<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________________ TO ____________________.
COMMISSION FILE NUMBER 0-7694
COINMACH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 53-0188589
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
55 LUMBER ROAD, ROSLYN, NEW YORK 11576
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 484-2300
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO .
--- ---
AS OF THE CLOSE OF BUSINESS ON AUGUST 6, 1998, COINMACH CORPORATION HAD
OUTSTANDING 100 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON
STOCK"), ALL OF WHICH SHARES WERE HELD BY COINMACH LAUNDRY CORPORATION.
<PAGE>
COINMACH CORPORATION
INDEX
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PART I.
Financial Information Page No.
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<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets-
June 30, 1998 (Unaudited) and March 31, 1998 3
Condensed Consolidated Statements of Operations (Unaudited)-
Three Months Ended June 30, 1998 and June 27, 1997 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended June 30, 1998 and June 27, 1997 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
PART II.
Other Information
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Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
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</TABLE>
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<PAGE>
COINMACH CORPORATION
--------------------
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998/1/
-------------- ------------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 22,983 $ 22,451
Receivables, net 9,482 7,750
Inventories 14,896 13,430
Prepaid expenses 6,541 6,254
Advance location payments 77,772 74,026
Land, property and equipment, less accumulated
depreciation of $83,998 and $72,234 216,262 194,328
Contract rights, less accumulated amortization of
$46,798 and $39,923 420,519 366,762
Goodwill, less accumulated amortization of $14,521
and $12,530 132,079 110,424
Other assets 22,828 20,807
-------- --------
Total assets $923,362 $816,232
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable $ 18,209 $ 17,128
Accrued rental payments 25,080 20,977
Accrued interest 5,605 13,993
Other accrued expenses 13,663 15,220
Due to Coinmach Laundry Corporation 64,105 64,039
Deferred income taxes 102,010 79,511
11-3/4% Senior Notes 296,655 296,655
Premium on 11-3/4% Senior Notes, net 8,949 9,258
Credit facility indebtedness 389,561 296,267
Other long-term debt 5,165 5,778
Stockholder's equity:
Common stock and capital in excess of par value 41,391 41,391
Notes receivable from management (169) (169)
Accumulated deficit (46,862) (43,816)
-------- --------
Total stockholder's equity (5,640) (2,594)
-------- --------
Total liabilities and stockholder's equity $923,362 $816,232
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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1. The March 31, 1998 balance sheet has been derived from the audited
financial statement as of that date.
-3-
<PAGE>
COINMACH CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
-----------
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
June 30, June 27,
1998 1997
----------------------------
<S> <C> <C>
REVENUES $117,934 $72,095
COSTS AND EXPENSES:
Laundry operating expenses 77,568 48,236
General and administrative expenses 1,971 1,463
Depreciation and amortization 26,843 16,475
Stock-based compensation charge 203 104
-------- -------
106,585 66,278
-------- -------
OPERATING INCOME 11,349 5,817
INTEREST EXPENSE, NET 15,543 10,090
-------- -------
LOSS BEFORE INCOME TAXES (4,194) (4,273)
-------- -------
PROVISION (BENEFIT) FOR INCOME TAXES:
Currently payable 108 50
Deferred (1,256) (850)
-------- -------
(1,148) (800)
-------- -------
NET LOSS $ (3,046) $(3,473)
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
COINMACH CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
June 30, 1998 June 27, 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,046) $ (3,473)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 12,133 6,473
Amortization of advance location payments 4,985 3,050
Amortization of intangibles 9,725 6,952
Deferred income taxes (1,256) (850)
Stock-based compensation charge 203 104
Amortization of debt discount and deferred issuance costs 352 138
Amortization of premium on 11-3/4% Senior Notes (309) --
Change in operating assets and liabilities,
net of business acquired:
Other assets (504) 870
Receivables, net (866) 896
Inventories and prepaid expenses (309) (1,810)
Accounts payable (79) (167)
Accrued interest (8,388) (5,451)
Increase in accrued expenses, net 2,546 1,912
--------- --------
Net cash provided by operating activities 15,187 8,644
--------- --------
INVESTING ACTIVITIES:
Additions to property and equipment (15,481) (11,483)
Advance location payments to location owners (5,276) (3,639)
Additions to net assets related to acquisitions of businesses (86,123) (45,494)
--------- --------
Net cash used for investing activities (106,880) (60,616)
--------- --------
FINANCING ACTIVITIES:
Net repayments of bank and other borrowings (226) (225)
Net advances from (to) parent (11) (1,605)
Deferred debt issuance costs (267) (900)
Proceeds from issuance of term loans from credit facility 93,294 58,000
Principal payments on capitalized lease obligations (565) (260)
--------- --------
Net cash provided by financing activities 92,225 55,010
--------- --------
Net increase in cash and cash equivalents
532 3,038
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 22,451 10,110
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,983 $ 13,148
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 24,307 $ 15,428
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Coinmach Corporation (the "Company"), a Delaware corporation, is the
leading supplier of outsourced laundry equipment services to multi-family
housing properties throughout the United States. The Company's core business
involves leasing laundry rooms from building owners and property management
companies, installing and servicing the laundry equipment and collecting
revenues generated from laundry machines. The Company owns and operates
approximately 744,000 washers and dryers in approximately 75,000 locations on
routes throughout the United States and in 150 retail laundromats located
throughout Texas. Coinmach Corporation is a wholly-owned subsidiary of Coinmach
Laundry Corporation, a Delaware corporation ("Coinmach Laundry").
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in conformity with generally accepted accounting
principles ("GAAP") for interim financial reporting and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, such
financial statements do not include all of the information and footnotes
required by GAAP for complete financial statements. GAAP requires the Company's
management to make estimates and assumptions that affect the amounts reported
therein. Actual results could vary from such estimates. The interim results
presented herein are not necessarily indicative of the results to be expected
for the entire year.
In the opinion of management of the Company, these unaudited condensed
consolidated financial statements contain all adjustments of a normal recurring
nature necessary for a fair presentation of the financial statements for the
interim periods presented.
These unaudited condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended March 31, 1998.
Certain prior year's balances have been reclassified to conform with the 1998
presentation.
3. COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 130
"Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of SFAS No. 130 had no impact on the Company's net income or
stockholders' equity. SFAS No. 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption would have been reported separately in
stockholders' equity to be included in other comprehensive income. The Company
does not have any elements of comprehensive income which would be required to be
included in its financial statements.
-6-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
4. LONG-TERM DEBT
At June 30, 1998, the Company had outstanding long-term debt consisting of
(a) approximately $296.7 million of 11 3/4% Senior Notes due 2005 (the "Senior
Notes"), (b) $274.0 million of term loans, and (c) approximately $115.6 million
of a revolving line of credit. Indebtedness under the Amended and Restated
Credit Facility is secured by all of the Company's real and personal property.
Coinmach Laundry has guaranteed the indebtedness under the Amended and Restated
Credit Facility and pledged to Bankers Trust Company, as Collateral Agent, its
interests in all of the issued and outstanding shares of capital stock of the
Company. In addition to certain terms and provisions, events of default, and
customary restrictive covenants and agreements, the Amended and Restated Credit
Facility contains covenants including, but not limited to, a maximum leverage
ratio, a minimum consolidated interest coverage ratio and limitations on
indebtedness, capital expenditures, advances, investments and loans, mergers and
acquisitions, dividends, stock issuances and transactions with affiliates.
Also, the indenture governing the Senior Notes and the Amended and Restated
Credit Facility limit the Company's ability to pay dividends.
5. RELATED PARTY TRANSACTIONS
During July and September 1996, in connection with the initial public
offering (the "Initial Offering") by Coinmach Laundry of its Class A Common
Stock, par value $.01 per share (the "CLC Common Stock"), Coinmach Laundry
granted certain non-qualified stock options (the "1996 Options") to certain
members of management to purchase up to 739,437 shares of CLC Common Stock at
85% of the initial offering price of the CLC Common Stock. The 1996 Options
vest in equal annual installments (20% vest on the date of grant and the
remainder over a four year period) commencing on July 23, 1996, the effective
date of the Initial Offering. With respect to 1996 Options granted to employees
of the Company, the Company records the difference between the exercise price
and the initial offering price of CLC Common Stock as a stock-based compensation
charge over the applicable vesting period.
On September 5, 1997, Coinmach Laundry granted certain non-qualified stock
options (the "1997 Options") to certain members of management to purchase up to
200,000 shares of Common Stock at an exercise price of $11.90 per share of CLC
Common Stock. The 1997 Options vest in equal annual installments (20% vest
immediately on the date of grant and the remainder vest over a four year period)
commencing on September 5, 1997. The Company records the difference between the
exercise price of the 1997 Options and the fair market value of CLC Common Stock
on September 5, 1997 as a stock-based compensation charge over the applicable
four year vesting period. For the three months ended June 30, 1998 and June 27,
1997, the Company has recorded a stock-based compensation charge of
approximately $203,000 and $104,000 related to the 1996 Options and the 1997
Options, respectively.
On May 4, 1998, the Company granted to certain employees 148,500
non-qualified stock options pursuant to the Stock Option Plan and 31,244
non-qualified options to a director of the Company at an exercise price of
$22.30938 per share. Such options vest in equal annual installments (20% vest
immediately on June 10, 1998 and the remainder vest over a four year period).
The Company will record the difference between the exercise price of such
options and the fair market value of the Common Stock on May 4, 1998 as a
stock-based compensation charge over the applicable four year vesting period.
-7-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
5. RELATED PARTY TRANSACTIONS (continued)
For the three months ended June 30, 1998 and June 27, 1997, the Company has
recorded a stock-based compensation charge of approximately $230,000 and
$104,000, respectively, related to the options described above.
6. ACQUISITIONS
On May 19, 1998, the Company completed the acquisition (the "Cleanco
Acquisition") of Cleanco, Inc. and certain of its affiliates ("Cleanco") for a
cash purchase price of approximately $23.0 million (excluding transaction
expenses), financed with cash and borrowings under the Amended and Restated
Credit Facility. Cleanco, headquartered in Miami, Florida, was a leading
provider of outsourced laundry equipment services in southern Florida. The
Cleanco Acquisition added approximately 21,000 machines to the Company's
installed base.
On June 5, 1998, the Company completed the acquisition (the "G&T
Acquisition") of Gordon & Thomas Companies, Inc. ("G&T") for a cash purchase
price of approximately $58 million, excluding transaction expenses and the
assumption of certain liabilities. This transaction was financed with cash and
borrowings under the Amended and Restated Credit Facility. G&T, headquartered
in New Jersey, was a leading provider of outsourced laundry equipment services
in the New York metropolitan area. The G&T Acquisition strengthened the
Company's presence in the northeastern United States by adding approximately
36,000 machines to the Company's installed base.
-8-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties, including the risks and uncertainties discussed below,
as well as other risks set forth in the Company's Annual Report on Form 10-K for
the year ended March 31, 1998.
GENERAL
The Company is principally engaged in the business of supplying outsourced
laundry equipment services to multi-family housing properties. The Company owns
and operates approximately 744,000 washers and dryers in approximately 75,000
multi-family housing properties on routes throughout the United States and 150
retail laundromats located throughout Texas.
The Company provides outsourced laundry equipment services to locations by
leasing laundry rooms from building owners and property management companies
typically on a long-term, renewable basis. In return for the exclusive right to
provide these services, most of the Company's contracts provide for commission
payments to the location owners. Commission expense (also referred to as rent
expense), the Company's single largest expense item, is included in laundry
operating expenses and represents payments to location owners. Commissions may
be fixed amounts or percentages of revenues and are generally paid monthly.
Also included in laundry operating expenses are the costs of servicing and
collecting in the route business, including, payroll, parts, vehicles and other
related items, the cost of sales associated with the equipment distribution
business and certain expenses related to the operation of retail laundromats.
In addition to commission payments, many of the Company's leases require the
Company to make advance location payments to the location owners. These advance
payments are capitalized and amortized over the life of the applicable lease.
Other revenue sources for the Company include: (i) leasing laundry
equipment and other household appliances and electronic items to corporate
relocation entities, individuals, property owners and managers of multi-family
housing properties (approximately $2.4 million and $0.8 million for the three
months ended June 30, 1998 and June 27, 1997, respectively; (ii) operating,
maintaining and servicing retail laundromats (approximately $4.8 million and
$5.5 million for the three months ended June 30, 1998 and June 27, 1997,
respectively); and (iii) constructing complete turnkey retail laundromats,
retrofitting existing retail laundromats, distributing exclusive lines of
commercial coin and non-coin operated machines and parts, and selling service
contracts (approximately $6.5 million and $4.8 million for the three months
ended June 30, 1998 and June 27, 1997, respectively.)
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes thereto and with
the Company's audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K as of and for the year
ended March 31, 1998.
-9-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THE THREE MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 27, 1997
Revenues increased by approximately 64% for the three months ended June 30,
1998, as compared to the prior year's corresponding period. This improvement in
revenues resulted primarily from the Company's execution of its acquisition
strategy and increased route revenues resulting from internal expansion. Based
on the historical revenues of acquired businesses, the Company estimates that
approximately $41.4 million of its revenue increase for the current three month
period is primarily due to the National Coin Acquisition (as defined) in July
1997, the ALI Acquisition (as defined) in January 1998, the Macke Acquisition
(as defined) in March 1998, the Cleanco Acquisition in May 1998 and the G&T
Acquisition in June 1998. In addition, during the current three month period,
the Company's installed machine base increased by approximately 6,500 machines
from internal growth (excluding the machines added from the Cleanco Acquisition
and the G&T Acquisition during such period) as compared to an increase of
approximately 5,500 machines during the prior year's corresponding period.
Included in internal growth are acquisitions of small, local route operators and
new customers secured by the Company's sales force.
Laundry operating expenses increased by approximately 61% for three month
period ended June 30, 1998, as compared to the prior year's corresponding
period. This increase was due basically to an increase in laundry operating
expenses, primarily commission expense, related to the National Coin
Acquisition, the ALI Acquisition, the Macke Acquisition, the Cleanco Acquisition
and the G&T Acquisition.
General and administrative expenses increased by approximately $0.5 million
for the three month period ended June 30, 1998, as compared to the prior year's
corresponding period. The increase for the period was due to various expenses
associated with (i) costs and expenses relating to the Company's acquisition
strategy, including systems development and refinement relating to the
integration of prior acquisitions, and (ii) additional expenses, such as
accounting, management information systems and other administrative functions
related to the Company's growth. However, as a percentage of revenues, general
and administrative expenses were 1.7% for the current period as compared to 2.1%
for the prior year's corresponding period.
Depreciation and amortization expenses increased by approximately 63% for
the three month period ended June 30, 1998, as compared to the prior year's
corresponding period, due primarily to the contract rights and goodwill
associated with the above-mentioned acquisitions, as well as an increase in
capital expenditures with respect to the Company's installed base of machines.
During 1996 and 1997, Coinmach Laundry granted to certain members of
management of the Company and certain other individuals non-qualified stock
options to purchase shares of CLC Common Stock at an exercise price of $11.90.
With respect to such options granted to its employees, the Company records such
discount as a stock-based compensation charge over the applicable four year
vesting period. On May 4, 1998, the Company granted to certain employees
148,500 non-qualified stock options pursuant to the Stock Option Plan at an
exercise price of $22.30938 per share. Such options vest in equal annual
installments (20% vest immediately on June 10, 1998 and the remainder vest over
a four year period). The Company will record the difference between the exercise
price of such options and the fair market value of the Common Stock on May 4,
1998 as a stock-based compensation charge over the applicable four year vesting
period. During the three months ended June 30, 1998 and June 27, 1997,
the Company
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<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
recorded a stock-based compensation charge of approximately $203,000 and
$104,000, respectively, relating to such options.
Operating income margins were approximately 9.6% for the three month period
ended June 30, 1998, as compared to approximately 8.1%, for the three month
period ended June 27, 1997.
Interest expense, net, increased by approximately 54% for the three month
period ended June 30, 1998, as compared to the prior year's corresponding
period, due primarily to increased borrowing levels under the Amended and
Restated Credit Facility in connection with certain acquisitions, as well as
increased interest expense due to the offering by the Company of $100 million
aggregate principal amount of 11 3/4 Series C Senior Notes due 2005 (the "Series
C Notes") in October 1997.
EBITDA (earnings before deductions for interest, income taxes, depreciation
and amortization), before deduction for stock-based compensation charges was
approximately $38.4 million for the three months ended June 30, 1998, as
compared to approximately $22.4 million for the corresponding period in 1997,
representing an improvement of approximately 72%. EBITDA margins improved to
approximately 32.5% for the three months ended June 30, 1998, compared to
approximately 31.0% for the prior year's corresponding period. EBITDA is used
by certain investors as an indicator of a company's historical ability to
service debt. Management believes that an increase in EBITDA is an indication
of the Company's improved ability to service existing debt, to sustain potential
future increases in debt and to satisfy capital requirements. However, EBITDA
is not intended to represent cash flows for the period, nor has it been
presented as an alternative to either (a) operating income (as determined by
GAAP) as an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by GAAP) as a measure of
liquidity. Given that EBITDA is not a measurement determined in accordance with
GAAP and is thus susceptible to varying calculations, EBITDA as presented may
not be comparable to other similarly titled measures of other companies.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. At June 30, 1998, the Company had outstanding long-term debt
(excluding the premium on the Series C Notes) of approximately $691.4 million
and stockholder's deficit of approximately $5.6 million.
The Company's level of indebtedness will have several important effects on
its future operations, including, but not limited to, the following: (a) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness; (b) the financial covenants contained in
certain of the agreements governing the Company's indebtedness will require the
Company to meet certain financial tests and may limit its ability to borrow
additional funds or to dispose of assets; (c) the Company's ability to obtain
additional financing in the future for working
-11-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired; and (d) the Company's ability to adapt to changes in the outsourced
laundry equipment services industry and to economic conditions in general will
be limited.
As the Company has focused on increasing its cash flow from operating
activities, it has made significant capital investments, primarily consisting of
capital expenditures related to acquisitions, renewal and growth. The Company
anticipates that it will continue to utilize cash flows from operations to
finance its capital expenditures and working capital needs, including interest
payments on its outstanding indebtedness. Capital expenditures for the three
months ended June 30, 1998, were approximately $106.9 million. Of such amount,
the Company spent approximately $86.1 million in acquisition and related
transaction costs, primarily due to the Cleanco Acquisition and the G&T
Acquisition, and approximately $6.6 million related to the net increase in the
installed base of machines of approximately 6,500 machines. The balance of
approximately $14.1 million (which consists of machine expenditures, advance
location payments and laundry room improvements) was used to maintain the
existing machine base in current locations and through replacement of
discontinued locations and for general corporate purposes. The full impact on
revenues and cash flow generated from capital expended on acquisitions and the
net increase in the installed base are not expected to be reflected in the
Company's financial results until subsequent reporting periods, depending on
certain factors, including the timing of the capital expended. While the
Company estimates that it will generate sufficient cash flows from operations to
finance anticipated capital expenditures, there can be no assurances that it
will be able to do so.
The Company's working capital requirements are, and are expected to
continue to be, minimal since a significant portion of the Company's operating
expenses are not paid until after cash is collected from the installed machines.
In connection with certain of the financing agreements governing the Company's
indebtedness, the Company is required to make monthly cash interest payments as
required by the Amended and Restated Credit Facility and semi-annual cash
interest payments on its 11 3/4% Senior Notes due 2005.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay indebtedness outstanding under the Senior
Notes and borrowings under the Amended and Restated Credit Facility or to permit
any necessary refinancings thereof. An inability of the Company, however, to
comply with covenants or other conditions under the Amended and Restated Credit
Facility or contained in the indenture governing the Senior Notes could result
in an acceleration of all amounts due thereunder. If the Company is unable to
meet its debt service obligations, it could be required to take certain actions
such as reducing or delaying capital expenditures, selling assets, refinancing
or restructuring its indebtedness, selling additional equity capital or other
actions. There is no assurance that any of such actions could be effected on
commercially reasonable terms, if at all, or on terms permitted under the
Amended and Restated Credit Facility or the indentures governing the Senior
Notes.
-12-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's depreciation and amortization expenses (aggregating
approximately $26.8 million for the three months ended June 30, 1998) have the
effect of reducing net income but not operating cash flow. In accordance with
GAAP, a significant amount of the purchase price of businesses acquired by the
Company is allocated to "contract rights", which costs are amortized over
periods of 15 years.
On July 17, 1997, Coinmach completed the acquisition of National Laundry
Equipment Company, Whitmer Vend-O-Mat Laundry Services, Inc. and certain other
related parties (the "National Coin Acquisition") for an aggregate purchase
price of approximately $19 million, excluding transaction expenses. The
National Coin Acquisition, which was financed through borrowings under the
Company's then existing credit facility, enabled the Company to further expand
its operations by providing laundry equipment services to multi-family housing
properties in the states of Ohio, Indiana, Kentucky, Michigan, West Virginia,
Pennsylvania, Georgia, Tennessee, Illinois and Florida, as well as by
distributing exclusive lines of commercial coin and non-coin laundry machines
and parts.
On January 15, 1998, Coinmach completed the acquisition of the route
business of Apartment Laundries, Inc. ("ALI") pursuant to which Coinmach
acquired substantially all the assets of ALI for a cash purchase price of $16.2
million, excluding transaction expenses (the "ALI Acquisition"). The ALI
Acquisition was financed through working capital and borrowings under the
Company's then existing credit facility. ALI provided outsourced laundry
equipment services for multi-family housing units in Oklahoma, Texas, Kansas and
Arkansas.
On March 2, 1998, Coinmach completed the acquisition of Macke Laundry
Service, L.P. and substantially all of the assets of certain related entities
(collectively, "Macke") for a cash purchase price of approximately $213 million,
excluding transaction expenses (the "Macke Acquisition"). The Macke Acquisition
was financed with cash and borrowings under the Amended and Restated Credit
Facility, which was amended and restated in connection with such acquisition to
provide for additional borrowing capacity on substantially similar terms. The
Macke Acquisition enabled the Company to further expand its route operations by
providing outsourced laundry equipment services to multi-family housing
properties throughout the United States and added approximately 236,000 machines
to the Company's base.
On May 19, 1998, Coinmach completed the acquisition of Cleanco, Inc. and
certain of its affiliates, ("Cleanco") for a cash purchase price of
approximately $23.0 million, excluding transaction expenses (the "Cleanco
Acquisition"). The Cleanco Acquisition was financed with cash and borrowings
under the Amended and Restated Credit Facility. Cleanco, headquartered in
Miami, Florida, was a leading provider of outsourced laundry equipment services
in southern Florida. The Cleanco Acquisition added approximately 21,000
machines to the Company's installed base.
-13-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On June 5, 1998, Coinmach acquired all of the common stock of Gordon &
Thomas Companies, Inc. ("G&T") for a cash purchase price of approximately $58
million, excluding transaction expenses and the assumption of certain
liabilities (the "G&T Acquisition"). This transaction was financed with cash
and borrowings under the Amended and Restated Credit Facility. G&T,
headquartered in New Jersey, was a leading provider of outsourced laundry
equipment services in the New York metropolitan area. The G&T Acquisition
strengthened the Company's presence in the northeastern United States by adding
approximately 36,000 machines to the Company's installed base.
As part of its business strategy, the Company will continue to evaluate
opportunities to acquire local, regional and multi-regional route businesses.
There can be no assurance that the Company will find attractive acquisition
candidates, successfully complete such transactions or effectively manage the
integration of acquired businesses into its existing business.
INFLATION AND SEASONALITY
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation, and the effects of inflation
may be experienced by the Company in future periods. Management believes that
such effects have not been nor will be material to the Company. The Company's
business generally is not seasonal.
-14-
<PAGE>
COINMACH CORPORATION
--------------------
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company has been, and expects to continue to
be, subject to legal proceedings and claims in the ordinary course of its
business. Although the amount of any liability that could arise with respect to
these actions can not be accurately predicted, management believes that any such
liability, individually or in the aggregate, will not have a material adverse
effect on the financial condition and results of operations of the Company.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.77 Stock Purchase Agreement, dated May 19, 1998, by and
between Gordon & Thomas Companies, Inc., Thomas L. Litwin,
Dorothy E. Litwin, Stuart M. Litwin, Thomas L. Litwin,
GRIT No. 2 and Coinmach Corporation
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
-15-
<PAGE>
COINMACH CORPORATION
--------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 1998
COINMACH CORPORATION
/s/ ROBERT M. DOYLE
------------------------------
Robert M. Doyle
Senior Vice President and Chief Financial Officer
(On behalf of registrant and as Principal
Financial Officer)
-16-
<PAGE>
Exhibit 10.77
STOCK PURCHASE AGREEMENT
by and between
Gordon & Thomas Companies, Inc.,
a New Jersey corporation, as the "Company",
Thomas L. Litwin, Dorothy E. Litwin, Stuart M. Litwin
and Thomas L. Litwin, GRIT No. 2,
collectively, as the "Shareholders"
and
COINMACH CORPORATION
as "Buyer"
Dated: May 19, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS...................................................... 1
1.1 Defined Terms.......................................... 1
1.2 Other Defined Terms.................................... 10
ARTICLE 2
PURCHASE AND SALE OF ASSETS...................................... 11
2.1 Transfer of Assets..................................... 11
2.2 Purchase Price......................................... 13
2.3 Purchase Price Adjustments............................. 13
2.4 Purchase Price Allocations............................. 16
2.5 Prorations............................................. 17
2.6 Closing Costs; Taxes................................... 18
ARTICLE 3
CLOSING.......................................................... 18
3.1 Closing................................................ 18
3.2 Conveyances at Closing................................. 18
3.3 Other Deliveries at Closing............................ 19
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDERS... 19
4.1 Organization of the Company........................... 19
4.2 Capitalization of the Company......................... 20
4.3 Authorization; Binding Effect......................... 21
4.4 Absence of Certain Changes or Events.................. 21
4.5 Title to Assets, Etc.................................. 23
4.6 Condition of Tangible Assets.......................... 24
4.7 Location Contracts and OPL Contracts.................. 24
4.8 Contracts and Commitments............................. 26
4.9 No Conflict or Violation.............................. 28
4.10 Consents and Approvals................................ 28
4.11 Financial Statements.................................. 28
4.12 Litigation............................................ 28
4.13 Labor Matters......................................... 29
4.14 Liabilities........................................... 29
4.15 Compliance with Law................................... 30
4.16 No Brokers............................................ 30
4.17 No Other Agreements to Sell the Purchased
Assets................................................ 30
4.18 Proprietary Rights.................................... 30
4.19 Employee and Related Agreements; ERISA................ 31
4.20 Tax Matters........................................... 35
4.21 Transactions with Certain Persons..................... 38
4.22 Severance Arrangements................................ 38
4.23 Insurance............................................. 38
4.24 Payments.............................................. 38
4.25 Inventories........................................... 39
4.26 Customers and Suppliers............................... 39
</TABLE>
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<TABLE>
<S> <C>
4.27 Compliance With Legislation Regulating
Environmental Quality................................. 39
4.28 Material Misstatements Or Omissions................... 41
4.29 Confidentiality Agreement............................. 42
4.30 Permits............................................... 42
4.31 No Owned Real Property................................ 42
4.32 Solvency.............................................. 42
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER.......................... 42
5.1 Organization of Buyer.................................. 42
5.2 Authorization.......................................... 42
5.3 No Conflict or Violation............................... 43
5.4 Consents and Approvals................................. 43
5.5 Parent Company......................................... 43
5.6 No Brokers............................................. 43
5.7 Financing.............................................. 43
ARTICLE 6
COVENANTS OF THE COMPANY, THE SHAREHOLDERS AND BUYER............. 44
6.1 Books and Records..................................... 44
6.2 Employee Matters and Company Benefit Plans............ 44
6.3 Consents and Best Efforts............................. 45
6.4 Use of Corporate Name................................. 46
6.5 Publicity............................................. 46
6.6 Confidential Information.............................. 47
6.7 Cooperation on Litigation............................. 48
6.8 Cooperation on Tax Matters............................ 48
6.9 Maintenance of Business Prior to Closing.............. 48
6.10 Investigation by Buyer; Audits........................ 49
6.11 Certain Prohibited Transactions....................... 49
6.12 Notification of Certain Matters....................... 50
6.13 HSR Act Approval...................................... 50
6.14 No Mergers, Consolidations, Sale of Stock, Etc........ 50
6.15 Further Assurances.................................... 51
6.16 Dismissal of Litigation............................... 51
6.17 Sales and Use Tax on Transfer of Purchased
Assets................................................ 52
6.18 Section 338(h)(10) Tax Election....................... 52
6.19 WARN Act Compliance................................... 52
6.20 Payment of Severance Obligations by the
Shareholders.......................................... 52
6.21 New Location Contracts................................ 52
6.22 OPL Contracts......................................... 52
6.23 Delivery and Receipt of Seller Stock.................. 52
ARTICLE 7
COVENANT NOT TO COMPETE AND CONFIDENTIALITY...................... 53
7.1 Covenant Not to Compete............................... 53
7.2 Confidentiality and Non-Solicitation.................. 53
7.3 Validity.............................................. 54
7.4 Remedies.............................................. 54
</TABLE>
ii
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<TABLE>
<S> <C>
ARTICLE 8
RISK OF LOSS..................................................... 54
ARTICLE 9
LIABILITIES OF THE PARTIES
AFTER THE CLOSING................................................ 55
9.1 Survival of Representations, Etc...................... 55
9.2 Indemnification by the Shareholders................... 55
9.3 Indemnification by Buyer.............................. 56
9.4 Damages............................................... 56
9.5 Indemnification Payments.............................. 57
9.6 Defense of Claims..................................... 57
9.7 Control of Defense; Exceptions........................ 58
9.8 Prior Consent for Settlement.......................... 58
9.9 Characterization; Taxes............................... 59
9.10 Brokers and Finders................................... 59
9.11 Cooperation........................................... 59
9.12 Insurance Proceeds.................................... 59
9.13 Exclusive Remedy; Indemnification Deductible;
Limitation on Liability............................... 60
ARTICLE 10
CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS...................... 60
10.1 Representations, Warranties and Covenants............. 61
10.2 Permits and Consents.................................. 61
10.3 No Governmental Proceedings or Litigation............. 61
10.4 Certificates.......................................... 61
10.5 Corporate Documents................................... 61
10.6 HSR Act............................................... 61
10.7 Consulting Agreement.................................. 62
10.8 Deliveries at Closing................................. 62
10.9 Lease................................................. 62
ARTICLE 11
CONDITIONS TO BUYER'S OBLIGATIONS................................ 62
11.1 Representations, Warranties and Covenants............ 62
11.2 Permits and Consents................................. 62
11.3 No Governmental Proceedings or Litigation............ 63
11.4 Opinion of Counsel................................... 63
11.5 Material Changes..................................... 63
11.6 HSR Act.............................................. 63
11.7 Audit................................................ 63
11.8 Disclosure Schedules................................. 63
11.9 Due Diligence........................................ 64
11.10 Payoff Letters and Releases.......................... 65
11.11 Miscellaneous Deliveries at Closing.................. 65
11.12 Certificates and Corporate Documents................. 65
11.13 Consulting Agreement................................. 66
11.14 Real Property Lease.................................. 66
11.15 Resignations......................................... 66
11.16 Termination of Company 401(k) Plan................... 66
11.17 Delivery of Seller Stock............................. 66
11.18 Assignment of Certain Excluded Assets................ 66
11.19 Form 5500............................................ 66
</TABLE>
iii
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<TABLE>
<S> <C>
11.20 FIRPTA Certificates................................... 67
11.21 Escrow Agreement...................................... 67
ARTICLE 12
MISCELLANEOUS..................................................... 67
12.1 Assignment............................................ 67
12.2 Arbitration........................................... 67
12.3 Notices; Transfer of Funds............................ 68
12.4 Choice of Law......................................... 69
12.5 Entire Agreement; Amendments and Waivers.............. 69
12.6 Multiple Counterparts................................. 69
12.7 Expenses.............................................. 69
12.8 Invalidity............................................ 69
12.9 Headings.............................................. 70
12.10 Termination........................................... 70
12.11 Interpretation of "Knowledge", etc.................... 70
SCHEDULE I
BALANCE SHEET AND FINANCIAL STATEMENTS............................ 73
SCHEDULE II
EXCLUDED ASSETS................................................... 74
SCHEDULE 2.4
PURCHASE PRICE ALLOCATION......................................... 75
EXHIBIT A
FORM OF LEGAL OPINION OF SELLER'S COUNSEL......................... 1
EXHIBIT B
FACILITIES........................................................ 1
EXHIBIT C
BUYER'S SEVERANCE POLICY.......................................... 1
</TABLE>
iv
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of May 19, 1998, is by and
between Coinmach Corporation, a Delaware corporation (the "Buyer"), and Gordon &
-----
Thomas Companies, Inc., a New Jersey corporation (the "Company"), Thomas L.
-------
Litwin, Dorothy E. Litwin, Stuart M. Litwin and Thomas L. Litwin, GRIT No. 2
(collectively, the "Shareholders" and each, a "Shareholder").
------------ -----------
RECITALS
--------
A. Shareholders collectively own all of the issued and outstanding
shares of common stock, par value $.01 per share, of the Company (the "Seller
------
Stock").
- -----
B. The Company owns certain assets which it uses in the conduct of
its business of (i) supplying coin-operated and non-coin operated laundry
equipment services to multi-family dwellings located primarily in the States of
Connecticut, Delaware, New Jersey, New York and Pennsylvania (the "Route
-----
Business") and (ii) selling, servicing or leasing laundry machines and equipment
- --------
and providing linen services principally to nursing homes and other institutions
(the "OPL Business" and, together with the Route Business, the "Business").
------------ --------
C. Buyer desires to purchase from the Shareholders, and the
Shareholders desire to sell to Buyer, all of the Seller Stock, subject to the
terms and conditions of this Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Defined Terms. As used in this Agreement, the terms below shall
have the following meanings:
"Adverse Effect" shall mean a materially adverse effect on any of the
--------------
Business, the Purchased Assets (in the aggregate), any Assumed Liability, the
financial condition of the Company or the results of operations of the Company.
"Affiliate" of any particular Person shall mean any other Person
---------
controlling, controlled by or under common control with such particular Person,
including, without limitation, any
<PAGE>
other Person which would be treated as a single employer under Section 414 of
the Code.
"Agreement" shall mean this Stock Purchase Agreement, between Buyer,
---------
the Shareholders and the Company, as this Agreement may be amended, supplemented
or modified from time to time.
"Balance Sheet" shall mean the audited balance sheet of the Company as
-------------
of September 30, 1997, together with the notes thereon, previously delivered to
Buyer and attached hereto as Schedule I.
"Balance Sheet Date" shall mean September 30, 1997.
------------------
"Books and Records" shall mean all books and records of the Company
-----------------
pertaining to the Purchased Assets, the Business or customers or suppliers of
the Company, other than books and records which constitute part of the Excluded
Assets.
"Business" shall have the meaning set forth in Recital B hereof and
--------
shall include, without limitation, the Purchased Assets.
"Closing Date" shall mean such date mutually agreed upon by the
------------
parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
----
as it may be amended from time to time.
"Consenting Party" shall mean any Person whose consent or waiver is
----------------
required under any Contract in connection with the Transaction Documents or the
consummation by the Shareholders and the Company of any of the transactions
contemplated thereby.
"Contract" shall mean any of the agreements, contracts (including,
--------
without limitation, the Location Contracts and the OPL Contracts), Leases or
commitments described in the Disclosure Schedule (other than those agreements,
contracts, Leases or commitments which constitute Excluded Assets) and any of
the Company's agreements, contracts, Leases or commitments which relate to the
Business and are not required to be described in the Disclosure Schedule solely
because of the size or duration limitations on contracts required to be
scheduled by this Agreement (other than those agreements, contracts or
commitments which constitute Excluded Assets).
"Contract Rights" shall mean all of the rights and benefits of the
---------------
Company under the Contracts.
"Damages" shall mean any and all costs, losses (including, without
-------
limitation, diminution in value), liabilities (whether fixed, absolute, accrued,
contingent or otherwise and whether direct or indirect, known or unknown),
Taxes, damages,
-2-
<PAGE>
lawsuits, demands, deficiencies, claims and expenses (whether or not arising out
of third-party claims), including without limitation, interest, penalties,
reasonable attorneys' fees and disbursements and all amounts paid in
investigation, defense or settlement of any of the foregoing.
"Disclosure Schedule" shall mean a schedule executed and delivered by
-------------------
the Company to Buyer on or prior to the date hereof which sets forth the
exceptions to the representations and warranties contained in Article 4 hereof
and certain other information called for by Article 4 hereof and certain other
provisions of this Agreement.
"Encumbrances" shall mean any mortgage, deed of trust, restrictive
------------
covenant, lien, pledge, option, charge, easement, security interest, encumbrance
or any other right of third parties, whether or not filed, recorded or otherwise
perfected under applicable law, as well as the interest of any vendor, vendee,
lessor or lessee under any conditional sale agreement, capital lease or other
title retention agreement, other than: (a) any mechanic's, materialmen's or
similar lien, (b) any lien arising under workers compensation, unemployment
insurance, social security, retirement, or similar legislation, (c) any other
nonconsensual lien arising in the ordinary course of Business and in accordance
with past practices of the Company and not incurred in connection with the
borrowing of money, (d) statutory liens of landlords, carriers and other similar
liens, in respect of liabilities which are not yet due or which are being
contested in good faith and, if being contested in good faith, are disclosed
with specificity on the Disclosure Schedule, (e) liens for Taxes not yet due and
payable and liens for Taxes due and payable, in each case, the validity or
amount of which is currently being contested in good faith by appropriate
proceedings and disclosed with specificity on the Disclosure Schedule, (f) any
irregularity in title, zoning or similar restriction or other Encumbrance which
does not materially interfere with the value, occupation, use or enjoyment of
the property or asset which is subject thereto; provided that the foregoing
items (a)-(f) do not, singly or in the aggregate, materially interfere with the
Business or the Purchased Assets.
"Environmental and Safety Requirements" shall mean all applicable
-------------------------------------
federal, state, local and foreign statutes, regulations, ordinances and similar
provisions having the force or effect of law, all judicial and administrative
orders and determinations issued to or with respect to the Company, all
contractual obligations and all common law concerning public health and safety,
worker or occupational health and safety, and pollution or protection of the
environment, including, without limitation, all those relating to the presence,
use, production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, control, or
cleanup of any Hazardous Substances, including, without limitation, the Resource
Conservation and Recovery Act
-3-
<PAGE>
(42 U.S.C. (S) 6901, et seq.) ("RCRA"), the Comprehensive Environmental
-- ---
Response, Compensation and Liability Act (42 U.S.C. (S) 9601, et seq.)
-- ---
("CERCLA"), the Clean Air Act (42 U.S.C. (S) 7401, et seq.), the Clear Water Act
-- ---
(42 U.S.C. (S) 1251, et seq.), the Toxic Substances Control Act (15 U.S.C. (S)
-- ---
2601 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et
-- --- --
seq.) and the Safe Drinking Water Act (21 U.S.C. (S) 349, 42 U.S.C. (S)(S) 201,
- ---
300f).
"Equipment" shall mean all Machines, together with all attachments,
---------
replacements, additions, substitutions, repairs, accessions and accessories
incorporated therein and/or affixed thereto owned by the Company.
"Equity Interests" shall mean, with respect to any Person, the capital
----------------
stock, partnership interests or other equity interests of such Person or
options, warrants, rights to subscribe to, scrip calls, contracts, undertakings,
arrangements, commitments to issue or other rights of any kind to acquire
(whether through an exchange, conversion or otherwise) the capital stock,
partnership interests or other equity interests of such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"ERISA Liabilities" shall mean any Damages incurred by Buyer arising
-----------------
out of, resulting from or relating to any Employee Plan, Multiemployer Plan,
Title IV Plan, Benefit Arrangement or any transaction relating thereto, or any
other benefit arrangement maintained at any time for any period prior to and
including the Closing Date by (or to which contributions have been made by) the
Company or any entity that is (or at any time has been) an Affiliate of the
Company.
"Excluded Assets" shall mean the following items of the Company which
---------------
are not to be acquired by Buyer hereunder:
(a) all Books and Records which relate solely to the Excluded Assets
and/or any Retained Liability;
(b) all of the Shareholder's rights to any prorations in accordance
with Section 2.5 hereof;
(c) Permits, to the extent not lawfully transferable, as identified or
listed on Schedule II attached hereto;
(d) refunds, or credits or claims therefore, in respect to any Tax
paid by the Company or any predecessor of the Company or any payment under any
Tax sharing, Tax Allocation, or similar agreement;
-4-
<PAGE>
(e) all rights of the Shareholders with respect to insurance policies
and any claims thereunder solely to the extent related to the Excluded Assets or
the Retained Liabilities;
(f) rights in connection with prepaid expenses solely to the extent
related to the Excluded Assets;
(g) all other rights, claims and causes of action solely to the extent
related to the Excluded Assets or the Retained Liabilities;
(h) all rights to receive mail and other communications addressed to
the Company, the Shareholders and/or Brian Kronick relating solely to any of the
Excluded Assets or any of the Retained Liabilities;
(i) any refund or right of any Shareholder or the Company to any
deposit made with the Internal Revenue Service or any local taxing authority
prior to the Closing Date;
(j) all other assets specifically identified and listed on Schedule II
to this Agreement.
"Facilities" shall mean only that portion of the Locations, plants,
----------
offices, self storage facilities, re-manufacturing facilities, warehouses,
administration buildings and all other real property and related facilities
used, owned or leased by the Company in connection with the Business.
"Financial Statements" shall mean, collectively, the Balance Sheet and
--------------------
the related statements of income and cash flows of the Company for the twelve
month period ended as of the Balance Sheet Date, together with the notes
thereon, previously delivered to Buyer and attached hereto as Schedule I.
"Fixtures" shall mean all of the furniture, fixtures, furnishings,
--------
machinery (excluding the Machines and Parts and the Excluded Assets) and
equipment owned by the Company and located in, at or upon the Facilities as of
the Balance Sheet Date plus all additions or replacements thereto, and less any
reductions therein, in each case since the Balance Sheet Date in the ordinary
course of the Company's business.
"GAAP" shall mean generally accepted accounting principles,
----
consistently applied.
"Hazardous Substance" shall mean any material or substance: (i) which
-------------------
is defined as a "hazardous substance" pursuant to CERCLA and amendments thereto
and regulations promulgated thereunder; (ii) containing or consisting of
formaldehyde, chemical substances or mixtures, lead-based paint, solid waste,
methane gas, pesticides, pollutants, contaminants, gasoline, oil, diesel fuel or
other petroleum products or byproducts, noise or radiation; (iii) which is
defined as a
-5-
<PAGE>
"hazardous waste" pursuant to RCRA and amendments thereto and regulations
promulgated thereunder; (iv) containing polychlorinated biphenyls ("PCBs")); (v)
containing friable asbestos; (vi) which is radioactive; or (vii) the presence of
which requires investigation or remediation under any federal, state or local
statute, regulation, ordinance or policy.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
-------
of 1976, as amended.
"Indebtedness" shall mean, with respect to any Person, (a)
------------
indebtedness for borrowed money or for the deferred purchase price of property
or services in respect of which such Person is liable, contingently or
otherwise, as obligor or otherwise and any commitment by which such Person
insures a creditor against loss, including contingent reimbursement obligations
with respect to letters of credit, (b) indebtedness guaranteed in any manner by
such Person, including a guarantee in the form of an agreement to repurchase or
reimburse, (c) obligations under capitalized leases in respect of which such
Person is liable, contingently or otherwise, as obligor, guarantor or otherwise,
or in respect of which obligations such Person insures a creditor against loss,
and (d) any unsatisfied obligation of such Person for "withdrawal liability" to
a "multiemployer plan," as such terms are defined under ERISA.
"Investment" shall mean, with respect to any Person, (a) any direct or
----------
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or other ownership or beneficial interest
(including without limitation partnership interests and joint venture interests
of any other Person), and (b) any capital contribution by such Person to any
other Person.
"Leasehold Estates" shall mean all of the Company's rights and
-----------------
obligations as lessee under a Lease.
"Leasehold Improvements" shall mean all of the Company's leasehold
----------------------
improvements situated in or on the property leased under the Leases (excluding
any leasehold improvements constituting Excluded Assets).
"Leases" shall mean all of the leases or subleases (including, without
------
limitation, the Location Contracts) to which the Company is a party listed on
the Disclosure Schedule and all other leases or subleases of any kind relating
to the Business which are not required to be scheduled pursuant to this
Agreement (but excluding all leases or subleases constituting Excluded Assets).
"Legal Requirement" means any applicable law, statute, treaty, rule,
-----------------
regulation, order, ordinance, judgment, injunction, decree, award, determination
or direction of an arbitrator or government entity, including, without
limitation, any zoning,
-6-
<PAGE>
Environmental and Safety Requirement or motor vehicle safety requirements having
the force or effect of law.
"Linens" shall mean all linens or similar items and related supplies
------
(whether new or used) owned and used by the Company in connection with the OPL
Business.
"Location" shall mean a laundry room or similar location at which one
--------
or more On-Location Machines are installed pursuant to a Location Contract (all
such locations are, collectively, the "Locations").
---------
"Location Contract" shall mean any Contract (other than any Contract
-----------------
that is an Excluded Asset) pursuant to which (i) the Company provides
installation, maintenance or other services with respect to Machines or (ii) the
Company leases Machines, in each case, in connection with the Route Business.
"Machines" shall mean any and all coin-operated, non coin-operated and
--------
card operated washing machines and dryers (including all On-Location Machines),
soap machines, debit card equipment and change makers (whether new, used or
refurbished), in each case, owned or leased by the Company in connection with
the Business.
"Maytag" shall mean Maytag Company.
------
"Motor Vehicles" shall mean any and all trucks, trailers, vans and
--------------
automobiles owned or leased by the Company and used in the Business (other than
those automobiles constituting Excluded Assets), which vehicles shall be listed
on the Disclosure Schedule.
"New Inventory" shall mean the Company's new coin-operated and non-
-------------
coin operated and new card operated Machines used in the Business which are held
in inventory, in their respective original packaging, of quality and quantity
commercially useable in the ordinary course of business and either purchased by
the Company no more than 90 days prior to Closing or contained in original
shipment crates provided such Machines are still currently distributed models.
"On-Location Machines" shall mean all coin-operated and/or non-coin
--------------------
and card operated washing machines and dryers installed at Locations and subject
to written or oral Location Contracts and listed or described on the Disclosure
Schedule.
"OPL Business" shall have the meaning set forth in Recital B to this
------------
Agreement.
"OPL Contract" shall mean any Contract (other than an Excluded Asset)
------------
pursuant to which the Company provides linen and related services in connection
with the OPL Business.
-7-
<PAGE>
"Parts" shall mean any and all Machine parts (including new, used or
-----
refurbished spare parts) used in connection with the Business and owned by the
Company.
"Permits" shall mean any and all of the governmental licenses,
-------
governmental permits and other governmental authorizations, accreditations,
approvals, waivers, consents, declarations or filings which are required for the
operation of the Business.
"Person" shall mean an individual, partnership, corporation,
------
association, joint stock company, limited liability company, trust, joint
venture, unincorporated organization, governmental authority or any other entity
or organization of any kind whatsoever.
"Proprietary Information" shall mean any of the proprietary
-----------------------
information, including, without limitation, customer lists, trade secrets,
technology, ideas, methods, developments, inventions, improvements, and business
plans of the Company which are not publicly known or in the public domain.
"Proprietary Rights" shall mean (i) all registrations of trademarks
------------------
and of other marks, trade names or other trade rights of the Company relative to
the Business as conducted on the Closing Date, including, without limitation,
the corporate name "Gordon & Thomas Companies" and all pending applications of
the Company for any such registrations and all patents and copyrights and all
pending applications therefor of any of the Company relative to the Business and
(ii) all other trademarks and other marks, trade names and other trade rights
and all other trade secrets, designs, plans, specifications and other
proprietary rights, whether or not registered, of the Company relative to the
Business as conducted on the Closing Date, other than commercially available
standard software.
"Purchased Assets" shall mean all of the Company's right, title and
----------------
interest in and to properties, assets and rights of any kind, whether tangible
or intangible, real or personal, owned by the Company or in which the Company
has any interest (except the Excluded Assets) and constituting, or used in
connection with, the Business, including without limitation, the following
(except in all cases items constituting Excluded Assets or relating solely to
Excluded Assets):
(i) all Location Contracts and OPL Contracts;
(ii) all Motor Vehicles;
(iii) all Machines, Parts and Linens;
(iv) accounts receivable and refunds or deposits;
-8-
<PAGE>
(v) all cash, cash accounts and cash equivalents (including,
without limitation, cash in Machines);
(vi) all Contract Rights;
(vii) prepaid commissions, refunds owed to the Company,
security deposits and other deposits made by or owed to the Company;
(viii) all Leasehold Estates;
(ix) all Leasehold Improvements;
(x) all Fixtures and Equipment;
(xi) all Books and Records (it being understood that Buyer
shall grant the Shareholders and their respective Representatives reasonable
access to or the right to copy all Books and Records for any legitimate purpose
at the Shareholders' cost);
(xii) to the extent transferable, all Proprietary Rights;
and
(xiii) to the extent transferable, all Permits.
"Real Property" shall mean all real property or any interest therein,
-------------
and all plants, buildings and other improvements located on such real property,
and all easements, licenses, rights of way, Permits and all appurtenances to
such real property, including, without limitation, all appurtenant rights in and
to public streets, whether or not vacated.
"Release" shall mean the spilling, leaking, disposing, discharging,
-------
emitting, depositing, injecting, dumping, leaching, escaping or other release of
any Hazardous Substance, whether purposely, accidentally, intended, unintended,
knowingly, unknowingly, suddenly, over time, or otherwise in violation of
applicable law.
"Representative" shall mean, with respect to any Person, any officer,
--------------
director, partner, affiliate, principal, attorney, accountant, financial
advisor, consultant, agent, employee or other representative of such Person.
"Route Business" shall have the meaning set forth in Recital B.
--------------
"Seller Stock" shall have the meaning set forth in Recital A.
------------
"Tax" shall mean any federal, state, local, or foreign income, gross
---
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits,
-9-
<PAGE>
environmental, customs duties, capital stock, franchise, profits, withholding,
social security or similar tax, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, recording, gains, stock transfer or other similar
tax or duty of any kind whatsoever, including, without limitation any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
----------
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Transaction Documents" shall mean this Agreement, the Disclosure
---------------------
Schedule, the Closing Disclosure Schedule, the Consulting Agreement, the Escrow
Agreement and all other exhibits, statements, schedules, instruments,
certificates and other documents and agreements to be entered into or delivered
by any Person in connection with the transactions contemplated to be consummated
pursuant to any of the foregoing.
1.2 Other Defined Terms. The following terms shall have the meanings
-------------------
defined for such terms in the sections set forth below:
Term Section
---- --------
AAA 12.2
Accrued Employee Expenses 2.2(g)
Acquired Laundry Room Locations 7.1(b)
Acquisition Proposal 6.14
Actions 4.12
Arbitrator 12.2
Assumed Liabilities 2.1(b)
Benefit Arrangement 4.19(a)
Berkeley 6.16
Change of Control Amount 2.3(f)
Change of Control Contracts 2.3(f)
Change of Control Event 2.3(f)
CLC 5.5
Closing 3.1
Closing Disclosure Schedule 11.8
COBRA Benefits 6.2(d)
Company 401(k) Plan 4.19(j)
Company Tax Liabilities 11.21
Confidentiality Agreement 6.10
Damages 9.4
Deficiency Amount 2.3(b)
Disputes 12.2
Escrow Agent 11.21
Escrow Agreement 11.21
Escrowed Tax Amount 11.21
Excess Gross Revenue Amount 2.3(f)
-10-
<PAGE>
Excluded Asset Conveyance Agreements 11.18
Employee Benefit Program 4.19(a)
Final Balance Sheet 2.3(b)
Indemnified Party 9.6
Indemnifying Party 9.6
Indemnity Resolution Date 9.5
Latest Balance Sheet 2.3(b)
Maytag Rebate Period 2.3(e)
Multiemployer Plans 4.19(a)
OPL Distributor Agreement 11.9
PBGC 4.19(a)
Personnel 4.4(b)
Plan Administrator 6.2(d)
Purchase Price 2.2
Retained Liabilities 2.1(c)
Route Business Supply Agreement 11.9
Severance Period 2.1(b)
Title IV Plan 4.19(a)
WARN Act 4.13
ARTICLE 2
PURCHASE AND SALE OF ASSETS
---------------------------
2.1 Transfer of Assets. On the Closing Date and subject to the terms
------------------
and conditions set forth in this Agreement:
(a) Shareholders will sell, convey, transfer, assign, and deliver to
Buyer, and Buyer will acquire from Shareholders, the Seller Stock.
(b) Buyer shall assume the following obligations and liabilities of
the Company (collectively, the "Assumed Liabilities"), all of which shall be
-------------------
discharged by Buyer when and as they become due or otherwise mature:
(i) all obligations and liabilities under Contracts (excluding
any obligations or liabilities to the extent relating to an Excluded Asset or a
Retained Liability) accruing or arising out of events or occurrences happening
after the Closing Date (but, in either case, not including any obligation or
liability for any breach by the Company of any term of any Contract or
commitment occurring on or prior to the Closing Date);
(ii) with respect to employees of the Company (other than any
of the Shareholders or any of their family members) employed by the Company on
the Closing Date and subsequently terminated by Buyer during the six (6) month
period after the Closing Date (the "Severance Period"), thirty percent (30%) of
----------------
the Company's severance obligations to such terminated employees determined as
of the Closing Date, provided, however, that the aggregate amount of such
-------- -------
severance obligations assumed
-11-
<PAGE>
by Buyer shall not exceed thirty percent (30%) of the amount of severance
payments such employees would have been entitled to receive in accordance with
Buyer's severance policy (a copy of which is attached hereto as Exhibit "C") had
such employees been employed in similar positions with Buyer for the same
periods of time (it being understood that with respect to any employees of the
Company terminated by Buyer at any time after the Severance Period, Buyer shall
be responsible for all severance obligations in respect of such employees).
(iii) all obligations and liabilities under Contracts, the
Company's operating Leases and the Company's ordinary course accounts payable
(except, in each case, for any obligations or liabilities that relate to any
Excluded Asset or a Retained Liability), whether arising prior to or following
the Closing that remained unpaid or unsatisfied as of the Closing Date, which
Contracts, operating Leases and accounts payable, shall not in the aggregate
involve payment obligations or liabilities in excess of $2,000,000, and which
shall be specifically identified and described, in a manner acceptable to Buyer
and the Shareholders, on a schedule attached to this Agreement on or prior to
the Closing Date.
(c) Except for Assumed Liabilities and obligations indemnified against
under Section 9.3, Buyer is not assuming any other obligations, liabilities or
commitments of the Company or any of the Shareholders of any nature whatsoever,
whether absolute, accrued, contingent or otherwise, disclosed or undisclosed and
whether or not relating to the Business, all of which shall be retained by the
Shareholders (collectively, the "Retained Liabilities"), including, without
--------------------
limitation, (i) any liabilities in respect of any Tax of or payable by the
Company or any Shareholder (including, without limitation, any Taxes owed by the
Company in accordance with Sections 2.5 and 2.6 hereof or as a result of the
Company having made an election to be taxed as an "S" corporation pursuant to
Section 1362 of the Code or any event which caused the Company to be
disqualified as an "S" corporation for tax purposes) based solely on events or
circumstances occurring on or prior to the Closing Date, (ii) any liability for
legal, accounting or broker's fees incurred in connection with the negotiation
of this Agreement, the other Transaction Documents or the consummation of the
transactions contemplated hereby or thereby, including, without limitation, any
fees or other payments required to be made by the Company to Alan Goldman, (iii)
any liabilities related to any action, order, writ, injunction, judgment or
decree outstanding or claim, suit, litigation, proceeding, labor dispute,
arbitral action or investigation commenced prior to, or to the extent based
solely on the events occurring prior to, the Closing Date involving the Company
or any Shareholder, (iv) any Indebtedness of the Company or any Shareholder
incurred on or prior to the Closing Date, (v) any leasehold liabilities of the
Company or any Shareholder (other than with respect to liabilities arising after
the Closing Date under the Location Contracts, OPL Contracts or Leases listed
-12-
<PAGE>
on Schedule 2.1(b) attached hereto), (vi) any liability arising out of claims
for health care benefits covered by any of the Company's health care plans which
relate to claims incurred by employees of the Company or their dependents on or
before the Closing Date, regardless of when such claims may be filed, (vii) any
liability in respect of any Employee Benefit Plans or Benefit Arrangements
maintained, administered or otherwise contributed to by the Company or an
Affiliate of the Company, including, but not limited to, any ERISA Liability or
liability for retiree medical, dental or life insurance benefits offered by the
Company, even if such benefits have been provided by the Company to employees of
the Company hired by Buyer, (viii) any liabilities of the Company under any
policies or binders of fire, liability, title, worker's compensation and other
forms of insurance maintained by the Company or the Business, (ix) any accrued
vacation time, personal time, bereavement time, sick-leave time, salary, bonus,
fringe benefits, welfare benefits, pension benefits, and other benefits or
claims, including, without limitation, severance payments and COBRA benefits,
accrued by any employee of the Company prior to the Closing Date, or (x) any
liabilities or obligations of any kind or nature (absolute, accrued, contingent
or otherwise) relating to or arising out of any of the Excluded Assets,
including, without limitation, any obligation or liability for any breach by the
Company of any term of any Contract or commitment occurring on or prior to the
Closing Date, or relating to the Purchased Assets or the operation of the
Facilities arising out of transactions entered into or events occurring prior to
the Closing Date. The Shareholders agree to discharge all Retained Liabilities
when and as they become due or otherwise mature.
2.2 Purchase Price. On the Closing Date, Buyer shall pay to the
--------------
Shareholders for the sale, transfer, assignment, conveyance and delivery of the
Purchased Assets an amount (the "Purchase Price") equal to FIFTY SEVEN MILLION
--------------
EIGHT HUNDRED THOUSAND DOLLARS ($57,800,000), subject to certain adjustments as
hereinafter provided. The Purchase Price shall be paid on the Closing Date in
cash by wire transfer of immediately available funds as directed in writing by
the Shareholders at least three (3) business days prior to the Closing Date.
2.3 Purchase Price Adjustments.
--------------------------
(a) New Inventory, Linens and Parts. On or prior to the Closing Date,
-------------------------------
the Shareholders shall provide Buyer with (i) a schedule of New Inventory and
invoices or other statements with respect thereto, in form and substance
reasonably satisfactory to Buyer, indicating the Company's cost for all such New
Inventory (collectively, the "New Inventory Costs") and (ii) a schedule of
-------------------
Linens and Parts and invoices or other statements with respect thereto, in form
and substance reasonably satisfactory to Buyer, indicating the Company's cost
for all such Linens and Parts (collectively, the "Linens and Parts Costs").
----------------------
Upon Buyer's confirmation that the information contained in each such schedule
-13-
<PAGE>
is accurate and complete in all material respects, then (A) if, to Buyer's
reasonable satisfaction, the (x) aggregate fair market value of all Linens and
Parts and (y) the aggregate amount of Linens and Parts Costs is equal to or
greater than $490,000, the Purchase Price shall be increased on the Closing Date
by an amount equal to $490,000, and (B) the Purchase Price shall be increased on
the Closing Date by an amount equal to the New Inventory Costs.
(b) Working Capital Adjustment. For the purposes of this Section
--------------------------
2.3(b), the following terms shall have the following meanings:
(A) "Latest Balance Sheet" shall mean the Balance Sheet.
--------------------
(B) "Final Balance Sheet" shall mean the unaudited balance sheet
-------------------
of the Company as of the Closing Date, which shall be prepared by the
Company's accountants that prepared the Balance Sheet, in accordance with
generally accepted accounting principles consistently applied, in form and
substance reasonably acceptable to Buyer.
(C) "Deficiency Amount" shall mean the amount, if any, by which
-----------------
the amount of net current assets as reflected on the Final Balance Sheet is
less than (more negative than) the amount of net current assets as
reflected on the Latest Balance Sheet (it being understood that the Latest
Balance Sheet and the Final Balance Sheet shall be prepared on a consistent
basis in a manner reasonably acceptable to Buyer and the Shareholders).
(D) "Surplus Amount" shall mean the amount, if any, by which the
--------------
amount of net current assets as reflected on the Final Balance Sheet is
greater than (less negative than) the amount of net current assets as
reflected on the Latest Balance Sheet (it being understood that the Latest
Balance Sheet and the Final Balance Sheet shall be prepared on a consistent
basis in a manner reasonably acceptable to Buyer and the Shareholders).
The Company shall deliver the Latest Balance Sheet to Buyer on or
prior to the Closing Date and the Final Balance Sheet to Buyer no later than
forty-five (45) days after the Closing Date. No later than ten (10) business
days after delivery of the Final Balance Sheet to Buyer, (i) to the extent there
is a Deficiency Amount, the Shareholders shall pay to Buyer by wire transfer of
immediately available funds an amount in cash equal to the Deficiency Amount or
(ii) to the extent there is a Surplus Amount, Buyer shall pay to the
Shareholders by wire transfer of immediately available funds an amount in cash
equal to the Surplus Amount.
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<PAGE>
(c) Assumed Liability Adjustment. On or prior to the Closing Date,
----------------------------
Buyer and the Company shall determine the amount of obligations and liabilities
to be assumed by Buyer pursuant to Section 2.1(b)(iii) hereof. In the event
such obligations and liabilities assumed by Buyer pursuant to Section
2.1(b)(iii) hereof are less than $2,000,000 in the aggregate, then Buyer shall
pay to the Shareholders on the Closing Date, by wire transfer of immediately
available funds an amount in cash equal to $2,000,000 minus the amount of
obligations and liabilities assumed by Buyer pursuant to Section 2.1(b)(iii)
hereof.
(d) Newly Installed Machines. If, as of the Closing Date, the
------------------------
aggregate number of all On-Location Machines installed pursuant to Location
Contracts is greater than or equal to 37,206, then, with respect to the
acquisition by the Company of any new Location during the period from the date
hereof to the Closing Date (approved by Buyer pursuant to Section 6.21 hereof)
which requires the Company to make capital expenditures in respect of such
Location in excess of $25,000 in the aggregate, the Purchase Price shall be
increased by the aggregate amount of invoice costs (which costs shall have been
approved by Buyer in advance) incurred by the Company with respect to On-
Location Machines (to the extent such new Machines constituted New Inventory on
the date prior to installation) installed at such Location; provided, however,
-------- -------
that this Section 2.3(d) shall not apply to the renewal by the Company of any
Location Contract to which the Company was a party prior to the date hereof.
(e) Maytag Volume Rebate. In addition to the Purchase Price, Buyer
--------------------
shall pay to the Shareholders a portion of the annual volume rebate required to
be paid by Maytag in respect of purchases of laundry machines during the twelve
month period from November 1, 1997 to October 31, 1998 (the "Maytag Rebate
-------------
Period") in an amount equal to the product of (i) the quotient of (A) the dollar
- ------
amount of laundry machine purchases made by the Company during the period from
November 1, 1997 to the Closing Date, divided by (B) the combined dollar amount
-------
of laundry machine purchases made by the Company and Buyer from Maytag during
the Maytag Rebate Period, multiplied by (ii) the dollar amount of the volume
----------
rebate required to by paid by Maytag to the Company and/or Buyer in respect of
laundry machine purchases made by the Company and/or Buyer during the Maytag
Rebate Period. Such portion of the annual volume rebate shall be paid to the
Shareholders within fifteen (15) days of Buyer's receipt thereof from Maytag.
(f) Change of Control Event. If (i) Buyer receives notice that one or
-----------------------
more Location Contracts has terminated or Buyer is otherwise precluded from
receiving the economic benefit of any Location Contract (any such event, a
"Change of Control Event") at any time after the Closing Date and on or prior to
- ------------------------
the earlier to occur of (x) the third year anniversary of the Closing Date and
(y) the expiration date of such Location Contract without giving effect to any
early termination thereof (such Location Contracts, collectively, the "Change of
---------
Control
- -------
-15-
<PAGE>
Contracts") due to the exercise of a contract right under such Change of Control
- ---------
Contract permitting termination of such Change of Control Contract due to the
occurrence of a "change of control" (or similar event involving the sale or
transfer of a controlling equity interest in the Company) arising out of the
Transaction Documents, and (ii) the aggregate gross revenue attributable to such
Change of Control Contracts for the twelve month period ended on the Closing
Date exceeds $1,200,000 (such excess gross revenue amount, as determined in a
manner reasonably acceptable to Buyer and the Shareholders, the "Excess Gross
------------
Revenue Amount"), then the Purchase Price shall be decreased by an amount in
- --------------
dollars (the "Change of Control Amount") equal to the product of (x) the Excess
------------------------
Gross Revenue Amount multiplied by (y) 1.66. Not later than ten (10) days after
----------
receipt by any of the Shareholders of written notice from Buyer of the
occurrence of any Change of Control Event (which notice shall identify the
Change of Control Contracts and disclose, to the extent available, the Excess
Gross Revenue Amount and the basis on which such amount was calculated), the
Shareholders shall pay to Buyer an amount equal to the Change of Control Amount,
unless during such ten (10) day period Buyer shall have renewed or reinstated
any such Change of Control Contract on no less favorable terms and in a manner
satisfactory to Buyer in its sole and reasonable discretion.
(g) Certain Accrued Employee Expenses. On the Closing Date, (i) the
---------------------------------
Shareholders shall deliver to the Buyer a schedule, in form and substance
reasonably acceptable to Buyer, prepared by the Company (which schedule shall be
consistent with the information contained in the Final Balance Sheet), setting
forth the amount of all vacation time, personal time, bereavement time, sick-
leave time, salary, bonus, fringe benefits, welfare benefits, pension benefits,
and other benefits or claims of any kind accrued by all employees of the Company
prior to the Closing Date (such accrued liabilities and expenses, collectively,
the "Accrued Employees Expenses") and (ii) the Purchase Price shall be reduced
--------------------------
by an amount equal to the Accrued Employee Expenses.
(h) If the Buyer and the Company shall be unable to agree on the
amount of any adjustment to the Purchase Price pursuant to this Section 2.3 or
shall be unable to resolve any dispute arising thereunder, then such disputes
shall be settled in the manner provided for in Section 12.2 hereof.
2.4 Purchase Price Allocations. The Purchase Price shall be
--------------------------
allocated among the Purchased Assets as set forth on Schedule 2.4 attached
hereto. Each of the Shareholders, the Company and Buyer hereby covenant and
agree that neither of them will take a position on any income tax return
(including, without limitation, Internal Revenue Service Form 8594) or with any
governmental authority that is in any way inconsistent with the terms of this
Section 2.4 or the allocations set forth on Schedule 2.4. The parties hereto
agree that such allocation shall be revised in a manner consistent with
Temporary Treasury
-16-
<PAGE>
Regulation Section 1.1060-1T(f) or any successor regulation thereto to reflect
any indemnification payments made under Article 9 of this Agreement. The
Shareholders, the Company and Buyer shall inform each other promptly of any
challenge by any governmental authority to the allocation set forth under
Schedule 2.4 and no party shall agree to any adjustment asserted by such
governmental authority without the prior written consent of the other party,
which consent shall not be unreasonably withheld. The Shareholders, the Company
and Buyer agree to reasonably cooperate with each other in preparing Internal
Revenue Service Form 8594 for filing by each of them and to furnish the other
party with a copy of Internal Revenue Service Form 8594 within a reasonable
period before its filing due date.
2.5 Prorations.
----------
(a) Utilities; Taxes. On the Closing Date, or as promptly as
----------------
practicable following the Closing Date, but in no event later than sixty (60)
days thereafter, the real and personal property taxes, water, gas, electricity
and other utilities, common area maintenance reimbursements to lessors, local
business or other license fees or taxes, merchants association dues and other
similar periodic charges shall be prorated between Buyer and the Company
retroactively effective as of the Closing Date. To the extent practicable,
utility meter readings for the Facilities shall be determined as of the Closing
Date. If the real property tax rate for the current tax year is not established
by the Closing Date, the prorations shall be made on the basis of the rate in
effect for the preceding tax year and shall be adjusted when the exact amounts
are determined. All such prorations shall be based upon the most recent
available assessed value of any Facility prior to the Closing Date.
(b) Rents. The Company shall pay minimum or basic rent under the
-----
Location Contracts or under any other Leases through the end of the calendar
month in which the Closing Date occurs, or, to the extent such rent is payable
quarterly, the end of the calendar quarter in which the Closing Date occurs, but
Buyer shall reimburse the Shareholders for such rent accrued from the Closing
Date through the end of such month as part of the post-Closing proration
procedure described in Section 2.5(a) above. Payments of percentage rent, if
any, due under certain Location Contracts shall be adjusted to the Closing Date
as set forth in this Section 2.5(b). Although Buyer shall pay any percentage
rent due for periods expiring after the Closing Date, the Shareholders shall be
responsible for that portion due under Location Contracts based on collections
from the commencement of the current Location Contract or applicable lease year
thereunder to the Closing Date, and Buyer shall be responsible for that portion
due under the Location Contracts based on collections from and after the Closing
Date. Within ninety (90) days after the Closing Date, the Shareholders will
furnish Buyer with records (in form and substance reasonably satisfactory to
Buyer) which evidence the gross collections of the Company at each
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<PAGE>
Location to the extent necessary to enable Buyer to comply with the percentage
rent provision of each Location Contract. Buyer shall provide to the
Shareholders, within thirty (30) days before the annual settlement of percentage
rent under any Location Contract for the partial year in which the Company was
operating such Location, a statement showing the manner of computation of all
percentage rent due under each Location Contract for such year. Any
reimbursement due Buyer from the Shareholders or the Company in respect of its
pro rata share of percentage rent shall be paid within fifteen (15) days after
written demand therefor by the Buyer.
(c) Resolution of Disputes. If Buyer and the Shareholders shall be
----------------------
unable to agree on the amount of any proration under this Section 2.5 or shall
be unable to resolve any dispute arising hereunder within ninety (90) days of
the Closing Date, then such disputes shall be settled in the manner provided for
in Section 12.2 hereof.
2.6 Closing Costs; Taxes. The Shareholders shall be responsible for
--------------------
all Taxes imposed by reason of the transfer of the Seller Stock or any of the
Purchased Assets provided hereunder and any deficiency, interest or penalty
asserted with respect thereto.
ARTICLE 3
CLOSING
-------
3.1 Closing. The Closing of the transactions contemplated herein
-------
(the "Closing") shall be held on the Closing Date at the offices of Anderson
-------
Kill & Olick, P.C. at 1251 Avenue of the Americas, New York, New York at 10:00
a.m., E.S.T.
3.2 Conveyances at Closing.
----------------------
(a) Instruments and Possession. To effect the transfer referred to in
--------------------------
Section 2.1 hereof, the Shareholders and the Company, as applicable, will, on
the Closing Date, execute and deliver, or cause to be executed and delivered, to
Buyer:
(i) certificate(s) evidencing the Seller Stock (duly endorsed in
blank for transfer or accompanied by stock powers duly executed in blank), free
and clear of any and all Encumbrances;
(ii) assignments of all Proprietary Rights in recordable form to
the extent necessary to assign such rights;
(iii) the Consulting Agreement; and
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<PAGE>
(iv) such other instruments as shall be reasonably requested by
Buyer to vest in Buyer title in and to the Purchased Assets in accordance with
the provisions hereof.
(b) On the Closing Date, Buyer will execute, where applicable, and
deliver to the Shareholders:
(i) the Purchase Price in accordance with Section 2.2 hereof;
(ii) the Consulting Agreement; and
(iii) such other instruments as shall be reasonably requested by
the Shareholders to effect the consummation of the transactions contemplated
hereby.
(c) Form of Instruments. All of the foregoing instruments shall be in
-------------------
form and substance, and shall be executed and delivered in a manner, reasonably
satisfactory to the party receiving delivery thereof.
3.3 Other Deliveries at Closing. In addition to the foregoing
---------------------------
matters, at the Closing, the Shareholders and the Company, on the one hand, and
the Buyer, on the other hand, shall deliver the certificates, agreements,
opinions of counsel and other documents and materials described in Articles 10
and 11 hereof, respectively.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDERS
--------------------------------------------------------------
Except as set forth on the Disclosure Schedule, the Company and each
of the Shareholders hereby represents and warrants to Buyer as follows:
4.1 Organization of the Company.
---------------------------
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey. The Company has
full corporate power and authority to conduct the Business as it is presently
being conducted and to own and lease its properties and assets. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which such qualification is necessary under the
applicable law as a result of the conduct of the Business or the ownership of
its properties or assets. Each jurisdiction in which the Company is qualified
to do business as a foreign corporation is listed on the Disclosure Schedule.
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<PAGE>
(b) The Books and Records of the Company are correct, current and
complete in all material respects, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such Books and Records were duly and
validly taken in compliance with all applicable Legal Requirements. The Company
has properly filed all certificates or other instruments, if any, and all
amendments thereto required to be filed with the Secretary of State of the State
of New Jersey pursuant to NJS 14A:1-1 et seq. of the Business Corporation Act of
-- ---
the State of New Jersey.
4.2 Capitalization of the Company.
-----------------------------
(a) The Shareholders are the sole shareholders of the Company and own
of record and beneficially 100% of the outstanding shares of capital stock of
the Company, 53.8% of which is owned of record and beneficially by Thomas L.
Litwin, 12.2% of which is owned of record and beneficially by Stuart M. Litwin,
10% of which is owned of record and beneficially by Dorothy E. Litwin, and 24%
of which is owned of record and beneficially by the Thomas L. Litwin, GRIT No.
2. The Seller Stock constitutes all of the ownership interests in the Company,
and, taken together, the Shareholders have good and marketable title to the
Seller Stock, free and clear of all Encumbrances. Other than the Seller Stock,
the Company has no other outstanding Equity Interests or Equity Interests
containing any profit participation features. The shares of Seller Stock are
free and clear of any adverse claims, or voting or other rights of third
parties. There are no subscriptions, options, warrants, calls, commitments or
other rights of any kind outstanding for the purchase of, nor any securities
convertible or exchangeable for, Equity Interests of the Company. The
Shareholders have delivered to Buyer a true and complete copy of the certificate
of incorporation and bylaws of the Company and all amendments, modifications or
supplements thereto. There are no statutory or contractual rights of refusal or
other limitations with respect to the transfer of the Seller Stock contemplated
by this Agreement. The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of its
Equity Interests or the Seller Stock. All of the shares of Seller Stock have
been duly authorized and validly issued and are fully paid and non-assessable
and are not subject to any Encumbrances. The Company owns no Equity Interests
of, and is not in any manner affiliated (whether through an Investment or
participation of any kind) with the Equity Interests of, any Person. The
Shareholders are the only record and beneficial owners of the Seller Stock, and,
other than the Shareholders, no other Person who at any time had an interest in
any Equity Interest of the Company has any rights or claims of any kind against
the Company.
(b) Upon consummation of the transactions contemplated by the
Transaction Documents, Buyer will receive good and
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marketable title to the Seller Stock, free and clear of any and all
Encumbrances.
4.3 Authorization; Binding Effect. The Company has all necessary
-----------------------------
corporate power and authority, and has taken all corporate actions necessary to
enter into this Agreement and the other Transaction Documents, to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. This Agreement and each applicable Transaction
Document has been duly executed and delivered by each of the Shareholders and
the Company and is a legal, valid and binding obligation of each Shareholder and
the Company enforceable against each Shareholder and the Company in accordance
with its respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent
transfer, moratorium or other similar laws now or hereafter in effect relating
to or effecting the rights or remedies of creditors, general principles of
equity (whether considered in an action at law or in equity) and the discretion
of the court before which any proceeding therefore may be brought.
4.4 Absence of Certain Changes or Events. Since the Balance Sheet
------------------------------------
Date, there has not been any:
(a) change in the condition (financial or otherwise), assets,
liabilities, working capital, reserves, earnings, business or prospects of the
Company or employee, Customer or supplier relations, except for (i) changes
contemplated hereby or changes, individually or in the aggregate, which have not
resulted in and could not be reasonably expected to result in an Adverse Effect
and (ii) changes in the ordinary course of business consistent with past
practice or changes occurring as a result of general economic or financial
conditions or other developments which are not unique to the Company;
(b) (i) except for normal periodic increases in the ordinary course of
business consistent with past practice, increase in the compensation payable or
to become payable by the Company to any of its officers, employees or agents
(collectively, "Personnel") other than senior management employees, (ii)
---------
material increase in the compensation payable or to become payable by the
Company to any of its senior management employees, (iii) bonus, incentive
compensation, service award or other like benefit granted, made or accrued,
contingently or otherwise, for or to the credit of any of the Personnel, (iv)
employee welfare, pension, retirement, profit-sharing or similar payment or
arrangement made or agreed to by the Company for any Personnel, except pursuant
to the existing plans and arrangements described in the Disclosure Schedule, or
(v) new employment or consulting agreement to which the Company is a party;
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<PAGE>
(c) addition to or modification of the employee benefit plans,
arrangements or practices described in the Disclosure Schedule affecting
Personnel other than (i) contributions made for the Company's 1997 and 1998
fiscal years in accordance with the normal practices of the Company or (ii) the
extension of coverage to other Personnel who became eligible after the Balance
Sheet Date as set forth in the Disclosure Schedule;
(d) sale, assignment or transfer of any of the assets of the Company,
material singly or in the aggregate, other than in the ordinary course of
business and consistent with past practices;
(e) cancellation of any Indebtedness or waiver of any rights of
substantial value to the Company, other than in the ordinary course of business
and consistent with past practice;
(f) amendment, cancellation or termination (except upon expiration) of
any Contract, Permit or other instrument material to the Company, other than in
the ordinary course of business consistent with past practice;
(g) capital expenditure or execution of any Lease or any incurring of
liability therefor, in each case, involving payments in excess of $25,000 in the
aggregate (excluding acquisition of route businesses by the Company disclosed on
the Disclosure Schedule);
(h) failure to repay any obligation of the Company, except in the
ordinary course of business or where such failure would not reasonably be
expected to result in an Adverse Effect;
(i) other than in the ordinary course of business consistent with past
practices, failure to use good faith efforts to preserve the Business intact, to
keep available to Buyer the services of the Personnel, and to preserve for Buyer
the goodwill of the Company's suppliers, customers and others having business
relations with it;
(j) failure to operate the Business in the ordinary course and
consistent with past practices;
(k) material change in accounting methods or practices by the Company
affecting its assets, liabilities or business, except as required by GAAP;
(l) material revaluation by the Company of any of the Purchased
Assets, including without limitation, writing off notes or accounts receivable,
except in the ordinary course of business consistent with past practices;
(m) damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the
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<PAGE>
Business, the Purchased Assets (in the aggregate) or business prospects of the
Company;
(n) creation of any Encumbrance on any asset of the Company,
including, without limitation, the Purchased Assets, not in the ordinary course
of business or consistent with past practice;
(o) declaration, setting aside or payment of dividends or
distributions in respect of any capital stock or other Equity Interests of the
Company or any redemption, purchase or other acquisition of any of any security
or other Equity Interest of the Company;
(p) issuance by the Company of, or commitment of the Company to issue,
any shares of stock or other equity securities or obligations or securities
convertible into or exchangeable for shares of stock or other equity securities;
(q) Indebtedness incurred by the Company or any commitment to incur
Indebtedness entered into by the Company in an amount greater than $25,000 in
the aggregate;
(r) liabilities involving $25,000 or more, except in the ordinary
course of business and consistent with past practice, or any material increase
or change in any assumptions underlying or methods of calculating any bad debt,
contingency or other reserves;
(s) payment, discharge or satisfaction of any liabilities other than
the payment, discharge or satisfaction (i) in the ordinary course of business
and consistent with past practice of liabilities reflected or reserved against
in the Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date or (ii) of other
liabilities involving $10,000 or more singly and $30,000 or more in the
aggregate;
(t) agreement by the Company to do any of the foregoing; or
(u) other event or condition of any character which in any one case or
in the aggregate has, or any event or condition known to the Company or any
Shareholder which it is reasonable to expect will, in any one case or in the
aggregate, result in an Adverse Effect.
4.5 Title to Assets, Etc.
--------------------
(a) The Company has good and marketable title to the Purchased
Assets, free and clear of all Encumbrances. All Leases are valid and subsisting
and are in full force and effect. The Company enjoys peaceful and undisturbed
possession of all Facilities, each of which is described on Exhibit "B" attached
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<PAGE>
hereto, and such Facilities are not subject to any Encumbrance or any limitation
which interferes with or impairs the present and continued use thereof in the
usual and normal conduct of the Business. All of the Purchased Assets in the
aggregate have a fair market or realizable value at least equal to the value
thereof as reflected in the Balance Sheet. The Company has not depreciated any
of the Purchased Assets on an accelerated basis in any manner inconsistent with
applicable Internal Revenue Service guidelines, if any.
(b) The Company has performed all material obligations required to be
performed by it with respect to the Purchased Assets and, to the extent subject
to any Lease, the Equipment. With the exception of the Excluded Assets, the
Purchased Assets comprise all of the assets and property and rights of every
type and description, real, personal and mixed, tangible and intangible,
necessary or reasonably desirable to conduct the Business as currently
conducted. None of the Excluded Assets, either singly or in the aggregate, is
material to the Business as presently conducted, and the failure of Buyer to
acquire any of the Excluded Assets hereunder will not result, and will not
reasonably be expected to result, in any one case or in the aggregate, in an
Adverse Effect.
(c) There are no pending condemnation proceedings pursuant to which
the Company or any Shareholder has been named a party and served with a
complaint or, to the knowledge of the Company and the Shareholders, threatened
condemnation proceedings relating to any of the Facilities. The real property
improvements (including leasehold improvements), equipment and other tangible
assets owned or used by the Company at the Facilities are adequately insured and
are structurally sound with no known material defects. None of said
improvements, equipment and other assets is subject to any commitment or other
arrangement for their sale or use by any Representative of the Company or third
parties.
(d) The Disclosure Schedule states the name of each bank or other
financial institution with which the Company has an account or safety deposit
box, together with the names of all Persons authorized to draw therefrom and
have access thereto.
4.6 Condition of Tangible Assets. The Facilities and Fixtures taken
----------------------------
as a whole are in all material respects in good operating condition and repair
(except for ordinary wear and tear), are in all material respects sufficient for
the operation of the Business as presently conducted and are in conformity with
all Legal Requirements.
4.7 Location Contracts and OPL Contracts.
------------------------------------
(a) The Disclosure Schedule provides a listing of each Location
Contract as of the Closing Date which is accurate in all material respects as of
the Closing Date and which includes the
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<PAGE>
following terms with respect to each such Location Contract: (i) type of
account; (ii) account number; (iii) termination date and remaining months of the
term (which dates do not take into account any option to renew or likelihood of
renewal); (iv) original term; (v) whether there is an automatic renewal
provision; (vi) whether there is a right of first refusal; (vii) the number of
On-Location Machines at such Location; (viii) the commission rate payable under
such Location Contract and the amount of any "front money" paid or owing when
such Location Contract was executed; and (ix) whether such Location Contract
contains a "change of control" or similar provision or otherwise requires the
consent of a Consenting Party in connection with the transactions contemplated
by any of the Transaction Documents. Buyer acknowledges and understands that
the information concerning each such Location Contract in such listing contained
in the Disclosure Schedule is only a summary of such Location Contracts and is
qualified by reference to the Location Contracts. Except as set forth on the
Disclosure Schedule, each Location Contract grants the Company the exclusive
right to install, service, maintain and operate all On-Location Machines at the
Location(s) set forth in the applicable Location Contract. As of the date of
this Agreement, the Company is not (and to the knowledge of the Company and each
Shareholder, no other party is) in material breach or violation of or default
under any terms of any of the Location Contracts, and has not received any
written notice requesting or threatening the removal of any On-Location Machine
from a Location except in the ordinary course of business consistent with past
practices, or any other anticipatory breach of any Location Contract, or of any
foreclosure against any Location set forth in any of the Location Contracts.
Except as disclosed on the Disclosure Schedule and other than renewals of
Location Contracts on substantially similar or more favorable terms in the
ordinary course of business and consistent with past practice, since the Balance
Sheet Date, the Company has not entered into any new Location Contracts.
(b) The Disclosure Schedule provides an accurate listing of each OPL
Contract as of the Closing Date and includes the following terms with respect to
each such OPL Contract: (i) account number; (ii) termination date and remaining
months of the term (which dates do not take into account any option to renew or
likelihood of renewal); (iii) original term; (iv) revenues generated by such OPL
Contract on an annual basis; (v) whether there is an automatic renewal provision
(including with respect to any such optional renewal provisions, the likelihood
of renewal); (vi) whether there is a right of first refusal; (vii) the quantity
or volume of Linens required to be provided under such OPL Contract; and (viii)
whether such OPL Contract contains a "change of control" or similar provision or
otherwise requires the consent of a Consenting Party in connection with the
transactions contemplated by any of the Transaction Documents. Except as set
forth on the Disclosure Schedule, each OPL Contract grants the Company the
exclusive right to provide the services set forth in such OPL Contract. As of
the date of this
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<PAGE>
Agreement, the Company is not (and to the best knowledge of the Company and each
Shareholder, no other party is) in material breach or violation of or default
under any terms of any of the OPL Contracts, and has not received any written
notice requesting or threatening the termination of such OPL Contract or any
other anticipatory breach of any OPL Contract.
(c) Except as set forth on the Disclosure Schedule, the Company has
not received any written notice questioning the validity or enforceability of
any Location Contract or OPL Contract. All of the Location Contracts and OPL
Contracts are evidenced by written agreements. The Company has delivered to
Buyer, or will deliver to Buyer promptly after the public notice given in
accordance with Section 6.5 hereof, copies of all Location Contracts and OPL
Contracts used in the Business.
4.8 Contracts and Commitments. Except as set forth on the Disclosure
-------------------------
Schedule, the Company is not a party to any written or oral:
(a) commitment, contract, note, loan, evidence of Indebtedness,
purchase order or letter of credit involving any obligation or liability on the
part of the Company of more than $10,000 and not cancelable (without liability)
within 30 days;
(b) lease of real property (other than a Location Contract);
(c) lease of personal property involving any annual expense in excess
of $10,000 and not cancelable (without liability) within 30 days (the Disclosure
Schedule indicates with respect to each lease listed on the Disclosure Schedule
a general description of the leased items, term, annual rent and renewal
options);
(d) contract or agreement containing covenants limiting the freedom
of the Company to engage in any line of business or compete with any Person;
(e) employment or consulting contract, including, without limitation,
contracts to employ executive officers and other contracts or arrangements with
Representatives of the Company, and contracts or arrangements with independent
contractors on a full-time, part-time, consulting or other basis, except any
such contracts or arrangements not requiring the payment by the Company of an
amount greater than $10,000 in any given year and that are terminable by the
Company for any reason upon not more than thirty (30) days prior written notice
without penalty of any kind;
(f) employee collective bargaining agreement, employment agreement,
consulting, advisory or service agreement, deferred compensation agreement,
confidentiality agreement or covenant not to compete;
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<PAGE>
(g) pension, profit sharing, stock option, stock appreciation,
employee stock purchase, bonus, benefit or other plan or arrangement providing
for deferred or other compensation to employees or any other employee benefit,
welfare or stock plan or arrangement including, without limitation, all
arrangements, policies, plans and programs relating to retirement, disability,
insurance, (including any self-insured arrangements), severance pay,
supplemental unemployment benefit, vacation, leave of absence, equity
participation, stock purchase, stock option, stock appreciation right or any
other incentive arrangement, or any contract with any labor union;
(h) contract pursuant to which the Company has advanced or loaned
funds or made any Investments of funds or other property or Purchased Assets
other than to one another, or agreed to advance or loan funds to any other
Person or to do any of the foregoing, other than prepayments in the ordinary
course of business consistent with past practices and listed on the Disclosure
Schedule;
(i) contract or indenture that, with the giving of notice or the
passage of time, could result in an Encumbrance on any Purchased Asset (other
than any Encumbrance which will be extinguished prior to or as of the Closing
Date);
(j) assignment, license, indemnification or other contract with
respect to any intangible property (including any Proprietary Right);
(k) independent or service representative or distributorship
agreement; or
(l) contracts or commitments materially affecting the Business not
otherwise described above or listed in the Disclosure Schedule (including
purchase orders, franchise agreements and undertakings or commitments to any
governmental or regulatory authority).
The Company is not (and, to the knowledge of each Shareholder and the
Company, no other party is) in material breach or violation of, or material
default under any of the Contracts or other instruments, obligations, evidences
of Indebtedness or commitments described in clauses (a)-(l) above. To the
Company's and each Shareholders' knowledge, no event has occurred which, with
the giving of notice or the passage of time or both, would result in a material
default, material breach or material event of noncompliance under any obligation
of the Company pursuant to any Contract. Each Contract described on the
Disclosure Schedule is valid, binding, enforceable and in full force and effect
in all material respects in accordance with its terms. Except as set forth in
the Disclosure Schedule, the consummation of the transactions contemplated by
the Transaction Documents will not (a) require the consent, approval or
authorization of any Consenting Party or (b) have a material
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<PAGE>
adverse effect on any Contract or result in the termination, default under,
breach or violation of, or imposition of any Encumbrance on, any Contract.
Neither the Company nor any of the Shareholders has a present expectation or
intention of not performing in all material respects any obligation pursuant to
any Contract.
4.9 No Conflict or Violation. Neither the execution and delivery of
------------------------
the Transaction Documents nor the consummation of the transactions contemplated
thereby will result in (a) a violation of or a conflict with any provision of
the certificate of incorporation or bylaws of the Company, (b) a material breach
or violation of, or a material default under, any term or provision of any
Contract, agreement, Indebtedness, Lease, Encumbrance, commitment, license,
franchise, Permit, authorization or concession to which the Company is a party
or by which any of the Purchased Assets are bound, (c) a violation by the
Company of any Legal Requirement, (d) the imposition of any Encumbrance on the
Business or on any of the Purchased Assets, or (e) result in any suspension,
impairment, revocation, forfeiture or non-renewal of any Permit.
4.10 Consents and Approvals. Other than any filing required to be
----------------------
made under the HSR Act or any consent required to be obtained in any Change of
Control Contract, no consent, approval, waiver or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority, or any other Person, is required to be made or obtained by the
Company or any Shareholder in connection with the execution, delivery and
performance of the Transaction Documents and the consummation of the
transactions contemplated thereby, unless the failure to obtain any such
consent, approval, waiver or authorization would not be likely to result in (i)
an Adverse Effect or (ii) a material adverse effect on the Company's ability to
consummate the transactions contemplated hereby.
4.11 Financial Statements. The Company has heretofore delivered to
--------------------
Buyer true and complete copies of the Financial Statements. Except as otherwise
set forth therein and on the Disclosure Schedule, the Financial Statements are
complete, are in accordance with the books and records of the Company,
accurately reflect the assets, liabilities and financial condition and results
of operations indicated thereby in accordance with GAAP, and contain and reflect
all necessary adjustments for a fair representation of the Financial Statements
as of the date and for the periods covered thereby.
4.12 Litigation. There is no action, order, writ, injunction,
----------
judgment or decree outstanding or claim, suit, litigation, proceeding, labor
dispute, arbitral action or investigation (collectively, "Actions") pending or,
-------
to each Shareholders' and the Company's knowledge, threatened or anticipated
against, relating to or affecting (i) the Company, the Business, the Purchased
Assets (ii) any benefit plan for
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<PAGE>
Personnel or any fiduciary or administrator thereof or (iii) any of the
transactions contemplated by the Transaction Documents. The Company is not in
default with respect to any judgment, order, writ, injunction or decree of any
court or governmental agency, and there are no unsatisfied judgments against the
Company or the Business or any of the Company's activities. To the
Shareholders' and the Company's knowledge, there is not a reasonable likelihood
of an adverse determination of any pending Actions which could, individually or
in the aggregate, be reasonably expected to result in an Adverse Effect.
4.13 Labor Matters. The Company is not a party to any labor
-------------
agreement with respect to its employees with any labor organization, group or
association. The Company has not experienced any attempt by organized labor or
its Representatives to make the Company conform to demands of organized labor
relating to its employees or to enter into a binding agreement with organized
labor that would cover the employees of the Company. The Company is, and has at
all times been, in compliance with all applicable laws respecting employment
practices, terms and conditions of employment and wages and hours and is not
engaged in any unfair labor practice. There is no unfair labor practice charge
or complaint against the Company pending or, to each Shareholders' and the
Company's knowledge, threatened before the National Labor Relations Board or any
other governmental agency arising out of any of the Company's activities, and
neither of the Shareholders nor the Company has any knowledge of any facts or
information which would give rise thereto; there is no labor strike or labor
disturbance pending or, to each Shareholders' and the Company's knowledge,
threatened against the Company nor is any grievance currently being asserted;
and the Company has not experienced a work stoppage or other labor difficulty.
Since the enactment of the Worker Adjustment and Retraining Notification Act
(the "WARN Act"), (aa) the Company has not effectuated (i) a "plant closing" (as
--------
defined in the WARN Act) affecting any site of employment of one or more
Facilities or operating units within any site of employment or Facility of the
Business; or (ii) a "mass layoff" (as defined in the WARN Act) affecting any
site of employment or one or more Facilities or operating units within any site
of employment or Facility of the Business, (bb) the Company has not been
affected by any transaction or engaged in layoffs or employment terminations
with respect to the Business sufficient in number to trigger application of any
similar state or local law, and (cc) no employees of the Business have suffered
an "employment loss" (as defined in the WARN Act) within six months prior to the
date hereof.
4.14 Liabilities. The Company has no liabilities or obligations
-----------
(absolute, accrued, contingent or otherwise) except (i) liabilities which are
reflected and reserved against on the Balance Sheet, (ii) liabilities incurred
in the ordinary course of business and consistent with past practice since the
Balance Sheet Date, and (iii) liabilities arising under Contracts,
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letters of credit, Permits, purchase agreements and other agreements, business
arrangements and commitments described in the Disclosure Schedule or which are
of the type described in Section 4.7 but which because of the dollar amount or
other qualifications are not required to be listed in the Disclosure Schedule.
4.15 Compliance with Law. The Company and the Business are, and have
-------------------
at all times been, in compliance in all material respects with all applicable
laws, statutes, ordinances and regulations, whether federal, state or local.
The Company has not received any notice to the effect that, or otherwise been
advised in writing that, it is not in compliance with any of such statutes,
regulations, orders, ordinances or other laws, and the Company has no reason to
anticipate that any presently existing circumstances are likely to result in
violations of any such regulations which are likely to result in violations of
any such regulations.
4.16 No Brokers. Neither the Company nor any Representative of the
----------
Company has entered into or will enter into any contract, agreement, arrangement
or understanding with any Person which will result in the obligation of Buyer to
pay any finder's fee, brokerage commission or similar payment in connection with
the transactions contemplated by the Transaction Documents.
4.17 No Other Agreements to Sell the Purchased Assets. Neither the
------------------------------------------------
Company nor any Shareholder or Representative of the Company has any legal
obligation, absolute or contingent, to any other Person to sell all or part of
the Purchased Assets, to sell a majority of the capital stock of the Company or
to effect any merger, consolidation or other reorganization of the Company or to
enter into any agreement with respect thereto.
4.18 Proprietary Rights. All Proprietary Rights are listed or
------------------
identified on the Disclosure Schedule. The Proprietary Rights listed or
identified on the Disclosure Schedule are all those used in the Business. No
Person has a right to receive a royalty or similar payment in respect of any
Proprietary Rights pursuant to any contractual arrangements entered into by the
Company, and no Person otherwise has a right to receive a royalty or similar
payment in respect of any such Proprietary Rights. The Company has no licenses
granted by or to it or other agreements to which it is a party relating in whole
or in part to any of the Proprietary Rights. To each Shareholders' and the
Company's knowledge, the Company's use of the Proprietary Rights is not
infringing upon or otherwise violating the rights of any third party in or to
such Proprietary Rights, except any such infringement or violation that does not
materially adversely effect such right, and no proceedings have been instituted
or, to each Shareholders' and the Company's knowledge, threatened against or
notices received by the Company or any Shareholder that are presently
outstanding alleging that the Company's use of
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<PAGE>
its Proprietary Rights infringes upon or otherwise violates any rights of a
third party in or to any such Proprietary Rights.
4.19 Employee and Related Agreements; ERISA.
--------------------------------------
(a) General Definitions. For the purposes of this Section 4.19(a),
-------------------
the following definitions shall apply:
(i) "Employee Plan" shall mean each "employee benefit plan", as
-------------
defined in Section 3(3) of ERISA, that is maintained, administered or
contributed to by the Company or any of its Affiliates or to which the Company
or any of its Affiliates is or has been obligated to contribute.
(ii) "Multiemployer Plans" shall mean any Employee Plan that
-------------------
meets the definition of a "multiemployer plan" in Section 3(37) of ERISA.
(iii) "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation.
(iv) "Title IV Plan" shall mean any Employee Plan that is
-------------
subject to Title IV of ERISA.
(v) "Benefit Arrangement" shall mean any compensation
-------------------
arrangements, bonus or benefit plans, programs or other arrangements maintained,
administered or otherwise contributed to by the Company, including, without
limitation, all arrangements, policies, plans and programs relating to
retirement, disability, insurance, (including any self-insured arrangements),
severance pay, supplemental unemployment benefits, vacation, leave of absence,
equity participation, stock purchase, stock option, stock appreciation right or
any other incentive arrangements.
(b) The Disclosure Schedule lists:
(i) the names, positions, titles, job categories, dates of
commencement of employment and current compensation (including sales commissions
or other deferred or contingent compensation) and date and amount of last
increase in compensation of all employees of the Business, including, without
limitation, employees on approved or legally mandated leaves of absence
(including the identification of any employees on such leaves of absence) and
whether there exist employment agreements or contracts with the employees of the
Business;
(ii) each bonus and severance arrangement whether for
individuals or generally made available to employees of the Business;
(iii) each Employee Plan that is maintained, administered or
otherwise contributed to by the Company for the benefit of present or former
employees of the Business; and
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(iv) each Benefit Arrangement that is maintained,
administered or otherwise contributed to by the Company for the benefit of
present or former employees of the Business.
(c) The Company has heretofore delivered to Buyer correct and complete
copies of the following items:
(i) the plan document for each Employee Plan and related trust
agreement (and all amendments thereto), all written interpretations and
communications with respect to each such Plan and, if applicable, written
descriptions of any oral communications or oral representations concerning such
Plan;
(ii) the most recent annual report (Form 5500 including, if
applicable, Schedule B thereto) prepared in connection with each Employee Plan;
(iii) the last actuarial valuation report prepared in connection
with any Employee Plan which is subject to Title IV of ERISA;
(iv) the most recent determination letter from the Internal
Revenue Service relating to each Employee Plan which is intended to be
qualified under Section 401(a) of the Code.
(d) Except as explicitly set forth in the Disclosure Schedule, with
respect to each Employee Plan:
(i) no "prohibited transaction", as defined in Section 406 of
----------------------
ERISA or Section 4975 of the Code, has occurred, including, but not limited to,
any loan to an employee stock ownership plan which does not or at any time has
not complied with Section 408(b)(3) of ERISA or Section 4975(d)(3) of the Code,
and no Tax or penalty has been imposed or can reasonably be expected to be
imposed under Section 502(i) of ERISA or Sections 4975(a) or (b) of the Code;
(ii) no "accumulated funding deficiency," as defined in Section
------------------------------
412 of the Code, has been incurred with respect to any Employee Plan which is
subject to Section 412 of the Code, whether or not waived;
(iii) no "reportable event", within the meaning of Section 4043
----------------
of ERISA, for which notice has not been waived under applicable regulations, has
occurred or is continuing;
(iv) no event described in Sections 4062 or 4063 of ERISA has
occurred;
(v) no condition exists or has existed which could constitute
grounds for termination by the PBGC of any
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<PAGE>
Employee Plan which is a Title IV Plan and no filing has been made by the
Company or any Shareholder or any of their respective Affiliates with the PBGC
to terminate any such Employee Plan;
(vi) each Employee Plan that is intended to be qualified under
Section 401(a) of the Code has received a determination letter from the Internal
Revenue Service stating that such Employee Plan is a qualified plan and that
each trust created under any such Employee Plan is exempt from taxation under
Section 501(a) of the Code, and each such Plan and related trust has been
operated in accordance with all applicable laws as of the effective date
thereof, notwithstanding the actual terms of the Employee Plan documents;
(vii) each Employee Plan has been maintained in compliance in
all material respects with its terms and with the requirements prescribed by any
and all laws, including but not limited to ERISA and the Code, that are
applicable to such plans;
(viii) no Tax or penalty under any provision of the Code or
ERISA has been imposed or can reasonably be expected to be imposed as a result
of actions or inactions which occurred prior to the Closing Date;
(ix) no post-retirement medical or life insurance benefit
obligations exist with respect to Personnel or former Personnel of the Company;
(x) there has not been a failure to timely pay any premium
required to be paid to the PBGC on account of any Title IV Plan;
(xi) the Company has never contributed nor been obligated to
contribute to any Multiemployer Plan;
(xii) there are no pending Actions which either have been
asserted or instituted or can reasonably be expected to be asserted or
instituted against any of the Employee Plans, the assets of any of the trusts
under such Employee Plans, the plan sponsor, the plan administrator, trustee or
any other fiduciary of such Employee Plans with respect to any aspect of such
Employee Plans (except for routine benefit claims or routine expenses);
(xiii) there are no pending or ongoing audits, or inquiries or
investigations by any governmental or regulatory agency;
(xiv) all returns, reports and notices for any Employee Plan
which are required under the Code, ERISA or any other applicable law and the
regulations thereunder have
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<PAGE>
been timely provided to governmental agencies, employees, participants or
beneficiaries;
(xv) neither the Company nor any of its Affiliates is required
to provide security to any Employee Plan under Section 401(a)(29) of the Code;
(xvi) except as set forth on the Disclosure Schedule, the
Company has timely made all payments and contributions due from them through the
Closing Date with respect to each Employee Plan and no contributions are owed by
the Company with respect to any Employee Plan for all periods ending on or
before the Closing Date; and
(xvii) Participants in the Company 401(k) Plan are not entitled
to receive any profit sharing contributions other than 401(k) contributions or
matching contributions for the plan year ending June 30, 1998.
(e) Except as explicitly set forth in the Disclosure Schedule, with
respect to each Employee Plan, neither the Company nor any of its Affiliates
has:
(i) engaged in, or is a successor or parent corporation to any
Person that has engaged in, a transaction described in Section 4069 of ERISA;
(ii) incurred or reasonably expects to incur any liability under
Title IV of ERISA (including, but not limited to liability arising in connection
with any termination of any Employee Plan covered or previously covered by Title
IV of ERISA);
(iii) incurred or reasonably expects to incur any complete or
partial withdrawal liability with respect to any Multiemployer Plan and no
condition exists with respect to any Multiemployer Plan which presents a risk of
complete or partial withdrawal liability under Title IV of ERISA;
(iv) incurred any unsatisfied contribution obligations under
Section 412 of the Code nor has liability for unpaid contributions with respect
to any Employee Plan;
(v) failed to comply with any of the health care continuation
coverage requirements or related notice requirements under Section 601, et.
--
seq. of ERISA and Section 4980B of the Code;
- ---
(f) There is no contract, Employee Plan or Benefit Arrangement
covering any current or former Personnel of the Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code.
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<PAGE>
(g) Except as specifically set forth in the Disclosure Schedule, no
payment, award, bonus, severance payment or other amount under any contract,
Employee Plan or Benefit Arrangement will be triggered as a result of the events
contemplated by the Transaction Documents.
(h) No Employee Plan or Benefit Arrangement has any restrictions
against termination or modification, either by its terms or due to any written
or oral communications by any Representative of the Company.
(i) The Company's Balance Sheet properly and adequately reflects any
and all liabilities and obligations of the Company relating to any period ending
on or prior to the Closing Date in respect of the employees of the Company, for
(a) unpaid compensation, salaries, wages, disability payments and other payroll
items (including, without limitation, bonus, incentive or deferred compensation,
vacation or other paid leave), (b) unpaid contribution, costs and expenses to or
in respect of any Employee Plan, and (c) severance or other termination benefits
relating to, resulting from or arising in respect of any termination of
employment occurring on or prior to the Closing Date.
(j) For all plan years ending on or before the Closing Date, the
Gordon & Thomas Companies, Inc. Employee Savings & Protection Plan (the "Company
-------
401(k) Plan") has complied in operation with all applicable requirements under
- -----------
the Code, including but not limited to (i) the actual deferral percentage
requirements under Code Section 401(k), (ii) the actual contribution percentage
requirements under Code Section 401(m), (iii) the limitations on elective
deferrals under Code Section 401(a)(30), and (iv) the limitations on
contributions under Code Section 415.
4.20 Tax Matters.
-----------
(a) The Company has timely filed all Tax Returns which are required to
be filed and each such Tax Return is correct and complete in all material
respects. The Company has paid all Taxes due and owing by it (whether or not
shown on any Tax Return) and has withheld and paid over, on a timely basis, all
Taxes which it is obligated to withhold from amounts paid or owing to any
employee, independent contractor, shareholder, creditor or other third party.
(b) There are no Encumbrances of any kind on any of the Purchased
Assets that arose in connection with any failure (or alleged failure) to pay any
Tax.
(c) No Tax audits are pending or being conducted, or to the knowledge
of each Shareholder and the Company, threatened, with respect to the Company or
the Business.
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(d) No information related to Tax matters has been requested by any
taxing authority, and neither the Shareholders nor the Company has received
notice indicating an intent to open an audit or other review from any taxing
authority, and the Company and its Representatives (including any Representative
responsible for Tax matters) do not expect or have reason to expect any
authority to assess any additional Taxes for any period for which Tax Returns
have been filed.
(e) Neither the Shareholders nor the Company has any knowledge of any
asserted claim (whether in writing or otherwise) by any taxing authority
concerning the Company's liabilities for Taxes.
(f) No claim has ever been made by any jurisdiction in which the
Company does not file Tax Returns to the effect that the Company may be subject
to any Tax imposed by that jurisdiction, and neither the Shareholders nor the
Company has received any nexus questionnaire from any jurisdiction in which it
does not file Tax Returns.
(g) The Company has not waived any statute of limitations in respect
of Taxes or agreed to an extension of time with respect to any Tax assessment or
deficiency.
(h) The Company is not a party to any agreement that could obligate it
to make any payments that would not be deductible pursuant to Section 280G of
the Code, and the Company has not filed a consent pursuant to Section 341(f) of
the Code.
(i) The Company has delivered to Buyer, or shall deliver to Buyer
promptly after the date hereof, correct and complete copies of all federal,
state and local income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since 1991.
(j) The Company is a not party to or bound by (nor will the Company
become a party to or become bound by) any Tax indemnity, sharing or allocation
agreement, or has any liability for the Taxes of any Person (other than the
Company) under Section 1.1502-6 of the Treasury Regulations (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
(k) The unpaid Taxes of the Company (i) do not exceed the reserve for
Tax liabilities set forth on the Balance Sheet (other than in any notes
thereto), and (ii) do not exceed such reserve adjusted to take account of the
passage of time and the occurrence of transactions and events through the
Closing Date in accordance with the Company's past custom and practice in
computing its Taxes and filing Tax Returns.
(l) The Company has not ever been a member of an affiliated group of
corporations which has filed a consolidated
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<PAGE>
federal income Tax Return under Code Sections 1501 and 1502 and Treasury
Regulation Section 1.1502.
(m) All elections with respect to Taxes affecting the Company as of
the date hereof are set forth on the Disclosure Schedule.
(n) None of the Purchased Assets is "tax exempt use property" within
the meaning of Section 168(h) of the Code.
(o) The Company has not agreed to, and is not required to, make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise except as set forth on the Disclosure Schedule.
(p) The Company is not a person other than a United States Person
within the meaning of the Code and the transaction contemplated herein is not
subject to the withholding provisions of Section 3406 of Subchapter A of Chapter
3 of the Code.
(q) The Company has disclosed within the meaning of Section
6662(d)(2)(B)(ii) of the Code on its Tax Returns all positions taken therein
that could give rise to a substantial understatement of Tax within the meaning
of Section 6662 of the Code (or any corresponding provision of state, local or
foreign Tax law).
(r) None of the Purchased Assets are property that the Company is
required to treat as being owned by any other Person pursuant to the "safe
harbor lease" provisions of former Section 168(f)(8) of the Code.
(s) None of the Purchased Assets directly or indirectly secures any
debt, the interest on which is tax-exempt under Section 103(a) of the Code.
(t) The Company has not made a deemed dividend election under
Regulation Section 1.1502-32(f)(2) or a consent dividend election under Section
565 of the Code.
(u) The Company has not participated in an international boycott
within the meaning of Section 999 of the Code.
(v) The Company has not been a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.
(w) The Company has not had a permanent establishment in any foreign
country, as defined in any applicable Tax treaty or convention between the
United States and such foreign country.
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<PAGE>
(x) The Company has at all times since October 1, 1985 qualified as an
"S" corporation pursuant to Section 1362 of the Code and has no liability for
Taxes pursuant to Section 1374 or Section 1375 of the Code, whether arising
prior to the date hereof or as a result of the transactions contemplated by the
Transaction Documents.
4.21 Transactions with Certain Persons. Neither any Representative
---------------------------------
of the Company nor any member of any such Person's immediate family is presently
a party to any transaction with the Company relating to the Business, including,
without limitation, any contract, agreement or other arrangement (i) providing
for the furnishing of services by, (ii) providing for the rental of real or
personal property from, or (iii) otherwise requiring payments to (other than for
services as officers, directors, Representatives or employees of the Company)
any such Person in which any such Person has a substantial or beneficial
interest.
4.22 Severance Arrangements. The Company has not entered into any
----------------------
severance or similar arrangement in respect of any present or former Personnel
or Representative of the Company that will result in any obligation (absolute or
contingent) of Buyer or the Company to make any payment to any such present or
former Personnel or Representative following termination of employment.
4.23 Insurance. The Disclosure Schedule contains a complete and
---------
accurate list in all material respects of all policies or binders of fire,
liability, title, worker's compensation and other forms of insurance (showing as
to each policy or binder the carrier, policy number, coverage limits, expiration
dates, annual premiums and a general description of the type of coverage
provided) maintained by the Company on the Business, property or Personnel. All
of such policies are sufficient in all material respects for compliance with all
Legal Requirements and of all Contracts to which the Company is a party. The
Company is not in default in a material respect under any of such policies or
binders, nor has the Company failed to give any notice or to present any claim
under any such policy or binder in a due and timely fashion, except where such
failure to comply therewith would not reasonably be expected to have an Adverse
Effect. To each Shareholders' and the Company's knowledge, there are no facts
upon which an insurer might be justified in reducing coverage or increasing
premiums on existing policies or binders. To each Shareholders' and the
Company's knowledge, there are no outstanding unpaid claims under any such
policies or binders. Such policies and binders provide sufficient coverage for
the risks insured against, are in full force and effect on the date hereof and
shall be kept in full force and effect by the Company through the Closing Date.
4.24 Payments. The Company has not, directly or indirectly, paid or
--------
delivered any fee, commission or other sum of money or item or property, however
characterized, to any finder,
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<PAGE>
agent, government official or other party or Person, in the United States or any
other country, which is in any manner related to the Business, which any
Shareholder or the Company knows or has reason to believe to have been illegal
under any federal, state or local laws of the United States or any other country
having jurisdiction.
4.25 Inventories. The values at which the inventories are shown on
-----------
the Balance Sheet have been determined in accordance with the normal valuation
policy of the Company, consistently applied, and in accordance with GAAP.
Inventories (and items of inventory acquired subsequent to the Balance Sheet
Date) consist only of items of quality and quantity commercially usable and
saleable in the ordinary course of Business in a manner consistent with past
practices, except for any items of obsolete material or material below standard
quality, all of which have been written down to realizable market value, or for
which adequate reserves have been provided, and the present quantities of all
inventories are reasonable in the present circumstances of the Company's
business.
4.26 Customers and Suppliers. The Disclosure Schedule contains a
-----------------------
complete and accurate list of (i) the 25 largest Route Business customers of the
Company in terms of collected coin revenues during the Company's last fiscal
year, showing the approximate total revenues to the Company by each such
customer during such fiscal year; (ii) the five (5) largest Route Business
suppliers of the Company in terms of Machine and Parts purchases during the
Company's last fiscal year, showing the approximate total purchases by the
Company from each such supplier during such fiscal year; (iii) the 10 largest
OPL Business customers of the Company in terms of revenues during the Company's
last fiscal year, showing the approximate total revenues to the Company by each
such customer during such fiscal year; and (iv) all of the OPL Business
suppliers of the Company during the Company's last fiscal year, showing the
approximate total purchases by the Company from each such supplier during such
fiscal year. Since the Balance Sheet Date, there has been no material adverse
change in the business relationship of the Company with any customer or supplier
of the Company which would be expected to have a material adverse effect on the
economic terms of any such relationship.
4.27 Compliance With Legislation Regulating Environmental Quality.
-------------------------------------- ---------------------
Except as specifically disclosed on the Disclosure Schedule:
(a) The Company has complied and caused the Business, the Facilities
and any former Facility to comply with all applicable Legal Requirements to the
Business or the Purchased Assets, or the use, generation, treatment, storage,
transport, disposal or handling of Hazardous Substances at or by the Facili ties
or the former Facilities.
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<PAGE>
(b) With respect to all of the Facilities (other than the Locations)
and, to Company's and each Shareholders' knowledge, with respect to all
Locations, none of the following exists at, on or under any of the Facilities in
violation of any Environmental and Safety Requirement:
(i) Hazardous Substances or underground storage tank, containment
vessel, pipeline or other containers used for the storage, disposal or burial of
Hazardous Substances;
(ii) asbestos-containing materials in any form or condition;
(iii) materials or equipment containing polychlorinated
biphenyls; or
(iv) wetlands.
(c) The Company has, and at all times has had, all Permits required
under any Environmental and Safety Requirement and is, and at all times has
been, in compliance therewith. Each Permit will be transferable in connection
with the transactions contemplated by the Transaction Documents no later than
the Closing Date.
(d) The Company has at all times used, generated, treated, stored,
transported, disposed of or otherwise handled Hazardous Substances in
substantial compliance with all Environmental and Safety Requirements and in a
manner which would not cause the Company to be subject to any Environmental
Liabilities.
(e) There is no underground storage tank, containment vessel or
pipeline at, on or under any Facility or former Facility where the installation,
use, maintenance, repair, testing, shut-in or removal of such tank, vessel, or
pipeline by the Company, or to the Company's and each Shareholders' knowledge,
any other Person was not in compliance with all Environmental and Safety
Requirements, and there has been no Release from any such tank, vessel or
pipeline.
(f) None of the Shareholders nor the Company has received any written
notice, inquiry, notice of investigation, claim, or any other correspondence or
communication from any federal, state, county, municipal or other governmental
department, agency, authority or any other Person alleging or in any way
relating to any actual or alleged violation of any Environmental and Safety
Requirement or any Release at, on, under, or emanating from any Facility, former
Facility or any neighboring properties, nor has any Shareholder nor the Company
become aware of the possibility that the Company may receive any such notice,
inquiry, claim or other correspondence or communication, nor is there any
pending or, to each Shareholders' and the Company's best knowledge, threatened
suit, action, claim,
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<PAGE>
investigation or proceeding against the Company under any Environmental and
Safety Requirement or with respect to any Release.
(g) There are no consent decrees or agreements with, or Encumbrances
by, any governmental authority or quasi-governmental entity relating to any
Environmental and Safety Requirement which bind or could affect the Company, the
Business or any Facility or former Facility.
(h) No current or past use, generation, treatment, transportation,
storage, disposal or handling practice of the Company during the past five years
has or will result in any Environmental Liability under any Environmental and
Safety Requirement. No facts, events or conditions caused by or resulting from
any act or omission of the Company or relating to the operation of the Business
or past or present Facilities will prevent, hinder or limit continued compliance
with Environmental and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to the Environmental and Safety
Requirements, or give rise to any other liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental and Safety
Requirements, including relating to on-site or off-site Releases or threatened
Releases of Hazardous Substances, personal injury, property damage or natural
resources damage.
(i) True, correct and complete copies of all written reports, and all
parts thereof, of all environmental audits or assessments which have been
conducted at any Facility or former Facility within the past five (5) years,
either by the Company or any Representative, environmental consultant or
engineer engaged for such purpose, have been made available for examination by
the Buyer.
(j) No federal, state, county, municipal or other governmental
department, agency, or authority has served upon the Company any written notice
indicating or alleging a need to make any repair, remedy, construction,
alteration or installation in order to comply with any Environmental and Safety
Requirement.
(k) Neither this Agreement nor the transactions contemplated by the
Transaction Documents impose any obligations for off-site investigation or
cleanup, or notification to or consent of any governmental entity or Person
pursuant to any Environmental and Safety Requirements.
(l) The Company has not expressly or by operation of law assumed or
undertaken any liability or corrective or remedial obligations of any other
Person relating to Environmental and Safety Requirements.
4.28 Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by the Company or the Shareholders
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<PAGE>
in this Agreement, the Transaction Documents, nor any document, exhibit,
statement, certificate or schedule furnished to Buyer pursuant thereto or in
connection with the transactions contemplated thereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact necessary to make the statements or facts contained therein not
misleading. The Company and each Shareholder has disclosed all events,
conditions and facts materially affecting the Business or the Purchased Assets.
4.29 Confidentiality Agreement. Neither the Company, any
-------------------------
Representative of the Company nor any holder of any equity interests of the
Company has breached any of the agreements contained in Section 6.6 hereof.
4.30 Permits. The Disclosure Schedule lists all material Permits
-------
owned by or issued to the Business. Such Permits are all Permits required to
conduct the Business as now being conducted and all such Permits are in full
force and effect, and the Company is in compliance therewith. Except as set
forth on the Disclosure Schedule, all such Permits will be transferable in
connection with the transactions contemplated by the Transaction Documents no
later than the Closing Date.
4.31 No Owned Real Property. The Company does not own any Real
----------------------
Property.
4.32 Solvency. The Company (a) owns or possesses certain rights in
--------
the Purchased Assets, the fair saleable value of which, on a going concern
basis, is (i) greater than the total amount of liabilities (including contingent
liabilities) of the Company, and (ii) greater than the amount that will be
required to pay the probable liabilities of the Company's existing debts as they
become due; (b) has capital that is not unreasonably small in relation to the
Business as presently conducted; and (c) does not intend to incur and does not
believe that it will incur debts beyond its ability to pay such debts as they
become due.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to each Shareholder as follows:
5.1 Organization of Buyer. Buyer is duly organized, validly existing
---------------------
and in good standing under the laws of the State of Delaware.
5.2 Authorization. Buyer has all necessary corporate power and
-------------
authority and has taken all corporate action necessary to enter into this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations hereunder. This Agreement has been duly executed and delivered by
Buyer and
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<PAGE>
is a legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent
transfer, moratorium or other similar laws now or hereafter in effect relating
to or effecting the rights or remedies of creditors, general principles of
equity (whether considered in an action at law or in equity) and the discretion
of the court before which any proceeding therefore may be brought.
5.3 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the Certificate
of Incorporation or Bylaws of Buyer, (b) a breach of, or a default under, any
term or provision of any contract, agreement, indebtedness, lease, commitment,
license, franchise, Permit, authorization or concession to which Buyer is a
party, which breach or default would be likely to result in a material adverse
effect on Buyer's ability to consummate the transactions contemplated hereby or
(c) a violation by Buyer of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation would be
likely to result in a material adverse effect on Buyer's ability to consummate
the transactions contemplated hereby.
5.4 Consents and Approvals. Other than the filings required under
----------------------
the HSR Act and any Permits required to be obtained by the Company, no consent,
approval, waiver or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority, or any other Person, is required
to be made or obtained by Buyer in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, unless the failure to obtain any such consent, approval,
waiver or authorization would not be likely to result in a material adverse
effect on Buyer's ability to consummate the transactions contemplated hereby.
5.5 Parent Company. All of the issued and outstanding shares of
--------------
common stock of Buyer are owned beneficially and of record by Coinmach Laundry
Corporation, a Delaware corporation ("CLC").
---
5.6 No Brokers. Neither Buyer nor any Representative of Buyer has
----------
entered into or will enter into any contract, agreement, arrangement, or
understanding with any person which will result in the obligation of the Company
or any Shareholder to pay any finder's fee, brokerage commission or similar
payment in connection with the transactions contemplated by the Transaction
Documents.
5.7 Financing. Buyer will have as of the Closing Date sufficient
---------
cash and/or available credit facilities to pay the Purchase Price and to make
all other necessary payments of fees
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<PAGE>
and expenses in order to consummate the transactions contemplated by the
Transaction Documents to which Buyer is a party in accordance with the terms
thereof. The Closing of the transactions contemplated by this Agreement is not
contingent on Buyer obtaining financing.
ARTICLE 6
COVENANTS OF THE COMPANY, THE SHAREHOLDERS AND BUYER
----------------------------------------------------
6.1 Books and Records. Each party agrees that it will cooperate with
-----------------
and make available to the other party, during normal business hours, all Books
and Records, information, and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing Date which are
necessary or useful in connection with any Tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
Books and Records, information, or employees for any reasonable business
purpose. The party requesting any such Books and Records, information or
employees shall bear all out-of-pocket costs and expenses (including, without
limitation, attorneys' fees and disbursements, but excluding reimbursement for
salaries and employee benefits) incurred in connection with providing such Books
and Records, information or employees. In connection therewith, Buyer and each
of the Shareholders covenants and agrees to maintain in their current form all
of the Books and Records which constitute part of the Purchased Assets for a
period of seven (7) years after the Closing Date, and Buyer agrees to make such
Books and Records available during normal business hours to the Shareholders at
the Company's office at 2 Main Street, East Orange, New Jersey, during the
period from the Closing Date through the earlier to occur of (x) the one-year
anniversary of the Closing Date and (y) the date on which the Facility lease
pursuant to which Buyer leases such office space is terminated.
6.2 Employee Matters and Company Benefit Plans.
------------------------------------------
(a) The Shareholders shall cause the Company to, and the Company
shall, terminate the Company's 401(k) Plan prior to the Closing Date and shall
take all actions necessary to effectuate such termination.
(b) The Shareholders shall cooperate with Buyer in taking all
necessary actions as Buyer shall deem necessary or desirable to obtain, as soon
as practicable after the Closing Date, a determination letter from the Internal
Revenue Service with respect to tax-qualified status of the Company 401(k) Plan
in connection with its termination.
(c) The Shareholders shall cooperate with Buyer in taking all
necessary actions to ensure that for the period beginning July 1, 1997 and
ending on the date of the Company
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<PAGE>
401(k) Plan's termination, the Company 401(k) Plan has complied in operation
with all applicable requirements under the Code including, but not limited to,
(i) the actual deferral percentage requirements under Code Section 401(k), (ii)
the actual contribution percentage requirements under Code Section 401(m), (iii)
the limitations on elective deferrals under Code Section 401(a)(30), and (iv)
the limitations on contributions under Code Section 415.
(d) The Shareholders shall pay directly to the Company 401(k) Plan's
record keeper and/or administrator (the "Plan Administrator") all fees and other
------------------
related expenses charged by the Plan Administrator in connection with the
administration, termination and liquidation of the Company 401(k) Plan. The
Shareholders shall, at Buyer's option, either pay directly to the Plan
Administrator or reimburse Buyer for all fees, amounts and expenses paid or
incurred by Buyer including, but not limited to, legal fees, expenses,
contributions and any other amounts required to be paid by Buyer in connection
with (i) the administration, operation, termination and liquidation of the
Company 401(k) Plan as a tax-qualified plan, including, but not limited to, any
actions deemed necessary by counsel to Buyer to maintain the Company 401(k) Plan
as a tax-qualified plan (e.g., utilization of the Internal Revenue Service's
----
Employee Plans Compliance Resolution System), (ii) requesting and obtaining a
determination letter from the Internal Revenue Service regarding the tax-
qualified status of the Company 401(k) Plan in connection with its termination
(including, but not limited to, any actions deemed necessary by counsel to Buyer
in order to obtain such a determination letter) and (iii) the liquidation of the
Company 401(k) Plan and related trust following the receipt of such a
determination letter.
(e) The Shareholders shall retain all responsibilities for providing
all benefits required under Part 6 of Title I of ERISA ("COBRA Benefits") to
--------------
employees of the Company (whether required by law or otherwise) and their
qualified beneficiaries in respect of qualifying events occurring on or before
the Closing Date.
(f) Buyer shall be responsible and liable for claims arising under any
state worker's compensation or similar law in respect of Transferred Employees
which are based upon any occurrence after the Closing Date. The Shareholders
shall be responsible and liable for such claims which are based upon occurrences
on or before the Closing Date.
6.3 Consents and Best Efforts. Within three (3) business days after
-------------------------
the execution and delivery of this Agreement, Buyer shall have, and the
Shareholders shall have caused the Company to have, and the Company shall have,
made all filings required under the HSR Act. In addition, as soon as
practicable, Buyer, the Shareholders and the Company, as applicable, will
commence all other reasonable action required hereunder to obtain
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<PAGE>
all applicable Permits, consents, approvals and agreements of, and to give all
notices and make all filings with, any third parties as may be necessary to
authorize, approve or permit the full and complete sale, conveyance, assignment
or transfer of the Purchased Assets in accordance with, and as may be required
by this Agreement, by a date early enough to allow the sale hereunder to be
consummated by the Closing Date. Buyer shall have the sole responsibility to
apply for and obtain at its expense (i) any and all consents to transfer Permits
or (ii) any and all new Permits for continued operation of the Facilities, and
to make, at Buyer's expense, any improvements or alterations of any type to the
Purchased Assets required in order to transfer or obtain any such Permits. The
Shareholders and the Company shall cooperate in good faith with Buyer's efforts
in respect thereof.
6.4 Use of Corporate Name. On and after the Closing Date, none of
---------------------
the Shareholders shall use as a corporate name, trade name or otherwise the name
"Gordon & Thomas" or any other name confusingly similar to, or any derivative
of, "Gordon & Thomas" or any other name presently used by Buyer in connection
with the operation of its business and the use and ownership of its properties
and assets, it being the intent of the parties hereto that from and after the
Closing Date, Buyer will have the sole right as against the Shareholders, the
Company, the Company's Representatives and all other Persons, to conduct any
business under such names and that Buyer intends to use such name immediately on
and after the Closing Date and to continue to use such name thereafter.
6.5 Publicity. Unless required to do so by applicable law or legal
---------
process, no party shall issue any press release or similar publicity or make any
public statement regarding the Transaction Documents or the transactions
contemplated thereby without the prior written approval of the other parties to
this Agreement; provided; however, that, Buyer may issue one or more press
-------- -------
releases (the content of which shall be reasonably acceptable to the Company)
both (i) after execution and delivery of this Agreement and (ii) after the
Closing announcing the consummation of the transactions contemplated hereby.
Other than as set forth in the immediately preceding sentence, if either party
is required by law or legal process to make any public statement regarding the
Transaction Documents or the transactions contemplated by the Transaction
Documents, such party must first provide to the other party the content of the
proposed public statement, the reasons that such disclosure is required by law
or legal process, and the time and place that the public statement will be made,
in each case to the extent permitted by law or legal process or to the extent
reasonably practicable. Notwithstanding the foregoing, it is acknowledged and
agreed among the parties that Buyer is a reporting company under the Securities
Exchange Act of 1934 and, as such, is subject to the reporting requirements
thereunder. Accordingly, no agreement
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contained herein shall prevent Buyer from complying with any such requirements
in any manner Buyer deems appropriate.
6.6 Confidential Information.
------------------------
(a) The parties acknowledge that the transactions contemplated by
this Agreement are of a confidential nature and, subject to the agreements
contained in Section 6.5 hereof, each party agrees to keep this Agreement
strictly confidential and each party agrees that it will not, without the prior
written consent of the other party, make any public comment, statement, or
communication or otherwise disclose or permit any disclosure with respect to, or
regarding the transactions contemplated hereby, including but not limited to the
existence of this Agreement, except to their respective Representatives, or as
required by applicable law or legal process, until such time as the parties make
a public announcement regarding the transaction as provided in Section 6.5.
Neither the Shareholders, the Company nor Buyer at any time shall make any
public disclosure of the specific terms, conditions or other aspects of this
Agreement, except as required by applicable law or legal process.
(b) Each party acknowledges that, in connection with the negotiation
of the Transaction Documents and the preparation for the consummation of the
transactions contemplated thereby, it will have access to confidential
information relating to the other party. The parties agree that they will treat
as confidential, will not duplicate (except to their respective Representatives
in connection with the transactions contemplated by the Transaction Documents)
or use, and will maintain the confidentiality of (and will use its best efforts
to cause the Representatives of such party to maintain the confidentiality of),
any written, oral, or other information obtained from the other party in
connection with the Transaction Documents or the transactions contemplated
thereby, unless (a) such information is already known to such party or to others
not bound by a duty of confidentiality or such information becomes publicly
available through no fault of such party, (b) the use of such information is
necessary or appropriate in making any filing or obtaining any consent or
approval required for the consummation of the transactions contemplated by the
Transaction Documents, or (c) the furnishing or use of such information is
required by applicable law or legal process. In the event of the termination of
this Agreement for any reason whatsoever, each party shall return to the other
all documents, work papers and other material (including all copies thereof)
obtained in connection with the transactions contemplated hereby and will keep
confidential (and will so instruct its Representatives and others who have had
access to confidential information) and will not use any such information,
unless such information is now, or is hereafter, disclosed through no act or
omission of such party, in any manner making it available to the general public.
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(c) To the extent any party is required by applicable law or legal
process to make any disclosure of the Transaction Documents, the transactions
contemplated by the Transaction Documents or any confidential information, it
must, to the extent reasonably practicable, first provide to the other parties
in writing the content of the proposed disclosure, the reasons that such
disclosure is required by law or legal process, and the time and place that the
disclosure will be made, in each case to the extent reasonably practicable and
as permitted by law or legal process.
6.7 Cooperation on Litigation. The Company agrees to furnish or
-------------------------
cause to be furnished promptly to Buyer, upon request, such information relating
to the Business (including access to Books and Records) and assistance as is
necessary, in the sole discretion of Buyer, for the preparation for or the
prosecution or defense of any suit, action, litigation or arbitration or other
proceeding or investigation against the Buyer or the Company. Buyer agrees to
furnish or cause to be furnished promptly to the Shareholders, upon request,
such information related to the Business (including access to Books and Records)
and assistance as is necessary, in the sole discretion of the Company, for the
preparation for or the prosecution or defense of any suit, action, litigation or
arbitration or other proceeding or investigation against the Buyer or the
Company.
6.8 Cooperation on Tax Matters. Buyer, the Shareholders and the
--------------------------
Company shall cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of any Tax Return and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's consent, which consent shall
not be unreasonably withheld) 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.
6.9 Maintenance of Business Prior to Closing. Until the earlier of
----------------------------------------
the Closing or the termination of this Agreement in accordance with its terms,
the Shareholders shall cause the Company to, and the Company shall, use its
commercially reasonable efforts to continue to carry on the Business in the
ordinary course and substantially in accordance with past practice, except as
otherwise provided in this Agreement, and will not take any action inconsistent
therewith, with any applicable laws or legal requirements or with the
consummation of the Closing. Without limiting the generality of the foregoing,
the Shareholders shall cause the Company to, and the Company shall, (a) maintain
the Purchased Assets in substantially their current state of repair, consistent
with age, excepting normal wear and tear; and (b) maintain insurance covering
Purchased Assets similar to that in effect on the date hereof.
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6.10 Investigation by Buyer; Audits. Until the earlier of the
------------------------------
Closing or the termination of this Agreement in accordance with its terms, the
Company and each Shareholder shall allow Buyer, at Buyer's own expense, at such
time or times as are mutually agreeable to the Company and Buyer, and without
materially interfering with the Company's Business, to make such inspection of
the Purchased Assets and to inspect other Contracts, Books and Records or
information requested by Buyer, concerning the Business; provided, however, that
-------- -------
any information obtained from the Company or the Company's Representatives
pursuant hereto remains subject to the confidentiality agreement dated January
30, 1998 (the "Confidentiality Agreement") entered into between the Company and
-------------------------
CLC (the continued validity of which is hereby acknowledged by Buyer and the
Company). All such information shall be provided to Buyer in such form as such
information may presently exist or be readily available. All communications to
the Company pursuant to this Section 6.10 shall be made to Mr. Stuart Litwin,
c/o Gordon & Thomas Companies, Inc., 2 Main Street, East Orange, New Jersey
07018. Buyer acknowledges and agrees that Buyer will not be permitted any on-
site visits until two (2) days after the public notice described in Section 6.5.
The Company has delivered to Buyer, or will deliver to Buyer promptly after such
public notice, copies of the Location Contracts and OPL Contracts.
6.11 Certain Prohibited Transactions. Until the earlier of the
-------------------------------
Closing or the termination of this Agreement in accordance with its terms, the
Shareholders shall not permit the Company to, and the Company shall not, except
as permitted or contemplated by this Agreement or as otherwise consented to by
Buyer in writing:
(a) outside of the ordinary course of business, incur any indebtedness
for borrowed money, assume, guarantee, endorse or otherwise become responsible
for obligations of any other Person, or make any loans or advances to any
Person, except trade payables incurred in the ordinary course of business and
consistent with past practice;
(b) issue any shares of its capital stock or any other securities or
any securities convertible into shares of their capital stock or any other
securities;
(c) make or incur any obligation to make any distribution of assets in
kind or redemption with respect to capital stock;
(d) make any change to its Certificate of Incorporation or bylaws
except as may be necessary to consummate the transactions contemplated by this
Agreement;
(e) relative to the Business, mortgage, pledge or otherwise encumber
any of its properties or assets or sell, transfer or otherwise dispose of any of
its properties or assets
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or cancel, release or assign any indebtedness owed to it or any claims held by
them, except in the ordinary course of business and consistent with past
practice;
(f) relative to the Business, make any investment in any Person,
except in the ordinary course of business and consistent with past practice;
(g) relative to the Business, enter into or terminate any material
contract or agreement, or make any material change in any of its Leases or
Contracts, other than in the ordinary course of business and consistent with
past practice; or
(h) do any other act which would cause any representation or warranty
of the Company or any Shareholder in this Agreement to be or become untrue in
any material respect.
6.12 Notification of Certain Matters. The Company and each
-------------------------------
Shareholder shall give prompt notice to Buyer, and Buyer shall give prompt
notice to the Company, of (i) the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect any time from the date hereof to the Closing Date and (ii) any material
failure of the Company, any Shareholder or Buyer, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by them hereunder. Each party shall use its commercially reasonable
efforts to remedy any failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
6.13 HSR Act Approval. In addition to and without limiting the
----------------
covenants contained herein, the Company, each Shareholder and the Buyer shall
(i) promptly take all actions necessary to make any filings required of any of
them under the HSR Act, (ii) comply at the earliest practicable date with any
request for additional information from the Federal Trade Commission or the
Antitrust Division of the Department of Justice pursuant to the HSR Act, and
(iii) cooperate with each other in connection with the filings by or on behalf
of each of them under the HSR Act with respect to the transactions contemplated
by the Transaction Documents and in connection with resolving any investigation
or other inquiry concerning the transactions contemplated by the Transaction
Documents commenced by either the Federal Trade Commission or the Antitrust
Division of the Department of Justice or any state attorney general.
6.14 No Mergers, Consolidations, Sale of Stock, Etc. Until the
------------------------------------------ ---
earlier of the Closing or the termination of this Agreement in accordance with
its terms, the Shareholders will not permit the Company to, and neither the
Company nor the Shareholders will, directly or indirectly, solicit any inquiries
or proposals or enter into or continue any discussions,
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negotiations or agreements relating to the sale or exchange of its capital stock
or the merger of the Company with, or any direct or indirect disposition of a
significant amount of the Company's assets used in the Business to, any Person
other than Buyer or provide any assistance or any information to or otherwise
cooperate with any Person in connection with any such inquiry, proposal or
transaction (each an "Acquisition Proposal"). In the event that the Company or
--------------------
any Shareholder receives an unsolicited offer for such a transaction or obtains
information that such an offer is likely to be made, the Company will provide
Buyer with notice thereof as soon as practical after receipt, including the
identity of the prospective purchaser or soliciting party.
Each Shareholder and the Company acknowledges and agrees that, if (i)
the Company or any Shareholder violates this Section 6.14 and (ii) within one
year of the date hereof, any Shareholder or any of their respective
Representatives enters into an agreement with respect to an Acquisition Proposal
with a party other than Buyer, then the Shareholders shall promptly pay to
Buyer, by wire transfer of immediately available funds, an amount equal to the
sum of (a) the expenses incurred by Buyer in connection with the transactions
contemplated hereby (including, without limitation, fees and expenses of legal
counsel, accountants, investment bankers, and other representatives or
consultants) plus (b) the amount, if any, by which the sale price for such
----
Acquisition Proposal exceeds the proposed Purchase Price hereunder.
6.15 Further Assurances. After the Closing Date, Buyer, the
------------------
Shareholders and the Company shall cooperate in good faith with the other and
will take all appropriate action and execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the transactions contemplated under the Transaction Documents.
6.16 Dismissal of Litigation. Promptly after the Closing Date, (a)
-----------------------
the Shareholders shall take all necessary action to dismiss with prejudice any
pending litigation brought by any of the Shareholders or the Company against the
Buyer or any of the Buyer's Affiliates, (b) the Shareholders shall use
commercially reasonable efforts to cause Berkeley Towers Cooperative Section III
("Berkeley") to withdraw its appeal in that certain action brought by Buyer
--------
against Berkeley and identified on Schedule 4.12 of the Disclosure Schedule and
shall cease to fund such appeal or otherwise indemnify Berkeley with respect
thereto, and (c) Buyer shall cause the action brought by Buyer against 222 Smith
Street relating to the enforcement of a right of first refusal and identified on
Schedule 4.12 of the Disclosure Schedule to be dismissed. Additionally, Buyer
agrees not to bring an action after the Closing Date against Cornell University
Medical College pertaining to the enforcement of a right of first refusal with
respect to the laundry room location described on Schedule 4.12 of the
Disclosure Schedule.
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6.17 Sales and Use Tax on Transfer of Purchased Assets. Within
-------------------------------------------------
thirty (30) days after the Closing, the Shareholders shall pay any and all Taxes
imposed by reason of the transfer of the Purchased Assets to Buyer in accordance
herewith, including, without limitation, any Taxes imposed by the States of
Connecticut, Delaware, New Jersey, New York and Pennsylvania.
6.18 Section 338(h)(10) Tax Election. Promptly after the Closing
-------------------------------
Date, the Company and the Shareholders shall cooperate with the Buyer to take
all steps necessary to timely effect the election pursuant to Section 338(h)(10)
of the Code and Treasury Regulation Section 1.338(h)(10)-1 on Form 8023 to treat
the transactions contemplated by the Transaction Documents as a sale of the
Company's assets to Buyer and shall file all income tax returns consistently
therewith.
6.19 WARN Act Compliance. Buyer covenants and agrees with the
-------------------
Company and the Shareholders that as of the Closing Date Buyer shall employ a
sufficient number of the Company's employees such that notification under the
WARN Act is not required.
6.20 Payment of Severance Obligations by the Shareholders. Each of
----------------------------------------------------
the Shareholders covenants and agrees with Buyer that with respect to employees
of the Company employed by Buyer and terminated by Buyer at any time during the
six (6) month period following the Closing Date, the Shareholders shall pay any
and all of the Company's and/or Buyer's severance obligations to such terminated
employees to the extent not specifically assumed by Buyer pursuant to Section
2.1(b)(ii) of this Agreement (it being understood that Buyer shall only be
liable for a portion of any such severance obligations as specifically set forth
in Section 2.1(b)(ii) of this Agreement).
6.21 New Location Contracts. The Company covenants and agrees, and
----------------------
each of the Shareholders covenant and agree to cause the Company, not to enter
into any new Location Contract, other than renewals of Location Contracts on
substantially similar terms in the ordinary course of business and consistent
with past practice, or any new OPL Contract without the prior written consent of
Buyer, which consent shall not be unreasonably withheld or delayed.
6.22 OPL Contracts. The Shareholders shall cooperate with Buyer and
-------------
use their respective commercially reasonable efforts to effectuate the transfer
of all OPL Contracts to Buyer in accordance with the terms and conditions of
this Agreement, including, without limitation, securing new contracts on
substantially similar or more favorable terms to the extent such OPL Contracts
contain "change of control" or similar provisions permitting their termination
on or after the Closing Date.
6.23 Delivery and Receipt of Seller Stock. Each of the Shareholders
------------------------------------
shall have delivered to Buyer the Seller Stock pursuant to Section 3.2(a)(i)
hereof.
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ARTICLE 7
COVENANT NOT TO COMPETE AND CONFIDENTIALITY
-------------------------------------------
7.1 Covenant Not to Compete.
-----------------------
(a) For the purposes of this Section 7.1, the term "Territory" shall
mean the States of Connecticut, Delaware, New Jersey, New York and Pennsylvania.
Each Shareholder acknowledges and agrees that the Company's reputation and
goodwill are an integral part of its business success throughout the Territory.
If Buyer is deprived of any of the Company's goodwill or if any Shareholder in
any manner utilizes the Company's reputation and goodwill in competition with
Buyer in the Territory, Buyer will be deprived of the benefits it has bargained
for pursuant to this Agreement. This covenant is necessary to transfer the
Business and goodwill of the Company to Buyer effectively. Accordingly, as an
inducement for Buyer to enter into this Agreement, the each Shareholder agrees
that for a period of seven (7) years after the Closing, such Shareholder shall
not, without Buyer's prior written consent, directly or indirectly, own, manage,
operate, join, control or participate in the ownership, management, operation or
control of, or be connected as a director, officer, employee, partner,
consultant or otherwise with, any Person in the Territory, which, directly or
indirectly, competes with the Business, as operated as of the Closing Date,
provided, that, the foregoing shall not preclude any Shareholder from owning up
- -------- ----
to 2% of the outstanding debt or equity securities of a publicly-traded entity
which might be deemed to so compete.
(b) Prior to consummating an asset sale of any portion of its laundry
equipment services business consisting primarily of Location Contracts in the
Territory (provided the sale price for such portion of Buyer's business is in
excess of $3,000,000), Buyer shall provide the Shareholders with an opportunity
to bid on the purchase of such portion of Buyer's business (the laundry room
locations comprising such portion of the acquired business, the "Acquired
--------
Laundry Room Locations"). In the event one or more of the Shareholders are the
- ----------------------
successful bidder(s) for such portion of Buyer's business, such Shareholder(s)
shall be permitted, notwithstanding the provisions of Section 7.1(a) of this
Agreement, to service such Acquired Laundry Room Locations (it being understood
that, except with respect to the Acquired Laundry Room Locations, the
Shareholders shall continue to be subject to the provisions of Section 7.1(a) of
this Agreement).
7.2 Confidentiality and Non-Solicitation. Each Shareholder agrees
------------------------------------
to maintain in confidence, and not to disclose to any third party, except as
required by applicable law or legal process, any Proprietary Information, ideas,
methods, developments, inventions, improvements and business plans and
information which are the confidential information of Buyer. Each Shareholder
agrees that for a period of seven (7) years from
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and after the Closing Date, it or they shall not and shall use commercially
reasonable efforts to not permit any of its or their Representatives, to,
directly or indirectly, (i) in any manner induce or attempt to induce any
Personnel, customer, supplier, licensee, landlord or other business relation of
Buyer to leave or cease doing business with Buyer or in any way interfere with
the relationship between Buyer and any Personnel, customer, supplier, licensee,
landlord or other business relation thereof or (ii) hire or solicit for
employment any employee who is an employee of the Business on the Closing Date;
provided, however, that any Shareholder may, at any time after eighteen months
- -------- -------
following the termination by Buyer of any such employee of the Company, hire or
solicit for employment such employee of the Company (it being understood,
however, that no solicitation of any such employee for any reason shall be
permitted by any Shareholder at any time during such eighteen month period).
7.3 Validity. In the event the agreements in Sections 7.1 or 7.2
--------
hereof shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too great a period of time or over
too great a geographical area or by reason of its being too extensive in any
other respect, it shall be interpreted to extend only over the maximum period of
time for which it may be enforceable and/or over the maximum geographical area
as to which it may be enforceable and/or to the maximum extent in all other
respects as to which it may be enforceable, all as determined by such court in
such action.
7.4 Remedies. The Company and each Shareholder acknowledges that a
--------
breach of the covenants contained in Sections 7.1 and 7.2 hereof will cause
irreparable damage to Buyer, the exact amount of which will be difficult to
ascertain, and that the remedies at law for any such breach will be inadequate.
Accordingly, the Company and each Shareholder agrees that if the Company or any
Shareholder breaches the covenant contained in Sections 7.1 and 7.2 hereof in
addition to any other remedy which may be available at law or in equity, Buyer
shall be entitled to specific performance and injunctive relief, without posting
bond or other security.
ARTICLE 8
RISK OF LOSS
------------
Legal title, equitable title and risk of loss with respect to the
Purchased Assets shall not pass to the Buyer until the Purchased Assets are
transferred to Buyer on the Closing Date.
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ARTICLE 9
LIABILITIES OF THE PARTIES
--------------------------
AFTER THE CLOSING
-----------------
9.1 Survival of Representations, Etc. All statements contained in
--------------------------------
the Disclosure Schedule or in any certificate or instrument or conveyance
delivered by or on behalf of the parties pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the parties hereunder. The representations
and warranties of the Company, the Shareholders and Buyer contained herein shall
survive the Closing Date without regard to any investigation made by any of the
parties hereto, until (i) the expiration of the applicable statutes of
limitations (and any extensions thereof) with respect to the representations and
warranties set forth in Sections 4.12, 4.19, 4.20, and 4.27 and (ii) the second
anniversary of the Closing Date, with respect to the representations and
warranties set forth in Sections 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11,
4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.21, 4.22, 4.23, 4.24, 4.25, 4.26, 4.28,
4.29, 4.30, 4.31, 4.32, 5.3, 5.4, 5.5, 5.6, 5.7 and 5.8. The representations
and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1 and 5.2 shall survive
the Closing Date and continue in full force and effect forever, without regard
to any investigation made by any of the parties hereto. All covenants and
agreements of the Parties contained in this Agreement shall survive the Closing
Date. Each party will have liability to the other arising out of a breach of a
representation or warranty for which indemnification is provided hereunder only
if the party claiming that such breach of representation or warranty occurred
delivers to the other party written notice and explanation of the facts and
circumstances giving rise to the claim of breach of representation of warranty
as and to the extent then known to such party (including the Section or Sections
of this Agreement involved and the basis for such claim of breach of
representation or warranty), within the applicable survival period set forth
herein.
9.2 Indemnification by the Shareholders. Subject to Section 9.13
-----------------------------------
hereof, the Company and the Shareholders, jointly and severally, shall
indemnify, save and hold harmless Buyer, its subsidiaries and Affiliates, and
its and their respective Representatives, stockholders and successors and
assigns, from and against any and all Damages incurred in connection with or
arising out of or resulting from:
(i) any breach of any covenant or warranty, or the inaccuracy of any
representation, made by the Company or any Shareholder in this Agreement
(including the Disclosure Schedule), any other Transaction Documents or in any
certificate or instrument or conveyance delivered by or on behalf of the Company
or any Shareholder pursuant to this Agreement or any of the other Transaction
Documents or in
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connection with the transactions contemplated hereby or thereby;
(ii) any Retained Liabilities;
(iii) the Purchased Assets or the operation of the Business, in each
case, to the extent arising out of transactions entered into or events occurring
prior to the Closing Date and not constituting Assumed Liabilities;
(iv) the employment by the Company or termination of employment of any
employee of the Company on or prior to the Closing Date;
(v) any Employee Plan or Benefit Arrangement, or any transaction
relating thereto, or any other benefit arrangement maintained at any time by (or
to which contributions have been made by) the Company or any entity that is (or
at any time has been) an Affiliate of the Company; or
(vi) any audit of any Tax Return of the Company conducted by the
Internal Revenue Service or any other taxing authority with respect to any
period of time on or prior to the Closing Date.
9.3 Indemnification by Buyer. Buyer shall indemnify, save and hold
------------------------
harmless the Shareholders and the Company, its subsidiaries, and its and their
respective Representatives (including, without limitation, Brian Kronick),
stockholders, successors and assigns, from and against any and all Damages
incurred in connection with or arising out of or resulting from (i) any breach
of any covenant or warranty, or the inaccuracy of any representation, made by
Buyer in this Agreement or the other Transaction Documents or in any certificate
or instrument or conveyance delivered by or on behalf of Buyer pursuant to this
Agreement or the other Transaction Documents or in connection with the
transactions contemplated hereby or thereby; (ii) as of or after the Closing
Date, any claim, liability, obligation or commitment of any nature, absolute,
accrued or otherwise (not constituting a Retained Liability), which is
specifically assumed by Buyer pursuant to Section 2.1(b) of this Agreement or
which directly relates to the Purchased Assets and arises solely out of
transactions entered into or events occurring after the Closing Date; or (iii)
any obligations under the WARN Act arising out of the employment by Buyer of the
Company's employees on or after the Closing Date.
9.4 Damages. The term "Damages" as used in this Article 9 is not
-------
limited to matters asserted by third-parties against the Company or Buyer, but
includes Damages incurred or sustained by the Company or Buyer in the absence of
third-party claims.
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9.5 Indemnification Payments. Subject to the terms of this
------------------------
Agreement, an Indemnifying Party shall pay to the Indemnified Party the full
amount of any and all Damages under this Article 9 within five (5) business days
of the date such claim is settled or resolved pursuant to the provisions of
Section 12.2 of this Agreement (the "Indemnity Resolution Date"). In the event
-------------------------
the Indemnifying Party shall not pay the full amount of any such uncontested
Damages on or prior to the Indemnity Resolution Date, the Indemnified Party
shall be entitled to offset from any payments due to the Indemnifying Party
under this Agreement any amounts due and owing.
9.6 Defense of Claims. If a claim for Damages is to be made by a
-----------------
party entitled to indemnification hereunder (the "Indemnified Party"), the
-----------------
Indemnified Party shall give written notice to the party against whom a claim is
to be made (the "Indemnifying Party") as soon as practical after the Indemnified
------------------
Party becomes aware of any fact, condition or event which may give rise to
Damages for which indemnification may be sought under this Section 9.6. If any
lawsuit or enforcement action is filed against any party entitled to the benefit
of indemnity hereunder, written notice thereof shall be given to the
Indemnifying Party as promptly as practicable (and in any event within fifteen
(15) days after the service of the citation or summons); provided, that the
--------
failure of any Indemnified Party to give timely notice shall not affect rights
to indemnification hereunder except to the extent that the Indemnifying Party is
prejudiced by such failure. After such notice, if the Indemnifying Party shall
acknowledge in writing to the Indemnified Party that the Indemnifying Party
shall be obligated under the terms of its indemnity hereunder in connection with
such lawsuit or action, then the Indemnifying Party shall be entitled, if it so
elects, to take control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys of its own choice to handle and defend
the same, at the Indemnifying Party's cost, risk and expense and after such time
the Indemnifying Party will not, subject to Section 9.7 hereof, as long as it
diligently conducts such defense, be liable to the Indemnified Party under this
Section 9.6 for any fees of other counsel or any other expenses with respect to
the defense of such proceedings, in each case subsequently incurred by the
Indemnified Party in connection with the defense of such proceeding, other than
reasonable costs of investigation, provided that the Indemnifying Party and its
counsel shall:
(i) proceed with diligence and in good faith with respect
thereto; and
(ii) enter into an agreement with the Indemnified Party (in form
and substance satisfactory to the Indemnified Party) pursuant to which the
Indemnifying Party agrees to be fully responsible (with no reservation of any
rights other than the right to be subrogated to the rights of the Indemnified
Party), for all Damages relating to such
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<PAGE>
proceeding and unconditionally guarantees the payment and performance of any
liability or obligation which may arise with respect to such proceeding or the
facts giving rise to such claim for indemnification; and
(iii) provide reasonable assurance to the Indemnified Party of
its financial capacity to defend such proceeding and satisfy such liability.
9.7 Control of Defense; Exceptions. Notwithstanding the provisions
------------------------------
of Section 9.6 hereof: (i) the Indemnified Party will be entitled to
participate in the defense of such claim and to employ counsel of its choice for
such purpose at its own expense (provided, that the Indemnifying Party will bear
--------
the reasonable fees and expenses of such separate counsel incurred prior to the
date upon which the Indemnifying Party effectively assumes control of such
defense); and (ii) the Indemnifying Party will not be entitled to assume control
of the defense of such claim, and will pay the reasonable fees and expenses of
legal counsel retained by the Indemnified Party, if:
(x) the Indemnified Party reasonably believes that an adverse
determination of such proceeding could be materially detrimental to or
materially injure the Indemnified Party's reputation or future business
prospects;
(y) the Indemnified Party reasonably believes upon advice of
legal counsel that there exists or could arise a conflict of interest
which, under applicable principles of legal ethics, could prohibit a single
legal counsel from representing both the Indemnified Party and the
Indemnifying Party in such proceeding; or
(z) a court of competent jurisdiction or an arbitrator appointed
in accordance with this Agreement rules that the Indemnifying Party has
failed or is failing to prosecute or defend vigorously such claim.
In the event the Indemnifying Party is not permitted to assume control
of the defense of such claim (as provided in this Section 9.7), the legal
expenses for which the Indemnifying Party shall be obligated pursuant to clause
(ii) of this Section 9.7 shall be limited to hourly charges and expenses
calculated at the same rate as if the defense of such claim were handled by a
law firm selected by the Indemnifying Party in its reasonable discretion. For
purposes of this Section 9.7, counsel for the Indemnified Party shall be counsel
selected by the Indemnified Party and reasonably acceptable to the Indemnifying
Party.
9.8 Prior Consent for Settlement. The Indemnifying Party must obtain
----------------------------
the prior written consent of the Indemnified Party (which the Indemnified Party
will not unreasonably withhold or delay) prior to entering into any settlement
of such claim or proceeding or ceasing to defend such claim or proceeding unless
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<PAGE>
such settlement: (i) includes as an unconditional term thereof the complete
release of the Indemnified Party to the Indemnified Party's reasonable
satisfaction from and against all liability of any kind (whether fixed,
absolute, accrued or contingent) with respect to such claim or litigation; (ii)
does not impose an injunction or other equitable relief upon the Indemnified
Party and (iii) does not require any admission or representation of wrongdoing
by the Indemnified Party or otherwise result in the disclosure or representation
of any information that would reasonably be likely to adversely effect the
Indemnified Party's reputation, business or good will; provided, however, that
-------- -------
if the Indemnified Party withholds its consent to settlement of a claim in bad
faith or without a reasonable basis for doing so, and the claim is later
adjudicated or settled to the further detriment of the Indemnifying Party, the
Indemnifying Party shall only be liable for damages up to the initially proposed
settlement amount.
9.9 Characterization; Taxes. The parties intend that any amount paid
-----------------------
pursuant to the provisions of this Article 9 and the assumption by Buyer of
Assumed Liabilities (other than pursuant to Section 2.1(b)(i) hereof) be treated
as adjustments to the Purchase Price. If, notwithstanding such intention, any
Tax is imposed on any Indemnified Party in respect of any payment pursuant to
this Article 9, then the Indemnifying Party will reimburse the Indemnified Party
for the amount of such Tax (and any Tax in respect of any payment pursuant to
this Section 9.9).
9.10 Brokers and Finders. Each of Buyer, on the one hand, and the
-------------------
Company and the Shareholders, on the other hand, shall indemnify, hold harmless
and defend the other party from the payment of any and all broker's and finder's
expenses, commissions, fees or other forms of compensation which may be due or
payable from or by the Indemnifying Party, or may have been earned by any Person
acting on behalf of the Indemnifying Party in connection with the negotiation
and execution hereof and the consummation of the transactions contemplated
hereby. No Representative of any party shall be personally liable for any
Damages under the provisions contained in this Article 9. Nothing herein shall
relieve either party of any liability to make any payment expressly required to
be made by such party pursuant to this Agreement.
9.11 Cooperation. The Indemnified Party shall use its commercially
-----------
reasonable efforts to cooperate with the Indemnifying Party in defending any
claim and provide any books, records, information or testimony requested which
is in the hands of or under the control of the Indemnified Party.
9.12 Insurance Proceeds. In determining the amount of any Damages
------------------
for which an Indemnified Party is entitled to indemnification under this
Agreement, the gross amount thereof shall be reduced by any insurance proceeds
actually received by such Indemnified Party or its Affiliates in respect of such
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<PAGE>
Damages, net of any insurance premium or increase of such premium that becomes
due solely as a result of the Indemnified Party filing the claim in respect of
which such insurance proceeds were paid.
9.13 Exclusive Remedy; Indemnification Deductible; Limitation on
-----------------------------------------------------------
Liability. Notwithstanding anything to the contrary contained in this
- ---------
Agreement, except for Damages directly or indirectly arising out of or relating
to (i) the matters described in Article 6 or Section 9.9 hereof, (ii) the items
or events described in clauses (ii), (iii), (iv), (v) or (vi) of Section 9.2
hereof, (iii) the representations and warranties contained in Sections 4.1, 4.2,
4.3, 4.12, 4.19, 4.20 and 4.27 hereof, (iv) gross negligence, willful misconduct
or bad faith of any of the parties hereto (in so far as such Damages relate to
representations and warranties that are qualified by knowledge), (v) fraud of
any of the parties hereto, and except for remedies that cannot be waived as a
matter of law, if the Closing occurs, or (vi) the failure of any of the
Shareholders or the Company to pay the amount of any adjustment to the Purchase
Price in accordance with the provisions of Section 2.3 of this Agreement,
(a) this Article 9, and any limitations contained herein, shall be the
exclusive remedy for breach of the representations and warranties contained in
Articles 4 and 5 hereof or in the corresponding certificates delivered pursuant
to Section 3.2 hereof,
(b) neither the Company nor any Shareholder shall be required to
indemnify Buyer in respect of any obligation under clause (i) of Section
9.2 of this Agreement with respect to any breach or inaccuracy of any of
the representations and warranties of the Company or the Shareholders
except to the extent the aggregate amount of all Damages thereunder exceeds
$200,000, in which event the Company and Shareholders will be required to
indemnify Buyer for all Damages in excess of $50,000, and
(c) the aggregate obligation of the Company and the Shareholders under
clause (i) of Section 9.2 of this Agreement with respect to any breach or
inaccuracy of any of the representations or warranties of the Company or
the Shareholders contained in this Agreement shall not exceed in the
aggregate Forty Five Million Dollars ($45,000,000).
ARTICLE 10
CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS
-------------------------------------------
The obligations of the Shareholders and the Company to consummate the
transactions contemplated by this Agreement and the other Transaction Documents
to which the Company is a party are subject, in the reasonable discretion of the
Shareholders, to
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<PAGE>
the satisfaction, on or prior to the Closing Date, of each of the following
conditions, any or all of which may be waived by the Shareholders in their sole
and absolute discretion:
10.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Buyer contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date, 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 hereof, and
Buyer shall have performed all agreements and covenants required hereby to be
performed by it prior to or at the Closing Date.
10.2 Permits and Consents. All Permits, consents of Consenting
--------------------
Parties and consents, approvals and waivers from governmental authorities and
other parties necessary to permit the Shareholders to transfer the Seller Stock
to Buyer as contemplated by the Transaction Documents shall have been obtained,
unless (a) the failure to obtain any such consent, approval or waiver would not
result in an Adverse Effect, (b) such consents, approvals or waivers are to be
obtained by the Company or any Shareholder, or (c) Buyer indemnifies the Company
with respect thereto.
10.3 No Governmental Proceedings or Litigation. No Actions by any
-----------------------------------------
governmental authority shall have been instituted or threatened which questions
the validity or legality of the transactions contemplated hereby and which could
reasonably be expected materially to damage the Company if the transactions
contemplated hereunder are consummated.
10.4 Certificates. Buyer will furnish the Shareholders with such
------------
certificates of its officers and others to evidence compliance with the
conditions set forth in this Article 10 as may be reasonably requested by the
Shareholders, including without limitation: (i) an officer's certificate of
Buyer, dated as of the Closing Date, certifying that the conditions specified in
Sections 10.1 and 10.2 have been fully satisfied; (ii) certificates as to the
good standing of Buyer in the State of Delaware; and (iii) such other documents
relating to the transactions contemplated by the Transaction Documents as the
Shareholders reasonably requests.
10.5 Corporate Documents. The Shareholders shall have received from
-------------------
Buyer a copy of resolutions adopted by the board of directors of Buyer approving
this Agreement and the transactions contemplated hereby, certified by an officer
of Buyer.
10.6 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired.
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<PAGE>
10.7 Consulting Agreement. Buyer and Stuart Litwin shall have
--------------------
entered into a consulting agreement with Buyer for a six month term commencing
on the Closing Date (the "Consulting Agreement") on mutually satisfactory terms,
--------------------
pursuant to which, among other things, Mr. Litwin shall be entitled to receive
(i) a monthly salary of $20,000 and (ii) an incentive payment equal to $100 per
laundry machine (not to exceed $500,000 in the aggregate) in respect of any new
business generated by him on behalf of Buyer after the Closing Date (which new
business shall be defined in the Consulting Agreement in a manner reasonably
acceptable to Buyer and shall not include any business generated by existing
customers of either Buyer or the Company).
10.8 Deliveries at Closing. The Shareholders shall have received
---------------------
each of the items required to be delivered by Buyer pursuant to Section 3.2(a)
of this Agreement.
10.9 Lease. Buyer shall have entered into a real property lease with
-----
2 New Main Street Associates in respect of certain office/warehouse space
located at 2 Main Street, East Orange, New Jersey for a term of one year at a
base rent of $18,750 per month and on terms otherwise reasonably satisfactory to
the Shareholders and Buyer.
ARTICLE 11
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations of Buyer to consummate the transactions contemplated
by this Agreement and the other Transaction Documents to which it is a party are
subject, in the reasonable discretion of Buyer, to the satisfaction, on or prior
to the Closing Date, of each of the following conditions, any or all of which
may be waived by Buyer in its sole and absolute discretion:
11.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of the Company and the Shareholders contained in this Agreement
(except to the extent a breach or inaccuracy thereof does not result in Damages
in an amount in excess of $50,000 in the case of any one such representation or
warranty or $200,000 in the aggregate) shall be true and correct in all material
respects at and as of the Closing Date, 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 hereof, and the
Company and the Shareholders shall have performed in all material respects all
agreements and covenants required hereby to be performed by them prior to or at
the Closing Date.
11.2 Permits and Consents. All Permits, consents of Consenting
--------------------
Parties and consents, approvals and waivers from governmental authorities and
other parties necessary to permit
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<PAGE>
the Shareholders to transfer the Seller Stock to Buyer as contemplated by the
Transaction Documents (other than any consents required to be obtained under the
Change of Control Contracts, the OPL Distributor Agreement or the Route Business
Supply Agreement) shall have been obtained (and evidence thereof reasonably
acceptable to Buyer delivered to Buyer), except where the failure to obtain any
such Permit, consent, approval or waiver would not have an Adverse Effect and
would not restrict the transferability, use or operation of any of the Purchased
Assets.
11.3 No Governmental Proceedings or Litigation. No Action by any
-----------------------------------------
governmental authority shall have been instituted or threatened which questions
the validity or legality of the transactions contemplated hereby or which could
reasonably be expected to (i) materially adversely affect the right or ability
of Buyer to own, operate or possess the Purchased Assets after the Closing or
(ii) damage Buyer in any material respect if the transactions contemplated
hereunder are consummated.
11.4 Opinion of Counsel. The Shareholders and the Company shall have
------------------
delivered to Buyer an opinion of Brach Eichler Rosenberg Silver Bernstein Hammer
& Gladstone, counsel to the Shareholders and the Company, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit "A".
11.5 Material Changes. Since the Balance Sheet Date, there shall not
----------------
have been any (i) change or any development or discovery of any material
contingent or other liability relating to the Business which is not set forth in
the Disclosure Schedule and which could reasonably be expected to result in an
Adverse Effect, (ii) outbreak or escalation of hostilities between the United
States and any foreign power, (iii) outbreak or escalation of any other
insurrection or armed conflict involving the United States or any other national
or international calamity or emergency, or (iv) material change in the financial
markets of the United States.
11.6 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired.
11.7 Audit. Buyer or its Representatives shall have conducted an
-----
audit of the Company's Books and Records, and in Buyer's sole reasonable
discretion, Buyer shall be satisfied on the basis of such audit that the
representations and warranties of the Company and each Shareholder made pursuant
to this Agreement are accurate and complete in all material respects.
11.8 Disclosure Schedules. The Shareholders shall have delivered to
--------------------
Buyer on the Closing Date a Disclosure Schedule (the "Closing Disclosure
------------------
Schedule") revised to reflect any changes in the information on the Disclosure
- --------
Schedule from the date hereof up to and including the Closing Date, which
Closing
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<PAGE>
Disclosure Schedule shall be made a part of this Agreement and incorporated in
its entirety herein by reference.
11.9 Due Diligence. As provided in this Agreement, Buyer shall have
-------------
obtained from the Company and its Representatives copies of any and all
corporate documents related to the Business, including, without limitation,
securities agreements, purchase contracts, commercial loan agreements,
litigation documents, audit reports, studies, financial statements, governmental
reports, insurance policies, employment records, employee benefit plans,
Permits, applications for Permits, Proprietary Right information and all other
information or documents related to the Business and requested by Buyer, and
Buyer shall, upon the review thereof, deem in good faith that such items and
information would not in Buyer's sole and absolute discretion be expected to
result in a material adverse effect on (a) the Seller Stock, (b) to the extent
related to the OPL Business, the Business, the Purchased Assets, liabilities,
working capital, earnings, condition (financial or otherwise), operating
results, business prospects or employee, Customer or supplier relations of the
Company (other than the termination of the Commercial On Premise Laundry
Distributor Sales Agreement between Maytag and the Company (the "OPL Distributor
---------------
Agreement")), taken as a whole, (c) to the extent related to the Route Business,
- ---------
the Business, Purchased Assets, liabilities, working capital, earnings,
condition (financial or otherwise), operating results, business prospects or
employee, Customer or supplier relations of the Company (other than the
termination of the Commercial Multiple Housing Sales Agreement between Maytag
and the Company (the "Route Business Supply Agreement")), taken as a whole, or
-------------------------------
(d) the ability of the Company or any of the Shareholders to perform their
respective obligations under the Transaction Documents or the ability of the
Company and/or Buyer to conduct the Business as presently conducted on or after
the Closing Date; provided, however, that, notwithstanding any provision to the
-------- -------
contrary in this Section 11.9, Buyer shall not terminate this Agreement pursuant
to this Section 11.9 based solely upon (i) the existence of those certain
Location Contracts specifically identified on Schedule 4.7 of the Disclosure
Schedule provided to Buyer on the date hereof, which Location Contracts permit
termination without cause by the landlord/lessor of such Location Contract upon
prior written notice to the Company, (ii) the payment by the Company to the
Shareholders of dividends in an aggregate amount not to exceed $1,000,000 after
September 30, 1997 to the extent paid in a manner consistent with such
Shareholders' common stock ownership interest in the Company on the date such
dividend or dividends were paid or (iii) the expiration dates of any of the
Location Contracts; and, provided, further, that the conditions set forth in
-------- -------
this Section 11.9 shall be deemed to have been satisfied forty-five (45) days
after the date hereof unless, prior to the termination of such forty-five (45)
day period, Buyer shall have delivered to Brach Eichler Rosenberg Silver
Bernstein Hammer & Gladstone, counsel to the Shareholders, written notice
setting forth any matter or
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<PAGE>
circumstance discovered in the course of its due diligence investigations that
Buyer believes may have or may be expected to have a material adverse effect on
the items set forth in any of clauses (a), (b), (c) or (d) of the immediately
preceding sentence. The Shareholders, the Company and Buyer acknowledge and
agree that, notwithstanding the foregoing, as of the date hereof, Buyer has not
(i) completed its due diligence investigations of the Company, including,
without limitation, any matters disclosed on the Disclosure Schedule, or (ii)
determined whether the conditions set forth in this Section 11.9 have been
satisfied with respect to any of the matters set forth on the Disclosure
Schedule.
11.10 Payoff Letters and Releases. The Shareholders shall have
---------------------------
delivered to Buyer one or more payoff letters and releases from existing
creditors of the Company releasing the Company from any and all obligations
relating to or arising out of all indebtedness for borrowed money of the
Company.
11.11 Miscellaneous Deliveries at Closing. Buyer shall have received
-----------------------------------
each of the items required to be delivered by the Shareholders and the Company
pursuant to Section 3.2(a) of this Agreement.
11.12 Certificates and Corporate Documents. The Shareholders shall
------------------------------------
have caused the Company to, and the Company shall have, furnished Buyer with
such certificates of its officers to evidence compliance with the conditions set
forth in this Article 11 as may be reasonably requested by Buyer, including
without limitation:
(i) an officer's certificate of the Company, dated the Closing
Date, certifying that the conditions specified in Sections 11.1, 11.2, 11.3,
11.5, 11.16 and 11.18 have been fully satisfied;
(ii) copies of resolutions, certified by the appropriate officers
where applicable, duly adopted by the Company, as necessary, and, if applicable,
by the board of directors of the Company, authorizing the Company's execution,
delivery and performance of the Transaction Documents to which the Company is a
party and the consummation of the transactions contemplated by the Transaction
Documents;
(iii) certificates as to the good standing (or other certificates
relating to the right to do business) of the Company from the states in which
the Company is required to be qualified to do business;
(iv) such bill(s) of sale, warranty deeds, warranty assignments
of leases, Excluded Asset Conveyance Agreements and all other instruments of
conveyance which the Buyer reasonably requests in order to effect the
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<PAGE>
consummation of the transactions contemplated by the Transaction Documents;
(v) certificate of incorporation and bylaws of the Company,
including ledger or stock transfer book, if any, of the Company; and
(vi) such other documents relating to the transactions
contemplated by the Transaction Documents as the Buyer reasonably requests.
11.13 Consulting Agreement. Buyer and Stuart Litwin shall have
--------------------
entered into the Consulting Agreement.
11.14 Real Property Lease. Buyer shall have entered into a real
-------------------
property lease with 2 Main Street Associates in respect of certain
office/warehouse space located at 2 Main Street, East Orange, New Jersey for a
term of one year at a base rent of $18,750 per month and on terms otherwise
reasonably satisfactory to the Shareholders and Buyer.
11.15 Resignations. On the Closing Date, Buyer shall have received
------------
the resignations, effective as of the Closing Date, of each of the directors and
officers of the Company.
11.16 Termination of Company 401(k) Plan. The Shareholders shall
----------------------------------
have caused the Company to, and the Company shall have, terminated the Company
401(k) Plan prior to the Closing Date and shall have delivered to Buyer written
evidence of the foregoing termination in form and substance reasonably
acceptable to Buyer.
11.17 Delivery of Seller Stock. The Shareholders shall have
------------------------
delivered to Buyer on the Closing Date original stock certificates evidencing
all of the shares of Seller Stock.
11.18 Assignment of Certain Excluded Assets. The Shareholders shall
-------------------------------------
have caused the Company to have entered into one or more agreements in form and
substance reasonably acceptable to Buyer (collectively, the "Excluded Asset
--------------
Conveyance Agreements") pursuant to which each of the Excluded Assets owned or
- ---------------------
leased by the Company or with respect to which the Company has an interest are
assigned, conveyed and transferred, in whole or in part, to any Person or
Persons other than Buyer or any Affiliates or Representative of Buyer.
11.19 Form 5500. The Shareholders shall have (a) filed or caused to
---------
be filed under the Department of Labor Delinquent Filer Voluntary Compliance
Program, as described at 60 Fed. Reg. 20874 (April 27, 1995), complete annual
reports and information returns (Form 5500 Series Annual Return/Report) for all
Plans and Employee Benefit Programs for which such annual reports are required
to be filed and have not been timely filed, and (b) furnished Buyer with copies
of any and all such filings.
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<PAGE>
11.20 FIRPTA Certificates. The Shareholders shall have delivered to
-------------------
Buyer appropriate affidavits for each Shareholder pursuant to Section 1445(b) of
the Code exempting Buyer from any obligation to withhold pursuant to Section
1445(a) of the Code.
11.21 Escrow Agreement. The Shareholders shall have executed and
----------------
delivered to Buyer an escrow agreement (the "Escrow Agreement"), in form and
----------------
substance reasonably acceptable to Buyer and the Shareholders, by and among the
Shareholders, Buyer and an escrow agent (the "Escrow Agent") selected by the
------------
Shareholders and reasonably acceptable to Buyer, pursuant to which a portion of
the Purchase Price (which amount shall be satisfactory to Buyer and the
Shareholders and determined by Buyer and the Shareholders prior to the Closing
Date) (the "Escrowed Tax Amount") shall be paid to the Escrow Agent on the
-------------------
Closing Date to be held by the Escrow Agent pursuant to the terms of the Escrow
Agreement for the sole purpose of paying any Taxes payable by the Company as a
result of the transactions contemplated by the Transaction Documents, including,
without limitation, income and sales taxes (collectively, the "Company Tax
-----------
Liabilities"). At such time that the Company Tax Liabilities shall become due
- -----------
and payable, the Shareholders and Buyer shall direct the Escrow Agent in writing
to timely pay all or a portion of the Escrowed Tax Amount to satisfy in full the
Company Tax Liabilities. While maintained by the Escrow Agent, the Escrowed Tax
Amount may be invested in such manner as shall be directed by the Shareholders.
Any portion of the Escrowed Tax Amount (plus any interest accrued thereon)
remaining in escrow after payment in full of the Company Tax Liabilities shall
be delivered to the Shareholders as directed in writing to the Escrow Agent.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Assignment. Except with respect to any assignment by Buyer
----------
required by or in connection with any financing related to the transactions
contemplated hereby, this Agreement may not be assigned by any party hereto
without the prior written consent of the other parties. Notwithstanding
anything to the contrary, no assignment by Buyer shall relieve Buyer of its
obligations hereunder. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, and no other Person shall have any right, benefit or
obligation hereunder.
12.2 Arbitration. Any and all questions, disputes or controversies
-----------
arising in connection with this Agreement, its interpretation, application,
performance, nonperformance or breach, or any instruments executed and delivered
hereunder (collectively, "Disputes") shall, at the demand of any party
--------
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<PAGE>
hereto, be determined by arbitration. Buyer and the Shareholders shall appoint
an arbitrator ("Arbitrator") who is licensed by the American Arbitration
----------
Association ("AAA") to arbitrate such Disputes. In the event Buyer and the
---
Shareholders cannot agree on the selection of the Arbitrator, each party shall
select one arbitrator who shall together select the Arbitrator who shall
arbitrate the matter. Buyer and the Shareholders shall, within twenty (20) days
thereafter, present their positions with respect to the Disputes to the
Arbitrator together with such other materials as the Arbitrator deems
appropriate. The Arbitrator shall, after the submission of the evidentiary
materials, submit a written decision on each Dispute to the Shareholders and
Buyer. Any determination by the Arbitrator with respect to any Dispute shall be
final and binding on each party to this Agreement. The arbitration shall be
conducted in the forum selected by the party making or asserting a claim or
cause of action against the other, without regard for which party initiates the
arbitration. The arbitration shall be conducted in accordance with the
commercial arbitration rules of the AAA as in effect for commercial arbitrations
conducted in such forum by the AAA. The Shareholders and Buyer agree that the
cost of the Arbitrator shall be borne as determined by the Arbitrator. Judgment
upon the award of the Arbitrator may be entered in any court having jurisdiction
thereof.
12.3 Notices; Transfer of Funds. Unless otherwise provided herein,
--------------------------
any notice, request, instruction or other document to be given hereunder by
either party to the other shall be in writing and delivered personally or mailed
by certified mail, postage prepaid, return receipt requested (such mailed notice
to be effective on the date such receipt is acknowledged or refused), as
follows:
If to the Shareholders or the Company, marked personal and
confidential, addressed to:
c/o Stuart M. Litwin
500 Grove Terrace
South Orange, New Jersey 07079
With a copy to:
Brach Eichler Rosenberg Silver Bernstein
Hammer & Gladstone
101 Eisenhower Parkway
Roseland, New Jersey 07068
Attention: Stuart Gladstone, Esq.
If to Buyer, addressed to:
Coinmach Corporation
55 Lumber Road
Roslyn, New York 11576
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<PAGE>
Attention: Mr. Robert M. Doyle
Chief Financial Officer
With a copy to:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
Attention: Ronald S. Brody, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
Payments to be made to the Shareholders hereunder shall be made by
wire transferred funds to be delivered to the Shareholders in accordance with
written instructions as the Shareholders may designate by written notice as
provided herein. Payments to be made to Buyer hereunder shall be made by wire
transferred funds to be delivered to Buyer in accordance with written
instructions as Buyer may designate by written notice as provided herein.
12.4 Choice of Law. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the laws of the
State of New York (without reference to the choice of law provisions thereof.)
12.5 Entire Agreement; Amendments and Waivers. This Agreement,
----------------------------------------
together with all exhibits and schedules hereto, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by the party or
parties to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
12.6 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.
12.7 Expenses. Except as set forth below or as otherwise specified
--------
herein, each party hereto shall pay its own legal, accounting, out-of-pocket and
other expenses incident to this Agreement and to any action taken by such party
in preparation for carrying this Agreement into effect.
12.8 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other Transaction Document shall, for any
reason, be held to be
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<PAGE>
invalid, illegal or unenforceable in any respect, then to the maximum extent
permitted by law, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement or any other such instrument.
12.9 Headings. The titles, captions or headings of the Articles and
--------
Sections contained herein are inserted for convenience of reference only and are
not intended to be a part of or to affect the meaning or interpretation of this
Agreement.
12.10 Termination. If any condition precedent to the obligations of
-----------
the Company or any Shareholder hereunder is not satisfied and such condition is
not waived by the Shareholders in writing at or prior to the Closing Date, or if
any condition precedent to Buyer's obligations hereunder is not satisfied and
such condition is not waived by Buyer in writing at or prior to the Closing
Date, the Shareholders or Buyer, as the case may be, may, provided that the non-
occurrence of the Closing is not attributable to a breach of the terms hereof by
the party seeking termination, terminate this Agreement at its option by written
notice to the other party. In the event this Agreement is terminated by either
party as above provided, neither party shall have any liability hereunder of any
nature whatsoever to the other party, including any liability for damages,
unless either party is in breach or default under any of its obligations
hereunder, in which event the party in default shall be liable to the other
party for such default. In the event that a condition precedent to its
obligations is not satisfied, nothing contained herein shall be deemed to
require any party to terminate this Agreement, rather than to waive such
condition precedent and proceed with the Closing. The Confidentiality Agreement
shall survive any termination of this Agreement. Notwithstanding anything to
the contrary in this Section 12.10, in the event all of the conditions to
Buyer's obligations set forth in Article 11 hereof have been satisfied, and
Buyer does not dispute the satisfaction of any such conditions and Buyer refuses
to consummate the transactions contemplated by this Agreement by the Closing
Date, Buyer shall be liable to the Shareholders for liquidated damages in an
amount equal to Ten Million Dollars ($10,000,000). Notwithstanding anything to
the contrary in this Agreement (except as may be expressly provided in the
Confidentiality Agreement solely with respect to the rights of the Shareholders
thereunder), the payment of any liquidated damages by Buyer pursuant to this
Section 12.10 shall be the sole and exclusive remedy of the Company and the
Shareholders under this Agreement, and the Company and the Shareholders hereby
waive any and all rights to any other remedies (whether in law or equity) to
which they might otherwise be entitled.
12.11 Interpretation of "Knowledge", etc. The terms "knowledge" or
-----------------------------------
"aware" or derivations thereof when used in this Agreement with respect to the
Company or any of the Shareholders shall mean the actual knowledge of the
Shareholders after reasonable due inquiry (consistent with the senior management
-70-
<PAGE>
positions of the Shareholders) with members of senior management of the Company.
[SIGNATURE PAGE TO FOLLOW]
-71-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalves, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
COINMACH CORPORATION
By: __________________________
Name:
Title:
GORDON & THOMAS COMPANIES, INC.
By: __________________________
Name:
Title:
_____________________________
Stuart Litwin
_____________________________
Thomas L. Litwin
_____________________________
Dorothy E. Litwin
THOMAS L. LITWIN, GRIT NO. 2
By: __________________________
Name:
Title:
By: __________________________
Name:
Title:
<PAGE>
SCHEDULE II
EXCLUDED ASSETS
---------------
1. That certain mortgage receivable in the original principal amount of
$2,400,000 payable by 2 Main Street Associates to the Company.
2. Rights of certain employees of the Company to deferred compensation
pursuant to agreements to which the Company is a party (which
obligations to pay such deferred compensation shall constitute
Retained Liabilities), which deferred compensation amounts and
agreements are described and/or identified below:
See attached Schedule II-A
3. Motor Vehicles owned or leased by the Company for the personal use of
the Shareholders and/or Brian Kronick and identified below:
Thomas Litwin - 1995 Audi A6 Quattro/WAUGA8LA2SNL00692
Dorothy Litwin - 1991 Mercedes 500SL/WDBFA66E3MF028549
Stuart Litwin - 1997 BMW 540i/WBADD632XVBWI5218
Brian Kronick - 1997 Ford Explorer/IFMDV34E4VZA77417
4. All leasehold improvements located at the Company's 2 Main Street,
East Orange, New Jersey, office which are not used in the Business and
do not constitute Purchased Assets.
5. All artwork and antiques located at the Company's office at 2 Main
Street, East Orange, New Jersey.
6. All exercise equipment and game equipment, including, without
limitation, the ping pong table located at the Company's office at 2
Main Street, East Orange, New Jersey.
7. All tickets to sports events owned by the Company.
8. Personal computers purchased by the Company for the personal use of
the Shareholders and/or Brian Kronick and identified below:
See attached Schedule II-B
9. Investment Banking and Advisory Agreements between the Company and
Alan Goldman, dated January 21, 1998 and March 22, 1997, respectively.
<PAGE>
SCHEDULE 2.4
PURCHASE PRICE ALLOCATION
-------------------------
<TABLE>
<CAPTION>
<S> <C>
Purchased Assets
Cash or cash equivalents $ 1,081,372
Contracts Rights $45,718,628
Fixed Assets $10,500,000
-----------
Sub-Total: $57,300,000
Restrictive Covenants under
Article 7 of the Agreement $ 500,000
===========
TOTAL: $57,800,000
</TABLE>
To the extent permitted by applicable Legal Requirements, Buyer and the
Shareholders agree and acknowledge that any adjustments to the Purchase Price
pursuant to Section 2.3 or 2.1(b)(iii) of this Agreement shall be treated as an
adjustment to Class IV assets (other than restrictive covenants described above)
pursuant to Treasury Regulation 1.338(b)-2T .
<PAGE>
EXHIBIT A
FORM OF LEGAL OPINION OF SELLER'S COUNSEL
-----------------------------------------
All capitalized terms used herein, unless otherwise defined herein, shall
have the meanings given to such terms in the Agreement.
1. The Company is duly organized, validly existing and in good standing
under the laws of the State of its incorporation or formation and has all
requisite corporate or partnership power and authority to own, lease and operate
its properties and assets and to carry on the Business as presently conducted
and as proposed to be conducted. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
such qualification is necessary under applicable law as a result of the conduct
of the Business or the ownership of its assets and properties, all of which
jurisdictions are listed on Schedule "A" attached hereto.
2. The Company has all necessary corporate or other power and authority,
as applicable, to own, lease and/or operate the Purchased Assets, to enter into
the Transaction Documents, to consummate the transactions contemplated thereby
and to perform its obligations thereunder. The Shareholders have all necessary
capacity to enter into the Transaction Documents, to consummate the transactions
contemplated thereby and to perform their obligations thereunder. All corporate
or other action by the Company required in order to authorize the execution and
delivery of each of the Transaction Documents and the consummation of the
transactions contemplated thereby has been duly and validly taken, and no
approval of the stockholders of the Company is required in connection therewith
or, if required, such approval has been duly obtained. The Agreement and each
Transaction Document has been duly executed and delivered by the Company and
each Shareholder and is a legal, valid and binding obligation of the Company and
each Shareholder enforceable against the Company and each Shareholder in
accordance with their respective terms.
3. The authorized capitalization of the Company consists solely of _______
shares of common stock, par value $.01 per share, of which ______ shares are
issued and outstanding. All such outstanding shares have been duly authorized
and validly issued, are fully paid and non-assessable and were issued in
compliance with all applicable federal and state securities laws. There are no
outstanding subscriptions, warrants, options, calls or commitments of any nature
related to or entitling any person or entity to purchase or otherwise acquire
any shares of common
A-1
<PAGE>
stock of the Company. There are no obligations or securities convertible into
or exchangeable for shares of any capital stock of the Company. There are no
pre-emptive rights with respect to the shares of the capital stock of the
Company. The shares of Seller Stock are free and clear of any adverse claims,
or voting or other rights, of third parties.
4. The Thomas L. Litwin, GRIT No. 2 (the "Trust") is duly organized and
validly existing in accordance with the trust agreement pursuant to which it was
formed (the "Trust Agreement") and has all requisite power and authority to
enter into and perform its obligations under the Transaction Documents to which
it is a party. The trustee of the Trust (the "Trustee") has been duly appointed
as such in accordance with the terms of the Trust Agreement and is authorized to
execute and enter into the Transaction Documents on behalf of the Trust,
pursuant to the Trust Agreement and the laws of the state of its formation. The
Trust has all requisite power to own, lease, and operate its properties and
carry on its business as presently conducted. The Shareholders have all legal
capacity and authority to own the Seller Stock. The outstanding shares of
capital stock of the Company are owned of record and beneficially by the
Shareholders in the amounts set forth on Schedule "B" hereto. The Shareholders
have good and marketable title to all such shares of Seller Stock, free and
clear of any and all Encumbrances with full right, power and authority to
transfer and sell such shares of Seller Stock to Buyer.
5. The certificates representing the shares of Seller Stock (and the
stock powers attached thereto) are in due and proper form, and such certificates
have been duly and validly authorized, executed and delivered by the
Shareholders. Upon delivery thereof in accordance with the terms of the
Agreement, Buyer will receive good and marketable title to the Seller Stock,
free and clear of any and all Encumbrances.
6. Neither the execution and delivery of the Transaction Documents nor
the consummation of the transactions contemplated thereby will result in (a) a
violation of or a conflict with any provision of the Certificate of
Incorporation or Bylaws of the Company, (b) a breach or violation of, or a
default under (with or without notice or lapse of time or both), any term or
provision of any Contract to which the Company is a party or by which any of the
Purchased Assets are bound, (c) a violation by the Company or any Shareholder of
any statute, rule, regulation, ordinance, code, order, judgment, writ,
injunction, decree or award applicable to the Company or the Business, (d) an
imposition of any Encumbrance, restriction or charge on the Business or on any
of the Purchased Assets, or (e) any
A-2
<PAGE>
suspension, impairment, revocation, forfeiture or nonrenewal of any Permit.
7. The Company validly and timely filed an election to be taxed as an "S"
corporation pursuant to Section 1362 of the Internal Revenue Code then in
effect, effective for the _____________ taxable year, and the Company has at all
times thereafter and through and including the Closing Date remained qualified
as an "S" corporation for income tax purposes.
8. No consent, approval or authorization of, action by, or declaration,
filing or registration with, any federal, state or local governmental or
regulatory authority, or any other Person, is required to be made or obtained by
the Company or any Shareholder in connection with the execution, delivery and
performance by the Company and each Shareholder of the Transaction Documents and
the consummation of the transactions contemplated thereby.
9. There is no action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, labor dispute, arbitral
action or investigation (collectively, "Actions") pending or, to our best
knowledge, threatened or anticipated against, relating to or affecting (i) the
Company or the Business, (ii) any benefit plan for employees of the Company or
any fiduciary or administrator thereof or (iii) any of the transactions
contemplated by the Transaction Documents. The Company is not in default with
respect to any judgment, order, writ, injunction or decree of any court or
governmental agency, and there are no unsatisfied judgments against the Company
or the Business.
10. The Company has obtained all material Permits required for the conduct
of the Business as presently conducted, all such Permits are in full force and
effect, and the Company is in compliance therewith. The Company has, and at all
times has had, all material Permits required under any Environmental and Safety
Requirement and is, and at all times has been, in compliance therewith. Each
Permit is be transferable in connection with the transactions contemplated by
the Transaction Documents.
11. [an opinion satisfactory to Buyer that to the effect that the
restrictive covenants contained in Article 7 of this Agreement are legal, valid
and binding obligations of each Shareholder enforceable against each Shareholder
in accordance with their respective terms]
A-3
<PAGE>
EXHIBIT B
FACILITIES
----------
1. Office/Warehouse space located at 2 Main Street, East Orange, New
Jersey leased by the Company from 2 New Main Street Associates
2. Laundromat space located at 350-366 West Market Street, Newark, New
Jersey leased by the Company from West Market Urban Renewal
Associates, L.P.
B-1
<PAGE>
EXHIBIT C
BUYER'S SEVERANCE POLICY
------------------------
The following is Coinmach Corporation's severance policy in the event
of an involuntary lay-off, position elimination or reduction in force. This
policy, however, shall not apply in the event of a voluntary separation or a
termination for misconduct.
<TABLE>
<CAPTION>
Years of Employment Weeks of Severance
------------------- ------------------
<S> <C>
1 1
2 2
3 2.5
4 3
5 3.5
6 4
7 4.5
8 5
9 5.5
10 6
11 6.5
12 7
13 7.5
14 8
15 8.5
16 9
17 9.5
18 10
19 10.5
20 11
21 11.5
22 and above 12
</TABLE>
C-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,988
<SECURITIES> 0
<RECEIVABLES> 9,482
<ALLOWANCES> 0
<INVENTORY> 14,896
<CURRENT-ASSETS> 0
<PP&E> 300,260
<DEPRECIATION> (83,998)
<TOTAL-ASSETS> 924,040<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 694,714<F2>
0
0
<COMMON> 103,431
<OTHER-SE> (47,579)
<TOTAL-LIABILITY-AND-EQUITY> 924,040<F3>
<SALES> 0
<TOTAL-REVENUES> 117,934
<CGS> 0
<TOTAL-COSTS> 77,568
<OTHER-EXPENSES> 29,061<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,567
<INCOME-PRETAX> (4,262)
<INCOME-TAX> (1,148)<F5>
<INCOME-CONTINUING> (3,114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,114)<F6>
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
<FN>
<F1>Includes Advance Location Payments of $77,772, Contract Rights of $420,519
and Goodwill of $132,079, each net of accumulated amortization, for the quarter
ended June 30, 1998.
<F2>Includes $296,655 of 11 3/4 senior notes, as well as debt outstanding under
a credit facility of $389,561 for the quarter ended June 30, 1998.
<F3>Includes Accrued Rental Payments of $25,080 and Accrued Interest of $5,605
for the quarter ended June 30, 1998.
<F4>Include stock based compensation charges of $221 for the quarter ended June
30, 1998.
<F5>The provision (benefit) for income taxes consists of $108 currently payable
and ($1,256) deferred, for the quarter ended June 30, 1998.
<F6>In addition, EBITDA of $38,369 (earnings before interest, income taxes,
depreciation and amortization) before the deduction for the stock-based
compensation charge was generated for the reported period. EBITDA is a
meaningful measure of a company's ability to service debt.
</FN>
</TABLE>
