and
clear of all security interests, liens, charges and other encumbrances, except
for (i) liens for taxes not yet due and payable or being contested in good faith
in appropriate proceedings, and (ii) encumbrances that are incidental to the
conduct of its businesses or ownership of property, not incurred in connection
with the borrowing of money or the obtaining of credit, and which do not in the
aggregate materially detract from the value of the assets affected or materially
impair their use by GRS. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by GRS are in good operating
condition and repair, normal wear and tear excepted, are adequate and sufficient
for GRS' business and conform in all material respects with all applicable
ordinances, regulations and laws relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful
and undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in
Schedule 5.18, there are no claims, actions, suits, investigations or
proceedings against GRS pending or, to the Knowledge of GRS, threatened in any
court or before or by any Governmental Authority, or before any arbitrator, that
could reasonably be expected to have a material adverse effect (whether covered
by insurance or not) on the business, operations, prospects, Properties,
securities or financial condition of GRS. Except as otherwise set forth in
Schedule 5.18, GRS is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any Legal
Requirement or Permit applicable to GRS or any GRS Contract applicable to GRS,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any GRS Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of
GRS, there are no PCBs, TCE, PCE, or asbestos containing materials generated,
used, treated, stored, maintained, disposed of, or otherwise deposited in, or
located on any premises at which GRS' business (the "GRS Business") is or was,
or at which the business or, to the Knowledge of GRS, its predecessors was,
located, which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which the GRS Business is or was, or, to knowledge of GRS, at which
the business of its predecessors was, located, which would have a
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Material Adverse Effect on GRS. With respect to underground storage tanks,
Schedule 5.19(b) sets forth the size, location, construction, installation date,
use and testing history of all underground storage tanks (whether or not
excluded from regulation under Environmental Law), including all underground
storage tanks in use, out of service, closed, abandoned, decommissioned, or sold
to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of
GRS, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of GRS, threat of a "release" of any Hazardous Substance on, from
or under any premises from which (i) GRS' operations have been or are being
conducted related to the GRS Business. or (ii) to the Knowledge of GRS, the
operations of any predecessor of GRS, which would have a Material Adverse Effect
on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor
their respective predecessors have received written notice alleging any
potential liability with respect to the contamination, investigation, or cleanup
of any site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and,
to the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth
all of GRS' material suppliers, together with the dollar amount of goods
purchased by GRS from each such supplier during the twelve month period ended
December 31, 1997 and the four month period ended April 30, 1998, as well as
each of the principal customers of GRS. Except as otherwise set forth in
Schedule 5.21, since December 31, 1997, there has been no material adverse
change in the business relationship of GRS with any supplier or customer named
in Schedule 5.21. No customer or supplier named in Schedule 5.21 has terminated
or materially altered, or notified GRS of any intention to terminate or
materially alter, its
9
<PAGE> 51
relationship with GRS and GRS has no reason to believe that any such customer or
supplier will terminate or materially alter its relationship with GRS or to
materially decrease its services or supplies to GRS or its direct or indirect
usage of the services or products of GRS. For purposes of Sections 5.21 and 5.24
hereof "material suppliers" refers to suppliers from whom GRS purchased five
percent (5%) or more of the total amount of the goods purchased by GRS during
the twelve month period ended December 31, 1997 and the four month period ended
April 30, 1998, and "principal customers" refers to customers who accounted for
5% or more of GRS' revenues during the twelve month period ended December 31,
1997 and the four month period ended April 30, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by GRS to the Stockholders or their counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to the Stockholders contain projections and
estimates of future events, and such projections and estimates have been based
upon certain assumptions that management of GRS made in good faith and believed
are reasonable at the time such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set
forth in Schedule 5.24, no director or executive officer of GRS or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with GRS or any organization that has a material contract or arrangement with
GRS.
Section 5.25 Investments in Competitors. No director or executive
officer of GRS owns directly or indirectly any material interests or has any
investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer
or employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule
5.27, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and
all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
10
<PAGE> 52
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Unaudited GRS
Balance Sheet (excluding any amount recorded which is attributable to timing
differences between book and Tax income) would be adequate to pay all material
Tax liabilities of GRS if its current tax year were treated as ending on the
date of the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited.
(b) To the Knowledge of GRS, no claim has been made by a
taxing authority in a jurisdiction where GRS does not file Tax Returns that GRS
is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local
tax audits or administrative or judicial proceedings pending or being conducted
with respect to GRS;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by GRS from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims
concerning GRS' Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC ss. 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC ss. 481(a) or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by GRS. GRS has no knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any knowledge with respect to any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC ss. 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC ss. 280G.
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<PAGE> 53
Section 5.29 Participation in Secondary Offering. In the event that
after the Offering GRS files a registration statement with the Securities and
Exchange Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such number of shares of GRS Common
Stock owned by the Stockholders as shall equal (i)(A) the total number of shares
of GRS Common Stock owned by such Stockholders divided by (B) the total number
of shares of GRS Common Stock owned by all shareholders of the Founding
Companies, multiplied by (ii) the total number of shares of GRS Common Stock
owned by shareholders of the Company which are to be included in the Secondary
Offering.
12
<PAGE> 1
EXHIBIT 2.13
STOCK PURCHASE AGREEMENT
BY AND AMONG
GENERAL ROOFING SERVICES, INC.,
C.E.I. FLORIDA, INC.
AND
ALL OF THE STOCKHOLDERS
OF
C.E.I. FLORIDA, INC.
----------------------------
MAY 13, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - SALE AND PURCHASE OF SHARES...............................................................1
1.01 Sale and Purchase of Company Common Stock....................................................1
1.02 Purchase Price...............................................................................2
1.03 Delivery of Purchase Price...................................................................2
1.04 Purchase Price Adjustment....................................................................3
1.05 Excluded Assets..............................................................................4
1.06 Stockholders' Representative.................................................................4
ARTICLE II - CLOSING..................................................................................5
2.01 Closing......................................................................................5
2.02 Deliveries by Stockholders to GRS............................................................5
2.03 Deliveries by GRS............................................................................6
2.04 Termination in Absence of Closing............................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS..........................................................................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER.......................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS.....................................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.............................................................7
6.01 GRS' Access to Information and Assets........................................................7
6.02 Company's Conduct of Business and Operations.................................................7
6.03 General Restrictions.........................................................................8
6.04 Notice Regarding Changes.....................................................................9
6.05 Consents and Best Efforts....................................................................9
6.06 Casualty Loss...............................................................................10
6.07 Employee Matters............................................................................10
6.08 No Solicitation.............................................................................10
6.09 Employment Agreements.......................................................................10
6.10 Lock-Up Agreement...........................................................................10
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS.......................................11
7.01 Conditions to Obligations of All Parties....................................................11
7.02 Conditions to Obligations of Stockholders...................................................11
7.03 Conditions to Obligations of GRS............................................................12
ARTICLE VIII - SURVIVAL..............................................................................14
8.01 Survival of Representations and Warranties of the Company and the Stockholders..............14
ARTICLE IX - INDEMNIFICATION.........................................................................14
9.01 Obligation of the Stockholders to Indemnify.................................................14
9.02 Obligation of GRS to Indemnify..............................................................14
9.03 Notice and Opportunity to Defend............................................................14
9.04 Limitations on Indemnification..............................................................15
9.05 Set-Off Rights..............................................................................16
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C> <C>
ARTICLE X - POST-CLOSING OBLIGATIONS.................................................................17
10.01 Further Assurances..........................................................................17
10.02 Publicity...................................................................................17
10.03 Access to Records...........................................................................17
ARTICLE XI - MISCELLANEOUS...........................................................................17
11.01 Brokers.....................................................................................17
11.02 Costs and Expenses..........................................................................18
11.03 Notices.....................................................................................18
11.04 Governing Law...............................................................................18
11.05 Representations and Warranties..............................................................19
11.06 Entire Agreement, Amendments and Waivers....................................................19
11.07 Binding Effect and Assignment...............................................................19
11.08 Remedies....................................................................................19
11.09 Exhibits and Schedules......................................................................19
11.10 Multiple Counterparts.......................................................................19
11.11 References..................................................................................19
11.12 Survival....................................................................................20
11.13 Attorneys' Fees.............................................................................20
ARTICLE XII - DEFINITIONS............................................................................20
12.01 Affiliate...................................................................................20
12.02 Collateral Agreements.......................................................................20
12.03 Company Assets..............................................................................20
12.04 Contract Retention..........................................................................20
12.04 Current Assets..............................................................................21
12.05 Current Liabilities.........................................................................21
12.06 Damages.....................................................................................21
12.07 Environmental Law...........................................................................21
12.07 Environmental Law...........................................................................21
12.08 Governmental Authorities....................................................................21
12.09 Hazardous Substances........................................................................21
12.10 Knowledge..................................................................................21
12.11 Legal Requirements..........................................................................21
12.12 Permits.....................................................................................22
12.13 Properties..................................................................................22
12.14 Proportionate Share.........................................................................22
12.15 Regulations.................................................................................22
12.16 Taxes.......................................................................................22
12.17 Tax Returns.................................................................................22
12.18 Used........................................................................................22
12.18 Used........................................................................................22
</TABLE>
ii
<PAGE> 4
LIST OF EXHIBITS
----------------
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - [Reserved]
Exhibit H - Employment Agreement for John Cook
Exhibit I - Opinion of Baker & McKenzie
Exhibit J - Opinion of Williams, Williams, Ruby & Plunkett, P.C.
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of May 13, 1998, by and among (i) General Roofing Services, Inc. a Florida
corporation (the "Buyer" or "GRS"),(ii) C.E.I. Florida, Inc., a Florida
corporation (the "Company"), and (iii) all of the stockholders of the Company
(the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable for
their welfare and best interests that the Stockholders sell and GRS
purchase all of the issued and outstanding capital stock of the Company,
consisting of 176,750 shares (the "Shares") of common stock, par value
$1.00 per share ("Company Common Stock"), upon the terms and subject to the
conditions hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as part
of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and such transactions are intended to conform
to, and are being made in connection with a Section 351 Plan of Exchange
within the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to such use
shall have the respective meanings given such terms in Article XII hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01. Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this Agreement,
at the Closing referred to in Section 2.01 hereof, each Stockholder shall sell,
transfer, convey and deliver to GRS, and GRS shall purchase, acquire and accept
from each Stockholder, the number of shares of Company Common Stock set forth
opposite the name of each such Stockholder on Exhibit A hereto under the heading
"Number of Shares of Company Common Stock Purchased", constituting all of the
issued and outstanding shares of Company Common Stock. The sale and purchase of
the Company Common Stock pursuant to this Agreement is sometimes hereinafter
referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a), at
the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
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<PAGE> 6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares of
Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $9,078,499. The Purchase Price shall be
subject to adjustment as provided in this Agreement and shall be allocated among
the Stockholders in accordance with their respective ownership interests as set
forth on Exhibit A hereof. The Purchase Price, as so adjusted, shall be
delivered to the Stockholders in accordance with their respective Proportionate
Share and to the Escrow Agent (as defined in Section 1.03(b) hereof), subject to
and in accordance with Section 1.03 hereof. The amount of the Purchase Price
allocated to each outstanding share of Company Common Stock is hereinafter
referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $1,680,414
(the "Target Net Book Value") (such adjustment is referred to herein as the "Net
Book Value Adjustment"); provided, that the Net Book Value as determined
pursuant to the Closing Date Unaudited Balance Sheet shall not be less than $
772,505 (the "Minimum Net Book Value"). For purposes of this Agreement, Net Book
Value shall mean the excess of the Company's total assets over the Company's
total liabilities determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered to
GRS within fifteen days prior to the Closing Date (i) an unaudited consolidated
balance sheet of the Company forecasted as of the Closing Date (the "Closing
Date Unaudited Balance Sheet"), (ii) a calculation of the Purchase Price
Adjustment, if any, determined pursuant to Section 1.02(b) above, and (iii) a
certificate executed by the Company's Chief Financial Officer (or another duly
authorized officer of the Company) to the effect that the Closing Date Unaudited
Balance Sheet has been prepared from the books and records of the Company and in
a manner consistent with the preparation of the Company Financial Statements (as
defined in Section 3.06 hereof), except that Deferred income Taxes have been
reflected in the same manner as if the Company was a "C" corporation.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section 1.01(b)
hereof of a certificate or certificates representing all of the issued and
outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $4,085,325, representing
forty-five percent (45%) of the Purchase Price, minus (ii) the amount of the
Purchase Price Adjustment, if any, shall be paid directly to the holders thereof
by wire transfer in New York Clearing House Funds in accordance with Exhibit A
hereto.
(b) An aggregate of $4,993,174 shall be paid by the delivery to
(A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number of
shares of the GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $1,815,700, representing twenty percent (20%) of
the Purchase Price (the "Escrow Fund"), based upon the public offering price of
the GRS Common Stock to be sold in its initial public offering (the "Offering")
and (B) to the Stockholders in accordance with Exhibit A hereto, of such number
of shares of GRS Common Stock as shall have a value equal to $3,177,474 based
upon the public offering price of the GRS Common Stock to be sold in the
Offering. The shares of GRS Common Stock to be so held in escrow shall be held
by the Escrow Agent for a period of one year following the Closing in accordance
with the terms of an Escrow Agreement in the form of Exhibit B hereto
2
<PAGE> 7
(the "Escrow Agreement"), and shall thereafter be restricted from transfer for
an additional one-year period in accordance with the terms, and subject to the
conditions, of a Lock-Up Agreement in the form of Exhibit C hereto (the "Lock-Up
Agreement"). The Stockholders shall receive cash in lieu of fractional shares.
(c) Each certificate evidencing shares of GRS Common Stock issued
in connection with the Stock Purchase shall bear the following restrictive
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933 ACT"), NOR
UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED, SOLD,
ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF
SUCH SHARES, WHICH OPINION IS SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR APPLICABLE
STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b) hereof,
if any, and within 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Purchase Price Adjustment,
if any, and the cash portion of the Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the Purchase
Price Adjustment. The following clauses (i) and (ii) set forth the procedures
for resolving disputes among the parties with respect to the determination of
the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by GRS to
the Stockholders of a Purchase Price Notice, the Stockholders may deliver to GRS
a written notice advising GRS either that the Stockholders (A) agree with the
calculation of the Purchase Price Adjustment, or (B) believe that one or more
adjustments are required. If the Stockholders shall concur with the calculation
of the Purchase Price Adjustment, if any, or if the Stockholders shall not
object thereto in a written notice delivered to GRS within five (5) business
days after the Stockholders' receipt of the Purchase Price Notice, the Purchase
Price as set forth in the Purchase Price Notice, if any, shall become final and
shall not be subject to further review, challenge or adjustment absent fraud.
(ii) In the event that GRS timely submits the Purchase Price
Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the disagreements
with respect to the proposed Purchase Price Adjustment prior to the Closing,
then such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing roofing or construction
companies and selected by mutual agreement of Stockholders and GRS (the
"Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the event
that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase
3
<PAGE> 8
Price Adjustment, if any. The Settlement Accountants shall use their best
efforts to reach a determination not more than five (5) days after such
referral. The costs and expenses of the services of the Settlement Accountants
shall be paid equally by the Company and GRS. Pending the final determination by
the Settlement Accountants of the Purchase Price Adjustment, if any (the "Final
Determination"), the difference between the determination by the Stockholders
and GRS of the Purchase Price Adjustment, if any, shall be withheld from the
cash portion of the Purchase Price to be delivered pursuant to Section 1.03 (a)
and shall be paid in accordance with and upon the Final Determination. Any such
dispute shall not delay the Closing.
(c) After the final determination of the Purchase Price pursuant
to Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the
adjustment determined pursuant thereto shall be deducted from the cash portion
of the Purchase Price and allocated among the Stockholders in accordance with
their respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those tangible assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are not
required by the Company in the conduct of its operations and which are listed in
Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall such
distributions be made to the extent that the Closing Net Book Value would be
less then the Minimum Net Book Value.
Section 1.06 Stockholders' Representative. .
(a) As used in this Agreement, the "Stockholders' Representative"
shall mean George Cook or any person appointed as a successor Stockholders'
Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all obligations
under this Agreement have been discharged (including all indemnification
obligations hereunder and all obligations under the Escrow Agreement), the
Stockholders who, immediately prior to the Closing, held Company Common Stock
representing an aggregate number of shares of Company Common Stock which
exceeded 50% of the amount of such Company Common Stock outstanding immediately
prior to such time (a "Majority"), may, from time to time upon written notice to
the Stockholders' Representative and GRS, remove the Stockholders'
Representative or appoint a new Stockholders' Representative to fill any vacancy
created by the death, incapacitation, resignation or removal of the
Stockholders' Representative. Furthermore, if the Stockholders' Representative
dies, becomes incapacitated, resigns or is removed by a Majority, the Majority
shall appoint a successor Stockholders' Representative to fill the vacancy so
created. If the Majority is required to but has not appointed a successor
Stockholders' Representative within 20 business days from a request by GRS to
appoint a successor Stockholders' Representative, GRS shall have the right to
appoint a Stockholders' Representative to fill any vacancy so created, and shall
advise all those who were holders of Company Common Stock immediately prior to
the Closing of such appointment by written notice. A copy of any appointment by
the Majority of any successor Stockholders' Representative shall be provided to
GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to take
any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement or
under the documents referred to in this Agreement (an "Instrument") which the
Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment
4
<PAGE> 9
bankers, accountants, representatives and other professional advisors as he
determines in his sole and absolute discretion to be necessary, advisable or
appropriate in order to carry out and perform his rights and obligations
hereunder. The Stockholders hereby grant the Stockholders' Representative the
right and power to execute the Escrow Agreement on their behalf with such
changes or amendments thereto as the Stockholders' Representative shall
determine to be necessary or desirable in his sole and absolute discretion. Any
party receiving an Instrument from the Stockholders' Representative shall have
the right to rely in good faith upon such Instrument, and to act in accordance
with the Instrument without independent investigation.
(d) GRS shall have no liability to any Stockholder or otherwise
arising out of the acts or omissions of the Stockholders' Representative or any
disputes among the Stockholders or with the Stockholders' Representative. GRS
may rely entirely on its dealings with, and notices to and from, the
Stockholders' Representative to satisfy any obligations it might have to the
Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless the
Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative by
any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Baker & McKenzie, 701
Brickell Avenue, Suite 1600, Miami, Florida 33131, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the Closing,
the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued and
outstanding shares of Company Common Stock in proper
form for transfer to GRS;
(ii) the resignations of all members of the board directors
of the Company as set forth in Section 7.03(m);
(iii) the stock books, stock ledgers, minute books and
corporate seals of the Company;
(iv) a certificate executed by the Company to the effect that
the conditions set forth in Sections 7.03(b) through
7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section 7.03(f);
(vi) the executed Collateral Agreements; and
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(vii) evidence of the consents required pursuant to Section
7.03(o).
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available funds to the
Stockholders the payment described in Section 1.03(a)
as being required to be paid by GRS at Closing;
(ii) by delivery to the Stockholders the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Stockholders at
Closing;
(iii) by delivery to the Escrow Agent the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Escrow Agent at
Closing;
(iv) a certified copy of all necessary corporate action on
behalf of GRS approving its execution, delivery and
performance of this Agreement and the Collateral
Agreements to which it is a party pursuant to Section
7.02(a);
(v) a certificate executed by an authorized officer of GRS
to the effect that the conditions set forth in Sections
7.02(b) and 7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section 7.02(d);
(vii) the executed Collateral Agreements to which it is a
party; and
(viii) evidence that: (a) the Stockholders have been released
from all personal guarantees relating to any
obligations of the Company, including but not limited
to, any bank loans, lines of credit, and/or performance
bonds (the "Personal Guarantees and Obligations") and
(b) GRS shall indemnify and hold harmless the
Stockholders from and against any personal liability or
obligations relating to or arising out of any Personal
Guarantees or Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of business
on September 30, 1998 (the "Termination Date"), the Closing has not occurred,
then any party hereto may thereafter terminate this Agreement by written notice
to such effect, to the other parties hereto, without liability of or to any
party to this Agreement or any shareholder, director, officer, employee or
representatives of such party unless the reason for Closing having not occurred
is (i) such party's willful breach of the provisions of this Agreement, or (ii)
if all of the conditions to such party's obligations set forth in Article VII
have been satisfied or waived in writing by the date scheduled for the Closing
pursuant to Section 2.01, the failure of such party to perform its obligations
under this Article II on such date; provided, however, that any termination
pursuant to this Section 2.04 shall not relieve any party hereto who was
responsible for Closing having not occurred as described in clauses (i) or (ii)
above of any liability for (x) such party's willful breach of the provisions of
this Agreement, or (y) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party to
perform its obligations under this Article II on such date. Notwithstanding the
foregoing, the Stockholders expressly acknowledge and agree that market and
economic conditions are impossible to predict, and although GRS intends to
proceed with the Offering in
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an expeditious manner at this time, GRS shall not be liable to the Stockholders
or the Company if the Closing has not occurred because the Offering has not been
consummated prior to the Termination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text of
which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set forth
on Exhibit E hereto, the full text of which is incorporated herein by reference
as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set forth
on Exhibit F hereto, the full text of which is incorporated herein by reference
as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders shall
permit GRS and its authorized employees, agents, accountants, legal counsel and
other representatives, at GRS' own expense, to have access to the books,
records, employees, counsel, accountants, and other representatives of the
Company at all times reasonably requested by GRS for the purpose of conducting
an investigation ("GRS' Due Diligence Investigation") of the Company's financial
condition, corporate status, operations, business and Properties. The
Stockholders shall make available to GRS for examination and reproduction, at
GRS' own expense, all documents and data of every kind and character relating to
the Company in possession or control of, or subject to reasonable access by, the
Stockholders or the Company, including, without limitation, all files, records,
data and information relating to the Company Assets (whether stored in paper,
magnetic or other storage media) and all agreements, instruments, contracts,
assignments, certificates, orders, and amendments thereto. Also, the Company
shall allow GRS, at GRS' own expense, access to, and the right to inspect, the
Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The Stockholders
shall keep GRS advised as to all material operations and proposed material
operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and workmanlike manner, (d) pay or cause to
be paid all costs and expenses (including but not limited to
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insurance premiums) incurred in connection therewith in a timely manner, (e) use
reasonable efforts to keep all Company Contracts listed or required to be listed
on Schedule 3.12 in full force and effect, (f) comply with all of the covenants
contained in all such Company Contracts, (g) maintain in force until the Closing
Date insurance policies (subject to the provisions of Section 6.06) equivalent
to those in effect on the date hereof, and (h) comply in all material respects
with all applicable Legal Requirements. Except as otherwise contemplated in this
Agreement, the Stockholders shall use their best efforts to preserve the present
relationships of the Company with persons having significant business relations
therewith.
Section 6.03 General Restrictions. Except as otherwise expressly permitted
in this Agreement, without the prior written consent of GRS, the Company shall
not:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof, declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of its
capital stock, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
view of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(ii) except as disclosed on Schedule 6.03 (ii), issue,
deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws (or
similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business of any corporation, partnership,
joint venture, association or other business organization or division
thereof or (B) any assets that are material, individually or in the
aggregate, to the Company, except purchases of assets in the ordinary
course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
otherwise dispose of, or agree to sell, transfer, lease, mortgage, encumber
or otherwise dispose of, any Properties except (A) in the ordinary course
of business consistent with past practice, or (B) pursuant to any Company
Contract or except as permitted by Sections 1.05 and 3.02 hereof;
(vi) except as permitted by Section 1.05 hereof, (A) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of the foregoing,
except for borrowings incurred in the ordinary course of business
consistent with past practice, or (B) make any loans, advances or capital
contributions to, or investments in, any other person;
(vii) make or agree to make any new capital expenditure or
expenditures which, individually is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 (other than those required pursuant to
currently outstanding Company Contracts or in the ordinary course of
business consistent with past practice);
(viii) make any material tax election or settle or compromise
any material tax liability;
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(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the Company Financial Statements
(or the notes thereto) or incurred in the ordinary course of business
consistent with past practice, or waive any material benefits of, or agree
to modify in any material respect, any confidentiality, standstill or
similar agreements to which the Company is a party;
(x) except in the ordinary course of business consistent
with past practice, modify, amend or terminate any Company Contract;
(xi) except in the ordinary course of business consistent
with past practice, enter into any contracts, agreements, arrangements or
understandings relating to performance by third parties of the Company's
services;
(xii) except as required to comply with applicable law (A)
adopt, enter into, terminate or amend any benefit plan or other arrangement
for the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except in a
manner consistent with past practice), (C) pay any benefit not provided for
under any benefit plan, (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan
(including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock, or
the removal of existing restrictions in any benefit plans or agreement or
awards made thereunder) or (E) take any action to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take any of,
the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto shall
use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of
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the conditions to such other party's obligation to consummate the transactions
contemplated hereby as specified in Article VII of this Agreement to be fully
satisfied.
Section 6.06 Casualty Loss. If, between the date of this Agreement and the
Closing, any of the Properties of the Company shall be destroyed or damaged in
whole or in part by fire, earthquake, flood, other casualty or any other cause
which materially affects the ability of the Company to conduct its business (a
"Casualty Loss"), then the Stockholders may, if requested by GRS, (i) cause the
Company to cause such Properties to be repaired or replaced prior to the Closing
with Property of substantially the same condition and function, (ii) cause the
Company to deposit in a separate account an amount sufficient to cause such
Property to be so repaired or replaced, or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause the
Company to take) all actions necessary or appropriate to cause each plan or
benefit program or Agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to, (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company, or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreements. On or before the Closing, John Cook
shall have entered into an employment agreement in the form of Exhibits H, (the
"Employment Agreement"), which shall include, non-competition provisions, to
take effect on and after the Closing Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the
Stockholders shall have entered into the Lock-Up Agreement.
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ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to be
made in connection with the transactions contemplated hereby shall have
been made, and all orders, permits, waivers, authorizations, exemptions,
and approvals of such entities required to be in effect on the date of the
Closing in connection with the transactions contemplated hereby shall have
been issued, and all such orders, permits, waivers, authorizations,
exemptions or approvals shall be in full force and effect on the date of
the Closing; provided, however, that no provision of this Agreement shall
be construed as requiring any party to accept, in connection with obtaining
any other requisite approval, clearance or assurance of non-opposition,
avoiding any challenge, or negotiating settlement, any condition that would
materially change or restrict the manner in which the Company or GRS
conducts or proposes to conduct its business, and no transfers of licenses
shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any statute,
rule, regulation, decree, ruling, injunction or other order issued by any
Governmental Authorities of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the
consummation of the transactions contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations of
the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement and each of the Collateral
Agreements.
(b) All representations and warranties of GRS contained in this
Agreement qualified by materiality shall be true and correct in all respects at
Closing and all other representations and warranties of GRS contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing, as if such representations and warranties were made at and as of the
Closing, except for changes contemplated by the terms of this Agreement except
as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms thereof, and GRS shall have performed and satisfied in
all material respects all covenants and agreements required by this Agreement to
be performed and satisfied by GRS at or prior to the Closing; provided, however,
that no Stockholder shall be entitled to refuse to consummate the transaction in
reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Stockholders or the
Company) shall be pending or threatened before any Governmental Authority
seeking to restrain the Stockholders from effectuating the Stock Purchase or
prohibit the Closing or seeking Damages against the Stockholders or the Company
as a result of the consummation of the transactions contemplated by this
Agreement.
(d) The Company shall have received the opinion of Baker &
McKenzie, counsel to GRS, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, as to the matters set forth on Exhibit
I. In rendering such opinion, Baker & McKenzie may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
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(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and the
Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
(h) GRS shall have furnished the Stockholders and the Company with
an Opinion Letter from Deloite & Touche which provides that the consummation of
the transactions described in this Agreement will qualify as a Section 351 Plan
of Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS to
carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered to
GRS.
(b) All representations and warranties of Stockholders and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Stockholders and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of GRS) shall be pending or
threatened before any court or governmental agency seeking to restrain GRS or
prohibit the Closing or seeking Damages against GRS, the Stockholders, the
Company or its Properties as a result of the consummation of the transactions
contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from the
date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations, prospects
or financial condition of the Company that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company
(whether or not covered by insurance) that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company.
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(f) GRS shall have received the opinion of Williams, Williams,
Ruby & Plunkett, P.C., ("Sellers' Counsel") counsel to the Company and the
Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit J. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by reference
to the Closing Unaudited Balance Sheet shall be equal to or greater than the
Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall not be less than
$817,679. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness, determined in accordance with GAAP.
(j) The Stockholders shall have executed and delivered to GRS the
Escrow Agreement.
(k) GRS shall have received the executed Employment Agreements for
John Cook and Ronald Martin.
(l) [Reserved]
(m) GRS shall have received the resignation of all of the members
of the board of directors of the Company effective as of the Closing Date.
(n) All proceedings to be taken by Stockholders and the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to GRS and its counsel, and
GRS and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(o) GRS shall have received written evidence, in form and
substance satisfactory to GRS, of the consent to the transactions contemplated
by this Agreement of all governmental, quasi-governmental and private third
parties (including, without limitation, persons or other entities leasing real
or personal property to the Company), except where the failure to have obtained
any such consent would not have an adverse effect on the Company or GRS
following the Closing.
(p) GRS shall be satisfied in its sole and absolute discretion
with GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(q) GRS shall have determined, in its reasonable discretion, that
all agreements between the Company and the Stockholders shall be on terms as
favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(r) The Offering shall have been consummated on or before the
Termination Date.
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ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company and
the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
knowledge, and the other party or parties (or any of them) are not aware, that
such representation or warranty is untrue or incorrect in any material respect.
All such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
The Basket Exclusions shall survive the Closing indefinitely, other than Section
3.28, which shall survive for the applicable statute of limitations.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to the
limitations contained in Article VIII and Article IX hereof, the Stockholders,
jointly and severally, agree to indemnify, defend and hold harmless GRS (and its
affiliates, successors and assigns and their respective officers and directors)
from and against all losses, liabilities, damages, deficiencies, costs or
expenses (including interest, penalties and reasonable attorneys' fees and
disbursements, but offset by any proceeds from insurance and taking into account
the present value of any tax savings to GRS or the Company resulting from such
losses, liabilities, damages, deficiencies, costs or expenses) ("Losses") based
upon, arising out of or otherwise in respect of (i) any inaccuracy in or any
breach of any representation, warranty, covenant or agreement of the Company or
the Stockholders contained in this Agreement, (ii) liabilities for Taxes
incurred by the Company with respect to actions prior to the Closing Date and
(iii) any liability arising out of any subsequent adjustment by any tax
authorities with respect to items attributable to periods prior to the Closing
Date. .
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim or circumstances
which, with the lapse of time, would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in
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reasonable detail, and shall indicate the amount (estimated, if necessary and to
the extent feasible) of the Loss that has been or may be suffered by the
Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section
9.03(b) to the contrary notwithstanding, in the case of any Asserted Liability
by any supplier, distributor, sales agent or customer of the Company with
respect to the business conducted by the Company prior to the Closing in
connection with which GRS may make a claim against the Stockholders for
indemnification pursuant to Section 9.01, GRS shall give a Claims Notice with
respect thereto but, unless GRS and the Indemnifying Party otherwise agree, the
Stockholders shall have the exclusive right at its option to defend, at their
own expense, any such matter, subject to the duty of the Stockholders to consult
with GRS and its attorneys in connection with such defense and provided that no
such matter shall be compromised or settled by the Stockholders without the
prior consent of GRS, which consent shall not be unreasonably withheld. GRS
shall have the right to recommend in good faith to the Stockholders proposals to
compromise or settle claims brought by a supplier, distributor or customer, and
the Stockholders agree to present such proposed compromises or settlements to
such supplier, distributor or customer. All amounts required to be paid in
connection with any such Asserted Liability pursuant to the determination of any
court, governmental or regulatory body or arbitrator, and all amounts required
to be paid in connection with any such compromise or settlement consented to by
GRS, shall be borne and paid by the Stockholders. The parties agree to cooperate
fully with one another in the defense, compromise or settlement of any Asserted
Liability.
Section 9.04 Limitations on Indemnification. The indemnification provided
for in Sections 9.01 and 9.02 shall be subject to the following limitations:
(i) The Stockholders shall not be obligated to pay any
amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to GRS and specifically waived in writing by GRS prior to
the Closing.
(ii) Neither GRS, the Company nor the Stockholders shall be
obligated to pay any amounts for indemnification under this Article IX, except
those based upon, arising out of or otherwise in respect of Sections 3.02, 3.21,
3.28, 5.22, 5.29, 9.01 (ii) and (iii), 11.01 and 11.02 and Article IV hereof
(the "Basket Exclusions"), until the aggregate indemnification payments,
exclusive of the Basket Exclusions, equals one percent (1%) of the Purchase
Price (the "Basket Amount"), whereupon GRS, or the Company and Stockholders, as
the case may be, shall be obligated to pay any indemnification payments,
including the Basket Amount, in full. It is expressly understood that the Basket
Amount shall serve as a "trigger" for indemnification and not as a "deductible"
(for example, if the indemnity claims for which GRS or the Stockholders would,
but for the provisions of this subparagraph (ii), be liable is in the aggregate
amount of $100,000, and 1% of the Purchase Price is $70,000, the Stockholders
would then be
15
<PAGE> 20
liable for the entire $100,000 and not just $30,000). This Section 9.04(ii) will
not apply to any breach of any representations and warranties of which any party
had actual Knowledge at any time prior to the date on which such representation
and warranty is made or any intentional breach by any party of any covenant or
obligation, and GRS or the Stockholders, as the case may be, will be jointly and
severally liable for all damages with respect to such breaches.
(iii) GRS, the Company and Stockholders shall be obligated to
pay the Basket Exclusions without regard to the individual or aggregate amounts
thereof and without regard to whether the aggregate amount of all other
indemnification payments shall have exceeded, in the aggregate, the Basket
Amount.
(iv) Notwithstanding anything to the contrary in this
Agreement, except with respect to any breach of the representations and
warranties set forth in Article IV hereof, neither GRS nor the Stockholders and
the Company shall have any obligation to indemnify the other parties for any
breach of any representation, warranty or covenant under this Agreement for any
amount of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights set forth
in this Article IX shall be each party's sole and exclusive remedy against the
other party for any breach of any representation, warranty or covenant contained
in this Agreement. Notwithstanding the foregoing, nothing herein shall prevent
any party from bringing an action based upon allegations of fraud in connection
with this Agreement. In the event an action based on allegations of fraud is
brought, the prevailing party's attorneys' fees and costs shall be paid by the
nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses with respect
to accounts receivable reflected on the Closing Date Unaudited Balance Sheet
only if and to the extent that such accounts receivable, except for Contract
Retention, remain uncollected 180 days from the Closing Date. Contract Retention
will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses from the failure to collect accounts
receivable of the Company or Contract Retention and such Losses result in a
set-off from the Escrow Fund, the related accounts receivable or Contract
Retention shall be assigned to the Stockholders following, and the extent of,
such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to Section
9.04 and, paragraphs (b) and (c) of this Section 9.05, any claims for
indemnification by GRS against the Stockholders (or any of them) hereunder shall
be satisfied first against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15) days'
notice (the "GRS Notice") of its intention to deduct or set-off any amounts
pursuant to this Section 9.05, including in such notice a description of GRS'
indemnification claim. If none of the Stockholders object in writing to such
deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment absent fraud.
16
<PAGE> 21
(c) If any of the Stockholders timely object in writing to the
set-off proposed in the GRS Notice, and if GRS and the objecting Stockholder(s)
are unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties, and
the parties shall endeavor jointly to agree on the text of any announcement or
circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each of
the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur, (i)
each Stockholder shall jointly and severally indemnify and hold harmless GRS and
the Company from and against any and all liability for any brokers or finders'
fees arising with respect to brokers or finders retained or engaged by the
Company or any of the Stockholders in respect of the transactions contemplated
by this Agreement, and (ii) GRS shall indemnify and hold harmless the
Stockholders from and against any and all liability for
17
<PAGE> 22
any brokers' or finders' fees arising with respect to brokers or finders
retained or engaged by GRS in respect of the transactions contemplated by this
Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence or
other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
<TABLE>
<S> <C>
GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Mr. Gregg Wallick
Telecopy No.: (954) 946-2583
With a copy to:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE STOCKHOLDERS: George Cook
2140 Industrial Drive
P.O. Box 200
Howell, Michigan 48843
With a copy to:
Williams, Williams, Ruby & Plunkett, P.C.
380 North Old Woodward Avenue
Birmingham, Michigan 48009
Attention: R.J. Williams, Jr.
Telecopy No.: (248) 642-0856
</TABLE>
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, Notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are
18
<PAGE> 23
under the exclusive jurisdiction of the Federal courts shall be brought in the
Federal District Court for the Southern District of Florida. Each party hereto
consents to service of process by any means authorized by the applicable law of
the forum in any action brought under or arising out of this Agreement or any of
the Collateral Agreements, and each party irrevocably waives, to the fullest
extent each may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
Section 11.05 Representations and Warranties. Each of the representations
and warranties of each of the parties to this Agreement shall be deemed to have
been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this Agreement
are cumulative, and the use of any one right or remedy by any party hereto shall
not preclude or constitute a waiver of its right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights and
remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules referred
to herein are attached hereto and incorporated herein by this reference.
Disclosure of a specific item in any one schedule shall be deemed restricted
only to the Section to which such disclosure specifically relates except where
(i) there is an explicit cross-reference to another Schedule, and (ii) GRS could
reasonably be expected to ascertain the scope of the modification to a
representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used in
this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
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<PAGE> 24
Section 11.12 Survival. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing for the
time period set forth in Section 8.01 hereof and shall be binding upon the party
or parties obligated thereby in accordance with the terms of this Agreement,
subject to any limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective meanings
ascribed to such terms in this Article XII, unless otherwise defined in this
Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect to
any person, any other person controlling, controlled by or under common control
with such person. The term "Control" as used in the preceding sentence means,
with respect to a corporation, the right to exercise, directly or indirectly,
more than fifty percent (50%) of the voting rights attributable to the shares of
the controlled corporation and, with respect to any person other than a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements" shall
mean any or all of the following agreements, the forms of which are attached
hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - [Reserved]
Exhibit H - Employment Agreement for John Cook
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean, with
respect to the Company, all of the Properties, Company Contracts, and Permits,
that were Used by the Company as of the Balance Sheet Date and those Used by the
Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall mean
any amounts withheld by customers from contract progress billing until final and
satisfactory contract completion as determined by such customers.
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<PAGE> 25
Section 12.05 Current Assets. The term "Current Assets" shall mean, with
respect to the Company, cash and other assets that are expected to be converted
into cash, sold or exchanged within one year from the Closing Date, including
marketable securities, receivables, inventory and current prepayments .
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
Section 12.07 Damages. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation income and
other Taxes, interest, penalties and attorneys' and accountants' fees and
disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers who are stockholders with respect to
the representation being made, and such knowledge of any such persons as
reasonably should have obtained upon due investigation and inquiry into the
representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
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<PAGE> 26
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all permits or
orders under any Legal Requirement or otherwise granted by any Governmental
Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
Section 12.19 Tax Returns. The term "Tax Returns" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes" shall
mean the deferred tax assets and liabilities required to be recorded under GAAP
to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By:/s/ Gregg Wallick
------------------------------
Gregg Wallick, President
C.E.I. FLORIDA, INC.
By:/s/ Ronald H. Martin
------------------------------
Ronald H. Martin
President
STOCKHOLDERS:
/s/ John C. Cook
------------------------------
John C. Cook
/s/ Ronald H. Martin
------------------------------
Ronald H. Martin
/s/ George J. Cook
------------------------------
George J. Cook
22
<PAGE> 27
<PAGE> 28
<PAGE> 29
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of Company Percentage(%)
Name Common Stock Purchased of Ownership
- ---- --------------------------- -------------
<S> <C> <C>
Ronald H. Martin 75,750 42.858%
George J. Cook 39,020 22.077%
John C. Cook 35,500 20.084%
Kristine L. Cook 5,740 3.247%
Eric C. Cook 5,740 3.247%
Karin S. Cook 5,000 2.829%
George R. Cook 5,000 2.829%
John D. Cook 5,000 2.829%
Total 176,750 100%
</TABLE>
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EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of Florida, and is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been made
available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in any
partnership or joint venture, or own any outstanding capital stock of any other
corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized capital
stock of the Company consists of 10,000 shares of Voting and 250,000 shares of
Non-Voting Company Common Stock. The issued and outstanding shares of Company
Common Stock are owned of record and beneficially by the Stockholders shown on
Exhibit A hereof. All of the presently outstanding shares of capital stock of
the Company have been validly authorized and issued and are fully paid and
nonassessable. The Company has not issued any other shares of its capital stock
and there are no outstanding options, warrants, subscriptions or other rights or
obligations to purchase or acquire any of such shares, nor any outstanding
securities convertible into or exchangeable for such shares, except as set forth
on Schedule 3.02. Except as contemplated under this Agreement, there are no
agreements to which the Company is a party regarding the issuance, registration,
voting or transfer of its outstanding shares of its capital stock. Except for
possible dividends to be issued in connection with the Excluded Assets as
described in Section 1.05 and dividends related to the payment of the
Stockholders' tax liabilities with respect to earnings of the Company up to the
Closing Date, no dividends are accrued but unpaid on any capital stock of the
Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set forth
in Schedule 3.04 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the Articles of Incorporation or bylaws of the Company;
1
<PAGE> 31
(ii) violate any Legal Requirements applicable to the
Company;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Company Contract or
Permit applicable to the Company;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of the Company; or
(v) require any of the Stockholders or the Company to obtain
or make any waiver, consent, action, approval or authorization of, or
registration, declaration, notice or filing with, any private non-governmental
third party or any Governmental Authority. Any and all consents required to be
obtained by the Company as set forth in Schedule 3.04 shall be obtained and
copies thereof delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no suit,
action or other proceeding is pending or, to the Knowledge of the Company or the
Stockholders, threatened before any Governmental Authority seeking to restrain
any of the Stockholders or prohibit their entry into this Agreement or prohibit
the Closing, or seeking damages against the Company or its Properties, as a
result of the consummation of the transactions contemplated by this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true and
correct copies of the Company's (i) Closing Date Unaudited Balance Sheet, (ii)
unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
three months ended March 31, 1998 (the "Interim Company Financial Statements"),
as well as (iii) the Company's balance sheet and statements of income,
stockholders' equity and cash flow as of and for each of the three fiscal years
ended December 31, 1997 (the "Company Financial Statements"). The Company
Financial Statements (i) have been prepared from the books and records of the
Company, (ii) present fairly the financial condition of the Company and its
results of operations as at and for the respective periods then ended, and (iii)
have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in Schedule
3.07, the Company Financial Statements reflect all liabilities of the Company as
determined in accordance with generally accepted accounting principles arising
out of transactions effected or events occurring on or prior to the date of the
Interim Company Balance Sheet, except for liabilities not exceeding $10,000 in
the aggregate. All reserves shown in the Company Financial Statements are
appropriate and reasonable to provide for losses thereby contemplated. Except as
set forth in the Company Financial Statements (including the Notes thereto), the
Company is not liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner, any debt,
obligation or dividend of any person, corporation, association, partnership,
joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in Schedule
3.08, the accounts receivable reflected on the Interim Company Balance Sheet and
all accounts receivable arising between the date of the Interim Company Balance
Sheet (the "Interim Company Balance Sheet Date") and the date hereof, arose from
bona fide transactions in the ordinary course of business, and the goods and
services involved have been sold, delivered and performed to the account of the
obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle the Company to collect the
accounts receivable in full. No such account has been assigned or pledged to any
other person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim Company Balance Sheet, no defense or setoff
to any such account has been asserted by the account obligor.
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Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ending December 31, 1997 and 1996, respectively, and (ii)
any promised increases in compensation of the Company Key Employees that have
not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of all
Compensation Plans sponsored by the Company or to which the Company contributes
on behalf of its employees, other than Employee Benefit Plans listed in Schedule
3.10. As used herein, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 3.09(c) and in Section 3.09(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate list
of all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) To the Knowledge of the Company, except as set forth in
Schedule 3.09(f), the Company (i) has been and is in material compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), (i) the Company has
not ever been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit and
(iii) the employees of the Company have not threatened to organize or join a
union, labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key
Employee has indicated his or her desire or intent to terminate employment with
the Company, and the Company has no present intent of terminating the employment
of any Company Key Employee.
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Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency. No prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code")) have occurred with respect to any Employee Benefit
Plan. No pending or, to the Knowledge of the Company, threatened, claims, suits
or other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of the
Company, have been threatened that could result in the revocation of any such
favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) The Company has no obligation or commitment to provide
medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in Schedule
3.11, from the Interim Company Balance Sheet Date to the date of this Agreement,
the Company has not:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of the Company, or any Stockholder, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
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(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities, except in the ordinary course of business consistent with
past practice;
(d) incurred or discharged any liabilities or obligations except
in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any Company
Assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business consistent with past practice or as permitted by
Section 1.05 hereof;
(i) written up or written down the carrying value of any of the
Company Assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of the Company's capital stock;
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(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which the
Company is a party (the "Company Contracts") set forth in Schedule 3.12, the
Company has not entered into, nor is the capital stock, the assets or the
business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in
the ordinary course of business;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
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(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.23 hereof; or
(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not received
notice of any plan or intention of any other party to any Company Contract to
exercise any right to cancel or terminate any Company Contract. The Company does
not currently contemplate, and has no reason to believe any person or entity
currently contemplates, any amendment or change to any Company Contract. None of
the customers, joint venture partners or suppliers of the Company has refused,
or communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will maintain
through the Closing Date, comprehensive insurance coverage with respect to all
of its completed operations. The Company has previously made available to GRS
all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) Except for the trademarked logo "CEI", with double underlining
trades over and under the capitalized letters, which is owned by CEI Industries,
Inc., the Company owns all patents, trade-marks, service marks and copyrights
(collectively "Proprietary Rights"), if any, necessary to conduct its business,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Schedule 3.14(a) is a true and
correct description of all Proprietary Rights.
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(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Stock Purchase, GRS will have the
right to use all Proprietary Rights without any obligation to pay any additional
amounts whatsoever. Use of the Proprietary Rights does not require the consent
of any other person and the Proprietary Rights are freely transferable. No claim
has been asserted by any person to the ownership of or right to use any
Proprietary Right or challenging or questioning the validity or effectiveness of
any license or agreement constituting a part of any Proprietary Right. Each of
the Proprietary Rights is valid and subsisting, has not been canceled, abandoned
or otherwise terminated and, if applicable, has been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by the
Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has good
and marketable title to the Company Assets, including, without limitation, those
reflected on the Interim Company Balance Sheet (other than those since disposed
of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and total
lease payments is attached hereto as Schedule 3.15(c). The Company enjoys
peaceful and undisturbed possession under all real property leases under which
the Company is operating, and all such leases are valid and subsisting and none
of them is in default, except for those defaults which, individually or in the
aggregate, would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its properties and to conduct its businesses as presently conducted. The
business and operations of the Company have been and are being conducted in
accordance in all material respects with all applicable laws, rules and
regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in Schedule
3.17, there are no claims, actions, suits, investigations or proceedings against
the Company pending or, to the Knowledge of the Company, threatened in any court
or before or by any Governmental Authority, or before any arbitrator, that could
reasonably be expected to have a material adverse effect (whether covered by
insurance or not) on the business, operations, prospects, Properties, securities
or financial condition of the Company. Except as otherwise set forth in Schedule
3.17, the Company is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any
Company Contract or any Legal Requirement or Permit applicable to the Company,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any Company Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the
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business, operations, prospects, Properties, securities or financial condition
(a "Material Adverse Effect") of the Company.
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of the
Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which Company Business is or was, or, to knowledge of the Company, at which the
business of its predecessors was, located which would have a Material Adverse
Effect on the Company. With respect to underground storage tanks, Schedule
3.18(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of the
Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of the Company, threat of a "release" of any Hazardous Substance
on, from or under any premises from which (i) the Company's operations have been
or are being conducted related to the Company Business. or (ii) to the Knowledge
of the Company, the operations of any predecessor of the Company which would
have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the Company's
and, to the Knowledge of the Company, its predecessor's, Hazardous Substances
disposal and recycling practices related to the Company Business have been
accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall not
be interpreted to imply that GRS has constructive knowledge regarding any aspect
of the Company Business with respect to environmental matters nor to limit the
scope of any of the Company's or any Stockholders' representations under this
Agreement. No such due diligence examination or related activities of, or on
behalf of, GRS however, shall constitute a waiver or relinquishment by GRS of
its right to rely upon the Company's or any Stockholders' representations,
warranties, covenants and agreements as made herein or pursuant hereto, and no
such disclosure shall constitute an assumption by GRS of any conditions or
liabilities, and such disclosure shall not relieve the Company or any
Stockholder of its duties and obligations hereunder.
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Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or safe deposit box or vault, (ii)
the names of all persons authorized to draw thereon or to have access to any
safe deposit box or vault, (iii) the purpose of each such account, safe deposit
box or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of the Company in matters
concerning any of its business or affairs. Except as otherwise set forth in
Schedule 3.19, no such proxies, powers of attorney or other like instruments are
irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth all
the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve month period
ended December 31, 1997 and the three month period ended March 31, 1998, as well
as each of the principal customers of the Company. Except as otherwise set forth
in Schedule 3.20, since December 31, 1997, there has been no material adverse
change in the business relationship of the Company with any supplier or customer
named in Schedule 3.20. No customer or supplier named in Schedule 3.20 has
terminated or materially altered, or notified the Company of any intention to
terminate or materially alter, its relationship with the Company, and the
Company has no reason to believe that any such customer or supplier will
terminate or materially alter its relationship with the Company or to materially
decrease its services or supplies to the Company or its direct or indirect usage
of the services of the Company. For purposes of Sections 3.20 and 3.23,
"material suppliers" refers to suppliers from whom the Company purchased five
percent (5%) or more of the total amount of the goods purchased by the Company
during the twelve month period ended December 31, 1997 and the three month
period ended March 31, 1998, and "principal customers" refers to customers who
accounted for 5% or more of the Company's total revenues during the twelve month
period ended December 31, 1997 and the three month period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by the Company or the Stockholders to GRS or its counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set forth
in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. Except as provided in Schedule
3.24, no director or executive officer of the Company owns directly or
indirectly any material interest or has any investment equal to 5% or more of
the outstanding voting securities in any corporation, business or other person
that is a direct competitor of the Company.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate
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(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 3.26 Government Inquiries. Except as set forth on Schedule 3.26,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any Stockholder
has entered into any agreements or arrangements and there are no pending offers
or discussions concerning or providing for the merger or consolidation of the
Company or all or any substantial portion of its assets, the sale by the Company
or any Stockholder of any securities of the Company or any similar transaction
affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income Tax
Returns, and all other material Tax Returns which it is required to file under
applicable laws and regulations;
(ii) all such Tax Returns are true and accurate in all
material respects;
(iii) has paid all Taxes due and owing by it (whether or not
such Taxes are required to be shown on a Tax Return) and has withheld and paid
over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Closing Date Unaudited
Balance Sheet is sufficient to pay in full all liabilities for Taxes of the
Company related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company have been
filed through the date hereof, and, as of the date hereof, none of such Tax
Returns has been audited; and
(vi) the Company has been a validly existing S corporation
within the meaning of Sections 1361 and 1362 of the Code at all times since
January 1, 1995, and will continue to be an S corporation up to and including
the date immediately preceding the Closing Date; and
(vii) the Company has disclosed in its federal income Tax
Returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC Section 6662.
(b) To the Knowledge of the Company, no claim has been made by a
taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local Tax audits
or administrative or judicial proceedings pending or being conducted with
respect to the Company;
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(ii) no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by the
Company from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning the
Company's Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company, except where such waiver would not have a material adverse
effect on the Company.
(e) The Company has not executed or entered into a closing
agreement pursuant to IRC Section 7121 or any predecessor provision thereof or
any similar provision of state, local or foreign law; nor has the Company agreed
to or is required to make any adjustments pursuant to IRC Section 481(a) or any
similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company. The Company has no knowledge that
the IRS has proposed any such adjustment or change in accounting method, or has
any knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC Section 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(I) The Company has not made any payments nor is it obligated to
make payments nor is it a party to an agreement that could obligate it to make
any payments that would not be deductible under IRC Section 280G.
(j) The Company shall prepare or cause to be prepared and file or
cause to be filed all federal and state income Tax Returns for the Company for
tax periods ending on or prior to the Closing Date which are filed after the
Closing Date. The Company shall permit GRS to review and comment on each such
Tax Return described in the preceding sentence prior to filing. To the extent
permitted by applicable law, the Stockholders shall include any income, gain,
loss, deduction or other tax items for such period on their individual income
Tax Returns in a manner consistent with the Schedule K-1s furnished by the
Company to the Stockholders for such period.
(k) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including New York City Transfer Tax, if
applicable, and any similar Tax imposed in other states and subdivisions), shall
be paid by the Stockholders when due, and the Stockholders will, at their
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, GRS will, and will
cause its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such Stockholder
shall own beneficially and of record, free and clear of any lien, option or
other encumbrance, the shares of Company Common Stock set forth opposite such
Stockholders' name on Exhibit A hereof, and, upon consummation of the Stock
Purchase, GRS will acquire good and valid title thereto, free and clear of any
lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such Stockholder
has the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement and to perform fully such
Stockholders' obligations hereunder. This Agreement has been duly executed and
delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common Stock
to be issued to it pursuant to the Stock Purchase (the "GRS Shares") for its own
account and not on behalf of any other person; such Stockholder is aware and
acknowledges that the GRS Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be offered or sold
unless the GRS Shares are registered under the Securities Act or an exemption
from the registration requirements of the Securities Act is available;
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(b) Such Stockholder has been furnished all information that it
deems necessary to enable it to evaluate the merits and risks of an investment
in GRS; such Stockholder has had a reasonable opportunity to ask questions of
and receive answers from GRS concerning GRS and the GRS Shares, and all such
questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i) any
rights in and to the GRS Shares, which rights were obtained through or from such
Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in financial
and business matters (including knowledge and expertise in the roofing industry)
that it is capable of evaluating the merits and risks involved in an investment
in the GRS Shares: and such Stockholder is financially able to bear the economic
risk of the investment in the GRS Shares, including a total loss of such
investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS
Shares is an investment involving a risk of loss and that there is no guarantee
that such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal or
state agency has made any finding of determination regarding the fairness of the
offering of the GRS Shares for investment, or any recommendation or endorsement
of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for investment,
with no present intention of dividing or allowing others to participate in such
investment or of reselling, or otherwise participating, directly or indirectly,
in a distribution of the GRS Shares, and shall not make any sale, transfer or
pledge thereof without registration under the Securities Act and any applicable
securities laws of any state or unless an exemption from registration is
available;
(i) Except as set forth herein, no representations or warranties
have been made to such Stockholder by GRS or any agent, employee or Affiliate of
GRS, and in entering into this transaction such Stockholder is not relying upon
any information, other than from the results of independent investigation by
such Stockholder;
(j) Such Stockholder understands that the GRS Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that GRS is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of the
GRS Shares except (i) pursuant to an effective registration statement under the
Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS, Sellers' Counsel or other counsel reasonably satisfactory to
GRS, is not required to be registered under the Securities Act.
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EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate Documents.
(a) GRS is a corporation duly organized, validly existing and in
good standing under the laws of Florida, and is not required to be qualified to
do business as a foreign corporation in any other jurisdiction where the failure
to so qualify would have a material adverse effect on GRS. GRS has all required
corporate power and authority to own its properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of GRS, copies
of which are attached as Schedule 5.01(a), are complete and reflect all
amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made
available to the Stockholder for review contain a complete and accurate record
of all stockholders of GRS, and all material actions of the stockholders and
directors (and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized
capital stock of GRS consists of 100,000,000 shares of which 90,000,000 have
been designated as GRS Common Stock and 10,000,000 have been designated as
Preferred Stock. All of the presently outstanding shares of capital stock of GRS
have been validly authorized and issued and are fully paid and nonassessable.
Except as set forth on Schedule 5.03, GRS has not issued any other shares of its
capital stock and there are no outstanding options, warrants, subscriptions or
other rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights
affecting the issuance or sale of the capital stock of GRS.
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Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth
in Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to GRS;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to GRS;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver, consent,
action, approval or authorization of, or registration, declaration, notice or
filing with, any private non-governmental third party or any Governmental
Authority. Any and all consents required to be obtained by GRS as set forth in
Schedule 5.05 shall be obtained and copies thereof delivered to the Company and
the Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no suit,
action or other proceeding is pending or, to the Knowledge of GRS, threatened
before any Governmental Authority seeking to restrain GRS or prohibit its entry
into this Agreement or prohibit the Closing, or seeking damages against GRS or
its Properties, as a result of the consummation of the transaction contemplated
by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in Schedule
5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS Balance
Sheets") and the related statements of income, stockholders' equity and cash
flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in Schedule
5.09, the accounts receivable reflected on the GRS Balance Sheet and all
accounts receivable arising between December 31, 1997 and the date hereof, arose
from bona fide transactions in the ordinary course of business, and the goods
and services involved have been sold, delivered and performed to the account of
the obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle GRS to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim GRS Balance Sheet, no defense or setoff to
any such account has been asserted by the account obligor.
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Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of GRS, regardless of
compensation levels, and other employees who are currently compensated at a rate
in excess of $50,000 per year (including any reasonably anticipated bonus) or
who earned in excess of $50,000 during GRS' fiscal year ended October 31, 1996
(collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a) contains
a complete and accurate description of (i) all increases in compensation of the
GRS Key Employees during the fiscal years of GRS ending October 31, 1997 and
October 31, 1996, respectively, and (ii) any promised increases in compensation
of the GRS Key Employees of GRS that have not yet been effected.
(b) Schedule 5.10(b) contains a complete and accurate list of all
Compensation Plans sponsored by GRS or to which GRS contributes on behalf of its
employees, other than Employee Benefit Plans listed in Schedule 5.11. As used in
this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 5.10(c) and in Section 5.10(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a
complete and accurate list of all significant written employee policies and
procedures.
(e) To the Knowledge of GRS, no unwritten material amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans, Employment Agreements or employee policies
and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule
5.10(f), GRS (i) has been and are in material compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any union,
labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key Employee
has indicated his or her desire or intent to terminate employment with GRS, and
GRS has no present intent of terminating the employment of any GRS Key Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
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Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment exists
with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on GRS. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of GRS, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) GRS has received a favorable determination letter or ruling
from the Internal Revenue Service for each Employee Benefit Plan intended to be
qualified within the meaning of Section 401 (a) of the Code and/or tax exempt
within the meaning of Section 501(a) of the Code, which letter or ruling is
current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) GRS has no obligation or commitment to provide medical, dental
or life insurance benefits to or on behalf of any of its employees who may
retire or any of its former employees who have retired from employment with GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in Schedule
5.12, from the date of the GRS Balance Sheet to the date of this Agreement, GRS
has not:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of GRS or any stockholder of GRS, in its
condition (financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $25,000 or paid any capital expenditures in excess of $25,000,
except in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities, except in the ordinary course of business consistent with
past practice;
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(d) incurred or discharged any liabilities or obligations except
in the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of its
assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the
ordinary course of business consistent with past practice;
(i) written up or written down the carrying value of any of its
assets, except in the ordinary course of business consistent with past practice;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or its assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights paid any dividends or made
any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business consistent with
past practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
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Section 5.13 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which GRS is a
party (the "GRS Contracts") set forth in Schedule 5.13, GRS has not entered
into, nor is the capital stock, the assets or the business of GRS bound by,
whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in
the ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of GRS;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $25,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either
an unperformed commitment in excess of $5,000 or that terminates more than
thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 5.24 hereof; or
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(xvii) any other agreement or commitment not made in the
ordinary course of business that is material to the business or financial
condition of GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice of
any plan or intention of any other party to any GRS Contract to exercise any
right to cancel or terminate any GRS Contract. GRS does not currently
contemplate, and has no reason to believe any person or entity currently
contemplates, any amendment or change to any GRS Contract. None of the
customers, joint venture partners or suppliers of GRS has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available to
the Stockholders all insurance policies of GRS. All of such policies are valid
and enforceable against GRS, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 5.15(a) is a
true and correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the Proprietary
Rights without infringing or violating the rights of any third parties. Use of
the Proprietary Rights does not require the consent of any other person and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or right to use any Proprietary Right or challenging
or questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right. Each of the Proprietary Rights is
valid and subsisting, has not been canceled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by GRS
is set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the
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<PAGE> 51
ordinary course of business), free and clear of all security interests, liens,
charges and other encumbrances, except for (i) liens for taxes not yet due and
payable or being contested in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of its businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and total
lease payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful and
undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in Schedule
5.18, there are no claims, actions, suits, investigations or proceedings against
GRS pending or, to the Knowledge of GRS, threatened in any court or before or by
any Governmental Authority, or before any arbitrator, that could reasonably be
expected to have a material adverse effect (whether covered by insurance or not)
on the business, operations, prospects, Properties, securities or financial
condition of GRS. Except as otherwise set forth in Schedule 5.18, GRS is not in
default under, and no condition exists (whether covered by insurance or not)
that with or without notice or lapse of time or both would (i) constitute a
default under, or breach or violation of, any Legal Requirement or Permit
applicable to GRS or any GRS Contract applicable to GRS, or (ii) accelerate or
permit the acceleration of the performance required under, or give any other
party the right to terminate, any GRS Contract, other than defaults, breaches,
violations or accelerations that would not have a material adverse effect on the
business, operations, prospects, Properties, securities or financial condition
of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of GRS,
there are no PCBs, TCE, PCE, or asbestos containing materials generated, used,
treated, stored, maintained, disposed of, or otherwise deposited in, or located
on any premises at which GRS' business (the "GRS Business") is or was, or at
which the business or, to the Knowledge of GRS, its predecessors was, located,
which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which the GRS Business is or was, or, to knowledge of GRS, at which the business
of its predecessors was, located, which would have a Material Adverse Effect on
GRS. With respect to underground storage tanks, Schedule 5.19(b) sets forth the
size, location, construction, installation date, use and testing history of all
underground storage tanks (whether or not excluded from regulation under
Environmental Law), including all underground storage tanks in use, out of
service, closed, abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of GRS,
there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the best
knowledge of GRS, threat of a "release" of
8
<PAGE> 52
any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor their
respective predecessors have received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and, to
the Knowledge of GRS, their respective predecessor's, Hazardous Substances
disposal and recycling practices related to the GRS Business have been
accomplished in material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth all of
GRS' material suppliers, together with the dollar amount of goods purchased by
GRS from each such supplier during the twelve month period ended December 31,
1997 and the four month period ended April 30, 1998, as well as each of the
principal customers of GRS. Except as otherwise set forth in Schedule 5.21,
since December 31, 1997, there has been no material adverse change in the
business relationship of GRS with any supplier or customer named in Schedule
5.21. No customer or supplier named in Schedule 5.21 has terminated or
materially altered, or notified GRS of any intention to terminate or materially
alter, its relationship with GRS and GRS has no reason to believe that any such
customer or supplier will terminate or materially alter its relationship with
GRS or to materially decrease its services or supplies to GRS or its direct or
indirect usage of the services or products of GRS. For purposes of Sections 5.21
and 5.24 hereof "material suppliers" refers to suppliers from whom GRS purchased
five percent (5%) or more of the total amount of the goods purchased by GRS
during the twelve month period ended December 31, 1997 and the four month period
ended April 30, 1998, and "principal customers" refers to customers who
9
<PAGE> 53
accounted for 5% or more of GRS' revenues during the twelve month period ended
December 31, 1997 and the four month period ended April 30, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by GRS to the Stockholders or their counsel, do not contain any untrue
statement of material fact or omit any material fact necessary in order to make
the statements therein not misleading; provided, however, certain materials
provided to the Stockholders contain projections and estimates of future events,
and such projections and estimates have been based upon certain assumptions that
management of GRS made in good faith and believed are reasonable at the time
such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set forth
in Schedule 5.24, no director or executive officer of GRS or their respective
spouses or children, owns directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
principal customer or material supplier which has a business relationship with
GRS or any organization that has a material contract or arrangement with GRS.
Section 5.25 Investments in Competitors. No director or executive officer
of GRS owns directly or indirectly any material interests or has any investment
equal to 5% or more of the outstanding voting securities in any corporation,
business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer or
employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule 5.27,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and all other
material Tax Returns which it is required to file under applicable laws and
regulations;
(ii) all such Tax Returns are true and accurate in all
material respects;
(iii) has paid all Taxes due and owing by it (whether or not
such Taxes are required to be shown on a Tax Return) and has withheld and paid
over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
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<PAGE> 54
(iv) the accrual for Taxes on the Unaudited GRS Balance Sheet
(excluding any amount recorded which is attributable to timing differences
between book and Tax income) would be adequate to pay all material Tax
liabilities of GRS if its current tax year were treated as ending on the date of
the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been filed
through the date hereof, and, as of the date hereof, none of such Tax Returns
has been audited.
(b) To the Knowledge of GRS, no claim has been made by a taxing
authority in a jurisdiction where GRS does not file Tax Returns that GRS is or
may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local tax audits
or administrative or judicial proceedings pending or being conducted with
respect to GRS;
(ii) no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by GRS
from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning GRS'
Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to GRS in connection with any Tax Returns covering GRS,
except where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement
pursuant to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC Section 481(a) or any similar provision
of state, local or foreign law by reason of a change in accounting method
initiated by GRS. GRS has no knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any knowledge with respect to
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC Section 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC Section 280G.
Section 5.29 Participation in Secondary Offering. In the event that after
the Offering GRS files a registration statement with the Securities and Exchange
Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Gregg Wallick shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Mr. Wallick is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such
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<PAGE> 55
number of shares of GRS Common Stock owned by the Stockholders as shall equal
(i)(A) the total number of shares of GRS Common Stock owned by such Stockholders
divided by (B) the total number of shares of GRS Common Stock owned by all
shareholders of the Founding Companies, multiplied by (ii) the total number of
shares of GRS Common Stock owned by shareholders of the Company which are to be
included in the Secondary Offering.
12
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
GENERAL ROOFING SERVICES, INC.
(A FLORIDA CORPORATION)
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
ARTICLE ONE - OFFICES
Section 1. Principal Office............................................................................1
Section 2. Other Offices...............................................................................1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS
Section 1. Place ......................................................................................1
Section 2. Time of Annual Meeting......................................................................1
Section 3. Call of Special Meetings....................................................................1
Section 4. Conduct of Meetings.........................................................................1
Section 5. Notice and Waiver of Notice.................................................................1
Section 6. Business and Nominations for Annual and Special Meetings....................................2
Section 7. Quorum......................................................................................2
Section 8. Voting Rights Per Share.....................................................................2
Section 9. Voting of Shares............................................................................2
Section 10. Proxies.....................................................................................3
Section 11. Shareholder List............................................................................3
Section 12. Action Without Meeting......................................................................3
Section 13. Fixing Record Date..........................................................................4
Section 14. Inspectors and Judges.......................................................................4
Section 15. Voting for Directors........................................................................4
ARTICLE THREE - DIRECTORS
Section 1. Number; Term; Election; Qualification.......................................................4
Section 2. Resignation; Vacancies; Removal.............................................................4
Section 3. Powers......................................................................................5
Section 4. Place of Meetings...........................................................................5
Section 5. Annual Meetings.............................................................................5
Section 6. Regular Meetings............................................................................5
Section 7. Special Meetings and Notice.................................................................5
Section 8. Quorum and Required Vote....................................................................5
Section 9. Action Without Meeting......................................................................5
Section 10. Conference Telephone or Similar Communications Equipment Meetings...........................5
Section 11. Committees..................................................................................6
Section 12. Compensation of Directors...................................................................6
ARTICLE FOUR - OFFICERS
Section 1. Positions...................................................................................6
Section 2. Election of Specified Officers by Board.....................................................6
Section 3. Election or Appointment of Other Officers...................................................6
Section 4. Compensation................................................................................6
Section 5. Term; Resignation; Removal; Vacancies.......................................................7
Section 6. Chairman of the Board.......................................................................7
Section 7. Chief Executive Officer.....................................................................7
Section 8. President...................................................................................7
Section 9. Vice Presidents.............................................................................7
Section 10. Secretary...................................................................................7
Section 11. Chief Financial Officer.....................................................................8
Section 12. Treasurer...................................................................................8
Section 13. Other Officers; Employees and Agents........................................................8
ARTICLE FIVE - CERTIFICATES FOR SHARES
Section 1. Issue of Certificates.......................................................................8
Section 2. Legends for Preferences and Restrictions on Transfer........................................8
Section 3. Facsimile Signatures........................................................................9
Section 4. Lost Certificates...........................................................................9
Section 5. Transfer of Shares..........................................................................9
Section 6. Registered Shareholders.....................................................................9
Section 7. Redemption of Control Shares................................................................9
ARTICLE SIX - GENERAL PROVISIONS
Section 1. Dividends...................................................................................9
Section 2. Reserves...................................................................................10
Section 3. Checks.....................................................................................10
Section 4. Fiscal Year................................................................................10
Section 5. Seal.......................................................................................10
Section 6. Gender.....................................................................................10
ARTICLE SEVEN - AMENDMENT OF BYLAWS..............................................................................10
</TABLE>
i
<PAGE> 3
BYLAWS
OF
GENERAL ROOFING SERVICES, INC.
ARTICLE ONE
OFFICES
Section 1. Principal Office. The principal office of General Roofing
Services, Inc., a Florida corporation (the "Corporation"), shall be located at
951 South Andrews Avenue, Pompano Beach, Florida 33069, unless otherwise
determined by the Board of Directors of the Corporation (the "Board of
Directors") in accordance with applicable law.
Section 2. Other Offices. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1. Place. All annual meetings of shareholders shall be held at such
place, within or without the State of Florida, as may be designated by the Board
of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Time of Annual Meeting. Annual meetings of shareholders shall be
held on such date and at such time fixed, from time to time, by the Board of
Directors, provided, that there shall be an annual meeting held every calendar
year at which the shareholders shall elect a board of directors and transact
such other business as may properly be brought before the meeting.
Section 3. Call of Special Meetings. Special meetings of the shareholders
shall be held if called in accordance with the procedures set forth in the
Corporation's Articles of Incorporation (the "Articles of Incorporation") for
the call of a special meeting of shareholders.
Section 4. Conduct of Meetings. The Chairman of the Board of Directors (or
in his absence, the President, or in his absence, such other designee of the
Chairman of the Board of Directors) shall preside at the annual and special
meetings of shareholders and shall be given full discretion in establishing the
rules and procedures to be followed in conducting the meetings, except as
otherwise provided by law or in these Bylaws.
Section 5. Notice and Waiver of Notice. Except as otherwise provided by
law, written or printed notice stating the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either personally or by first-class
mail or other legally sufficient means, by or at the direction of the Chairman
of the Board, President, or the persons calling the meeting, to each shareholder
of record entitled to vote at such meeting. If the notice is mailed at least
thirty (30) days before the date of the meeting, it may be done by a class of
United States mail other than first class. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at the address appearing on the stock transfer books of the
Corporation, with postage
<PAGE> 4
thereon prepaid. If a meeting is adjourned to another time and/or place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the Board
of Directors, after adjournment, fixes a new record date for the adjourned
meeting. Whenever any notice is required to be given to any shareholder, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether signed before, during or after the time of the meeting stated
therein, and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records, shall constitute an effective waiver of such notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the shareholders need be specified in any written waiver of
notice. Attendance of a person at a meeting shall constitute a waiver of (a)
lack of or defective notice of such meeting, unless the person objects at the
beginning to the holding of the meeting or the transacting of any business at
the meeting, or (b) lack of or defective notice of a particular matter at a
meeting that is not within the purpose or purposes described in the meeting
notice, unless the person objects to considering such matter when it is
presented.
Section 6. Business and Nominations for Annual and Special Meetings.
Business transacted at any special meeting shall be confined to the purposes
stated in the notice thereof. At any annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting in accordance with the requirements and procedures set forth in the
Articles of Incorporation. Only such persons who are nominated for election as
directors of the Corporation in accordance with the requirements and procedures
set forth in the Articles of Incorporation shall be eligible for election as
directors of the Corporation.
Section 7. Quorum. Shares entitled to vote as a separate voting group may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or applicable law, shares representing a majority of the votes
pertaining to outstanding shares which are entitled to be cast on the matter by
the voting group constitute a quorum of that voting group for action on that
matter. If less than a quorum of shares are represented at a meeting, the
holders of a majority of the shares so represented may adjourn the meeting from
time to time. After a quorum has been established at any shareholders' meeting,
the subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Section 8. Voting Rights Per Share. Each outstanding share, regardless of
class, shall be entitled to vote on each matter submitted to a vote at a meeting
of shareholders, except to the extent that the voting rights of the shares of
any class are limited or denied by or pursuant to the Articles of Incorporation
or the Florida Business Corporation Act.
Section 9. Voting of Shares. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an
administrator, executor, guardian, personal representative, or conservator may
be voted by such person, either in person or by proxy, without a transfer of
such shares into his name. Shares standing in the name of a trustee may be voted
by such person, either in person or by proxy, but no trustee shall be entitled
to vote shares held by such person without a transfer of such shares into his
name or the name of his nominee. Shares held by or under the control of a
receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of
creditors may be voted by such person without the transfer thereof into his
name. If shares stand of record in the names of two or more persons,
2
<PAGE> 5
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or if two or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary of the
Corporation is given notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, then acts with respect to voting shall have the following effect:
(a) if only one votes, in person or by proxy, his act binds all; (b) if more
than one vote, in person or by proxy, the act of the majority so voting binds
all; (c) if more than one vote, in person or by proxy, but the vote is evenly
split on any particular matter, each faction is entitled to vote the share or
shares in question proportionally; or (d) if the instrument or order so filed
shows that any such tenancy is held in unequal interest, a majority or a vote
evenly split for purposes hereof shall be a majority or a vote evenly split in
interest. The principles of this paragraph shall apply, insofar as possible, to
execution of proxies, waivers, consents, or objections and for the purpose of
ascertaining the presence of a quorum.
Section 10. Proxies. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
such person by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation (the "Secretary") or such other officer or agent which is
authorized to tabulate votes, and shall be valid for up to 11 months, unless a
longer period is expressly provided in the appointment form. The death or
incapacity of the shareholder appointing a proxy does not affect the right of
the Corporation to accept the proxy's authority unless notice of the death or
incapacity is received by the Secretary or other officer or agent authorized to
tabulate votes before the proxy authority under the appointment is exercised. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
Section 11. Shareholder List. After fixing a record date for a meeting of
shareholders, the Corporation shall prepare an alphabetical list of the names of
all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or such person's agent or attorney is entitled on written demand to
inspect the shareholders' list (subject to the requirements of law), during
regular business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or agent or attorney of such
shareholder is entitled to inspect the list at any time during the meeting or
any adjournment. The shareholders' list is prima facie evidence of the identity
of shareholders entitled to examine the shareholders' list or to vote at a
meeting of shareholders.
Section 12. Action Without Meeting. Any action required or permitted by law
to be taken at a meeting of shareholders may be taken without a meeting or
notice if a consent, or consents, in writing, setting forth the action so taken,
shall be dated and signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all voting groups and shares entitled to vote
thereon were present and voted with respect to the subject matter thereof, and
such consent shall be delivered to the Corporation, within the period required
by Section 607.0704 of the Florida Business Corporation Act, by delivery to its
principal office in the State of Florida, its principal place of business, the
Secretary or another officer or agent of the Corporation having custody of the
book in which proceedings of meetings of shareholders are recorded. Within ten
(10) days after obtaining such authorization by written consent, notice must be
given to those shareholders who have not consented in writing or who are not
entitled to vote on the action, in accordance with the requirements of Section
607.0704 of the Florida Business Corporation Act.
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<PAGE> 6
Section 13. Fixing Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purposes, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days, and, in case of a meeting of shareholders, not less than ten (10)
days, before the meeting or action requiring such determination of shareholders.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders or the determination of
shareholders entitled to receive payment of a dividend, the date before the day
on which the first notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof, except where the Board of Directors fixes a
new record date for the adjourned meeting.
Section 14. Inspectors and Judges. The Board of Directors in advance of any
meeting may, but need not, appoint one or more inspectors of election or judges
of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If any inspector or inspectors, or judge or judges, are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by the Board of
Directors in advance of the meeting, or at the meeting by the person presiding
thereat. The inspectors or judges, if any, shall determine the number of shares
of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. Voting for Directors. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
ARTICLE THREE
DIRECTORS
Section 1. Number; Term; Election; Qualification. The number of directors
of the Corporation shall be fixed from time to time, within the limits
specified by the Articles of Incorporation, by resolution of the Board of
Directors. Directors shall be elected in the manner and hold office for the
term as prescribed in the Articles of Incorporation. Directors must be natural
persons who are 18 years of age or older but need not be residents of the State
of Florida, shareholders of the Corporation or citizens of the United States.
Section 2. Resignation; Vacancies; Removal. A director may resign at any
time by giving written notice to the Board of Directors or the Chairman of the
Board. Such resignation shall take effect at the date of receipt of such notice
or at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
In the event the notice of resignation specifies a later effective date, the
Board of Directors may fill the pending vacancy (subject to the provisions of
the Articles of Incorporation) before the effective date if they provide that
the successor does not take office until the effective date. Director vacancies
shall be filled, and directors may be removed, in the manner prescribed in the
Corporation's Articles of Incorporation.
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<PAGE> 7
Section 3. Powers. The business and affairs of the Corporation shall be
managed by the Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised and done by the shareholders.
Section 4. Place of Meetings. Meetings of the Board of Directors, regular
or special, may be held either within or without the State of Florida.
Section 5. Annual Meetings. Unless scheduled for another time by the Board
of Directors, the first meeting of each newly elected Board of Directors shall
be held, without call or notice, immediately following each annual meeting of
shareholders.
Section 6. Regular Meetings. Regular meetings of the Board of Directors may
also be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
Section 7. Special Meetings and Notice. Special meetings of the Board of
Directors may be called by the President or Chairman of the Board and shall be
called by the Secretary on the written request of any two directors. At least
forty-eight (48) hours' prior written notice of the date, time and place of
special meetings of the Board of Directors shall be given to each director.
Except as required by law, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Notices to
directors shall be in writing and delivered to the directors at their addresses
appearing on the books of the Corporation by personal delivery, mail or other
legally sufficient means. Subject to the provisions of the preceding sentence,
notice to directors may also be given by telegram, teletype or other form of
electronic communication. Notice by mail shall be deemed to be given at the time
when the same shall be received. Whenever any notice is required to be given to
any director, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before, during or after the meeting, shall
constitute an effective waiver of such notice. Attendance of a director at a
meeting shall constitute a waiver of notice of such meeting and a waiver of any
and all objections to the place of the meeting, the time of the meeting and the
manner in which it has been called or convened, except when a director states,
at the beginning of the meeting or promptly upon arrival at the meeting, any
objection to the transaction of business because the meeting is not lawfully
called or convened.
Section 8. Quorum and Required Vote. A majority of the prescribed number of
directors determined as provided in the Articles of Incorporation shall
constitute a quorum for the transaction of business and the act of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless a greater number is required by the
Articles of Incorporation. Whenever, for any reason, a vacancy occurs in the
Board of Directors, a quorum shall consist of a majority of the remaining
directors until the vacancy has been filled. If a quorum shall not be present at
any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn the meeting to another time and place, without notice other
than announcement at the time of adjournment. At such adjourned meeting at which
a quorum shall be present, any business may be transacted that might have been
transacted at the meeting as originally notified and called.
Section 9. Action Without Meeting. Any action required or permitted to be
taken at a meeting of the Board of Directors or committee thereof may be taken
without a meeting if a consent in writing, setting forth the action taken, is
signed by all of the members of the Board of Directors or the committee, as the
case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this Section 9 is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. Conference Telephone or Similar Communications Equipment
Meetings. Directors and committee members may participate in and hold a meeting
by means of conference telephone or similar
5
<PAGE> 8
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting shall constitute
presence in person at the meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground the meeting is not lawfully called or convened.
Section 11. Committees. The Board of Directors, by resolution adopted by a
majority of the whole Board of Directors, may designate from among its members
an executive committee and one or more other committees, each of which, to the
extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by applicable law. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article Three, may designate one or more
directors as alternate members of any committee, who may act in the place and
stead of any absent member or members at any meeting of such committee.
Vacancies in the membership of a committee may be filled only by the Board of
Directors at a regular or special meeting of the Board of Directors. The
executive committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or such member by law.
Section 12. Compensation of Directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Similarly, members of special or standing committees may be allowed
compensation for attendance at committee meetings or a stated salary as a
committee member and payment of expenses for attending committee meetings.
Directors may receive such other compensation as may be approved by the Board of
Directors.
ARTICLE FOUR
OFFICERS
Section 1. Positions. The officers of the Corporation shall consist of a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents (any one or more of whom may be given the additional designation of
rank of Executive Vice President or Senior Vice President), a Secretary, a Chief
Financial Officer and a Treasurer. Any two or more offices may be held by the
same person. Officers other than the Chairman of the Board need not be members
of the Board of Directors. The Chairman of the Board must be a member of the
Board of Directors.
Section 2. Election of Specified Officers by Board. The Board of Directors
at its first meeting after each annual meeting of shareholders shall elect a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents (including any Senior or Executive Vice Presidents), a Secretary, a
Chief Financial Officer and a Treasurer.
Section 3. Election or Appointment of Other Officers. Such other officers
and assistant officers and agents as may be deemed necessary may be elected or
appointed by the Board of Directors, or, unless otherwise specified herein,
appointed by the Chairman of the Board. The Board of Directors shall be advised
of appointments by the Chairman of the Board at or before the next scheduled
Board of Directors meeting.
Section 4. Compensation. The salaries, bonuses and other compensation of
the Chairman of the Board and all officers of the Corporation to be elected by
the Board of Directors pursuant to Section 2 of this Article Four shall be fixed
from time to time by the Board of Directors or pursuant to its direction. The
salaries of all other elected or appointed officers of the Corporation shall be
fixed from time to time by the Chairman of the Board or pursuant to his
direction.
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<PAGE> 9
Section 5. Term; Resignation; Removal; Vacancies. The officers of the
Corporation shall hold office until their successors are chosen and qualified.
Any officer or agent elected or appointed by the Board of Directors or the
Chairman of the Board may be removed, with or without cause, by the Board of
Directors, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Any officer or agent appointed by the Chairman
of the Board pursuant to Section 3 of this Article Four may also be removed from
such office or position by the Board of Directors or the Chairman of the Board,
with or without cause. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise shall be filled by the Board of
Directors, or, in the case of an officer appointed by the Chairman of the Board,
by the Chairman of the Board or the Board of Directors. Any officer of the
Corporation may resign from his respective office or position by delivering
notice to the Corporation, and such resignation shall be effective without
acceptance. Such resignation shall be effective when delivered unless the notice
specifies a later effective date. If a resignation is made effective at a later
date and the Corporation accepts the future effective date, the Board of
Directors may fill the pending vacancy before the effective date if the Board
provides that the successor does not take office until such effective date.
Section 6. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the shareholders and the Board of Directors. The Chairman of
the Board shall also serve as the chairman of any executive committee.
Section 7. Chief Executive Officer. Subject to the control of the Board of
Directors, the Chief Executive Officer, in conjunction with the President, shall
have general and active management of the business of the Corporation, shall see
that all orders and resolutions of the Board of Directors are carried into
effect and shall have such powers and perform such duties as may be prescribed
by the Board of Directors. In the absence of the Chairman of the Board or in the
event the Board of Directors shall not have designated a Chairman of the Board,
the Chief Executive Officer shall preside at meetings of the shareholders and
the Board of Directors. The Chief Executive Officer shall also serve as the
vice-chairman of any executive committee.
Section 8. President. Subject to the control of the Board of Directors, the
President, in conjunction with the Chief Executive Officer, shall have general
and active management of the business of the Corporation and shall have such
powers and perform such duties as may be prescribed by the Board of Directors.
In the absence of the Chairman of the Board and the Chief Executive Officer or
in the event the Board of Directors shall not have designated a Chairman of the
Board and a Chief Executive Officer shall not have been elected, the President
shall preside at meetings of the shareholders and the Board of Directors. The
President shall also serve as the vice-chairman of any executive committee.
Section 9. Vice Presidents. The Vice Presidents, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President and the Chief Executive Officer, perform
the duties and exercise the powers of the President. They shall perform such
other duties and have such other powers as the Board of Directors, the Chairman
of the Board or the Chief Executive Officer shall prescribe or as the President
may from time to time delegate. Executive Vice Presidents shall be senior to
Senior Vice Presidents, and Senior Vice Presidents shall be senior to all other
Vice Presidents.
Section 10. Secretary. The Secretary shall attend all meetings of the
shareholders and all meetings of the Board of Directors and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
Board of Directors and shall keep in safe custody the seal of the Corporation
and, when authorized by the Board of Directors, affix the same to any instrument
requiring it. The Secretary shall perform such other duties as may be prescribed
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President.
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<PAGE> 10
Section 11. Chief Financial Officer. The Chief Financial Officer shall be
responsible for maintaining the financial integrity of the Corporation, shall
prepare the financial plans for the Corporation and shall monitor the financial
performance of the Corporation and its subsidiaries, as well as performing such
other duties as may be prescribed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President.
Section 12. Treasurer. The Treasurer shall have the custody of corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board and the Board of Directors at its regular meetings or
when the Board of Directors so requires an account of all his transactions as
Treasurer and of the financial condition of the Corporation. The Treasurer shall
perform such other duties as may be prescribed by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
Section 13. Other Officers; Employees and Agents. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to such person by the Board of Directors, the officer so
appointing such person or such officer or officers who may from time to time be
designated by the Board of Directors to exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. Issue of Certificates. The shares of the Corporation shall be
represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates (and upon request every holder of uncertificated shares) shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board or a Vice Chairman of the Board, or the Chief
Executive Officer, President or Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, representing the number of shares registered in certificate form.
Section 2. Legends for Preferences and Restrictions on Transfer. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares
are restricted as to transfer, and there shall be set forth or fairly
summarized upon the certificate, or the certificate shall indicate that the
Corporation will furnish to any shareholder upon request and without charge, a
full statement of such restrictions. If the Corporation issues any shares that
are not registered under the Securities Act of 1933, as amended, or not
registered or qualified under the applicable state securities laws, the
transfer of any such shares shall be restricted substantially in accordance
with the following legend:
8
<PAGE> 11
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT
HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED."
Section 3. Facsimile Signatures. Any and all signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Corporation may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 5. Transfer of Shares. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive rights of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Florida.
Section 7. Redemption of Control Shares. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may, at the discretion of the Board of Directors, redeem the
control shares at the fair value thereof at any time during the 60-day period
after the last acquisition of such control shares. If a person acquiring control
shares of the Corporation files an acquiring person statement with the
Corporation, the control shares may be redeemed by the Corporation, at the
discretion of the Board of Directors, only if such shares are not accorded full
voting rights by the shareholders as provided by law.
ARTICLE SIX
GENERAL PROVISIONS
Section 1. Dividends. The Board of Directors may from time to time declare,
and the Corporation may pay, dividends on its outstanding shares in cash,
property, stock (including its own shares) or otherwise pursuant to law and
subject to the provisions of the Articles of Incorporation.
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<PAGE> 12
Section 2. Reserves. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall end on
December 31st of each year, unless otherwise fixed by resolution of the Board of
Directors.
Section 5. Seal. The corporate seal shall have inscribed thereon the name
and state of incorporation of the Corporation. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
Section 6. Gender. All words used in these Bylaws in the masculine gender
shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENT OF BYLAWS
Except as otherwise set forth herein, these Bylaws may be altered, amended
or repealed or new Bylaws may be adopted at any meeting of the Board of
Directors at which a quorum is present, by the affirmative vote of a majority of
the directors present at such meeting.
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<PAGE> 1
EXHIBIT 4.1
FORM OF
COMMON STOCK CERTIFICATE
<TABLE>
<S> <C> <C>
NUMBER SHARES
GENERAL ROOFING SERVICES, INC.
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA COMMON STOCK
CUSIP 370726 10 1
THIS CERTIFIES THAT
SEE REVERSE
FOR CERTAIN
DEFINITIONS
IS THE OWNER OF
</TABLE>
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $.01, OF
===============================================================================
GENERAL ROOFING SERVICES, INC.
transferable on the books of the Corporation in person or by the duly authorized
attorney upon this Certificate being properly endorsed. This Certificate is not
valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signature of
its duly authorized officers.
<TABLE>
<S> <C> <C>
Dated:
/s/ Dale E. Eby [SEAL] /s/ Gregg E. Wallick
CHIEF FINANCIAL OFFICER GENERAL ROOFING SERVICES, INC. CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CORPORATE SEAL 1998 FLORIDA
</TABLE>
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
Transfer Agent
and Registrar
By
Authorized Signature
<PAGE> 2
GENERAL ROOFING SERVICES, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-______ Custodian______
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JT TEN - as joint tenants with Minors Act____________
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
For value received,________________,hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated______________________________
____________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17AD-15.
<PAGE> 1
EXHIBIT 5.1
ANDREW HULSH
[email protected]
(305) 789-8985
July 7, 1998
General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, FL 33069
Gentlemen:
General Roofing Services, Inc., a Florida corporation (the "Company"),
has filed with the Securities and Exchange Commission a Registration Statement
on Form S-1 (the "Registration Statement") (Registration No. 333-53641) under
the Securities Act of 1933, as amended (the "Act"). Such Registration Statement
relates to the sale by the Company of up to 4,000,000 shares of Common Stock,
par value $.01 per share (the "Common Stock"), of the Company and the sale by
the Company of an additional 600,000 shares of Common Stock upon the exercise of
the underwriters' over-allotment option (the "Offering"). We have acted as
counsel to the Company in connection with the preparation and filing of the
Registration Statement.
In connection with the Registration Statement, we have examined,
considered and relied upon copies of the following documents (collectively, the
"Documents"): (i) the Company's Articles of Incorporation, as amended to date,
and Bylaws, as currently in effect; (ii) resolutions of the Company's Board of
Directors authorizing the Offering and the issuance of the Common Stock to be
sold by the Company and related matters; (iii) the Registration Statement and
schedules and exhibits thereto; and (iv) such other documents and instruments
that we have deemed necessary for the expression of the opinions herein
contained. In making the foregoing examinations, we have assumed, without
investigation, the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to authentic original
documents of all documents submitted to us as copies, and the veracity of the
Documents. As to various questions of fact material to the opinion expressed
below, we have relied, to the extent we deemed reasonably appropriate, upon the
representations or certificates of officers and/or directors of the Company upon
documents, records and instruments furnished to us by the Company, without
independently verifying the accuracy of such certificates, documents, records or
instruments.
Based upon the foregoing examination, and subject to the qualifications
set forth below, we are of the opinion that the Common Stock to be sold by the
Company in the Offering has been duly and validly authorized and, when issued,
delivered and paid for as described in the Registration Statement, will be
validly issued, fully paid and non-assessable.
Although we have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there may exist matters of a legal nature involving the Company in which
<PAGE> 2
General Roofing Services, Inc.
July 7, 1998
Page 2
we have not been consulted and have not represented the Company. We express no
opinion as to the laws of any jurisdiction other than the laws of the State of
Florida. The opinions expressed herein concern only the effect of the laws
(excluding the principles of conflict of laws) of the State of Florida as
currently in effect. This opinion letter is limited to the matters stated herein
and no opinions may be implied or inferred beyond the matters expressly stated
herein. The opinions expressed herein are given as of this date, and we assume
no obligation to update or supplement our opinions to reflect any facts or
circumstances that may come to our attention or any change in law that may occur
or become effective at a later date.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Very truly yours,
BAKER & McKENZIE
By: /s/ ANDREW HULSH
-----------------------------
Andrew Hulsh
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 27th day of May, 1998 by and between GENERAL ROOFING SERVICES, INC.
(hereinafter called "GRS") and GREGG E. WALLICK (hereinafter called the
"Executive").
RECITALS
A. GRS has entered into stock purchase agreements (the "Purchase
Agreements") to acquire all of the capital stock of 18 commercial roofing
companies.
B. In light of the Executive's significant role in GRS, GRS desires to
assure itself of the Executive's services as the President, and Chief Executive
Officer of GRS, and the Executive is willing to make his services available to
GRS, upon the terms and subject to the conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and the
covenants and conditions set forth herein, the parties hereby agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. GRS shall employ the Executive and the
Executive shall serve GRS, upon the terms and subject to the conditions of this
Agreement, for the period (the "Term") commencing on the Effective Date (as
hereinafter defined) and ending three years from the Effective Date (the
"Term"), subject to the provisions of Section 4 hereof; PROVIDED, that
commencing on the first anniversary of the Effective Date, GRS or the Executive
may terminate this Agreement upon 180 days prior written notice to the other
party hereto.
1.2 DUTIES OF EXECUTIVE. The Executive shall serve as the
President and Chief Executive Officer of the GRS, shall have the principal
responsibilities listed on EXHIBIT A hereto, and shall perform the duties of an
executive commensurate with such position. The Executive shall diligently
perform all services as may be reasonably assigned to him by the Board of
Directors of GRS consistent with such position and shall exercise such power and
authority as may from time to time be delegated to him by the Board of Directors
of GRS. The Executive shall devote his full working time and attention to the
business and affairs of GRS and shall not, during the Term, be engaged in any
other business activity that may interfere with the Executive's ability to
perform the duties assigned to the Executive under this Agreement.
1.3 PLACE OF PERFORMANCE. In connection with his employment by
GRS, the Executive shall be based at GRS' offices in Pompano Beach, Florida
except for required travel for GRS' business.
2. COMPENSATION.
2.1 BASE SALARY. During the Term, the Executive shall receive
an annual base salary of $200,000 (the "Base Salary"), which is based on the
base salary paid to executives of the same class and having similar duties as
the Executive. The Base Salary may be increased based upon the performance of
GRS and the Executive, as determined by the Compensation Committee of the Board
of Directors of GRS (the "Compensation Committee") in its sole authority and
discretion. The Base Salary shall be payable in substantially equal installments
consistent with GRS normal payroll schedule, subject to applicable withholding
and other taxes.
<PAGE> 2
2.2 BONUS. The Executive shall be eligible to receive an annual
bonus, as determined by the Compensation Committee in its sole and absolute
discretion.
3. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
3.1 EXPENSE REIMBURSEMENT. During the Term, GRS, upon the
submission of supporting documentation by the Executive to GRS, shall reimburse
the Executive for all reasonable expenses actually paid or incurred by the
Executive in the course of and pursuant to the business of GRS, including
reasonable expenses for required travel and entertainment.
3.2 OTHER BENEFITS. GRS shall obtain for the Executive such
medical insurance coverages as are generally being provided to other employees
of GRS from time to time. The Executive shall also be eligible for four weeks
paid vacation per year during the term of this Agreement.
4. TERMINATION.
4.1 TERMINATION FOR CAUSE. Notwithstanding anything contained
in this Agreement to the contrary, this Agreement may be terminated by GRS for
Cause. As used in this Agreement, "Cause" shall only mean (i) any action or
omission of the Executive which constitutes a willful and material breach of
this Agreement which is not cured or as to which diligent attempts to cure have
not commenced within 30 business days after receipt by Executive of written
notice of same (which notice shall specify in detail the acts or omissions
relied upon by GRS), (ii) fraud, embezzlement or misappropriation as against GRS
or GRS or (iii) the conviction of Executive for any criminal act which is a
felony. Upon any determination by the Board of Directors of GRS (the "Board")
that Cause exists under clause (i) of the preceding sentence, a special meeting
of the Board will be called and held at a time mutually convenient to the Board
and Executive, but in no event later than 10 business days after Executive's
receipt of the notice contemplated by clause (i). Executive shall have the right
to appear before such special meeting of the Board with legal counsel of his
choosing to refute any determination of Cause specified in such notice, and any
termination of Executive's employment by reason of such Cause determination
shall not be effective until Executive is afforded such opportunity to appear.
Upon any termination pursuant to this Section 4.1, GRS shall pay to the
Executive any unpaid Base Salary accrued through the effective date of
termination specified in such notice. Except as provided above, GRS shall have
no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 3.1).
4.2 DISABILITY. Notwithstanding anything contained in this
Agreement to the contrary, GRS, by written notice to the Executive, shall at all
times have the right to terminate this Agreement, and the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, fail to perform his duties and
responsibilities provided for herein for a period of more than 120 days in any
12-month period. Upon any termination pursuant to this Section 4.2, GRS shall
pay to the Executive any unpaid Base Salary, bonus and other benefits accrued
through the effective date of termination. Except as provided above, GRS shall
have no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 3.1).
4.3 DEATH. In the event of the death of the Executive during
the Term of his employment hereunder, GRS shall pay to the personal
representative of the estate of the deceased Executive any unpaid Base Salary,
bonus and other benefits accrued through the date of his death. Except as
provided above, GRS shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however, to the provisions of Section 3.1).
2
<PAGE> 3
5. RESTRICTIVE COVENANTS.
5.1 NONCOMPETITION. In consideration of the agreements of GRS
hereunder, during the period commencing on the Effective Date and continuing for
a period of two years after termination of employment hereunder (the "Restricted
Period"), the Executive shall not, directly or indirectly engage in or have any
interest in, directly or indirectly, any sole proprietorship, partnership,
corporation, business or any other person or entity (whether as an employee,
officer, director, partner, agent, security holder, creditor, consultant or
otherwise) that directly engages in competition with GRS, within 50 miles of the
office of GRS or a subsidiary of GRS, if any, at which the Executive is
primarily based during the Term or at the time Executive's employment with GRS
is terminated (the "Territory"); PROVIDED, HOWEVER, that Executive may acquire,
solely as an investment, shares of capital stock or other equity securities of
any company which are traded on any national securities exchange or are
regularly quoted in the over-the-counter market, so long as Executive does not
control, acquire a controlling interest in or become a member of a group which
exercises direct or indirect control of, more than five percent of any class of
capital stock of such corporation.
5.2 NONDISCLOSURE. During the Term and following termination of
the Executive's employment with GRS, Executive shall not divulge, communicate,
use to the detriment of GRS or any of its subsidiaries, or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of GRS or any of its
subsidiaries. Any Confidential Information or data now or hereafter acquired by
the Executive with respect to the business of GRS or any of its subsidiaries
(which shall include, but not be limited to, information concerning GRS' or any
of its subsidiaries' financial condition, prospects, customers, suppliers,
partners, methods of doing business and marketing and promotion of their
products or services) shall be deemed a valuable, special and unique asset of
GRS that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to GRS with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through his employment by GRS or any of its subsidiaries
(including information conceived, originated, discovered or developed by the
Executive) prior to or after the date hereof, and not generally known about GRS,
or any of its subsidiaries, or its respective businesses. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
5.3 NONSOLICITATION OF EMPLOYEES. During the Restricted Period,
Executive shall not directly or indirectly, for himself or for any other person,
firm, corporation, partnership, association or other entity, attempt to employ
or enter into any contractual arrangement with any employee or former employee
of GRS or any of its subsidiaries, unless such employee or former employee has
not been employed by GRS or such subsidiaries for a period in excess of six
months.
5.4 BOOKS AND RECORDS. All books, records, accounts and similar
repositories of Confidential Information of GRS, or any of its subsidiaries,
whether prepared by the Executive or otherwise coming into the Executive's
possession, shall be the exclusive property of GRS and shall be returned
immediately to GRS on termination of this Agreement or on the Board's request at
any time.
5.5 MATERIAL INDUCEMENT. The covenants made by the Executive
under this Section 5 are a material inducement for GRS to consummate the
Purchase Agreements, and the parties expressly acknowledge and agree that GRS
would not agree to make the Purchase Agreements if the covenants of the
Executive under this Section 5 were not being made. Notwithstanding anything to
the contrary contained herein, the provisions of this Section 5 shall survive
the expiration or termination of this Agreement or Executive's employment
hereunder.
6. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 5 of this Agreement will cause irreparable
3
<PAGE> 4
harm and damage to GRS, the monetary amount of which may be impossible to
ascertain. As a result, the Executive recognizes and hereby acknowledges that
GRS shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 5 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies GRS may possess.
7. EFFECTIVE DATE. This Agreement shall become effective upon the
closing of the transactions contemplated by the Purchase Agreements.
8. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida as
to all matters, including, but not limited to, matters of validity,
construction, effect and performance, except that no doctrine of choice of law
shall be used to apply any law other than that of Florida. IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREUNDER ALL OF THE PARTIES HERETO WAIVE ALL RIGHTS
TO A TRIAL BY JURY AND AGREE TO SUBMIT TO BINDING ARBITRATION IN FLORIDA IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
9. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attn: Gregg Wallick, President
Tel: (954) 942-3550
Fax: (954) 946-2583
With a copy to: Baker & McKenzie
1220 Brickell Avenue, Suite 1900
Miami, Florida 33131
Attn: Andrew Hulsh, Esq.
Tel: (305) 789-8985
Fax: (305) 789-8953
If to the Executive: Gregg E. Wallick
General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Tel: (954) 942-3550
Fax: (954) 946-2583
or to such other address as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
10. ASSIGNMENT, BENEFITS, BINDING EFFECT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by Executive.
11. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the
4
<PAGE> 5
event that any one or more of the words, phrases, sentences, clauses or sections
contained in this Agreement shall be declared invalid, this Agreement shall be
construed as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, or section or sections had not been inserted. If
such invalidity is caused by duration, geographic scope or both, the otherwise
invalid provision will be considered to be reduced to a period or area which
would cure such invalidity.
12. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
13. DAMAGES. Nothing contained herein shall be construed to prevent
GRS, GRS or the Executive from seeking and recovering from the other damages
sustained by them as a result of its or his breach of any term or provision of
this Agreement. In the event that either party hereto brings suit for the
collection of any damages resulting from, or the injunction of any action
constituting, a breach of any of the terms or provisions of this Agreement, then
the party found to be at fault shall pay all reasonable court costs and
attorneys' fees of the other.
14. THIRD PARTY BENEFICIARIES. GRS shall be deemed to be a third party
beneficiary under this Agreement and shall be entitled to enforce its rights and
remedies under this Agreement. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any other person or
entity (other than GRS, or their successors or assigns, and, in the case of the
Executive, his heirs or personal representative(s)) any rights or remedies under
or by reason of this Agreement.
15. AMENDMENT; ENTIRE AGREEMENT. This Agreement may not be amended or
modified unless such amendment or modification is agreed to in writing and
signed by GRS and the Executive. This Agreement embodies the entire agreement
and understanding of the parties hereto in respect of the subject matter of this
Agreement, and supersedes and replaces all prior agreements, understandings and
commitments with respect to such subject matter.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GENERAL ROOFING SERVICES, INC.:
By: /s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
EXECUTIVE:
/s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
6
<PAGE> 7
EXHIBIT A
EXECUTIVE'S RESPONSIBILITIES
TITLE: CHIEF EXECUTIVE OFFICER
REPORT TO: BOARD OF DIRECTORS
SUPERVISES: CFO, COO, VP of Corporate Development and VP of Human Resource
Administration
OBJECTIVE/MISSION: Officer responsible for the overall direction of the
organization. Formulate plans and policies to achieve overall corporate
objectives.
DUTIES & RESPONSIBILITIES:
1. Oversee all operational and administrative functions of the organization.
Insure proper integration and support of all corporate positions to regional
offices.
2. Oversee and approve all expansion activities.
3. Formulate and recommend to the Board, all salary, bonus, stock option and
benefit plans.
KEY RESULTS: Insure the company performs as expected and enhance stockholders
equity.
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 27th day of May, 1998 by and between GENERAL ROOFING SERVICES, INC.
(hereinafter called "GRS") and ERIC B. LEVINE (hereinafter called the
"Executive").
RECITALS
A. GRS has entered into stock purchase agreements (the "Purchase
Agreements") to acquire all of the capital stock of 18 commercial roofing
companies.
B. In light of the Executive's significant role in GRS, GRS desires to
assure itself of the Executive's services as the Senior Vice President of
Corporate Development of GRS, and the Executive is willing to make his services
available to GRS, upon the terms and subject to the conditions hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and the
covenants and conditions set forth herein, the parties hereby agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. GRS shall employ the Executive and the
Executive shall serve GRS, upon the terms and subject to the conditions of this
Agreement, for the period (the "Term") commencing on the Effective Date (as
hereinafter defined) and ending three years from the Effective Date (the
"Term"), subject to the provisions of Section 4 hereof; PROVIDED, that
commencing on the first anniversary of the Effective Date, GRS or the Executive
may terminate this Agreement upon 180 days prior written notice to the other
party hereto.
1.2 DUTIES OF EXECUTIVE. The Executive shall serve as the
Senior Vice President of Corporate Development of GRS, shall have the principal
responsibilities listed on EXHIBIT A hereto, and shall perform the duties of an
executive commensurate with such position. The Executive shall diligently
perform all services as may be reasonably assigned to him by the Chief Executive
Officer of GRS consistent with such position and shall exercise such power and
authority as may from time to time be delegated to him by the Chief Executive
Officer of GRS. The Executive shall devote his full working time and attention
to the business and affairs of GRS and shall not, during the Term, be engaged in
any other business activity that may interfere with the Executive's ability to
perform the duties assigned to the Executive under this Agreement.
1.3 PLACE OF PERFORMANCE. In connection with his employment by
GRS, the Executive shall be based at GRS' offices in Pompano Beach, Florida
except for required travel for GRS' business.
2. COMPENSATION.
2.1 BASE SALARY. During the Term, the Executive shall receive
an annual base salary of $120,000 (the "Base Salary"), which is based on the
base salary paid to executives of the same class and having similar duties as
the Executive. The Base Salary may be increased based upon the performance of
GRS and the Executive, as determined by the Compensation Committee of the Board
of Directors of GRS (the "Compensation Committee") in its sole authority and
discretion. The Base Salary shall be payable in substantially equal installments
consistent with GRS normal payroll schedule, subject to applicable withholding
and other taxes.
<PAGE> 2
2.2 BONUS. The Executive shall be eligible to receive an annual
bonus, as determined by the Compensation Committee in its sole and absolute
discretion.
3. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
3.1 EXPENSE REIMBURSEMENT. During the Term, GRS, upon the
submission of supporting documentation by the Executive to GRS, shall reimburse
the Executive for all reasonable expenses actually paid or incurred by the
Executive in the course of and pursuant to the business of GRS, including
reasonable expenses for required travel and entertainment.
3.2 OTHER BENEFITS. GRS shall obtain for the Executive such
medical insurance coverages as are generally being provided to other employees
of GRS from time to time. The Executive shall also be eligible for three weeks
paid vacation per year during the term of this Agreement.
4. TERMINATION.
4.1 TERMINATION FOR CAUSE. Notwithstanding anything contained
in this Agreement to the contrary, this Agreement may be terminated by GRS for
Cause. As used in this Agreement, "Cause" shall only mean (i) any action or
omission of the Executive which constitutes a willful and material breach of
this Agreement which is not cured or as to which diligent attempts to cure have
not commenced within 30 business days after receipt by Executive of written
notice of same (which notice shall specify in detail the acts or omissions
relied upon by GRS), (ii) fraud, embezzlement or misappropriation as against GRS
or GRS or (iii) the conviction of Executive for any criminal act which is a
felony. Upon any determination by the Board of Directors of GRS (the "Board")
that Cause exists under clause (i) of the preceding sentence, a special meeting
of the Board will be called and held at a time mutually convenient to the Board
and Executive, but in no event later than 10 business days after Executive's
receipt of the notice contemplated by clause (i). Executive shall have the right
to appear before such special meeting of the Board with legal counsel of his
choosing to refute any determination of Cause specified in such notice, and any
termination of Executive's employment by reason of such Cause determination
shall not be effective until Executive is afforded such opportunity to appear.
Upon any termination pursuant to this Section 4.1, GRS shall pay to the
Executive any unpaid Base Salary accrued through the effective date of
termination specified in such notice. Except as provided above, GRS shall have
no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 3.1).
4.2 DISABILITY. Notwithstanding anything contained in this
Agreement to the contrary, GRS, by written notice to the Executive, shall at all
times have the right to terminate this Agreement, and the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, fail to perform his duties and
responsibilities provided for herein for a period of more than 120 days in any
12-month period. Upon any termination pursuant to this Section 4.2, GRS shall
pay to the Executive any unpaid Base Salary, bonus and other benefits accrued
through the effective date of termination. Except as provided above, GRS shall
have no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 3.1).
4.3 DEATH. In the event of the death of the Executive during
the Term of his employment hereunder, GRS shall pay to the personal
representative of the estate of the deceased Executive any unpaid Base Salary,
bonus and other benefits accrued through the date of his death. Except as
provided above, GRS shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however, to the provisions of Section 3.1).
2
<PAGE> 3
5. RESTRICTIVE COVENANTS.
5.1 NONCOMPETITION. In consideration of the agreements of GRS
hereunder, during the period commencing on the Effective Date and continuing for
a period of two years after termination of employment hereunder (the "Restricted
Period"), the Executive shall not, directly or indirectly engage in or have any
interest in, directly or indirectly, any sole proprietorship, partnership,
corporation, business or any other person or entity (whether as an employee,
officer, director, partner, agent, security holder, creditor, consultant or
otherwise) that directly engages in competition with GRS, within 50 miles of the
office of GRS or a subsidiary of GRS, if any, at which the Executive is
primarily based during the Term or at the time Executive's employment with GRS
is terminated (the "Territory"); PROVIDED, HOWEVER, that Executive may acquire,
solely as an investment, shares of capital stock or other equity securities of
any company which are traded on any national securities exchange or are
regularly quoted in the over-the-counter market, so long as Executive does not
control, acquire a controlling interest in or become a member of a group which
exercises direct or indirect control of, more than five percent of any class of
capital stock of such corporation.
5.2 NONDISCLOSURE. During the Term and following termination of
the Executive's employment with GRS, Executive shall not divulge, communicate,
use to the detriment of GRS or any of its subsidiaries, or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of GRS or any of its
subsidiaries. Any Confidential Information or data now or hereafter acquired by
the Executive with respect to the business of GRS or any of its subsidiaries
(which shall include, but not be limited to, information concerning GRS' or any
of its subsidiaries' financial condition, prospects, customers, suppliers,
partners, methods of doing business and marketing and promotion of their
products or services) shall be deemed a valuable, special and unique asset of
GRS that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to GRS with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through his employment by GRS or any of its subsidiaries
(including information conceived, originated, discovered or developed by the
Executive) prior to or after the date hereof, and not generally known about GRS,
or any of its subsidiaries, or its respective businesses. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
5.3 NONSOLICITATION OF EMPLOYEES. During the Restricted Period,
Executive shall not directly or indirectly, for himself or for any other person,
firm, corporation, partnership, association or other entity, attempt to employ
or enter into any contractual arrangement with any employee or former employee
of GRS or any of its subsidiaries, unless such employee or former employee has
not been employed by GRS or such subsidiaries for a period in excess of six
months.
5.4 BOOKS AND RECORDS. All books, records, accounts and similar
repositories of Confidential Information of GRS, or any of its subsidiaries,
whether prepared by the Executive or otherwise coming into the Executive's
possession, shall be the exclusive property of GRS and shall be returned
immediately to GRS on termination of this Agreement or on the Board's request at
any time.
5.5 MATERIAL INDUCEMENT. The covenants made by the Executive
under this Section 5 are a material inducement for GRS to consummate the
Purchase Agreements, and the parties expressly acknowledge and agree that GRS
would not agree to make the Purchase Agreements if the covenants of the
Executive under this Section 5 were not being made. Notwithstanding anything to
the contrary contained herein, the provisions of this Section 5 shall survive
the expiration or termination of this Agreement or Executive's employment
hereunder.
6. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 5 of this Agreement will cause irreparable
3
<PAGE> 4
harm and damage to GRS, the monetary amount of which may be impossible to
ascertain. As a result, the Executive recognizes and hereby acknowledges that
GRS shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 5 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies GRS may possess.
7. EFFECTIVE DATE. This Agreement shall become effective upon the
closing of the transactions contemplated by the Purchase Agreements.
8. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida as
to all matters, including, but not limited to, matters of validity,
construction, effect and performance, except that no doctrine of choice of law
shall be used to apply any law other than that of Florida. IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREUNDER ALL OF THE PARTIES HERETO WAIVE ALL RIGHTS
TO A TRIAL BY JURY AND AGREE TO SUBMIT TO BINDING ARBITRATION IN FLORIDA IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
9. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attn: Gregg Wallick, President
Tel: (954) 942-3550
Fax: (954) 946-2583
With a copy to: Baker & McKenzie
1200 Brickell Avenue, Suite 1900
Miami, Florida 33131
Attn: Andrew Hulsh, Esq.
Tel: (305) 789-8985
Fax: (305) 789-8953
If to the Executive: Eric B. Levine
480 Wexdon Court
Lake Mary, Florida 32746
Tel: (407) 323-9298
Fax: (407) 324-9984
or to such other address as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
10. ASSIGNMENT, BENEFITS, BINDING EFFECT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by Executive.
11. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this
4
<PAGE> 5
Agreement shall be declared invalid, this Agreement shall be construed as if
such invalid word or words, phrase or phrases, sentence or sentences, clause or
clauses, or section or sections had not been inserted. If such invalidity is
caused by duration, geographic scope or both, the otherwise invalid provision
will be considered to be reduced to a period or area which would cure such
invalidity.
12. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
13. DAMAGES. Nothing contained herein shall be construed to prevent
GRS, GRS or the Executive from seeking and recovering from the other damages
sustained by them as a result of its or his breach of any term or provision of
this Agreement. In the event that either party hereto brings suit for the
collection of any damages resulting from, or the injunction of any action
constituting, a breach of any of the terms or provisions of this Agreement, then
the party found to be at fault shall pay all reasonable court costs and
attorneys' fees of the other.
14. THIRD PARTY BENEFICIARIES. GRS shall be deemed to be a third party
beneficiary under this Agreement and shall be entitled to enforce its rights and
remedies under this Agreement. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any other person or
entity (other than GRS, or their successors or assigns, and, in the case of the
Executive, his heirs or personal representative(s)) any rights or remedies under
or by reason of this Agreement.
15. AMENDMENT; ENTIRE AGREEMENT. This Agreement may not be amended or
modified unless such amendment or modification is agreed to in writing and
signed by GRS and the Executive. This Agreement embodies the entire agreement
and understanding of the parties hereto in respect of the subject matter of this
Agreement, and supersedes and replaces all prior agreements, understandings and
commitments with respect to such subject matter.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GENERAL ROOFING SERVICES, INC.:
By: /s/ GREGG E. WALLICK
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
EXECUTIVE:
/s/ ERIC B. LEVINE
-------------------------------------
Eric B. Levine
6
<PAGE> 7
EXHIBIT A
EXECUTIVE'S RESPONSIBILITIES
TITLE: SR VP OF CORPORATE DEVELOPMENT
SUPERVISES: Administrative Assistant
REPORT TO: CEO
OBJECTIVE/MISSION: Officer responsible for the entire range of Business
Development activities. Primary focus to include the proper screening and
selection of partner companies.
DUTIES & RESPONSIBILITIES:
1. Work in conjunction with CEO regarding all merger candidates
2. Coordinate and oversee all due diligence activities of merger opportunities
3. Assist in the development of opportunities that arise
KEY RESULTS: Growth and Profitability, Strategically Achieved
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 27th day of May, 1998 by and between GENERAL ROOFING SERVICES, INC.
(hereinafter called "GRS") and DALE E. EBY (hereinafter called the "Executive").
RECITALS
A. GRS has entered into stock purchase agreements (the "Purchase
Agreements") to acquire all of the capital stock of 18 commercial roofing
companies.
B. In light of the Executive's significant role in GRS, GRS desires to
assure itself of the Executive's services as the Senior Vice President, Chief
Financial Officer and Treasurer of GRS, and the Executive is willing to make his
services available to GRS, upon the terms and subject to the conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and the
covenants and conditions set forth herein, the parties hereby agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. GRS shall employ the Executive and the
Executive shall serve GRS, upon the terms and subject to the conditions of this
Agreement, for the period (the "Term") commencing on the Effective Date (as
hereinafter defined) and ending three years from the Effective Date (the
"Term"), subject to the provisions of Section 4 hereof; PROVIDED, that
commencing on the first anniversary of the Effective Date, GRS or the Executive
may terminate this Agreement upon 180 days prior written notice to the other
party hereto.
1.2 DUTIES OF EXECUTIVE. The Executive shall serve as the
Senior Vice President, Chief Financial Officer and Treasurer of GRS, shall have
the principal responsibilities listed on EXHIBIT A hereto, and shall perform the
duties of an executive commensurate with such position. The Executive shall
diligently perform all services as may be reasonably assigned to him by the
Chief Executive Officer of GRS consistent with such position and shall exercise
such power and authority as may from time to time be delegated to him by the
Chief Executive Officer of GRS. The Executive shall devote his full working time
and attention to the business and affairs of GRS and shall not, during the Term,
be engaged in any other business activity that may interfere with the
Executive's ability to perform the duties assigned to the Executive under this
Agreement.
1.3 PLACE OF PERFORMANCE. In connection with his employment by
GRS, the Executive shall be based at GRS' offices in Pompano Beach, Florida
except for required travel for GRS' business.
2. COMPENSATION.
2.1 BASE SALARY. During the Term, the Executive shall receive
an annual base salary of $120,000 (the "Base Salary"), which is based on the
base salary paid to executives of the same class and having similar duties as
the Executive. The Base Salary may be increased based upon the performance of
GRS and the Executive, as determined by the Compensation Committee of the Board
of Directors of GRS (the "Compensation Committee") in its sole authority and
discretion. The Base Salary shall be payable in substantially equal installments
consistent with GRS normal payroll schedule, subject to applicable withholding
and other taxes.
<PAGE> 2
2.2 BONUS. The Executive shall be eligible to receive an annual
bonus, as determined by the Compensation Committee in its sole and absolute
discretion.
3. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
3.1 EXPENSE REIMBURSEMENT. During the Term, GRS, upon the
submission of supporting documentation by the Executive to GRS, shall reimburse
the Executive for all reasonable expenses actually paid or incurred by the
Executive in the course of and pursuant to the business of GRS, including
reasonable expenses for required travel and entertainment.
3.2 OTHER BENEFITS. GRS shall obtain for the Executive such
medical insurance coverages as are generally being provided to other employees
of GRS from time to time. The Executive shall also be eligible for three weeks
paid vacation per year during the term of this Agreement.
4. TERMINATION.
4.1 TERMINATION FOR CAUSE. Notwithstanding anything contained
in this Agreement to the contrary, this Agreement may be terminated by GRS for
Cause. As used in this Agreement, "Cause" shall only mean (i) any action or
omission of the Executive which constitutes a willful and material breach of
this Agreement which is not cured or as to which diligent attempts to cure have
not commenced within 30 business days after receipt by Executive of written
notice of same (which notice shall specify in detail the acts or omissions
relied upon by GRS), (ii) fraud, embezzlement or misappropriation as against GRS
or GRS or (iii) the conviction of Executive for any criminal act which is a
felony. Upon any determination by the Board of Directors of GRS (the "Board")
that Cause exists under clause (i) of the preceding sentence, a special meeting
of the Board will be called and held at a time mutually convenient to the Board
and Executive, but in no event later than 10 business days after Executive's
receipt of the notice contemplated by clause (i). Executive shall have the right
to appear before such special meeting of the Board with legal counsel of his
choosing to refute any determination of Cause specified in such notice, and any
termination of Executive's employment by reason of such Cause determination
shall not be effective until Executive is afforded such opportunity to appear.
Upon any termination pursuant to this Section 4.1, GRS shall pay to the
Executive any unpaid Base Salary accrued through the effective date of
termination specified in such notice. Except as provided above, GRS shall have
no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 3.1).
4.2 DISABILITY. Notwithstanding anything contained in this
Agreement to the contrary, GRS, by written notice to the Executive, shall at all
times have the right to terminate this Agreement, and the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, fail to perform his duties and
responsibilities provided for herein for a period of more than 120 days in any
12-month period. Upon any termination pursuant to this Section 4.2, GRS shall
pay to the Executive any unpaid Base Salary, bonus and other benefits accrued
through the effective date of termination. Except as provided above, GRS shall
have no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 3.1).
4.3 DEATH. In the event of the death of the Executive during
the Term of his employment hereunder, GRS shall pay to the personal
representative of the estate of the deceased Executive any unpaid Base Salary,
bonus and other benefits accrued through the date of his death. Except as
provided above, GRS shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however, to the provisions of Section 3.1).
2
<PAGE> 3
5. RESTRICTIVE COVENANTS.
5.1 NONCOMPETITION. In consideration of the agreements of GRS
hereunder, during the period commencing on the Effective Date and continuing for
a period of two years after termination of employment hereunder (the "Restricted
Period"), the Executive shall not, directly or indirectly engage in or have any
interest in, directly or indirectly, any sole proprietorship, partnership,
corporation, business or any other person or entity (whether as an employee,
officer, director, partner, agent, security holder, creditor, consultant or
otherwise) that directly engages in competition with GRS, within 50 miles of the
office of GRS or a subsidiary of GRS, if any, at which the Executive is
primarily based during the Term or at the time Executive's employment with GRS
is terminated (the "Territory"); PROVIDED, HOWEVER, that Executive may acquire,
solely as an investment, shares of capital stock or other equity securities of
any company which are traded on any national securities exchange or are
regularly quoted in the over-the-counter market, so long as Executive does not
control, acquire a controlling interest in or become a member of a group which
exercises direct or indirect control of, more than five percent of any class of
capital stock of such corporation.
5.2 NONDISCLOSURE. During the Term and following termination of
the Executive's employment with GRS, Executive shall not divulge, communicate,
use to the detriment of GRS or any of its subsidiaries, or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of GRS or any of its
subsidiaries. Any Confidential Information or data now or hereafter acquired by
the Executive with respect to the business of GRS or any of its subsidiaries
(which shall include, but not be limited to, information concerning GRS' or any
of its subsidiaries' financial condition, prospects, customers, suppliers,
partners, methods of doing business and marketing and promotion of their
products or services) shall be deemed a valuable, special and unique asset of
GRS that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to GRS with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through his employment by GRS or any of its subsidiaries
(including information conceived, originated, discovered or developed by the
Executive) prior to or after the date hereof, and not generally known about GRS,
or any of its subsidiaries, or its respective businesses. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
5.3 NONSOLICITATION OF EMPLOYEES. During the Restricted Period,
Executive shall not directly or indirectly, for himself or for any other person,
firm, corporation, partnership, association or other entity, attempt to employ
or enter into any contractual arrangement with any employee or former employee
of GRS or any of its subsidiaries, unless such employee or former employee has
not been employed by GRS or such subsidiaries for a period in excess of six
months.
5.4 BOOKS AND RECORDS. All books, records, accounts and similar
repositories of Confidential Information of GRS, or any of its subsidiaries,
whether prepared by the Executive or otherwise coming into the Executive's
possession, shall be the exclusive property of GRS and shall be returned
immediately to GRS on termination of this Agreement or on the Board's request at
any time.
5.5 MATERIAL INDUCEMENT. The covenants made by the Executive
under this Section 5 are a material inducement for GRS to consummate the
Purchase Agreements, and the parties expressly acknowledge and agree that GRS
would not agree to make the Purchase Agreements if the covenants of the
Executive under this Section 5 were not being made. Notwithstanding anything to
the contrary contained herein, the provisions of this Section 5 shall survive
the expiration or termination of this Agreement or Executive's employment
hereunder.
6. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 5 of this Agreement will cause irreparable
3
<PAGE> 4
harm and damage to GRS, the monetary amount of which may be impossible to
ascertain. As a result, the Executive recognizes and hereby acknowledges that
GRS shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 5 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies GRS may possess.
7. EFFECTIVE DATE. This Agreement shall become effective upon the
closing of the transactions contemplated by the Purchase Agreements.
8. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida as
to all matters, including, but not limited to, matters of validity,
construction, effect and performance, except that no doctrine of choice of law
shall be used to apply any law other than that of Florida. IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREUNDER ALL OF THE PARTIES HERETO WAIVE ALL RIGHTS
TO A TRIAL BY JURY AND AGREE TO SUBMIT TO BINDING ARBITRATION IN FLORIDA IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
9. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attn: Gregg Wallick
President
Tel: (954) 942-3550
Fax: (954) 946-2583
With a copy to: Baker & McKenzie
1200 Brickell Avenue, Suite 1900
Miami, Florida 33131
Attn: Andrew Hulsh, Esq.
Tel: (305) 789-8985
Fax: (305) 789-8953
If to the Executive: Dale E. Eby
2351 S.W. 37th Avenue, Apt. 911
Miami, Florida 33145
Tel: (305) 476-0905
or to such other address as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
10. ASSIGNMENT, BENEFITS, BINDING EFFECT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by Executive.
11. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this
4
<PAGE> 5
Agreement shall be declared invalid, this Agreement shall be construed as if
such invalid word or words, phrase or phrases, sentence or sentences, clause or
clauses, or section or sections had not been inserted. If such invalidity is
caused by duration, geographic scope or both, the otherwise invalid provision
will be considered to be reduced to a period or area which would cure such
invalidity.
12. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
13. DAMAGES. Nothing contained herein shall be construed to prevent
GRS, GRS or the Executive from seeking and recovering from the other damages
sustained by them as a result of its or his breach of any term or provision of
this Agreement. In the event that either party hereto brings suit for the
collection of any damages resulting from, or the injunction of any action
constituting, a breach of any of the terms or provisions of this Agreement, then
the party found to be at fault shall pay all reasonable court costs and
attorneys' fees of the other.
14. THIRD PARTY BENEFICIARIES. GRS shall be deemed to be a third party
beneficiary under this Agreement and shall be entitled to enforce its rights and
remedies under this Agreement. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any other person or
entity (other than GRS, or their successors or assigns, and, in the case of the
Executive, his heirs or personal representative(s)) any rights or remedies under
or by reason of this Agreement.
15. AMENDMENT; ENTIRE AGREEMENT. This Agreement may not be amended or
modified unless such amendment or modification is agreed to in writing and
signed by GRS and the Executive. This Agreement embodies the entire agreement
and understanding of the parties hereto in respect of the subject matter of this
Agreement, and supersedes and replaces all prior agreements, understandings and
commitments with respect to such subject matter.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GENERAL ROOFING SERVICES, INC.:
By: /s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
EXECUTIVE:
/s/ Dale E. Eby
-------------------------------------
Dale E. Eby
6
<PAGE> 7
EXHIBIT A
EXECUTIVE'S RESPONSIBILITIES
TITLE: VP OF FINANCE/CFO
REPORT TO: CEO
SUPERVISES: Accounting Manager, System Support Manager
OBJECTIVE/MISSION: Responsible for the entire range of accounting and financial
activities of the company including both the treasury and accounting functions.
DUTIES & RESPONSIBILITIES:
1. Cash flow management and cash flow models for the future
2. Financial management of worker's compensation program
3. Liability insurance (all issues)
4. Purchasing of all insurance
5. Maintenance of COINS system accounting defaults
6. Monthly financial analysis
7. Banking relations (all issues)
A. Operating accounts
B. Lines of credit
C. Mortgages
D. Lease facility
8. Bonding relations (all issues)
9. Filing tax returns
10. Annual review and tax filings with CPA's
11. All SEC requirements
12. Assist in all merger activities, including but not limited to legal issues,
due diligence, etc.
13. Investor and Investment Banker communications
KEY RESULTS: Timely reporting of all financial concerns
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 27th day of May, 1998 by and between GENERAL ROOFING SERVICES, INC.
(hereinafter called "GRS") and WILLIAM A. ABBERGER III (hereinafter called the
"Executive").
RECITALS
A. GRS has entered into stock purchase agreements (the "Purchase
Agreements") to acquire all of the capital stock of 18 commercial roofing
companies.
B. In light of the Executive's significant role in GRS, GRS desires to
assure itself of the Executive's services as the Senior Vice President of
Operations of GRS, and the Executive is willing to make his services available
to GRS, upon the terms and subject to the conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and the
covenants and conditions set forth herein, the parties hereby agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. GRS shall employ the Executive and the
Executive shall serve GRS, upon the terms and subject to the conditions of this
Agreement, for the period (the "Term") commencing on the Effective Date (as
hereinafter defined) and ending three years from the Effective Date (the
"Term"), subject to the provisions of Section 4 hereof; PROVIDED, that
commencing on the first anniversary of the Effective Date, GRS or the Executive
may terminate this Agreement upon 180 days prior written notice to the other
party hereto.
1.2 DUTIES OF EXECUTIVE. The Executive shall serve as the
Senior Vice President of Operations of GRS, shall have the principal
responsibilities listed on EXHIBIT A hereto, and shall perform the duties of an
executive commensurate with such position. The Executive shall diligently
perform all services as may be reasonably assigned to him by the Chief Executive
Officer of GRS consistent with such position and shall exercise such power and
authority as may from time to time be delegated to him by the Chief Executive
Officer of GRS. The Executive shall devote his full working time and attention
to the business and affairs of GRS and shall not, during the Term, be engaged in
any other business activity that may interfere with the Executive's ability to
perform the duties assigned to the Executive under this Agreement.
1.3 PLACE OF PERFORMANCE. In connection with his employment by
GRS, the Executive shall be based at GRS' offices in Pompano Beach, Florida
except for required travel for GRS' business.
2. COMPENSATION.
2.1 BASE SALARY. During the Term, the Executive shall receive
an annual base salary of $120,000 (the "Base Salary"), which is based on the
base salary paid to executives of the same class and having similar duties as
the Executive. The Base Salary may be increased based upon the performance of
GRS and the Executive, as determined by the Compensation Committee of the Board
of Directors of GRS (the "Compensation Committee") in its sole authority and
discretion. The Base Salary shall be payable in substantially equal installments
consistent with GRS normal payroll schedule, subject to applicable withholding
and other taxes.
<PAGE> 2
2.2 BONUS. The Executive shall be eligible to receive an annual
bonus, as determined by the Compensation Committee in its sole and absolute
discretion.
3. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
3.1 EXPENSE REIMBURSEMENT. During the Term, GRS, upon the
submission of supporting documentation by the Executive to GRS, shall reimburse
the Executive for all reasonable expenses actually paid or incurred by the
Executive in the course of and pursuant to the business of GRS, including
reasonable expenses for required travel and entertainment.
3.2 OTHER BENEFITS. GRS shall obtain for the Executive such
medical insurance coverages as are generally being provided to other employees
of GRS from time to time. The Executive shall also be eligible for three weeks
paid vacation per year during the term of this Agreement.
4. TERMINATION.
4.1 TERMINATION FOR CAUSE. Notwithstanding anything contained
in this Agreement to the contrary, this Agreement may be terminated by GRS for
Cause. As used in this Agreement, "Cause" shall only mean (i) any action or
omission of the Executive which constitutes a willful and material breach of
this Agreement which is not cured or as to which diligent attempts to cure have
not commenced within 30 business days after receipt by Executive of written
notice of same (which notice shall specify in detail the acts or omissions
relied upon by GRS), (ii) fraud, embezzlement or misappropriation as against GRS
or GRS or (iii) the conviction of Executive for any criminal act which is a
felony. Upon any determination by the Board of Directors of GRS (the "Board")
that Cause exists under clause (i) of the preceding sentence, a special meeting
of the Board will be called and held at a time mutually convenient to the Board
and Executive, but in no event later than 10 business days after Executive's
receipt of the notice contemplated by clause (i). Executive shall have the right
to appear before such special meeting of the Board with legal counsel of his
choosing to refute any determination of Cause specified in such notice, and any
termination of Executive's employment by reason of such Cause determination
shall not be effective until Executive is afforded such opportunity to appear.
Upon any termination pursuant to this Section 4.1, GRS shall pay to the
Executive any unpaid Base Salary accrued through the effective date of
termination specified in such notice. Except as provided above, GRS shall have
no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 3.1).
4.2 DISABILITY. Notwithstanding anything contained in this
Agreement to the contrary, GRS, by written notice to the Executive, shall at all
times have the right to terminate this Agreement, and the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, fail to perform his duties and
responsibilities provided for herein for a period of more than 120 days in any
12-month period. Upon any termination pursuant to this Section 4.2, GRS shall
pay to the Executive any unpaid Base Salary, bonus and other benefits accrued
through the effective date of termination. Except as provided above, GRS shall
have no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 3.1).
4.3 DEATH. In the event of the death of the Executive during
the Term of his employment hereunder, GRS shall pay to the personal
representative of the estate of the deceased Executive any unpaid Base Salary,
bonus and other benefits accrued through the date of his death. Except as
provided above, GRS shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however, to the provisions of Section 3.1).
2
<PAGE> 3
5. RESTRICTIVE COVENANTS.
5.1 NONCOMPETITION. In consideration of the agreements of GRS
hereunder, during the period commencing on the Effective Date and continuing for
a period of two years after termination of employment hereunder (the "Restricted
Period"), the Executive shall not, directly or indirectly engage in or have any
interest in, directly or indirectly, any sole proprietorship, partnership,
corporation, business or any other person or entity (whether as an employee,
officer, director, partner, agent, security holder, creditor, consultant or
otherwise) that directly engages in competition with GRS, within 50 miles of the
office of GRS or a subsidiary of GRS, if any, at which the Executive is
primarily based during the Term or at the time Executive's employment with GRS
is terminated (the "Territory"); PROVIDED, HOWEVER, that Executive may acquire,
solely as an investment, shares of capital stock or other equity securities of
any company which are traded on any national securities exchange or are
regularly quoted in the over-the-counter market, so long as Executive does not
control, acquire a controlling interest in or become a member of a group which
exercises direct or indirect control of, more than five percent of any class of
capital stock of such corporation.
5.2 NONDISCLOSURE. During the Term and following termination of
the Executive's employment with GRS, Executive shall not divulge, communicate,
use to the detriment of GRS or any of its subsidiaries, or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of GRS or any of its
subsidiaries. Any Confidential Information or data now or hereafter acquired by
the Executive with respect to the business of GRS or any of its subsidiaries
(which shall include, but not be limited to, information concerning GRS' or any
of its subsidiaries' financial condition, prospects, customers, suppliers,
partners, methods of doing business and marketing and promotion of their
products or services) shall be deemed a valuable, special and unique asset of
GRS that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to GRS with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through his employment by GRS or any of its subsidiaries
(including information conceived, originated, discovered or developed by the
Executive) prior to or after the date hereof, and not generally known about GRS,
or any of its subsidiaries, or its respective businesses. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
5.3 NONSOLICITATION OF EMPLOYEES. During the Restricted Period,
Executive shall not directly or indirectly, for himself or for any other person,
firm, corporation, partnership, association or other entity, attempt to employ
or enter into any contractual arrangement with any employee or former employee
of GRS or any of its subsidiaries, unless such employee or former employee has
not been employed by GRS or such subsidiaries for a period in excess of six
months.
5.4 BOOKS AND RECORDS. All books, records, accounts and similar
repositories of Confidential Information of GRS, or any of its subsidiaries,
whether prepared by the Executive or otherwise coming into the Executive's
possession, shall be the exclusive property of GRS and shall be returned
immediately to GRS on termination of this Agreement or on the Board's request at
any time.
5.5 MATERIAL INDUCEMENT. The covenants made by the Executive
under this Section 5 are a material inducement for GRS to consummate the
Purchase Agreements, and the parties expressly acknowledge and agree that GRS
would not agree to make the Purchase Agreements if the covenants of the
Executive under this Section 5 were not being made. Notwithstanding anything to
the contrary contained herein, the provisions of this Section 5 shall survive
the expiration or termination of this Agreement or Executive's employment
hereunder.
6. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 5 of this Agreement will cause irreparable
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harm and damage to GRS, the monetary amount of which may be impossible to
ascertain. As a result, the Executive recognizes and hereby acknowledges that
GRS shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 5 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies GRS may possess.
7. EFFECTIVE DATE. This Agreement shall become effective upon the
closing of the transactions contemplated by the Purchase Agreements.
8. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida as
to all matters, including, but not limited to, matters of validity,
construction, effect and performance, except that no doctrine of choice of law
shall be used to apply any law other than that of Florida. IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREUNDER ALL OF THE PARTIES HERETO WAIVE ALL RIGHTS
TO A TRIAL BY JURY AND AGREE TO SUBMIT TO BINDING ARBITRATION IN FLORIDA IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
9. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to GRS: General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attn: Gregg Wallick, President
Tel: (954) 942-3550
Fax: (954) 946-2583
With a copy to: Baker & McKenzie
1200 Brickell Avenue, Suite 1900
Miami, Florida 33131
Attn: Andrew Hulsh, Esq.
Tel: (305) 789-8985
Fax: (305) 789-8953
If to the Executive: William A. Abberger III
1804 Mariner Drive, No. 33
Tarpon Springs, Florida 34689
Tel: (813) 943-7379
Fax: (813) 621-6891
or to such other address as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
10. ASSIGNMENT, BENEFITS, BINDING EFFECT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by Executive.
11. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this
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<PAGE> 5
Agreement shall be declared invalid, this Agreement shall be construed as if
such invalid word or words, phrase or phrases, sentence or sentences, clause or
clauses, or section or sections had not been inserted. If such invalidity is
caused by duration, geographic scope or both, the otherwise invalid provision
will be considered to be reduced to a period or area which would cure such
invalidity.
12. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
13. DAMAGES. Nothing contained herein shall be construed to prevent
GRS, GRS or the Executive from seeking and recovering from the other damages
sustained by them as a result of its or his breach of any term or provision of
this Agreement. In the event that either party hereto brings suit for the
collection of any damages resulting from, or the injunction of any action
constituting, a breach of any of the terms or provisions of this Agreement, then
the party found to be at fault shall pay all reasonable court costs and
attorneys' fees of the other.
14. THIRD PARTY BENEFICIARIES. GRS shall be deemed to be a third party
beneficiary under this Agreement and shall be entitled to enforce its rights and
remedies under this Agreement. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any other person or
entity (other than GRS, or their successors or assigns, and, in the case of the
Executive, his heirs or personal representative(s)) any rights or remedies under
or by reason of this Agreement.
15. AMENDMENT; ENTIRE AGREEMENT. This Agreement may not be amended or
modified unless such amendment or modification is agreed to in writing and
signed by GRS and the Executive. This Agreement embodies the entire agreement
and understanding of the parties hereto in respect of the subject matter of this
Agreement, and supersedes and replaces all prior agreements, understandings and
commitments with respect to such subject matter.
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<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GENERAL ROOFING SERVICES, INC.:
By: /s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
EXECUTIVE:
/s/ William A. Abberger
-------------------------------------
William A. Abberger III
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<PAGE> 7
EXHIBIT A
EXECUTIVE'S RESPONSIBILITIES
TITLE: CHIEF OPERATING OFFICER
REPORT TO: CEO
SUPERVISES: Regional Managers, Profit Centers, Purchasing Agent, Business
Development Manager and Transition Team Manager
OBJECTIVE/MISSION: Officer responsible for the day to day administration of all
operational work segments. Provide direction and guidance to profit center
Executives. To meet the Operation Goals and Objectives of the Business Plan.
KEY RESULTS:
1. FINANCIAL - Achieve budgeted financial objectives as projected. Hit the
numbers!
2. PERSONNEL - All companies staffed with a qualified manager and enough
managers in training so as to insure enough required staff to minimize
staffing issues. Turnover rate of Branch Mgr., Sr. Project Mgr., Sr.
Construction Mgr., Account Mgrs. is less than 10%.
3. SAFETY - Insure performance standard regarding experience modifier, number
of claims, litigation, are as projected.
4. APPRENTICES PROGRAM - to insure qualified trades men required.
5. S.O.P - revised and updated and documented and trained as required.
6. PURCHASING - Oversee that we are taking advantage of all purchasing
opportunities that can be done regarding any operational issues, i.e.
material, tools, etc.
7. PERSONAL DEVELOPMENT - Maintain some level of continuous personal
improvement with respect to job skills as required.
<PAGE> 1
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is dated as of May 26,
1998 by and between GENERAL ROOFING SERVICES, INC., a Florida corporation (the
"Company"), and GREGG E. WALLICK (the "Indemnitee").
WITNESSETH:
WHEREAS, it is essential to the Company to retain and attract as
officers and directors the most capable persons available;
WHEREAS Indemnitee is an officer and director of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and in part to provide Indemnitee with
specific contractual assurance that the indemnification protection provided by
the Articles of Incorporation of the Company (the "Articles of Incorporation")
and Bylaws of the Company (the "Bylaws") will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
Articles of Incorporation and Bylaws or any change in the composition of the
Company's Board of Directors or acquisition transaction relating to the
Company), and in order to induce Indemnitee to continue to provide services to
the Company as a director thereof, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors and officers'
liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly of securities of the Company representing twenty percent
(20%) or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least eighty percent (80%) of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or
<PAGE> 2
an agreement for the sale or disposition by the Company (in one transaction or a
series of transactions) of all or substantially all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit,
proceeding or alternate dispute resolution mechanism, or any inquiry, hearing or
investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternate dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, delivery service fees, expenses and obligations of
any nature whatsoever paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement that gives rise to a
claim against the Indemnitee related to or based upon the fact that Indemnitee
is or was a director, officer, employee, agent or fiduciary of the Company, or
is or was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if
(i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing ten percent (10%) or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by five percent (5%) or more over the percentage so
owned by such person on the date hereof; or (iv) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) INDEPENDENT LEGAL COUNSEL: Independent Legal Counsel shall refer to
an attorney, selected in accordance with the provisions of SECTION 3 hereof, who
shall not have otherwise performed services for the Company or Indemnitee within
the last five years (other than in connection with seeking indemnification under
this Agreement). Independent Legal Counsel shall not be any person who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement, nor shall
Independent Legal Counsel be any person who has been sanctioned or censured for
ethical violations of applicable standards of professional conduct.
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<PAGE> 3
(h) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty (30) days after written demand is presented to the Company, against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
trust referred to in SECTION 4 hereof). If so requested by Indemnitee, the
Company shall advance (within five (5) business days of such request) any and
all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in
this Agreement to the contrary and except as provided in SECTION 5, prior to a
Change in Control Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Indemnitee against
the Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under SECTION 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in SECTION 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
SECTION 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control, the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) the Reviewing Party shall be the
Independent Legal Counsel referred to in SECTION 3 hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the State of Florida having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, or the legal or factual bases therefor
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
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<PAGE> 4
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then Independent Legal Counsel shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and such Independent Legal Counsel shall determine
whether the officer or director is entitled to indemnity payments and Expense
Advances under this Agreement or any other agreement of Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events. Such Independent Legal Counsel, among other
things, shall render its written opinion of the Company and Indemnitee as to
whether and to what extent the Indemnitee will be permitted to be indemnified.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
and to indemnify fully such Independent Legal Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or the engagement of Independent Legal
Counsel pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Claim relating
to an Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be
paid. The amount or amounts to be deposited in the trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in any
case in which the Independent Legal Counsel referred to above is involved. The
terms of the trust shall provide that upon a Change in Control (i) the trust
shall not be revoked or the principal thereof invaded, without the written
consent of Indemnitee, (ii) the trustee shall advance, within five (5) business
days of a request by Indemnitee, any and all Expenses to indemnitee (and
Indemnitee hereby agrees to reimburse the trust under the circumstances under
which Indemnitee would be required to reimburse the Company under SECTION 2(b)
of this Agreement), (iii) the trust shall continue to be funded by the Company
in accordance with the funding obligation set forth above, (iv) the trustee
shall promptly pay to Indemnitee all amounts for which Indemnitee shall be
entitled to indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in such trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms of
this Agreement. The trustee shall be chosen by Indemnitee. Nothing in this
SECTION 4 shall relieve the Company of any of its obligations under this
Agreement. All income earned on the assets held in the trust shall be reported
as income by the Company for federal, state, local and foreign tax purposes.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within five business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted against or in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
6. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgment, fines, penalties and
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<PAGE> 5
amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims relating
in whole or in party an Indemnifiable Event or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It
shall be a defense to any action brought by the Indemnitee against the Company
to enforce this Agreement (other than an action brought to enforce a claim for
expenses incurred in defending a claim in advance of its final disposition where
the required undertaking has been tendered to the Company) that the Indemnitee
has not met the standards of conduct that make it permissible under the Florida
Business Corporation Act for the Company to indemnify the Indemnitee for the
amount claimed. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of providing such a defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action by the Indemnitee that Indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the Florida Business Corporation
Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not mete the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. NON-EXCLUSIVITY, ETC.. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles of
Incorporation or Bylaws of the Company or the Florida Business Corporation Act
or otherwise. To the extent that a change in the Florida Business Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Articles of Incorporation
and Bylaws of the Company and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
9. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained herein
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries.
10. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, administrators or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company or its affiliate shall be
extinguished and deemed released unless asserted by the timely filing of a
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<PAGE> 6
legal action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Articles of Incorporation or Bylaws of the Company
or otherwise) of the amounts otherwise indemnifiable hereunder.
15. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director or officer of the Company
or of any other enterprise at the Company's request.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph of sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
GENERAL ROOFING SERVICES, INC.
By: /s/ GREGG E. WALLICK
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
INDEMNITEE:
/s/ GREGG E. WALLICK
-----------------------------------------
Gregg E. Wallick
-7-
<PAGE> 1
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is dated as of May 26,
1998 by and between GENERAL ROOFING SERVICES, INC., a Florida corporation (the
"Company"), and ERIC B. LEVINE (the "Indemnitee").
WITNESSETH:
WHEREAS, it is essential to the Company to retain and attract as
officers and directors the most capable persons available;
WHEREAS Indemnitee is an officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and in part to provide Indemnitee with
specific contractual assurance that the indemnification protection provided by
the Articles of Incorporation of the Company (the "Articles of Incorporation")
and Bylaws of the Company (the "Bylaws") will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
Articles of Incorporation and Bylaws or any change in the composition of the
Company's Board of Directors or acquisition transaction relating to the
Company), and in order to induce Indemnitee to continue to provide services to
the Company as a director thereof, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors and officers'
liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly of securities of the Company representing twenty percent
(20%) or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least eighty percent (80%) of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or
<PAGE> 2
an agreement for the sale or disposition by the Company (in one transaction or a
series of transactions) of all or substantially all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit,
proceeding or alternate dispute resolution mechanism, or any inquiry, hearing or
investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternate dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, delivery service fees, expenses and obligations of
any nature whatsoever paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement that gives rise to a
claim against the Indemnitee related to or based upon the fact that Indemnitee
is or was a director, officer, employee, agent or fiduciary of the Company, or
is or was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if
(i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing ten percent (10%) or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by five percent (5%) or more over the percentage so
owned by such person on the date hereof; or (iv) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) INDEPENDENT LEGAL COUNSEL: Independent Legal Counsel shall refer to
an attorney, selected in accordance with the provisions of SECTION 3 hereof, who
shall not have otherwise performed services for the Company or Indemnitee within
the last five years (other than in connection with seeking indemnification under
this Agreement). Independent Legal Counsel shall not be any person who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement, nor shall
Independent Legal Counsel be any person who has been sanctioned or censured for
ethical violations of applicable standards of professional conduct.
-2-
<PAGE> 3
(h) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty (30) days after written demand is presented to the Company, against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
trust referred to in SECTION 4 hereof). If so requested by Indemnitee, the
Company shall advance (within five (5) business days of such request) any and
all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in
this Agreement to the contrary and except as provided in SECTION 5, prior to a
Change in Control Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Indemnitee against
the Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under SECTION 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in SECTION 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
SECTION 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control, the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) the Reviewing Party shall be the
Independent Legal Counsel referred to in SECTION 3 hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the State of Florida having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, or the legal or factual bases therefor
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
-3-
<PAGE> 4
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then Independent Legal Counsel shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and such Independent Legal Counsel shall determine
whether the officer or director is entitled to indemnity payments and Expense
Advances under this Agreement or any other agreement of Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events. Such Independent Legal Counsel, among other
things, shall render its written opinion of the Company and Indemnitee as to
whether and to what extent the Indemnitee will be permitted to be indemnified.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
and to indemnify fully such Independent Legal Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or the engagement of Independent Legal
Counsel pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Claim relating
to an Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be
paid. The amount or amounts to be deposited in the trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in any
case in which the Independent Legal Counsel referred to above is involved. The
terms of the trust shall provide that upon a Change in Control (i) the trust
shall not be revoked or the principal thereof invaded, without the written
consent of Indemnitee, (ii) the trustee shall advance, within five (5) business
days of a request by Indemnitee, any and all Expenses to indemnitee (and
Indemnitee hereby agrees to reimburse the trust under the circumstances under
which Indemnitee would be required to reimburse the Company under SECTION 2(b)
of this Agreement), (iii) the trust shall continue to be funded by the Company
in accordance with the funding obligation set forth above, (iv) the trustee
shall promptly pay to Indemnitee all amounts for which Indemnitee shall be
entitled to indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in such trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms of
this Agreement. The trustee shall be chosen by Indemnitee. Nothing in this
SECTION 4 shall relieve the Company of any of its obligations under this
Agreement. All income earned on the assets held in the trust shall be reported
as income by the Company for federal, state, local and foreign tax purposes.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within five business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted against or in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
6. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgment, fines, penalties and
-4-
<PAGE> 5
amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims relating
in whole or in party an Indemnifiable Event or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It
shall be a defense to any action brought by the Indemnitee against the Company
to enforce this Agreement (other than an action brought to enforce a claim for
expenses incurred in defending a claim in advance of its final disposition where
the required undertaking has been tendered to the Company) that the Indemnitee
has not met the standards of conduct that make it permissible under the Florida
Business Corporation Act for the Company to indemnify the Indemnitee for the
amount claimed. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of providing such a defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action by the Indemnitee that Indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the Florida Business Corporation
Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not mete the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. NON-EXCLUSIVITY, ETC.. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles of
Incorporation or Bylaws of the Company or the Florida Business Corporation Act
or otherwise. To the extent that a change in the Florida Business Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Articles of Incorporation
and Bylaws of the Company and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
9. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained herein
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries.
10. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, administrators or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company or its affiliate shall be
extinguished and deemed released unless asserted by the timely filing of a
-5-
<PAGE> 6
legal action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Articles of Incorporation or Bylaws of the Company
or otherwise) of the amounts otherwise indemnifiable hereunder.
15. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director or officer of the Company
or of any other enterprise at the Company's request.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph of sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
INDEMNITEE:
/s/ ERIC B. LEVINE
-------------------------------------
Eric B. Levine
-7-
<PAGE> 1
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is dated as of May 26,
1998 by and between GENERAL ROOFING SERVICES, INC., a Florida corporation (the
"Company"), and DALE E. EBY (the "Indemnitee").
WITNESSETH:
WHEREAS, it is essential to the Company to retain and attract as
officers and directors the most capable persons available;
WHEREAS Indemnitee is an officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and in part to provide Indemnitee with
specific contractual assurance that the indemnification protection provided by
the Articles of Incorporation of the Company (the "Articles of Incorporation")
and Bylaws of the Company (the "Bylaws") will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
Articles of Incorporation and Bylaws or any change in the composition of the
Company's Board of Directors or acquisition transaction relating to the
Company), and in order to induce Indemnitee to continue to provide services to
the Company as a director thereof, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors and officers'
liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly of securities of the Company representing twenty percent
(20%) or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least eighty percent (80%) of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or
<PAGE> 2
an agreement for the sale or disposition by the Company (in one transaction or a
series of transactions) of all or substantially all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit,
proceeding or alternate dispute resolution mechanism, or any inquiry, hearing or
investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternate dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, delivery service fees, expenses and obligations of
any nature whatsoever paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement that gives rise to a
claim against the Indemnitee related to or based upon the fact that Indemnitee
is or was a director, officer, employee, agent or fiduciary of the Company, or
is or was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if
(i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing ten percent (10%) or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by five percent (5%) or more over the percentage so
owned by such person on the date hereof; or (iv) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) INDEPENDENT LEGAL COUNSEL: Independent Legal Counsel shall refer to
an attorney, selected in accordance with the provisions of SECTION 3 hereof, who
shall not have otherwise performed services for the Company or Indemnitee within
the last five years (other than in connection with seeking indemnification under
this Agreement). Independent Legal Counsel shall not be any person who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement, nor shall
Independent Legal Counsel be any person who has been sanctioned or censured for
ethical violations of applicable standards of professional conduct.
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<PAGE> 3
(h) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty (30) days after written demand is presented to the Company, against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
trust referred to in SECTION 4 hereof). If so requested by Indemnitee, the
Company shall advance (within five (5) business days of such request) any and
all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in
this Agreement to the contrary and except as provided in SECTION 5, prior to a
Change in Control Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Indemnitee against
the Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under SECTION 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in SECTION 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
SECTION 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control, the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) the Reviewing Party shall be the
Independent Legal Counsel referred to in SECTION 3 hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the State of Florida having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, or the legal or factual bases therefor
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
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<PAGE> 4
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then Independent Legal Counsel shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and such Independent Legal Counsel shall determine
whether the officer or director is entitled to indemnity payments and Expense
Advances under this Agreement or any other agreement of Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events. Such Independent Legal Counsel, among other
things, shall render its written opinion of the Company and Indemnitee as to
whether and to what extent the Indemnitee will be permitted to be indemnified.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
and to indemnify fully such Independent Legal Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or the engagement of Independent Legal
Counsel pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Claim relating
to an Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be
paid. The amount or amounts to be deposited in the trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in any
case in which the Independent Legal Counsel referred to above is involved. The
terms of the trust shall provide that upon a Change in Control (i) the trust
shall not be revoked or the principal thereof invaded, without the written
consent of Indemnitee, (ii) the trustee shall advance, within five (5) business
days of a request by Indemnitee, any and all Expenses to indemnitee (and
Indemnitee hereby agrees to reimburse the trust under the circumstances under
which Indemnitee would be required to reimburse the Company under SECTION 2(b)
of this Agreement), (iii) the trust shall continue to be funded by the Company
in accordance with the funding obligation set forth above, (iv) the trustee
shall promptly pay to Indemnitee all amounts for which Indemnitee shall be
entitled to indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in such trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms of
this Agreement. The trustee shall be chosen by Indemnitee. Nothing in this
SECTION 4 shall relieve the Company of any of its obligations under this
Agreement. All income earned on the assets held in the trust shall be reported
as income by the Company for federal, state, local and foreign tax purposes.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within five business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted against or in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
6. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgment, fines, penalties and
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<PAGE> 5
amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims relating
in whole or in party an Indemnifiable Event or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It
shall be a defense to any action brought by the Indemnitee against the Company
to enforce this Agreement (other than an action brought to enforce a claim for
expenses incurred in defending a claim in advance of its final disposition where
the required undertaking has been tendered to the Company) that the Indemnitee
has not met the standards of conduct that make it permissible under the Florida
Business Corporation Act for the Company to indemnify the Indemnitee for the
amount claimed. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of providing such a defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action by the Indemnitee that Indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the Florida Business Corporation
Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not mete the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. NON-EXCLUSIVITY, ETC. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles of
Incorporation or Bylaws of the Company or the Florida Business Corporation Act
or otherwise. To the extent that a change in the Florida Business Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Articles of Incorporation
and Bylaws of the Company and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
9. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained herein
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries.
10. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, administrators or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company or its affiliate shall be
extinguished and deemed released unless asserted by the timely filing of a
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<PAGE> 6
legal action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Articles of Incorporation or Bylaws of the Company
or otherwise) of the amounts otherwise indemnifiable hereunder.
15. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director or officer of the Company
or of any other enterprise at the Company's request.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph of sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
INDEMNITEE:
/s/ Dale E. Eby
-------------------------------------
Dale E. Eby
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<PAGE> 1
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is dated as of May 26,
1998 by and between GENERAL ROOFING SERVICES, INC., a Florida corporation (the
"Company"), and WILLIAM A. ABBERGER III (the "Indemnitee").
WITNESSETH:
WHEREAS, it is essential to the Company to retain and attract as
officers and directors the most capable persons available;
WHEREAS Indemnitee is an officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and in part to provide Indemnitee with
specific contractual assurance that the indemnification protection provided by
the Articles of Incorporation of the Company (the "Articles of Incorporation")
and Bylaws of the Company (the "Bylaws") will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
Articles of Incorporation and Bylaws or any change in the composition of the
Company's Board of Directors or acquisition transaction relating to the
Company), and in order to induce Indemnitee to continue to provide services to
the Company as a director thereof, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors and officers'
liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly of securities of the Company representing twenty percent
(20%) or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least eighty percent (80%) of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or
<PAGE> 2
an agreement for the sale or disposition by the Company (in one transaction or a
series of transactions) of all or substantially all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit,
proceeding or alternate dispute resolution mechanism, or any inquiry, hearing or
investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternate dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, delivery service fees, expenses and obligations of
any nature whatsoever paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement that gives rise to a
claim against the Indemnitee related to or based upon the fact that Indemnitee
is or was a director, officer, employee, agent or fiduciary of the Company, or
is or was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if
(i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing ten percent (10%) or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by five percent (5%) or more over the percentage so
owned by such person on the date hereof; or (iv) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) INDEPENDENT LEGAL COUNSEL: Independent Legal Counsel shall refer to
an attorney, selected in accordance with the provisions of SECTION 3 hereof, who
shall not have otherwise performed services for the Company or Indemnitee within
the last five years (other than in connection with seeking indemnification under
this Agreement). Independent Legal Counsel shall not be any person who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement, nor shall
Independent Legal Counsel be any person who has been sanctioned or censured for
ethical violations of applicable standards of professional conduct.
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<PAGE> 3
(h) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty (30) days after written demand is presented to the Company, against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
trust referred to in SECTION 4 hereof). If so requested by Indemnitee, the
Company shall advance (within five (5) business days of such request) any and
all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in
this Agreement to the contrary and except as provided in SECTION 5, prior to a
Change in Control Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Indemnitee against
the Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under SECTION 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in SECTION 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
SECTION 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control, the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) the Reviewing Party shall be the
Independent Legal Counsel referred to in SECTION 3 hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the State of Florida having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, or the legal or factual bases therefor
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
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<PAGE> 4
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then Independent Legal Counsel shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and such Independent Legal Counsel shall determine
whether the officer or director is entitled to indemnity payments and Expense
Advances under this Agreement or any other agreement of Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events. Such Independent Legal Counsel, among other
things, shall render its written opinion of the Company and Indemnitee as to
whether and to what extent the Indemnitee will be permitted to be indemnified.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
and to indemnify fully such Independent Legal Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or the engagement of Independent Legal
Counsel pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Claim relating
to an Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be
paid. The amount or amounts to be deposited in the trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in any
case in which the Independent Legal Counsel referred to above is involved. The
terms of the trust shall provide that upon a Change in Control (i) the trust
shall not be revoked or the principal thereof invaded, without the written
consent of Indemnitee, (ii) the trustee shall advance, within five (5) business
days of a request by Indemnitee, any and all Expenses to indemnitee (and
Indemnitee hereby agrees to reimburse the trust under the circumstances under
which Indemnitee would be required to reimburse the Company under SECTION 2(b)
of this Agreement), (iii) the trust shall continue to be funded by the Company
in accordance with the funding obligation set forth above, (iv) the trustee
shall promptly pay to Indemnitee all amounts for which Indemnitee shall be
entitled to indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in such trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms of
this Agreement. The trustee shall be chosen by Indemnitee. Nothing in this
SECTION 4 shall relieve the Company of any of its obligations under this
Agreement. All income earned on the assets held in the trust shall be reported
as income by the Company for federal, state, local and foreign tax purposes.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within five business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted against or in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
6. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgment, fines, penalties and
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<PAGE> 5
amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims relating
in whole or in party an Indemnifiable Event or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It
shall be a defense to any action brought by the Indemnitee against the Company
to enforce this Agreement (other than an action brought to enforce a claim for
expenses incurred in defending a claim in advance of its final disposition where
the required undertaking has been tendered to the Company) that the Indemnitee
has not met the standards of conduct that make it permissible under the Florida
Business Corporation Act for the Company to indemnify the Indemnitee for the
amount claimed. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of providing such a defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action by the Indemnitee that Indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the Florida Business Corporation
Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not mete the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. NON-EXCLUSIVITY, ETC. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles of
Incorporation or Bylaws of the Company or the Florida Business Corporation Act
or otherwise. To the extent that a change in the Florida Business Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Articles of Incorporation
and Bylaws of the Company and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
9. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained herein
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries.
10. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, administrators or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company or its affiliate shall be
extinguished and deemed released unless asserted by the timely filing of a
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<PAGE> 6
legal action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Articles of Incorporation or Bylaws of the Company
or otherwise) of the amounts otherwise indemnifiable hereunder.
15. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director or officer of the Company
or of any other enterprise at the Company's request.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph of sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
INDEMNITEE:
/s/ William A. Abberger III
-------------------------------------
William A. Abberger III
-7-
<PAGE> 1
EXHIBIT 10.9
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is dated as of May 26,
1998 by and between GENERAL ROOFING SERVICES, INC., a Florida corporation (the
"Company"), ANGELA PETTUS (the "Indemnitee").
WITNESSETH:
WHEREAS, it is essential to the Company to retain and attract as
officers and directors the most capable persons available;
WHEREAS Indemnitee is an officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and in part to provide Indemnitee with
specific contractual assurance that the indemnification protection provided by
the Articles of Incorporation of the Company (the "Articles of Incorporation")
and Bylaws of the Company (the "Bylaws") will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
Articles of Incorporation and Bylaws or any change in the composition of the
Company's Board of Directors or acquisition transaction relating to the
Company), and in order to induce Indemnitee to continue to provide services to
the Company as a director thereof, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors and officers'
liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly of securities of the Company representing twenty percent
(20%) or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least eighty percent (80%) of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or
<PAGE> 2
an agreement for the sale or disposition by the Company (in one transaction or a
series of transactions) of all or substantially all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit,
proceeding or alternate dispute resolution mechanism, or any inquiry, hearing or
investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternate dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, delivery service fees, expenses and obligations of
any nature whatsoever paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement that gives rise to a
claim against the Indemnitee related to or based upon the fact that Indemnitee
is or was a director, officer, employee, agent or fiduciary of the Company, or
is or was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if
(i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing ten percent (10%) or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by five percent (5%) or more over the percentage so
owned by such person on the date hereof; or (iv) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) INDEPENDENT LEGAL COUNSEL: Independent Legal Counsel shall refer to
an attorney, selected in accordance with the provisions of SECTION 3 hereof, who
shall not have otherwise performed services for the Company or Indemnitee within
the last five years (other than in connection with seeking indemnification under
this Agreement). Independent Legal Counsel shall not be any person who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement, nor shall
Independent Legal Counsel be any person who has been sanctioned or censured for
ethical violations of applicable standards of professional conduct.
-2-
<PAGE> 3
(h) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty (30) days after written demand is presented to the Company, against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
trust referred to in SECTION 4 hereof). If so requested by Indemnitee, the
Company shall advance (within five (5) business days of such request) any and
all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in
this Agreement to the contrary and except as provided in SECTION 5, prior to a
Change in Control Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Indemnitee against
the Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under SECTION 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in SECTION 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
SECTION 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control, the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) the Reviewing Party shall be the
Independent Legal Counsel referred to in SECTION 3 hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the State of Florida having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, or the legal or factual bases therefor
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
-3-
<PAGE> 4
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then Independent Legal Counsel shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and such Independent Legal Counsel shall determine
whether the officer or director is entitled to indemnity payments and Expense
Advances under this Agreement or any other agreement of Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events. Such Independent Legal Counsel, among other
things, shall render its written opinion of the Company and Indemnitee as to
whether and to what extent the Indemnitee will be permitted to be indemnified.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
and to indemnify fully such Independent Legal Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or the engagement of Independent Legal
Counsel pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Claim relating
to an Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be
paid. The amount or amounts to be deposited in the trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in any
case in which the Independent Legal Counsel referred to above is involved. The
terms of the trust shall provide that upon a Change in Control (i) the trust
shall not be revoked or the principal thereof invaded, without the written
consent of Indemnitee, (ii) the trustee shall advance, within five (5) business
days of a request by Indemnitee, any and all Expenses to indemnitee (and
Indemnitee hereby agrees to reimburse the trust under the circumstances under
which Indemnitee would be required to reimburse the Company under SECTION 2(b)
of this Agreement), (iii) the trust shall continue to be funded by the Company
in accordance with the funding obligation set forth above, (iv) the trustee
shall promptly pay to Indemnitee all amounts for which Indemnitee shall be
entitled to indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in such trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms of
this Agreement. The trustee shall be chosen by Indemnitee. Nothing in this
SECTION 4 shall relieve the Company of any of its obligations under this
Agreement. All income earned on the assets held in the trust shall be reported
as income by the Company for federal, state, local and foreign tax purposes.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within five business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted against or in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
6. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgment, fines, penalties and
-4-
<PAGE> 5
amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims relating
in whole or in party an Indemnifiable Event or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It
shall be a defense to any action brought by the Indemnitee against the Company
to enforce this Agreement (other than an action brought to enforce a claim for
expenses incurred in defending a claim in advance of its final disposition where
the required undertaking has been tendered to the Company) that the Indemnitee
has not met the standards of conduct that make it permissible under the Florida
Business Corporation Act for the Company to indemnify the Indemnitee for the
amount claimed. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of providing such a defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action by the Indemnitee that Indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the Florida Business Corporation
Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not mete the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. NON-EXCLUSIVITY, ETC. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles of
Incorporation or Bylaws of the Company or the Florida Business Corporation Act
or otherwise. To the extent that a change in the Florida Business Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Articles of Incorporation
and Bylaws of the Company and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
9. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained herein
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries.
10. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, administrators or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company or its affiliate shall be
extinguished and deemed released unless asserted by the timely filing of a
-5-
<PAGE> 6
legal action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Articles of Incorporation or Bylaws of the Company
or otherwise) of the amounts otherwise indemnifiable hereunder.
15. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director or officer of the Company
or of any other enterprise at the Company's request.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph of sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
INDEMNITEE:
/s/ ANGELA PETTUS
-------------------------------------
Angela Pettus
-7-
<PAGE> 1
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is dated as of May 26,
1998 by and between GENERAL ROOFING SERVICES, INC., a Florida corporation (the
"Company"), and ROBERT BROOKER (the "Indemnitee").
WITNESSETH:
WHEREAS, it is essential to the Company to retain and attract as
officers and directors the most capable persons available;
WHEREAS Indemnitee is an officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and in part to provide Indemnitee with
specific contractual assurance that the indemnification protection provided by
the Articles of Incorporation of the Company (the "Articles of Incorporation")
and Bylaws of the Company (the "Bylaws") will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
Articles of Incorporation and Bylaws or any change in the composition of the
Company's Board of Directors or acquisition transaction relating to the
Company), and in order to induce Indemnitee to continue to provide services to
the Company as a director thereof, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors and officers'
liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly of securities of the Company representing twenty percent
(20%) or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least eighty percent (80%) of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or
<PAGE> 2
an agreement for the sale or disposition by the Company (in one transaction or a
series of transactions) of all or substantially all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit,
proceeding or alternate dispute resolution mechanism, or any inquiry, hearing or
investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternate dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, delivery service fees, expenses and obligations of
any nature whatsoever paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement that gives rise to a
claim against the Indemnitee related to or based upon the fact that Indemnitee
is or was a director, officer, employee, agent or fiduciary of the Company, or
is or was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if
(i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing ten percent (10%) or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by five percent (5%) or more over the percentage so
owned by such person on the date hereof; or (iv) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) INDEPENDENT LEGAL COUNSEL: Independent Legal Counsel shall refer to
an attorney, selected in accordance with the provisions of SECTION 3 hereof, who
shall not have otherwise performed services for the Company or Indemnitee within
the last five years (other than in connection with seeking indemnification under
this Agreement). Independent Legal Counsel shall not be any person who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement, nor shall
Independent Legal Counsel be any person who has been sanctioned or censured for
ethical violations of applicable standards of professional conduct.
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<PAGE> 3
(h) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty (30) days after written demand is presented to the Company, against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
trust referred to in SECTION 4 hereof). If so requested by Indemnitee, the
Company shall advance (within five (5) business days of such request) any and
all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in
this Agreement to the contrary and except as provided in SECTION 5, prior to a
Change in Control Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Indemnitee against
the Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under SECTION 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in SECTION 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
SECTION 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control, the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) the Reviewing Party shall be the
Independent Legal Counsel referred to in SECTION 3 hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the State of Florida having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, or the legal or factual bases therefor
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
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<PAGE> 4
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then Independent Legal Counsel shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and such Independent Legal Counsel shall determine
whether the officer or director is entitled to indemnity payments and Expense
Advances under this Agreement or any other agreement of Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events. Such Independent Legal Counsel, among other
things, shall render its written opinion of the Company and Indemnitee as to
whether and to what extent the Indemnitee will be permitted to be indemnified.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
and to indemnify fully such Independent Legal Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or the engagement of Independent Legal
Counsel pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Claim relating
to an Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be
paid. The amount or amounts to be deposited in the trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in any
case in which the Independent Legal Counsel referred to above is involved. The
terms of the trust shall provide that upon a Change in Control (i) the trust
shall not be revoked or the principal thereof invaded, without the written
consent of Indemnitee, (ii) the trustee shall advance, within five (5) business
days of a request by Indemnitee, any and all Expenses to indemnitee (and
Indemnitee hereby agrees to reimburse the trust under the circumstances under
which Indemnitee would be required to reimburse the Company under SECTION 2(b)
of this Agreement), (iii) the trust shall continue to be funded by the Company
in accordance with the funding obligation set forth above, (iv) the trustee
shall promptly pay to Indemnitee all amounts for which Indemnitee shall be
entitled to indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in such trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms of
this Agreement. The trustee shall be chosen by Indemnitee. Nothing in this
SECTION 4 shall relieve the Company of any of its obligations under this
Agreement. All income earned on the assets held in the trust shall be reported
as income by the Company for federal, state, local and foreign tax purposes.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within five business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted against or in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
6. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgment, fines, penalties and
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<PAGE> 5
amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims relating
in whole or in party an Indemnifiable Event or in defense of any issue or matter
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It
shall be a defense to any action brought by the Indemnitee against the Company
to enforce this Agreement (other than an action brought to enforce a claim for
expenses incurred in defending a claim in advance of its final disposition where
the required undertaking has been tendered to the Company) that the Indemnitee
has not met the standards of conduct that make it permissible under the Florida
Business Corporation Act for the Company to indemnify the Indemnitee for the
amount claimed. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of providing such a defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action by the Indemnitee that Indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the Florida Business Corporation
Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not mete the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. NON-EXCLUSIVITY, ETC. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles of
Incorporation or Bylaws of the Company or the Florida Business Corporation Act
or otherwise. To the extent that a change in the Florida Business Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Articles of Incorporation
and Bylaws of the Company and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
9. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained herein
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries.
10. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, administrators or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company or its affiliate shall be
extinguished and deemed released unless asserted by the timely filing of a
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<PAGE> 6
legal action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Articles of Incorporation or Bylaws of the Company
or otherwise) of the amounts otherwise indemnifiable hereunder.
15. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director or officer of the Company
or of any other enterprise at the Company's request.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph of sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
GENERAL ROOFING SERVICES, INC.
By: /s/ Gregg E. Wallick
-------------------------------------
Gregg E. Wallick
President and Chief Executive Officer
INDEMNITEE:
/s/ Robert Brooker
-------------------------------------
Robert Brooker
-7-
<PAGE> 1
EXHIBIT 10.11
GENERAL ROOFING SERVICES, INC.
1998 STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Section 1. PURPOSE. The purpose of the General Roofing
Services, Inc. and its Subsidiaries Stock Option and Restricted Stock Purchase
Plan (the "Plan") is to promote the interests of General Roofing Services, Inc.,
a Florida corporation (the "Company"), and any Subsidiary thereof and the
interests of the Company's shareholders by providing an opportunity to selected
employees, officers and directors of the Company or any Subsidiary thereof as of
the date of the adoption of the Plan or at any time thereafter to purchase
Common Stock of the Company. By encouraging such stock ownership, the Company
seeks to attract, retain and motivate such employees and other persons and to
encourage such employees and other persons to devote their best efforts to the
business and financial success of the Company. It is intended that this purpose
will be effected by the granting of "non-qualified stock options" and/or
"incentive stock options" to acquire the Common Stock of the Company and/or by
the granting of rights to purchase the Common Stock of the Company on a
"restricted stock" basis. Under the Plan, the Committee shall have the authority
(in its sole discretion) to grant "incentive stock options" within the meaning
of Section 422(b) of the Code, "non-qualified stock options" as described in
Treasury Regulation Section 1.83-7 or any successor regulation thereto, or
"restricted stock" awards.
Section 2. DEFINITIONS. For purposes of the Plan, the
following terms used herein shall have the following meanings, unless a
different meaning is clearly required by the context:
2.1. "AWARD" shall mean an award of the right to purchase
Common Stock granted under the provisions of Section 7 of the Plan.
2.2. "BOARD OF DIRECTORS" shall mean the Board of Directors of
the Company.
2.3. "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
2.4. "COMMITTEE" shall mean the committee of the Board of
Directors referred to in Section 5 hereof; provided, that if no such committee
is appointed by the Board of Directors, the Board of Directors shall have all of
the authority and obligations of the Committee under the Plan.
2.5. "COMMON STOCK" shall mean the Common Stock, $.01 par
value, of the Company.
2.6. "EMPLOYEE" shall mean (i) with respect to an ISO, any
person, including, without limitation, an officer or director of the Company,
who, at the time an ISO is granted to such person hereunder, is employed on a
full-time basis by the Company or any Parent or Subsidiary of the Company, and
(ii) with respect to a Non-Qualified Option and/or an Award, any person employed
by, or performing services for, the Company or any Parent or Subsidiary of the
Company, including, without limitation, directors and officers.
2.7. "ISO" shall mean an Option granted to a Participant
pursuant to the Plan that constitutes and shall be treated as an "incentive
stock option" as defined in Section 422(b) of the Code.
2.8. "NON-QUALIFIED OPTION" shall mean an Option granted to a
Participant pursuant to the Plan that is intended to be, and qualifies as, a
"non-qualified stock option" as described in Treasury Regulation Section 1.83-7
or any successor regulation thereto and that shall not constitute or be treated
as an ISO.
2.9. "OPTION" shall mean any ISO or Non-Qualified Option
granted to an Employee pursuant to the Plan.
<PAGE> 2
2.10. "PARTICIPANT" shall mean any Employee to whom an Award
and/or an Option is granted under the Plan.
2.11. "PARENT" of the Company shall have the meaning set forth
in Section 424(e) of the Code.
2.12. "SUBSIDIARY" of the Company shall have the meaning set
forth in Section 424(f) of the Code.
Section 3. ELIGIBILITY. Awards and/or Options may be granted
to any Employee. The Committee shall have the sole authority to select the
persons to whom Awards and/or Options are to be granted hereunder, and to
determine whether a person is to be granted a Non-Qualified Option, an ISO or an
Award or any combination thereof. No person shall have any right to participate
in the Plan unless selected for participation by the Committee. Any person
selected by the Committee for participation during any one period will not by
virtue of such participation have the right to be selected as a Participant for
any other period.
Section 4. COMMON STOCK SUBJECT TO THE PLAN.
4.1. NUMBER OF SHARES. The total number of shares of Common
Stock for which Options and/or Awards may be granted under the Plan shall not
exceed in the aggregate one million five hundred thousand (1,500,000)shares of
Common Stock (subject to adjustment as provided in Section 8 hereof).
4.2. REISSUANCE. The shares of Common Stock that may be
subject to Options and/or Awards granted under the Plan may be either authorized
and unissued shares or shares reacquired at any time and now or hereafter held
as treasury stock as the Committee may determine. In the event that any
outstanding Option expires or is terminated for any reason, the shares allocable
to the unexercised portion of such Option may again be subject to an Option
and/or Award granted under the Plan. If any shares of Common Stock issued or
sold pursuant to an Award or the exercise of an Option shall have been
repurchased by the Company, then such shares may again be subject to an Option
and/or Award granted under the Plan.
4.3. SPECIAL ISO LIMITATIONS.
(a) The aggregate fair market value (determined as of the date
an ISO is granted) of the shares of Common Stock with respect to which ISOs are
exercisable for the first time by an Employee during any calendar year (under
all incentive stock option plans of the Company or any Parent or Subsidiary of
the Company) shall not exceed $100,000.
(b) No ISO shall be granted to an Employee who, at the time
the ISO is granted, owns (actually or constructively under the provisions of
Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
of the Company, unless (i) the option price is at least 110% of the fair market
value (determined as of the time the ISO is granted) of the shares of Common
Stock subject to the ISO and (ii) the ISO by its terms is not exercisable more
than five years from the date it is granted.
4.4. LIMITATIONS NOT APPLICABLE TO NON-QUALIFIED OPTIONS OR
AWARDS. Notwithstanding any other provision of the Plan, the provisions of
Sections 4.3(a) and (b) shall not apply, nor shall be construed to apply, to any
Non-Qualified Option or Award granted under the Plan.
2
<PAGE> 3
Section 5. ADMINISTRATION OF THE PLAN.
5.1. ADMINISTRATION. The Plan shall be administered by a
committee of the Board of Directors (the "Committee") established by the Board
of Directors and consisting of no less than three persons. All members of the
Committee shall be "disinterested persons" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Committee shall be appointed from time to time by, and shall serve at
the pleasure of, the Board of Directors.
5.2. GRANT OF OPTIONS/AWARDS.
(a) OPTIONS. The Committee shall have the sole authority and
discretion under the Plan (i) to select the Employees who are to be granted
Options hereunder; (ii) to designate whether any Option to be granted hereunder
is to be an ISO or a Non-Qualified Option; (iii) to establish the number of
shares of Common Stock that may be subject to each Option; (iv) to determine the
time and the conditions subject to which Options may be exercised in whole or in
part; (v) to determine the amount (not less than the par value per share) and
the form of the consideration that may be used to purchase shares of Common
Stock upon exercise of any Option (including, without limitation, the
circumstances under which issued and outstanding shares of Common Stock owned by
a Participant may be used by the Participant to exercise an Option); (vi) to
impose restrictions and/or conditions with respect to shares of Common Stock
acquired upon exercise of an Option; (vii) to determine the circumstances under
which shares of Common Stock acquired upon exercise of any Option may be subject
to repurchase by the Company; (viii) to determine the circumstances and
conditions subject to which shares acquired upon exercise of an Option may be
sold or otherwise transferred, including, without limitation, the circumstances
and conditions subject to which a proposed sale of shares of Common Stock
acquired upon exercise of an Option may be subject to the Company's right of
first refusal (as well as the terms and conditions of any such right of first
refusal); (ix) to establish a vesting provision for any Option relating to the
time when (or the circumstances under which) the Option may be exercised by a
Participant, including, without limitation, vesting provisions that may be
contingent upon (A) the Company's meeting specified financial goals, (B) a
change of control of the Company or (C) the occurrence of other specified
events; (x) to accelerate the time when outstanding Options may be exercised,
PROVIDED, HOWEVER, that any ISOs shall be deemed "accelerated" within the
meaning of Section 424(h) of the Code; and (xi) to establish any other terms,
restrictions and/or conditions applicable to any Option not inconsistent with
the provisions of the Plan. Notwithstanding anything in the Plan to the
contrary, in no event shall any Option granted to any director or officer of the
Company who is subject to Section 16 of the Exchange Act become exercisable, in
whole or in part, prior to the date that is six months after the date such
Option is granted to such director or officer.
(b) AWARDS. The Committee shall have the sole authority and
discretion under the Plan (i) to select the Employees who are to be granted
Awards hereunder; (ii) to determine the amount to be paid by a Participant to
acquire shares of Common Stock pursuant to an Award, which amount may be equal
to, more than, or less than 100% of the fair market value of such shares on the
date the Award is granted (but in no event less than the par value of such
shares); (iii) to determine the time or times and the conditions subject to
which Awards may be made; (iv) to determine the time or times and the conditions
subject to which the shares of Common Stock subject to an Award are to become
vested and no longer subject to repurchase by the Company; (v) to establish
transfer restrictions and the terms and conditions on which any such transfer
restrictions with respect to shares of Common Stock acquired pursuant to an
Award shall lapse; (vi) to establish vesting provisions with respect to any
shares of Common Stock subject to an Award, including, without limitation,
vesting provisions which may be contingent upon (A) the achievement of specified
financial goals by the Company or any Subsidiary or operating unit, (B) a change
of control of the Company or (C) the occurrence of other specified events; (vii)
to determine the circumstances under which shares of Common Stock acquired
pursuant to an Award may be subject to repurchase by the Company, which may be
in addition to, or in lieu of, the circumstances set forth herein; (viii) to
determine the circumstances and conditions subject to which any shares of Common
Stock acquired pursuant to an Award may be sold or otherwise transferred,
including, without limitation, the circumstances and conditions subject to which
a proposed sale of shares of Common Stock acquired
3
<PAGE> 4
pursuant to an Award may be subject to the Company's right of first refusal (as
well as the terms and conditions of any such right of first refusal); (ix) to
determine the form of consideration that may be used to purchase shares of
Common Stock pursuant to an Award (including, without limitation, the
circumstances under which issued and outstanding shares of Common Stock owned by
a Participant may be used by the Participant to purchase the Common Stock
subject to an Award); (x) to accelerate the time at which any or all
restrictions imposed with respect to any shares of Common Stock subject to an
Award will lapse; and (xi) to establish any other terms, restrictions and/or
conditions applicable to any Award not inconsistent with the provisions of the
Plan.
5.3. INTERPRETATION. The Committee shall be authorized to
interpret the Plan and may, from time to time, adopt such rules and regulations,
not inconsistent with the provisions of the Plan, as it may deem advisable to
carry out the purposes of the Plan.
5.4. FINALITY. The interpretation and construction by the
Committee of any provision of the Plan, any Option and/or Award granted
hereunder or any agreement evidencing any such Option and/or Award shall be
final and conclusive upon all parties.
5.5. EXPENSES, ETC. All expenses and liabilities incurred by
the Committee in the administration of the Plan shall be borne by the Company.
The Committee may employ attorneys, consultants, accountants or other persons in
connection with the administration of the Plan. The Company, and its officers
and directors, shall be entitled to rely upon the advice, opinions or valuations
of any such persons. No member of the Committee shall be liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan or any Option and/or Award granted hereunder.
Section 6. TERMS AND CONDITIONS OF OPTIONS.
6.1. ISOS. The terms and conditions of each ISO granted under
the Plan shall be specified by the Committee and shall be set forth in an ISO
agreement between the Company and the Participant in such form as the Committee
shall approve. The terms and conditions of each ISO shall be such that each ISO
issued hereunder shall constitute and shall be treated as an "incentive stock
option" as defined in Section 422(b) of the Code. The terms and conditions of
any ISO granted hereunder need not be identical to those of any other ISO
granted hereunder.
The terms and conditions of each ISO shall include the
following:
(a) The option price shall be fixed by the Committee but shall
in no event be less than 100% (or 110% in the case of an Employee referred to in
Section 4.3(b) hereof) of the fair market value of the shares of Common Stock
subject to the ISO on the date the ISO is granted. For purposes of the Plan, the
fair market value per share of Common Stock as of any day shall mean the average
of the closing prices of sales of shares of Common Stock on all national
securities exchanges on which the Common Stock may at the time be listed or, if
there shall have been no sales on any such day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day the Common Stock shall not be so listed, the average of the
representative bid and asked prices quoted in the NASDAQ system as of 3:30 p.m.,
New York time, on such day, or, if on any day the Common Stock shall not be
quoted in the NASDAQ system, the average of the high and low bid and asked
prices on such day in the over-the-counter market as reported by National
Quotation Bureau Incorporated, or any similar successor organization. If at any
time the Common Stock is not listed on any national securities exchange or
quoted in the NASDAQ system or the over-the-counter market, the fair market
value of the shares of Common Stock subject to an Option on the date the ISO is
granted shall be the fair market value thereof determined in good faith by the
Board of Directors.
4
<PAGE> 5
(b) ISOs, by their terms, shall not be transferable otherwise
than by will or the laws of descent and distribution, and, during a
Participant's lifetime, an ISO shall be exercisable only by the Participant.
(c) The Committee shall fix the term of all ISOs granted
pursuant to the Plan (including, without limitation, the date on which such ISO
shall expire and terminate); PROVIDED, HOWEVER, that such term shall in no event
exceed ten years from the date on which such ISO is granted (or, in the case of
an ISO granted to an Employee referred to in Section 4.3(b) hereof, such term
shall in no event exceed five years from the date on which such ISO is granted).
Each ISO shall be exercisable in such amount or amounts, under such conditions
and at such times or intervals or in such installments as shall be determined by
the Committee in its sole discretion; PROVIDED, HOWEVER, that in no event shall
any ISO granted to any director or officer of the Company who is subject to
Section 16 of the Exchange Act become exercisable, in whole or in part, prior to
the date that is six months after the date such ISO is granted to such director
or officer.
(d) To the extent that the Company or any Parent or Subsidiary
of the Company is required to withhold any Federal, state or local taxes in
respect of any compensation income realized by any Participant as a result of
any "disqualifying disposition" of any shares of Common Stock acquired upon
exercise of an ISO granted hereunder, the Company shall deduct from any payments
of any kind otherwise due to such Participant the aggregate amount of such
Federal, state or local taxes required to be so withheld or, if such payments
are insufficient to satisfy such Federal, state or local taxes, such Participant
will be required to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. All matters with respect to the total amount of taxes to be withheld
in respect of any such compensation income shall be determined by the Board of
Directors, in its sole discretion.
(e) In the sole discretion of the Committee the terms and
conditions of any ISO may include any of the following provisions:
(1) In the event that (x) the Company or any Parent or Subsidiary
of the Company terminates a Participant's employment "for cause" or (y)
a Participant terminates his employment by such entity for any reason
whatsoever other than as a result of his death or "disability" (within
the meaning of Section 22(e)(3) of the Code), the unexercised portion
of any ISO held by such Participant at that time may only be exercised
within one month after the date on which the Participant ceased to be
so employed, and only to the extent that the Participant could have
otherwise exercised such ISO as of the date on which he ceased to be so
employed.
(2) In the event a Participant shall cease to be employed by the
Company or any Parent or Subsidiary of the Company on a full-time basis
as a result of the termination of such Participant's employment by such
entity other than "for cause" or as a result of his death or
"disability" (within the meaning of Section 22(e)(3) of the Code), the
unexercised portion of any ISO held by such Participant at that time
may only be exercised within three months after the date on which the
Participant ceased to be so employed, and only to the extent that the
Participant could have otherwise exercised such ISO as of the date on
which he ceased to be so employed.
(3) In the event a Participant shall cease to be employed by the
Company or any Parent or Subsidiary of the Company on a full-time basis
by reason of his "disability" (within the meaning of Section 22(e)(3)
of the Code), the unexercised portion of any ISO held by such
Participant at that time may only be exercised within one year after
the date on which the Participant ceased to be so employed, and only to
the extent that the Participant could have otherwise exercised such ISO
as of the date on which he ceased to be so employed.
(4) In the event a Participant shall die while in the employ of the
Company or a Parent or Subsidiary of the Company (or within a period of
one month after ceasing to be an Employee for
5
<PAGE> 6
any reason other than his "disability" (within the meaning of Section
22(e)(3) of the Code) or within a period of one year after ceasing to
be an Employee by reason of such "disability"), the unexercised portion
of any ISO held by such Participant at the time of his death may only
be exercised within one year after the date of such Participant's
death, and only to the extent that the Participant could have otherwise
exercised such ISO at the time of his death. In such event, such ISO
may be exercised by the executor or administrator of the Participant's
estate or by any person or persons who shall have acquired the ISO
directly from the Participant by bequest or inheritance.
6.2. NON-QUALIFIED OPTIONS. The terms and conditions of each
Non-Qualified Option granted under the Plan shall be specified by the Committee,
in its sole discretion, and shall be set forth in a written option agreement
between the Company and the Participant in such form as the Committee shall
approve. The terms and conditions of each Non-Qualified Option will be such (and
each Non-Qualified Option Agreement shall expressly so state) that each
Non-Qualified Option issued hereunder shall not constitute nor be treated as an
"incentive stock option" as defined in Section 422(b) of the Code, but will be a
"non-qualified stock option" for Federal, state and local income tax purposes.
The terms and conditions of any Non-Qualified Option granted hereunder need not
be identical to those of any other Non-Qualified Option granted hereunder.
The terms and conditions of each Non-Qualified Option
Agreement shall include the following:
(a) The option (exercise) price shall be fixed by the
Committee and may be equal to, more than or less than 100% of the fair market
value of the shares of Common Stock subject to the Non-Qualified Option on the
date such Non-Qualified Option is granted.
(b) The Committee shall fix the term of all Non-Qualified
Options granted pursuant to the Plan (including, without limitation, the date on
which such Non-Qualified Option shall expire and terminate). Such term may be
more than ten years from the date on which such Non-Qualified Option is granted.
Each Non-Qualified Option shall be exercisable in such amount or amounts, under
such conditions (including, without limitation, provisions governing the rights
to exercise such Non-Qualified Option), and at such times or intervals or in
such installments as shall be determined by the Committee in its sole
discretion; PROVIDED, HOWEVER, that in no event shall any Non-Qualified Option
granted to any director or officer of the Company who is subject to Section 16
of the Exchange Act become exercisable, in whole or in part, prior to the date
that is six months after the date such Non-Qualified Option is granted to such
director or officer.
(c) Non-Qualified Options shall not be transferable otherwise
than by will or the laws of descent and distribution, and during a Participant's
lifetime a Non-Qualified Option shall be exercisable only by the Participant.
(d) To the extent that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
any Participant in respect of a Non-Qualified Option granted hereunder or in
respect of any shares of Common Stock acquired upon exercise of a Non-Qualified
Option, the Company shall deduct from any payments of any kind otherwise due to
such Participant the aggregate amount of such Federal, state or local taxes
required to be so withheld or, if such payments are insufficient to satisfy such
Federal, state or local taxes, or if no such payments are due or to become due
to such Participant, then, such Participant will be required to pay to the
Company, or make other arrangements satisfactory to the Company regarding
payment to the Company of, the aggregate amount of any such taxes. All matters
with respect to the total amount of taxes to be withheld in respect of any such
compensation income shall be determined by the Board of Directors, in its sole
discretion.
5
<PAGE> 7
(e) In the sole discretion of the Committee the terms and
conditions of any Non-Qualified Option may include any of the following
provisions:
(1) In the event that (x) the Company or any Parent or Subsidiary
of the Company terminates a Participant's employment "for cause" or (y)
a Participant terminates his employment by such entity for any reason
whatsoever other than as a result of his death or "disability" (within
the meaning of Section 22(e)(3) of the Code), the unexercised portion
of any Non-Qualified Option held by such Participant at that time may
only be exercised within one month after the date on which the
Participant ceased to be so employed, and only to the extent that the
Participant could have otherwise exercised such Non-Qualified Option as
of the date on which he ceased to be so employed.
(2) In the event a Participant shall cease to be employed by the
Company or any Parent or Subsidiary of the Company on a full-time basis
as a result of the termination of such Participant's employment by such
entity other than "for cause" or as a result of his death or
"disability" (within the meaning of Section 22(e)(3) of the Code), the
unexercised portion of any Non-Qualified Option held by such
Participant at that time may only be exercised within three months
after the date on which the Participant ceased to be so employed, and
only to the extent that the Participant could have otherwise exercised
such Non-Qualified Option as of the date on which he ceased to be so
employed.
(3) In the event a Participant shall cease to be employed by the
Company or any Parent or Subsidiary of the Company on a full-time basis
by reason of his "disability" (within the meaning of Section 22(e)(3)
of the Code), the unexercised portion of any Non-Qualified Option held
by such Participant at that time may only be exercised within one year
after the date on which the Participant ceased to be so employed, and
only to the extent that the Participant could have otherwise exercised
such Non-Qualified Option as of the date on which he ceased to be so
employed.
(4) In the event a Participant shall die while in the employ of the
Company or a Parent or Subsidiary of the Company (or within a period of
one month after ceasing to be an Employee for any reason other than his
"disability" (within the meaning of Section 22(e)(3) of the Code) or
within a period of one year after ceasing to be an Employee by reason
of such "disability"), the unexercised portion of any Non-Qualified
Option held by such Participant at the time of his death may only be
exercised within one year after the date of such Participant's death,
and only to the extent that the Participant could have otherwise
exercised such Non-Qualified Option at the time of his death. In such
event, such Non-Qualified Option may be exercised by the executor or
administrator of the Participant's estate or by any person or persons
who shall have acquired the Non Qualified Option directly from the
Participant by bequest or inheritance.
7. TERMS AND CONDITIONS OF AWARDS. The terms and conditions of
each Award granted under the Plan shall be specified by the Committee, in its
sole discretion, and shall be set forth in a written agreement between the
Participant and the Company, in such form as the Committee shall approve. The
terms and provisions of any Award granted hereunder need not be identical to
those of any other Award granted hereunder.
The terms and conditions of each Award shall include the
following:
(a) The amount to be paid by a Participant to acquire the
shares of Common Stock pursuant to an Award shall be fixed by the Committee and
may be equal to, more than or less than 100% of the fair market value of the
shares of Common Stock subject to the Award on the date the Award is granted
(but in no event less than the par value of such shares).
7
<PAGE> 8
(b) Each Award shall contain such vesting provisions, such
transfer restrictions and such other restrictions and conditions as the
Committee, in its sole discretion, may determine, including, without limitation,
the circumstances under which the Company shall have the right and option to
repurchase shares of Common Stock acquired pursuant to an Award.
(c) Stock certificates representing Common Stock acquired
pursuant to an Award shall bear a legend referring to any restrictions imposed
on such Stock and such other matters as the Committee may determine.
(d) To the extent that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
the Participant in respect of an Award granted hereunder, in respect of any
shares acquired pursuant to an Award, or in respect of the vesting of any such
shares of Common Stock, then the Company shall deduct from any payments of any
kind otherwise due to such Participant the aggregate amount of such Federal,
state or local taxes required to be so withheld, or if such payments are
insufficient to satisfy such Federal, state or local taxes, or if no such
payments are due or to become due to such Participant, then such Participant
will be required to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. All matters with respect to the total amount of taxes to be withheld
in respect of any such compensation income shall be determined by the Committee,
in its sole discretion.
Section 8. ADJUSTMENTS. (a) In the event that, after the
adoption of the Plan by the Board of Directors, the outstanding shares of the
Company's Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another entity through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors shall appropriately adjust (i) the number
of shares of Common Stock (and the option price per share) subject to the
unexercised portion of any outstanding Option (to the nearest possible full
share); PROVIDED, HOWEVER, that the limitations of Section 424 of the Code shall
apply with respect to adjustments made to ISOs, (ii) the number of shares of
Common Stock to be acquired pursuant to an Award which have not become vested,
and (iii) the number of shares of Common Stock for which Options and/or Awards
may be granted under the Plan, as set forth in Section 4.1 hereof, and such
adjustments shall be effective and binding for all purposes of the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another entity, or the sale of all or substantially all its assets to another
entity, shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, subject to Section 8(c) below, each holder of an Option
shall thereafter have the right to purchase, upon the exercise of the Option in
accordance with the terms and conditions specified in the option agreement
governing such Option and in lieu of the shares of Common Stock immediately
theretofore receivable upon the exercise of such Option, such shares of stock,
securities or assets (including, without limitation, cash) as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore so receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place.
(c) Notwithstanding Section 8(b) hereof (but only if expressly
provided in any option agreement), in the event of (i) any offer to holders of
the Company's Common Stock generally relating to the acquisition of all or
substantially all of their shares, including, without limitation, through
purchase, merger or otherwise, or (ii) any proposed transaction generally
relating to the acquisition of substantially all of the assets or business of
the Company (herein sometimes referred to as an "Acquisition"), the Board of
Directors may, in its sole discretion, cancel any outstanding Options (PROVIDED,
HOWEVER, that the limitations of Section 424 of the Code shall apply with
respect to adjustments made to ISO's) and pay or deliver, or cause to be paid or
delivered, to the holder thereof an amount in cash or securities having a
8
<PAGE> 9
value (as determined by the Board of Directors acting in good faith) equal to
the product of (A) the number of shares of Common Stock (the "Option Shares")
that, as of the date of the consummation of such Acquisition, the holder of such
Option had become entitled to purchase (and had not purchased) multiplied by (B)
the amount, if any, by which (1) the formula or fixed price per share paid to
holders of shares of Common Stock pursuant to such Acquisition exceeds (2) the
option price applicable to such Option Shares.
Section 9. EFFECT OF THE PLAN ON EMPLOYMENT RELATIONSHIP.
Neither the Plan nor any Option and/or Award granted hereunder to a Participant
shall be construed as conferring upon such Participant any right to continue in
the employ of (or otherwise provide services to) the Company or any Subsidiary
or Parent thereof, or limit in any respect the right of the Company or any
Subsidiary or Parent thereof to terminate such Participant's employment or other
relationship with the Company or any Subsidiary or Parent, as the case may be,
at any time.
Section 10. AMENDMENT OF THE PLAN. The Board of Directors may
amend the Plan from time to time as it deems desirable; PROVIDED, HOWEVER, that,
without the approval of the holders of a majority of the outstanding capital
stock of the Company entitled to vote thereon or consent thereto, the Board of
Directors may not amend the Plan (i) to increase (except for increases due to
adjustments in accordance with Section 8 hereof) the aggregate number of shares
of Common Stock for which Options and/or Awards may be granted hereunder, (ii)
to decrease the minimum exercise price specified by the Plan in respect of ISOs
or (iii) to change the class of Employees eligible to receive ISOs under the
Plan.
Section 11. TERMINATION OF THE PLAN. The Board of Directors
may terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board of Directors, the Plan shall terminate ten years after
the date of its initial adoption by the Board of Directors. No Option and/or
Award may be granted hereunder after termination of the Plan. The termination or
amendment of the Plan shall not alter or impair any rights or obligations under
any Option and/or Award theretofore granted under the Plan.
Section 12. EFFECTIVE DATE OF THE PLAN. The Plan shall be
effective as of May 22, 1998, the date on which the Plan was adopted by the
Board of Directors and approved by the shareholders of the Company.
* * * * *
9
<PAGE> 1
EXHIBIT 10.12
BANK OF AMERICA
July 2, 1998
General Roofing Services, Inc.
951 South Andrews Avenue
Pompano Beach, Florida 33069
Attention: Dale Eby
Gentlemen:
We are pleased to inform you that Bank of America National Trust and
Savings Association (the "Bank") has approved a commitment (the "Commitment")
to make available to General Roofing Services, Inc. (the "Borrower") certain
credit facilities (together, the "Facility") more specifically described in the
Summary of Terms and Conditions dated as of July 2, 1998 attached hereto and
incorporated herein by this reference (the "Term Sheet"). This commitment is
subject to the terms and conditions specified in the Term Sheet, and is subject
to the execution of the final credit documentation.
Prior to the Bank's extension of any credit to the Borrower under the
Facility, the Borrower shall execute, or cause to be executed, and shall
deliver to the Bank any credit agreements, promissory notes, contracts,
instruments, security agreements, and other documents and instruments deemed
appropriate by the Bank to evidence the credit facilities and all terms and
conditions described in this commitment letter. All such agreements, notes,
contracts, instruments, and other documents shall be in form and substance
satisfactory to the Bank, and will include representations, warranties,
conditions, covenants, and events of default that are not contained in this
commitment letter.
In addition to the conditions to funding or closing set forth in the Term
Sheet, the Bank's Commitment is subject to (i) the satisfactory completion of
its due diligence with respect to the Borrower, including a satisfactory review
of its assets and liabilities, businesses and operations, proposed organization
and legal structure, and tax, labor, environmental, financial, ERISA,
significant contracts and other matters, (ii) there being no material adverse
change in the financial condition, business, operations, properties or
prospects of the Borrower and its consolidated subsidiaries from March 31,
1998, and (iii) the non-occurrence of any material adverse change in capital
market conditions generally.
<PAGE> 2
General Roofing Services, Inc.
July 2, 1998
Page 2
Whether or not the transactions contemplated hereby are consummated, the
Borrower hereby agrees to indemnify and hold harmless the Bank and its
respective directors, officers, employees and affiliates (each, an "indemnified
person") from and against any and all losses, claims, damages, liabilities (or
actions or other proceedings commenced or threatened in respect thereof) and
expenses that arise out of, result from or in any way relate to this commitment
letter or the provision of the Facility, and to reimburse each indemnified
person, upon its demand, for any legal or other expenses (including the
allocated cost of in-house counsel) incurred in connection with investigating,
defending or participating in any such loss, claim, damage, liability or action
or other proceeding (whether or not such indemnified person in a party to any
action or proceeding out of which any such expenses arise), other than any of
the foregoing claimed by any indemnified person to the extent incurred by
reason of the gross negligence or willful misconduct of such person. The Bank
shall not be responsible or liable to the Borrower or any other person for any
consequential damages which may be alleged. The obligation contained in this
paragraph will survive the closing of the Facility.
Whether or not any of the credit facilities described herein is extended to
the Borrower, or a credit agreement or other document is executed, the Borrower
shall pay and reimburse the Bank, immediately upon demand, for all costs and
out-of-pocket expenses (including the allocated costs of in-house counsel)
expended or incurred by the Bank in connection with the negotiation,
preparation, administration (including waivers and amendments), and enforcement
of this commitment letter and the loan documents contemplated hereby.
Your acknowledgment of this letter and payment of the facility fee as
provided in the Term Sheet will constitute acceptance of the terms and
conditions set forth herein. Unless you accept this Commitment or it is
otherwise terminated by the Bank prior to the Bank's receipt of your acceptance,
this Commitment will expire on July 20, 1998. If you accept this Commitment, it
will remain effective until the closing of the transactions contemplated hereby,
whereupon it will expire, but in no event will this Commitment be effective
later than September 30, 1998; unless the Bank agrees otherwise in writing, the
Bank shall have no further obligation under this letter after that date.
The Commitment is personal to the Borrower, and may not be transferred or
assigned without the prior written consent of the Bank. No third party
beneficiaries are intended in connection with this commitment letter. You may
not disclose or exhibit any portion of this commitment letter to any person or
entity (other than the Borrower's counsel, employees, agents, and
representatives) without the prior written consent of the Bank; no such consent
shall create any third-party beneficiary as to our Commitment.
<PAGE> 3
General Roofing Services, Inc.
July 2, 1998
Page 3
This commitment letter is not meant to be, nor shall it be, construed as an
attempt to define all of the terms and conditions of the credit facilities
described herein. Rather, it is intended only to outline certain basic points
of understanding around which the legal documentation is to be structured.
Further negotiations will not be precluded by the issuance of this commitment
letter and its acceptance by the Borrower.
We at Bank of America are pleased to have this opportunity and look forward
to working with you.
Very truly yours,
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/
-----------------------------
Title: Vice President
--------------------------
Accepted and agreed this 6th day
of July, 1998
GENERAL ROOFING SERVICES, INC.
By: /s/ Dale E. Eby
-----------------------------
Title: Senior Vice-President and
Chief Financial Officer
<PAGE> 4
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
SUMMARY OF TERMS AND CONDITIONS
$50,000,000 Revolving Credit Facility
July 2, 1998
BORROWER General Roofing Services, Inc.
REVOLVING CREDIT ADVANCES
Currencies: Advances shall be in U.S. Dollars.
Amount: The combined amount of all outstanding advances,
and drawn and undrawn letters of credit (the
"Outstanding Amount") not to exceed at any time
$50 million.
Purpose: Working capital and permitted acquisitions, and
general corporate purposes subsequent to closing.
Interest: Advances shall bear interest at one of the
following rates:
<TABLE>
<CAPTION>
Total Debt/EBITDA Rate Plus LIBOR Rate Plus Base Rate
----------------- --------------- -------------------
<S> <C> <C>
greater than 2.0 1.875% .125%
greater than or equal to 1.5 - less than or equal to 2.0 1.625% -0-
1.0 - less than 1.5 1.375% -.125
less than 1.0 1.125% -.25
</TABLE>
Interest shall be calculated on the basis of a
year of 360 days and actual days elapsed, which
results in higher interest than if a year of 365
days were used. Interest shall be payable
quarterly for Base Rate advances, at the end of
the interest period for LIBOR advances, and on
the Termination Date.
- --------------------------------------------------------------------------------
July 6, 1998 BANK OF AMERICA NT&SA PAGE 1
<PAGE> 5
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
BASE RATE: The higher of (a) the rate as
publicly announced from time to time by Bank of
America as its "reference rate" or (b) Federal
Funds Rate plus one-half of one percent per
annum.
LIBOR RATE: The London Interbank Offered Rate for
1-, 2-, 3-, or 6-month dollar deposits at 10:00
a.m. New York time two business days prior to the
borrowing date, adjusted for reserve
requirements.
All sums that are not paid when due shall bear
interest at a rate per annum equal to the Bank's
Reference Rate plus 4% per annum.
Upon the occurrence and during the continuance of
a default under the Credit Agreement (defined
below), all outstanding advances shall bear
interest at a rate per annum equal to the Bank's
Reference Rate plus 4% per annum.
Availability and Maturity: Advances may be obtained prior to, and shall
mature not later than, three years from the date
of closing (the "TERMINATION DATE")
Repayment: Amounts repaid may be reborrowed. All
outstanding principal of advances is due on the
Termination Date.
Commitment and Facility Fee: Facility fee of .25% on the committed amount of
$50 million of which one-half is due upon
acceptance of the commitment and the remainder of
which is payable at closing.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 2
<PAGE> 6
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
Commitment fee of .25% per annum on the average
daily unused portion of the $50 million committed
amount, payable quarterly in arrears. The
commitment fee will be calculated on the basis of
a year of 360 days and actual days elapsed, which
results in higher fees than if a year of 365 days
were used.
LETTERS OF CREDIT Prior to the Termination Date, the Borrower may
obtain standby letters of credit, in form and
substance satisfactory to the Bank, in an
aggregate amount not to exceed at any one time $5
million, provided that the aggregate of the
Outstanding Amount shall not at any time exceed
$50 million. The Borrower shall execute the
Bank's standard form letter of credit application
and agreement, and such other documents as the
Bank may require, in connection with each letter
of credit.
Maturities: Each standby letter of credit shall expire not
later than 12 months after the date of issuance,
provided that no standby letter of credit may
expire later than 12 months after the Termination
Date. On the Termination Date, the Borrower shall
fully cash collateralize any obligations of the
Borrower then outstanding with respect to any
undrawn letters of credit.
Fees for Letters of Credit: The Borrower will pay a letter of credit fee
equal to 1.75% per annum on the amount of letter
of credit, payable upon issuance of the letter of
credit.
The Borrower will pay the Bank miscellaneous
expenses for the items and in the amounts
customarily charged by the Bank with respect to
standby letter of credit.
All fees shall be calculated on the basis of a
year of 360 days and actual days elapsed, which results in higher fees than if
a year of 365 days were used.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 3
<PAGE> 7
GENERAL ROOFING SERVICES, INC.
- -------------------------------------------------------------------------------
DOCUMENTATION The credit facilities described herein will be
subject to the execution of a credit agreement
(the "Credit Agreement") and other documentation,
which will contain conditions, terms and
covenants satisfactory in form and substance to
the Bank, including, but not limited to, those
described below.
GENERAL TERMS
Collateral: The Bank shall have a first priority perfected
security interest in the capital stock of all
material subsidiaries and guarantors pursuant to
pledge and security agreements acceptable to the
Bank.
Guarantors: Guarantees of payment (and not of collection)
from each subsidiary that is not a co-borrower
under the Credit Agreement.
Change in Circumstances,
Increased Costs, Taxes,
Capital Adequacy,
Indemnities: The Credit Agreement will contain customary
provisions protecting the Bank in the event of
unavailability of funding, illegality, increased
costs, capital adequacy charges, and funding
losses, and will provide for withholding tax
gross-up and general indemnification of the Bank
and its assignees by the Borrower.
FINANCIAL COVENANTS The Borrower shall maintain, on a consolidated
basis, the following financial covenants tested
quarterly and on a proforma basis for
acquisitions:
1. Total Debt/EBITDA not to exceed (1) 3.0
at all times during the first 24 months of
the Credit Agreement, (ii) 2.75 at all
times for the following six months and
(iii) 2.50 at all times thereafter.
2. EBITDA/Total Interest Expense of not
less than 3.0.
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JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 4
<PAGE> 8
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
3. Debt to Total Capitalization not to
exceed 50%.
EBITDA is generally defined as the sum of
trailing 12-month [net income, income taxes,
depreciation and amortization, and interest
expense] minus extraordinary income. EBITDA shall
be determined on a pro forma basis for periods
that include historical results of the companies
being acquired at closing (the "Founding
Companies") which shall be adjusted for excess
owner compensation, and other non-recurring
expenses and revenues at the reasonable
discretion of Bank. In addition, if additional
acquisitions are made, pro forma EBITDA shall
include the results of the acquired companies, to
the extent that their results are not included in
the EBITDA of Borrower.
DEBT is defined to include indebtedness for money
borrowed and for guarantees, and represented by
notes payable, bonds, debentures, capitalized
lease obligations, guarantees, letters of credit,
etc.
TOTAL CAPITALIZATION is defined as book net worth
of Borrower as determined by generally accepted
accounting principles.
REPORTING REQUIREMENTS
In addition to other reports which are typical
for transaction of this type, the Borrower shall
submit to the Bank:
1. Within 90 days of each fiscal year end,
annual audited consolidated financial statements,
accompanied by an unqualified opinion of a
"Big-Five" accounting firm.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 5
<PAGE> 9
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
2. Within 45 days of the end of each fiscal
quarter, quarterly consolidated financial
statements and covenant compliance
certificates.
3. Within 30 days of the end of each month,
monthly consolidated financial statements.
4. Within 15 days in advance of the closing
of any material acquisition, pro forma
financial statements and covenant compliance
certificates.
5. Copies of its reports on Forms 10-K,
10-Q, and 8-K at the time they are filed
with the Securities and Exchange Commission.
OTHER COVENANTS In addition to other covenants and conditions
which are typical for transactions of this type,
the Credit Agreement will contain the following
covenants and conditions, among others:
The Borrower and its subsidiaries shall not:
1. Incur any indebtedness in excess of 5%
of the Borrower's net worth.
2. Create or permit to exist any liens or
security interest on its or their properties
except for liens on assets of not more than
2.5% of the Borrower's net worth.
3. Lend money, except that the Borrower may
make advances to affiliates that are not
guarantors up to $5 million in the
aggregate.
4. Make any dividends or other
distributions in respect of its capital
stock in excess of 25% of the Borrower's net
income.
5. Acquire the assets or business of any
other person or entity, except as provided
below.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 6
<PAGE> 10
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
6. Make any foreign investments.
7. Enter into, or become subject to, any
change in control transactions.
8. Enter into business activities
substantially different from Borrower's
present line of business.
9. Incur additional contingent liabilities.
(Excluding construction bonds incurred
under the normal course of business).
The Borrower and its subsidiaries shall be
subject to other limitations that are typical in
loan transactions of this type.
ACQUISITIONS Bank's prior consent would be required for any
acquisitions:
1. where the combined cash consideration
(i.e., excluding payments made in stock)
paid for all acquisitions during the prior
year exceeds $25 million, while the ratio
of Total Debt/EBITDA is greater than 2.5;
2. of companies or business units not in a
similar line of business as Borrower;
3. of companies or business units that were
unprofitable during the prior 12 months;
4. that are not "friendly";
5. when an event of default was in
existence or would result from an
acquisition;
6. that would be made when unrestricted
cash on hand plus the unused amount under
the Credit Agreement is less than $5 million
(or would be on a pro forma basis).
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 7
<PAGE> 11
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
If any acquired entity is not merged into
Borrower, it must become a guarantor of Bank's
loans and pledge all material assets as
collateral.
INTEREST RATE
PROTECTION If the balance of all variable-rate debt exceeds
$20 million, Borrower shall be required to hedge
not less than 50% of the balance, under terms and
conditions satisfactory to Bank.
CONDITIONS PRECEDENT TO
CLOSING AND THE FIRST
EXTENSION OF CREDIT Conditions precedent to the closing and the first
extension of credit will include, but not be
limited to, those customarily found in credit
agreements for similar financings and any
additional conditions precedent appropriate in
the context of the transactions contemplated by
this commitment, including but not limited to
the following:
1. Cash proceeds received by the Borrower
from its initial public offering shall not
be less than $40 million.
2. Total debt of the Borrower and its
subsidiaries shall be not more than $15
million (excluding distributions to
Subchapter S shareholders).
3. The Bank shall have received a perfected
first security interest in the Collateral.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 8
<PAGE> 12
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
4. The Bank shall be satisfied with its
review of:
a. agreements relating to
acquisitions by Borrower;
b. all litigation, proceedings and
injunctions, whether pending or
threatened;
c. Borrower's compliance with laws;
d. affiliate transactions;
e. all material contracts; and
f. the Borrower's strategy for
addressing "Year 2000" matters.
5. The Bank shall have received the fully
executed Credit Agreement and all other
related agreements, documents, and
instruments required by the Bank in order to
consummate the transactions contemplated by
this commitment.
6. The Borrower shall deliver such
certificates, shareholder and board of
director authorizations, third party
consents and legal opinions as the Bank may
require.
7. No material adverse change in the
Borrower's condition (financial or
otherwise) shall have occurred since March
31, 1998.
8. The Bank shall be satisfied with its due
diligence review of the Borrower and its
subsidiaries.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 9
<PAGE> 13
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
CONDITIONS PRECEDENT TO
EACH EXTENSION OF CREDIT Before each extension of credit by the Bank
(including the initial extension of credit),
certain conditions precedent must be satisfied,
in addition to the satisfaction of the conditions
precedent for closing described above. These
conditions include, without limitation, the
following:
1. All representations and warranties, including
all financial and business information previously
provided to the Bank, to be true and complete in
all material respects at the time of such
extension of credit.
2. No default or event of default shall have
occurred and be continuing at the time of such
extension of credit.
3. The Bank shall have received such other
documentation as the Bank may require in
connection with such extension of credit,
including, without limitation, letter of credit
applications with respect to letters of credit to
be issued.
EVENTS OF DEFAULT Events which are customarily found in credit
agreements for similar financings, including,
without limitation:
1. Failure to pay any interest, principal, or
fees payable under the Credit Agreement when due.
2. Failure of any representation or warranty to
be true and accurate.
3. Failure to comply with any covenants.
4. A material adverse in the Borrower's
consolidated condition (financial or otherwise).
5. Adverse governmental action.
6. Default in other obligations, including
taxes.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 10
<PAGE> 14
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
7. Delivery of false financial information.
8. Default under any guaranty, pledge and
security agreement, subordination agreement, or
other document or instrument executed in
connection with the Credit Agreement.
9. Failure of the Bank to have a first priority
perfected security interest in the Collateral.
10. Suspension of the Borrower's business.
11. Other defaults with respect to the Borrower
customary for facilities of this type, including,
but not limited to those relating to bankruptcy,
ERISA and judgments.
EXPENSES The Borrower will pay and reimburse the Bank,
immediately upon demand, for all costs and
out-of-pocket expenses (including the allocated
costs of in-house counsel) expended or incurred
by the Bank in connection with the negotiation,
preparation, due diligence, closing,
administration (including waivers and
amendments), and enforcement of the Credit
Agreement and other agreements, instruments, and
documents executed in connection therewith. Such
costs and expenses of negotiation and preparation
of documentation and due diligence shall be paid,
whether or not the transactions contemplated
hereby are consummated.
CHANGE IN MARKET
CONDITIONS The terms and conditions contained herein are
subject to there being no material adverse change
in the financial markets or the financial
condition of the Borrower between the time this
offer is accepted by the Borrower and the closing
of the transactions contemplated hereby.
GOVERNING LAW The Credit Agreement will be subject to the laws
of the State of Florida.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 11
<PAGE> 15
GENERAL ROOFING SERVICES, INC.
- --------------------------------------------------------------------------------
This Summary of Terms and Conditions is not meant to be, nor should it be
construed as, an attempt to define all of the terms and conditions of the
transaction contemplated hereby, nor is it intended to reflect specific
document phrasing that will exist in the Credit Agreement. It is intended only
to outline the basic points of business understanding around which binding
legal documentation will be structured.
- --------------------------------------------------------------------------------
JULY 6, 1998 BANK OF AMERICA NT&SA PAGE 12
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. ("GRS") on Form S-1 of our report dated May 26, 1998, on the
financial statement of GRS appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
July 7, 1998
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated December 12, 1997, January 20,
1998 as to the final paragraph of Note 6, and February 16, 1998 as to Note 11
on the combined financial statements of GRI of South Florida, Inc., GRI of
Orlando, Inc., GRI of West Florida, Inc. and Dakota Leasing, Inc., appearing in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
July 7, 1998
<PAGE> 3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated May 15, 1998, on the combined
financial statements of Harrington - Scanlon Roofing Company, Inc., appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
July 7, 1998
<PAGE> 4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated April 10, 1998 and May 20, 1998
as to the first paragraph of Note 12, on the combined financial statements of
Advanced Roofing, Inc., Advanced Leasing, Inc., K&M Warehouse, Inc. and Hi-Rise
Crane, Inc. appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
July 7, 1998
<PAGE> 5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated April 27, 1998 and May 12, 1998
as to Note 12, on the combined financial statements of Specialty Associates,
Inc. and Affiliate, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
July 7, 1998
<PAGE> 6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated October 31, 1997 and May 8, 1998
as to Note 11, on the financial statements of Register Contracting Company,
Inc., appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
July 7, 1998
<PAGE> 7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated May 8, 1998 and May 13, 1998 as
to Note 13, on the financial statements of Slavik, Butcher and Baecker
Construction Company, Inc., appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
July 7, 1998
<PAGE> 8
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated April 23, 1998 and May 13, 1998
as to Note 11, on the financial statements of Anthony Roofing, Ltd., appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
July 7, 1998
<PAGE> 9
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated April 30, 1998 and May 19, 1998
as to Note 12, on the financial statements of Five-K Industries, Inc. and
Subsidiary, appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
July 7, 1998
<PAGE> 10
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated April 29, 1998 and May 13, 1998
as to Note 12, on the financial statements of Wright-Brown Roofing Company,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
July 7, 1998
<PAGE> 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated May 19, 1998, on the financial
statements of Cyclone Roofing Company, appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
July 7, 1998
<PAGE> 12
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated April 23, 1998 and May 12, 1998
as to Note 11, on the financial statements of Blackmore and Buckner Roofing,
Inc., appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
July 7, 1998
<PAGE> 13
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General
Roofing Services, Inc. on Form S-1 of our report on the 1995, 1996 and 1997
combined financial statements of C.E.I. Roofing, Inc., C.E.I. Florida, Inc. and
C.E.I. West Roofing Company, Inc., dated February 18, 1998, except for Note
13, as to which the date is May 13, 1998, 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.
BELEW AVERITT LLP
Dallas, Texas
July 7, 1998
<PAGE> 14
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report on the 1996 and 1995 financial
statements of Anthony Roofing, Ltd., dated May 22, 1998, 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.
DUGAN & LOPATKA CPAs, PC
Wheaton, Illinois
July 7, 1998
<PAGE> 15
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in the Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report dated April 28, 1997 related to the
consolidated financial statements of Five-K Industries, Inc. and Subsidiary,
appearing in the Prospectus, which is part of the Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
BEARDEN & SMITH, P.C.
Atlanta, Georgia
July 7, 1998
<PAGE> 16
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of General Roofing
Services, Inc. on Form S-1 of our report on the 1996 and 1995 financial
statements of Blackmore and Buckner Roofing, Inc. dated January 29, 1997,
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/ Blue & Co., LLC
- --------------------------------
Blue & Co., LLC
Indianapolis, IN
July 7, 1998
<PAGE> 1
EXHIBIT 23.3
APPRAISER'S CONSENT
We hereby consent to the filing of our report dated March 1, 1998, as an
exhibit to General Roofing Services, Inc.'s Form S-1 Registration Statement
(File No. 333-53641) (the "Registration Statement") and to the reference to our
name under the caption "Experts" in the prospectus comprising a part of the
"Registration Statement."
/s/ Scott & Stringfellow, Inc.
July 7, 1998
<PAGE> 1
EXHIBIT 99.8
CONSENT OF PROPOSED DIRECTOR
I, J. Patrick Millinor, Jr., hereby consent to the use of my name in
the Form S-1 Registration Statement (the "Registration Statement") of General
Roofing Services, Inc., a Florida corporation (the "Company"), as an individual
who has been appointed and will serve as a director of the Company upon the
consummation of the initial public offering referenced in the Registration
Statement.
July 7, 1998
/s/ J. Patrick Millinor, Jr.
---------------------------------
J. Patrick Millinor, Jr.
