EXHIBIT 10.23
AGREEMENT AND PLAN OF EXCHANGE
BY AND AMONG
GROUP MAINTENANCE AMERICA CORP.,
XXXX X. XXXXX CO., INC.,
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
XXXX X. XXXXX CO., INC.
AUGUST 18, 1997
TABLE OF CONTENTS
Page
1. THE CLOSING....................................................................................... 1
1.1 Closing................................................................................... 1
1.2 Exchange of and Payment for Stock......................................................... 1
1.2.1 Delivery of Company Common Stock and Closing Exchange Consideration................ 1
1.2.2 Assignments........................................................................ 2
1.2.3 Payment In Full Satisfaction of All Rights......................................... 2
1.3 Determination of Closing Exchange Consideration........................................... 2
1.3.1 Delivery of IPO Price to Public; Statement......................................... 2
1.4 Post-Closing Determination of Final Exchange Consideration................................ 3
1.4.1 Determination of the Final Per Share Common Stock Amount and the Final Exchange
Consideration...................................................................... 3
1.4.2 Statement.......................................................................... 4
1.4.3 Review............................................................................. 4
1.4.4 Disputes........................................................................... 4
1.4.5 Resolution by Parties.............................................................. 5
1.4.6 Final Determination................................................................ 5
1.4.7 Expenses........................................................................... 5
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS................................................ 5
2.1 Exhibit.................................................................................. 5
2.2 Stock Ownership.......................................................................... 6
2.3 Authority................................................................................ 6
2.4 Consents................................................................................. 6
3. REPRESENTATIONS AND WARRANTIES OF THE PARENT...................................................... 6
3.1 Representations and Warranties........................................................... 6
3.1.1 Organization...................................................................... 6
3.1.2 Capitalization of the Parent...................................................... 6
3.1.3 Authority......................................................................... 7
3.1.4 Consents.......................................................................... 7
3.1.5 Defaults.......................................................................... 7
3.1.6 Investment Company................................................................ 7
3.1.7 Financial Statements.............................................................. 7
3.1.8 Taxes............................................................................. 8
3.1.9 Full Authority.................................................................... 8
3.1.10 Access............................................................................ 8
3.1.11 Disclosure........................................................................ 8
3.1.12 Parent Material Adverse Effect.................................................... 8
3.1.13 Tax-Free Reorganization........................................................... 8
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS............................................. 10
4.1 Agreements of Shareholders to be Effective Upon Closing...................................... 10
4.1.1 Covenant Not to Compete............................................................... 10
4.1.2 Release............................................................................... 10
4.2 Elimination of Expense....................................................................... 11
4.3 Note Repayments.............................................................................. 11
4.4 Shareholder Indebtedness and Receivables..................................................... 11
4.5 Audit........................................................................................ 11
4.6 Pre-Closing Covenants and Agreements......................................................... 11
4.7 Salary Continuation Agreements............................................................... 11
4.8 Assignment of Accounts Receivable............................................................ 11
4.9 Company Plans................................................................................ 12
4.10 Confidentiality.............................................................................. 12
4.11 Tax-Free Reorganization...................................................................... 12
4.12 Company Stock Options........................................................................ 12
4.12.1 No Change in Terms................................................................... 12
4.12.2 Exercise for Parent Common Stock..................................................... 12
4.12.3 Exercise Price....................................................................... 13
4.13 Property Lease with Four Square Company...................................................... 13
4.14 Income Tax Distribution...................................................................... 13
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES.......................................................... 14
5.1 Conditions Precedent to the Obligations of the Parent........................................ 14
5.1.1 Accuracy of Representations and Warranties............................................ 14
5.1.2 Performance of Covenants.............................................................. 14
5.1.3 Legal Actions or Proceedings.......................................................... 14
5.1.4 Approvals............................................................................. 14
5.1.5 Closing Deliveries.................................................................... 14
5.1.6 No Casualty, Loss or Damage........................................................... 15
5.1.7 Licenses, etc......................................................................... 15
5.1.8 No Material Adverse Change............................................................ 15
5.1.9 IPO................................................................................... 15
5.1.10 Certain Corporate Actions............................................................. 15
5.1.11 Financing............................................................................. 15
5.2 Conditions Precedent to the Obligations of the Shareholders and the Company.................. 15
5.2.1 Accuracy of Representations and Warranties............................................ 15
5.2.2 Performance of Covenants.............................................................. 15
5.2.3 Approvals............................................................................. 15
5.2.4 Closing Deliveries.................................................................... 15
5.3 Deliveries by the Shareholders at the Closing................................................ 16
5.3.1 Closing Certificates.................................................................. 16
5.3.2 Stock Transfer Restriction Agreement.................................................. 16
5.3.3 Employment Agreement.................................................................. 16
5.3.4 Registration Rights Agreement......................................................... 16
5.3.5 Opinion of Counsel for the Shareholders and the Company............................... 16
5.3.6 Documents, Stock Certificates......................................................... 16
5.3.7 Discharge of Indebtedness, Releases, Etc.............................................. 16
5.4 Deliveries by the Parent at the Closing...................................................... 17
5.4.1 Closing Certificates.................................................................. 17
5.4.2 Registration Rights Agreement......................................................... 17
5.4.3 Opinion of Counsel for the Parent..................................................... 17
5.4.4 Closing Exchange Consideration........................................................ 17
6. SURVIVAL, INDEMNIFICATIONS........................................................................ 18
6.1 Survival..................................................................................... 18
6.2 Indemnification.............................................................................. 18
6.2.1 Parent Indemnified Parties............................................................ 18
6.2.2 Minimum Losses........................................................................ 19
6.2.3 Parent Indemnity...................................................................... 19
6.3 Limitations.................................................................................. 20
6.4 Procedures for Indemnification............................................................... 20
6.4.1 Notice................................................................................ 20
6.4.2 Legal Defense......................................................................... 20
6.4.3 Settlement............................................................................ 20
6.4.4 Cooperation........................................................................... 21
6.5 Subrogation.................................................................................. 21
7. TERMINATION....................................................................................... 21
7.1 Grounds for Termination...................................................................... 21
7.1.1 Mutual Consent........................................................................ 21
7.1.2 Optional By the Company............................................................... 21
7.1.3 Optional By the Parent................................................................ 21
7.1.4 Breach By the Parent.................................................................. 21
7.1.5 Breach by the Shareholders............................................................ 22
7.2 Effect of Termination........................................................................ 22
8. MISCELLANEOUS..................................................................................... 22
8.1 Notice....................................................................................... 22
8.2 Further Documents............................................................................ 22
8.3 Assignability................................................................................ 23
8.4 Exhibits and Schedules....................................................................... 23
8.5 Sections and Articles........................................................................ 23
8.6 Entire Agreement............................................................................. 23
8.7 Headings..................................................................................... 23
8.8 CONTROLLING LAW.............................................................................. 23
8.9 Public Announcements......................................................................... 23
8.10 No Third Party Beneficiaries................................................................. 24
8.11 Amendments and Waivers....................................................................... 24
8.12 No Employee Rights........................................................................... 24
8.13 Non-Recourse................................................................................. 24
8.14 When Effective............................................................................... 24
8.15 Takeover Statutes............................................................................ 24
8.16 Number and Gender of Words................................................................... 24
8.17 Invalid Provisions........................................................................... 24
8.18 Multiple Counterparts........................................................................ 25
8.19 No Rule of Construction...................................................................... 25
8.20 Expenses..................................................................................... 25
Exhibit 1.2 Letter of Transmittal to Shareholders
Exhibit 1.2.2A Company Stock Options
Exhibit 1.2.2B Option Agreements
Exhibit 2 Disclosure Statements
Exhibit 2.2 Stock Ownership
Exhibit 3.1.4 Consents
Exhibit 4.2 Elimination of Expenses of the Company
Exhibit 4.6 Pre-Closing Covenants and Agreements
Exhibit 4.1.3A Office & Warehouse Lease with Four Square Company
Exhibit 4.1.3B Replacement Lease Agreement between Four Square and the Company
Exhibit 4.1.4 Promissory Note for Sub. S Distribution
Exhibit 5.3.2 Stock Transfer Restriction Agreement
Exhibit 5.3.3 Employees of the Company
Exhibit 5.3.3A Employment Agreement
Exhibit 5.3.3B Employment Agreement
Exhibit 5.3.4 Registration Rights Agreement
Exhibit 5.3.5 Opinion of Counsel for the Shareholders and the Company
Exhibit 5.3.7 Terminated Obligations
Exhibit 5.4.3 Opinion of Counsel for the Parent
AGREEMENT AND PLAN OF EXCHANGE
------------------------------
This AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") made effective as of
August __, 1997, by and among GROUP MAINTENANCE AMERICA CORP., a Texas
corporation (the "Parent"), AND THE UNDERSIGNED HOLDERS (the "Shareholders") OF
ALL OF THE OUTSTANDING CAPITAL STOCK OF XXXX X. XXXXX CO., INC., an Indiana
corporation (the "Company").
WHEREAS, Parent and the Shareholders desire to provide for the transfer by
the Shareholders to Parent of the outstanding shares of capital stock of the
Company in exchange for common stock of Parent (the "Exchange");
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1 Closing. The closing ("Closing") will take place at 10:00 a.m. at the
offices of Chamberlain, Hrdlicka, White, Xxxxxxxx & Xxxxxx in Houston, Texas on
the closing date of the Parent's IPO (as defined below), but in no event later
than December 31, 1997 ("Closing Date"); provided that each of the conditions
precedent to the obligations of the parties to effect the Exchange are then
satisfied or waived by the applicable party. The parties may agree in writing
on another date, time or place for the Closing. At the Closing, the parties
will deliver or cause to be delivered the documents described in Sections 5.3
and 5.4 below. The term "IPO" means any underwritten public offering of Parent
Common Stock resulting in net cash proceeds to the Parent of at least
$20,000,000 (other than any offering pursuant to any registration statement (i)
relating to any capital stock of Parent or options, warrants or other rights to
acquire any such capital stock issued or to be issued primarily to directors,
officers or employees of the Parent or any of its subsidiaries, (ii) relating to
any employee benefit plan or interest therein, (iii) relating principally to any
preferred stock or debt securities of the Parent, or (iv) filed pursuant to Rule
145 under the Securities Act of 1933, as amended ("Securities Act"), or any
successor or similar provision).
1.2 Exchange of and Payment for Stock.
1.2.1 Delivery of Company Common Stock and Closing Exchange
Consideration. Prior to the Closing, the Parent will deliver to each of the
Shareholders a letter of transmittal, in substantially the form attached hereto
as Exhibit 1.2, to be used for the purpose of surrendering to Parent
certificates (the "Stock Certificates") representing all outstanding shares of
common stock, no par value, of the Company ("Company Common Stock") in exchange
for the right to receive the Exchange Consideration (as defined below). All of
the Company Common Stock held by each Shareholder will be surrendered by such
Shareholder to the Parent together with properly completed
and executed letters of transmittal (with each such signature guaranteed by a
commercial bank or notarized by a notary public or similar official reasonably
satisfactory to the Parent), and the Parent shall cause to be delivered to such
Shareholder at the Closing the Closing Exchange Consideration (as determined in
accordance with Section 1.3 hereto) applicable to the Company Common Stock
evidenced by the Stock Certificates properly surrendered (with properly executed
and completed letters of transmittal) by such Shareholder to the Parent.
1.2.2 Assignments. Except for the granting of certain options to
employees of the Company described on Exhibit 1.2.2A (the "Company Stock
Options"), pursuant to a stock option agreement in the form attached as Exhibit
1.2.2B (collectively, the "Option Agreements") and the exercise by the holder or
the assumption of certain obligations under the Option Agreement by Parent as
permitted by Section 4.12, the assignment, transfer or other disposition of
record or beneficial ownership of any shares of Company Common Stock may not be
made on or after the date hereof. Other than the Company Stock Options, the
Company shall not grant any other options to any person.
1.2.3 Payment In Full Satisfaction of All Rights. The delivery of the
Closing Exchange Consideration to the Shareholders with respect to their shares
shall be deemed to be payment in full satisfaction of all rights pertaining to
the outstanding shares except for the right to receive additional shares of
Parent Common Stock pursuant to Section 1.4.
1.3 Determination of Closing Exchange Consideration.
1.3.1 Delivery of IPO Price to Public; Statement. Within three
business days after the Parent and its underwriters agree on the initial price
to the public for a share of Parent Common Stock offered in the IPO, as set
forth in an executed underwriting agreement (the "IPO Price"), the Parent shall
deliver to the Shareholders a written notice (the "Price Notice") setting forth
the IPO Price and a statement setting forth a calculation, reviewed by KPMG Peat
Marwick LLP, of the Closing Outstanding Common Stock Number (as defined below),
and the Closing Exchange Consideration (as defined below) payable to the
Shareholders at Closing (the "Statement of Closing Consideration"). The IPO
Price, as set forth in the Price Notice, and the Closing Exchange Consideration
as set forth in the Statement of Closing Consideration shall be final,
conclusive and binding for purposes of this Agreement.
1.3.2 Definitions. The following terms shall have the meaning ascribed
below for purposes of this Agreement (including Exhibits 2 and 4.6 thereto):
(i) "Closing Exchange Consideration" means 90% of the estimated Final
Exchange Consideration to be received by a Shareholder calculated as of the
Closing Date pursuant to the formula set forth in Section 1.4.1 below.
(ii) "Closing Outstanding Common Stock Number" means the estimated
Final Outstanding Common Stock Number as established pursuant to Section
1.3 of the Agreement.
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(iii) "Final Per Share Common Stock Amount" means the number of shares
of Parent Common Stock to be received in exchange for one share of Company
Common Stock, which number is determined pursuant to the formula set forth
in Section 1.4 below assuming that the factor "F" is equal to one.
(iv) "Current Assets" means the current assets of the Company
determined as of the Closing Date in accordance with GAAP.
(v) "Current Liabilities" means the current liabilities of the Company
determined as of the Closing Date in accordance with GAAP and expressed as
a positive number; provided, however, that all expenses of the Company or
the Shareholders incurred in connection with the transactions contemplated
hereby which are payable by the Company (other than fees and expenses of
KPMG Peat Marwick related to its audit of the Company) shall be included in
Current Liabilities.
(vi) "Long-Term Debt" means all long-term liabilities of the Company
as of Closing Date, including capitalized lease obligations, as applicable
to a corporation taxable under Subchapter C of the Code, all as determined
under GAAP.
(vii) "GAAP" means U.S. generally accepted accounting principles
consistently applied.
1.4 Post-Closing Determination of Final Exchange Consideration.
1.4.1 Determination of the Final Per Share Common Stock Amount and the
Final Exchange Consideration. The Final Per Share Common Stock Amount and the
Final Exchange Consideration to be received by each Shareholder shall be
determined according to the following formula:
A = ($3,100,000 + B + C - D - E) x F
--------------------------------
(G + H) x I
Where, for purposes of this formula:
A = the "Final Exchange Consideration," which means the number of shares
of Parent Common Stock to be received by a Shareholder as a result of
the Exchange.
B = the "Working Capital Positive Adjustment," which means the amount, if
any, by which the sum of (i) Current Assets (as of the Closing Date)
plus (ii) $229,386, exceeds 1.25 times Current Liabilities (as of the
Closing Date); provided, however, that the aggregate amount of
vacation and warranty liability accruals shall be excluded from
Current Liabilities except to the extent that the aggregate amount of
such accruals exceeds $38,000.
C = the "Option Present Value Amount," which means the present value of
the aggregate exercise price under the Company Stock Options
outstanding immediately prior to the
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Closing Date, assuming that such options are exercised on the
expiration date thereof, determined by discounting such aggregate
exercise price to the Closing Date at a discount rate equal to 10% per
annum.
D = the "Working Capital Negative Adjustment," which means the amount, if
any, by which 1.25 times Current Liabilities (as of the Closing Date)
exceeds the sum of (i) Current Assets (as of the Closing Date) plus
(ii) $229,386; provided, however, that the aggregate amount of
vacation and warranty liability accruals shall be excluded except to
the extent that the aggregate amount of such accruals exceeds $76,000.
E = the "Long Term Debt Adjustment," which means the excess of Long Term
Debt (as of the Closing Date) over $0.
F = the "Shareholder's Final Common Stock Number," which means, with
respect to any Shareholder, the number of shares of Company Common
Stock owned of record by such Shareholder immediately prior to the
Closing Date.
G = the "Final Outstanding Common Stock Number," which means the number of
shares of Company Common Stock issued and outstanding immediately
prior to the Closing Date.
H = the "Final Company Option Number," which means the number of shares of
Company Common Stock required to be issued by the Company upon the
exercise in full of the Company Stock Options outstanding immediately
prior to the Closing Date.
I = the "IPO Price," which means the initial price to the public for a
share of Parent Common Stock offered in the IPO, as defined in Section
1.3 above.
1.4.2 Statement. No later than 90 days after the Closing, the Parent
shall deliver to the Shareholders a statement showing the Final Outstanding
Common Stock Number (as determined in accordance with this Section 1.4 attached
hereto), and the Final Exchange Consideration (the "Statement of Final
Amounts").
1.4.3 Review. After delivery to the Shareholders of the Statement of
Final Amounts, the Shareholders and their representatives shall be afforded the
opportunity to review and inspect all of the financial records, work papers,
schedules and other supporting papers relating to the preparation of the
Statement of Final Amounts, and to consult with the Parent and its
representatives regarding the methods used in the preparation of the Statement
of Final Amounts.
1.4.4 Disputes. The Final Outstanding Common Stock Number and the
Final Exchange Consideration as shown on the Statement of Final Amounts shall be
final, conclusive and binding for purposes of this Agreement, unless the
Shareholders shall deliver to the Parent a written notice of disagreement
("Notice of Dispute") with any item or items in the Statement of Final Amounts
within 10 business days following receipt of the Statement of Final Amounts,
specifying in reasonable detail the nature and extent of such disagreement;
provided, however, that no Notice of Dispute may be given with respect to any
items unless such item involves an amount of $30,000 or
4
more. If a Notice of Dispute is not properly given within such time, the Final
Outstanding Common Stock Number and the Final Exchange Consideration as set
forth in the Statement of Final Amounts shall be final, conclusive and binding
for purposes of this Agreement.
1.4.5 Resolution by Parties. If a Notice of Dispute is properly
given, the Parent and the Shareholders agree to negotiate in good faith and use
their best efforts to resolve any disagreement with respect to the Statement of
Final Amounts. If the Parent and the Shareholders shall not reach such
resolution within 30 days following receipt by the Parent of a properly given
Notice of Dispute, the dispute shall be referred a national accounting firm
("Accountants") selected by Parent and the Shareholders other than KPMG Peat
Marwick LLP ("KPMG"), who shall resolve such dispute within 30 days after its
submission to them; provided, however, that if Parent and the Shareholders are
unable to agree on the selection of such Accountants within 10 days following
receipt of the Notice of Dispute, KPMG shall promptly select such Accountants.
The Parent and the Shareholders (if the dispute is resolved by them or the
Statement of Final Amounts otherwise becomes final pursuant hereto without
referral to the Accountants) or the Accountants (if a dispute is resolved by
them) shall set forth such resolution in writing and such writing shall (i) set
forth the Final Outstanding Common Stock Number and the Final Exchange
Consideration and (ii) be final, conclusive and binding for purposes of this
Agreement.
1.4.6 Final Determination. Within 10 business days following the final
determination of the Final Outstanding Common Stock Number and the Final
Exchange Consideration as provided in this Section 1.4 (i) the Parent shall
deliver to each Shareholder, as applicable, the number of shares of Parent
Common Stock, if any, by which the aggregate of the Final Exchange Consideration
deliverable to such Shareholder, as finally determined pursuant hereto, exceeds
the aggregate of the Closing Exchange Consideration delivered to such
Shareholder at the Closing; or (ii) each Shareholder shall deliver to the Parent
the number of shares of Parent Common Stock, if any, by which the aggregate of
the Closing Exchange Consideration delivered to such Shareholder at the Closing
exceeds the aggregate of the Final Exchange Consideration deliverable to such
Shareholder as finally determined pursuant hereto.
1.4.7 Expenses. The Parent and the Shareholders shall each pay their
own costs incurred in connection with this Section 1.4, including the fees and
expenses of their respective attorneys and accountants, if any.
2. REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
The Shareholders, jointly and severally, hereby represent and warrant to
the Parent as follows:
2.1 Exhibit 2. The statements in Exhibit 2 attached hereto are true and
correct.
2.2 Stock Ownership. Each Shareholder owns, beneficially and of record,
with full power to vote, the number of shares of Company Common Stock set forth
beside such Shareholder's name on Exhibit 2.2 and such shares are so held by the
Shareholders free and clear of all liens, encumbrances and adverse claims
whatsoever.
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2.3 Authority. Each Shareholder has full right, power, legal capacity and
authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Shareholders (each a "Shareholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by each
Shareholder and constitutes, and each Shareholder Related Document, when duly
executed and delivered by each Shareholder who is a party thereto will
constitute, legal, valid and binding obligations of such Shareholder enforceable
against such Shareholder in accordance with their respective terms and
conditions, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
2.4 Consents. No approval, consent, order or action of or filing with any
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Shareholders of this
Agreement or any Shareholder Related Document. The execution, delivery and
performance by each Shareholder of this Agreement and the Shareholder Related
Documents do not violate any mortgage, indenture, contract, agreement, lease or
commitment or other instrument of any kind to which such Shareholder is a party
or by which such Shareholder or such Shareholder's assets or properties may be
bound or affected or any law, rule or regulation applicable to such Shareholder
or any court injunction, order or decree or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
such Shareholder.
3. REPRESENTATIONS AND WARRANTIES
OF THE PARENT
3.1 Representations and Warranties. The Parent hereby represents and
warrants to the Shareholders as follows:
3.1.1 Organization. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas. The
Parent is duly qualified or licensed as a foreign corporation authorized to do
business in all states in which any of its assets or properties may be situated
or where its business is conducted except where the failure to obtain such
qualification or license would not have a Parent Material Adverse Effect (as
defined below).
3.1.2 Capitalization of the Parent. The total authorized capital stock
of Parent is as set forth and described in Parent's confidential information
statement delivered to Shareholders in connection with the transactions
contemplated by this Agreement. The outstanding shares of Parent Common Stock
and Parent Preferred Stock have been duly and validly issued and are fully paid
and non-assessable.
3.1.3 Authority. The Parent has the requisite, power and authority to
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby (the "Parent Related Documents") and
to consummate the transactions contemplated herein and thereby. This Agreement
has been duly executed and delivered by the Parent
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and constitutes, and all the Parent Related Documents, when executed and
delivered by the Parent will constitute, legal, valid and binding obligations of
the Parent, enforceable in accordance with their respective terms and conditions
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
3.1.4 Consents. Except as provided on Exhibit 3.1.4, no approval,
consent, order or action of or filing with any court, administrative agency,
governmental authority or other third party is required for the execution,
delivery or performance by the Parent of this Agreement or the Parent Related
Documents or the consummation by the Parent of the transactions contemplated
hereby, except for the filing of the Parent's registration statement with
respect to the IPO ("Registration Statement") with the U.S. Securities and
Exchange Commission ("SEC") pursuant to the Securities Act and the SEC's
declaration of effectiveness of such Registration Statement and the completion
of all necessary filings required under, and the obtaining of all necessary
consents and approvals required pursuant to, state securities or "blue sky" laws
in connection with the IPO.
3.1.5 Defaults. The Parent is not in default under or in violation of,
and the execution, delivery and performance of this Agreement and the Parent
Related Documents and the consummation by the Parent of the transactions
contemplated hereby and thereby will not result in a default under or in
violation of (i) any mortgage, indenture, charter or bylaw provision, contract,
agreement, lease, commitment or other instrument of any kind to which the Parent
is a party or by which the Parent or any of its properties or assets may be
bound or affected or (ii) any law, rule or regulation applicable to the Parent
or any court injunction, order or decree, or any valid and enforceable order of
any governmental agency in effect as of the date hereof having jurisdiction over
the Parent, which default or violation prevents the Parent from consummating the
transactions contemplated hereby or is reasonably likely to have a Parent
Material Adverse Effect.
3.1.6 Investment Company. The Parent is not an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7 Financial Statements. The Parent has provided certain financial
statements to the Shareholders ("Parent Financial Statements") and such Parent
Financial Statements have been prepared in accordance with GAAP and fairly
present the consolidated financial position, results of operations and cash
flows of the Parent and its then existing consolidated subsidiaries as of the
dates and for the periods indicated, subject to normal year-end adjustments and
any other adjustments described therein or in the notes or schedules thereto.
The books and records of the Parent have been kept in reasonable detail and
accurately and fairly reflect the transactions of the Parent.
3.1.8 Taxes. The Parent has either accrued, discharged or caused to be
discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of the Parent for the period ended December 31, 1996.
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3.1.9 Full Authority. The Parent has the corporate power and authority
and has obtained all licenses, permits, qualifications, and other documentation
(including permits required under applicable Environmental Law, as defined in
Exhibit 2) necessary to own and/or operate its businesses, properties and assets
and to carry on its businesses as being conducted on the date of this Agreement,
except such licenses, permits, qualifications or other documentation, the
failure to obtain which is not reasonably likely to result in a Parent Material
Adverse Effect, and such businesses are now being conducted and such assets and
properties are being owned and/or operated in compliance with all applicable
laws (including Environmental Law), ordinances, rules and regulations of any
governmental agency of the United States, any state or political subdivision
thereof, or any foreign jurisdiction, all applicable court or administrative
agency decrees, awards and orders and all such licenses, permits, qualifications
and other documentation, except where the failure to comply will not have a
Parent Material Adverse Effect, and there is no existing condition or state of
facts that would give rise to a violation thereof or a liability or default
thereunder that is reasonably likely to have a Parent Material Adverse Effect.
3.1.10 Access. The Parent has cooperated fully in permitting the
Shareholders and their representatives to make a full investigation of the
properties, operations and financial condition of the Parent and has afforded
the Shareholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11 Disclosure. No representation or warranty by the Parent in this
Agreement, and no statement contained in any certificate delivered by the Parent
to the Shareholders pursuant to this Agreement, contains any untrue statement of
a material fact or omits any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they are
or were made, not misleading.
3.1.12 Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Parent and its consolidated
subsidiaries, taken as a whole in an amount of $100,000 or more.
3.1.13 Tax-Free Reorganization. With respect to the qualification of
the Exchange as a reorganization within the meaning of Section 368(a) of the
Code:
(i) The Parent has no plan or intention to sell, exchange or otherwise
dispose or liquidate the Company, to merge the Company with or into any
other corporation, to sell or otherwise dispose of its Company Common Stock
except for transfers of Company Common Stock to corporations of which the
Parent has control (within the meaning of Section 368(a) of the Code) at
the time of such transfer, or to cause the Company to sell or otherwise
dispose of any of its assets or of any assets acquired in the Exchange,
except for dispositions made in the ordinary course of business or
transfers of assets to a corporation of which the Company has control
(within the meaning of Section 368(a) of the Code) at the time of such
transfer.
8
(ii) The Parent has no plan or intention to cause the Company, after
the Exchange, to issue additional shares of its stock that would result in
the Parent losing control of the Company within the meaning of Section
368(c) of the Code.
(iii) Following the Exchange, the Company will continue the Company's
historic business or use a significant portion of its historic business
assets in a business.
(iv) Except as provided in Section 8.20 below, if the Exchange is
effected, the Parent will each pay its expenses, if any, incurred in
connection with the Exchange.
(v) The Parent Common Stock that will be issued in connection with the
Exchange is voting stock within the meaning of Section 368(c) of the Code.
(vi) At the Closing Date, the Parent will not have any outstanding
warrants, options, convertible securities, or any other right pursuant to
which any person could acquire stock in the Parent which, if exercised or
converted, would affect the Parent's acquisition or retention of control of
the Company.
(vii) The Parent is not an investment company as defined in Section
368(a)(2)(F) of the Code.
(viii) None of the Parent Common Stock received by Shareholders as a
part of the Exchange Consideration will be separate consideration for, or
allocable to, any employment agreement.
(ix) The Parent is not under the jurisdiction of a court in a case
under Title 11 of the United States Code, or a receivership, foreclosure,
or similar proceeding in a federal or state court.
(x) Except for post-closing adjustments of the Exchange Consideration
pursuant to Section 1.4 of this Agreement, the Parent has no plan or
intention to reacquire any of its stock issued in this transaction.
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Agreements of Shareholders to be Effective Upon Closing. Effective
upon Closing, and without further action on the part of any party or other
person, the Shareholders covenant and agree as follows:
4.1.1 Covenant Not to Compete.
(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Shareholders in this Section are a
material inducement to the Parent to enter into and perform this Agreement,
each Shareholder agrees that for the period from the Closing Date to the
later to occur of (a) the date which is five years after the Closing Date
or (b) the date which is one year following any termination of such
Shareholder's employment
9
by the Company for "Cause" (as defined in the Employment Agreement attached
hereto as Exhibit 5.3.3A), such Shareholder will not represent, engage in,
carry on, or have a financial interest in, directly or indirectly,
individually, as a member of a partnership or limited liability company,
equity owner, shareholder (other than as a shareholder of less than one
percent of the issued and outstanding stock of a publicly-held company
whose gross revenues exceed $100 million), investor, officer, director,
trustee, manager, employee, agent, associate or consultant, any business
that involves indoor air quality, heating, ventilation and air
conditioning, plumbing or electrical contracting services within a 100 mile
radius of Indianapolis, Indiana.
(ii) Each Shareholder agrees that the limitations set forth herein on
such Shareholder's rights to compete with the Parent and its affiliates as
set forth in clause (i) are reasonable and necessary for the protection of
Parent and its affiliates. In this regard, each Shareholder specifically
agrees that the limitations as to period of time and geographic area, as
well as all other restrictions on the Shareholder's activities specified
herein, are reasonable and necessary for the protection of the Parent and
its affiliates. Each Shareholder agrees that, in the event that the
provisions of this Section should ever be deemed to exceed the scope of
business, time or geographic limitations permitted by applicable law, such
provisions shall be and are hereby reformed to the maximum scope of
business, time or geographic limitations permitted by applicable law.
(iii) Each Shareholder agrees that the remedy at law for any breach by
such Shareholder of this Section 4.1.1 will be inadequate and that the
Parent shall be entitled to injunctive relief.
4.1.2 Release. Effective as of the Closing Date, the Shareholders do
hereby (i) release, acquit and forever discharge the Company from any and all
liabilities, obligations, claims, demands, actions or causes of action arising
from or relating to any event, occurrence, act, omission or condition occurring
or existing on or prior to the Closing Date, including, without limitation, any
claim for indemnity or contribution from the Company in connection with the
obligations or liabilities of the Shareholders hereunder, except for salary and
benefits payable to a Shareholder as an employee in the ordinary course of
business; (ii) waive all breaches, defaults or violations of any agreement
applicable to the Company Common Stock and agree that any and all such
agreements are terminated as of the Closing Date, and (iii) waive any and all
preemptive or other rights to acquire any shares of capital stock of the Company
and release any and all claims arising in connection with any prior default,
violation or failure to comply with or satisfy any such preemptive or other
rights.
4.2 Elimination of Expense. Prior to Closing, the Shareholders will
produce evidence to the satisfaction of the Parent and its lenders that the
expenses of the Company as described on Exhibit 4.2 hereto have been eliminated
as expenses of the Company as of and following the Closing Date.
4.3 Note Repayments. Prior to Closing, the Shareholders will produce
evidence to the satisfaction of the Parent and its lenders that the promissory
note payable by the Company to Xxxx X. Xxxxx in the outstanding principal amount
of $500,000 as of December 31, 1996 has been paid in full on or before the
Closing Date.
10
4.4 Shareholder Indebtedness and Receivables. On or prior to Closing, the
Shareholders shall cause to be paid in full in cash all accounts payable, notes
payable and advances payable by any Shareholder to the Company and the Company
shall pay in full in cash all accounts payable, notes payable and advances
payable by the Company to any Shareholder.
4.5 Audit. Prior to Closing, at the expense of Parent, KPMG Peat Marwick
LLP shall complete an audit of the Company through March 31, 1997 and such
additional review work as may be requested by the Parent through and including
the Closing Date (or other periods subsequent to March 31, 1997), and provide
its report to the Parent and the Shareholders.
4.6 Pre-Closing Covenants and Agreements. The Shareholders jointly and
severally agree as set forth in Exhibit 4.6 attached hereto.
4.7 Salary Continuation Agreements. Except for the Company's Salary
Continuation Agreements with (i) Xxxxxx X. Xxxxxx, Xx., (ii) Xxxxxxx X.
Xxxxxxxx, (iii) Xxxxxxx X. Xxxx, and (iv) Xxxxxx X. Xxxx, prior to Closing, the
Company shall fully terminate each of its existing salary continuation
agreements by any means agreeable to each respective employee covered by such an
agreement, including payment of a lump sum amount to such an employee in release
of and in full satisfaction of such agreement. With respect to any such
agreement that is not so fully terminated, the Company shall purchase a
commercial annuity contract to cover the future payments and liability therefor
to the employee under each such agreement. At or prior to Closing the Company
shall deliver evidence satisfactory to the Parent of the full termination of the
other salary continuation agreements. The Company shall indemnify and hold
harmless the Parent for any liability or losses incurred or suffered by the
Parent, after Closing, with respect to any salary continuation agreement.
4.8 Assignment of Accounts Receivable. Within 90 days after the Closing
Date, Parent may elect to assign to Shareholders any accounts receivable that
were part of the calculation of Current Assets (as determined in accordance with
Section 1.4) and which remain uncollected for 60 days or more, and Shareholders
shall purchase such accounts receivable from Parent, without recourse, for cash
in the amount of the uncollected face amount thereof.
4.9 Company Plans. Except as provided in Section 4.7 and any other
provision of this Agreement, the Company Plans (within the meaning of Section 8
(xiii) of Exhibit 2, hereto), in effect at the date of this Agreement, shall
remain in effect unless otherwise determined by Parent after the Closing Date.
4.10 Confidentiality. Prior to the Closing Date, none of the Parent, the
Company or the Shareholders will disclose the terms of this Agreement or the
Exchange to any person other than their respective directors, officers, agents
or representatives, except as otherwise provided herein or unless required by
law. The Company may make appropriate disclosures of the general nature of the
Exchange to its employees, vendors and customers to protect the Company's
goodwill and to facilitate the Closing. The Parent may disclose pertinent
information regarding the Exchange to its existing and prospective investors,
lenders, or investment bankers or financial advisors for the purpose of
obtaining financing, including, without limitation, financing related to the IPO
or other offerings of its securities may describe this Agreement and the
transactions contemplated hereby in any registration statement filed by the
Parent under the Securities Act and in reports filed by the
11
Parent under the Securities Exchange Act of 1934, and may file this Agreement as
an exhibit to any thereof. The Parent may also make appropriate disclosures of
the general nature of the Exchange and the identity, nature and scope of the
Company's operations to prospective acquisition candidates in connection with
the Parent's efforts to effect additional acquisitions. Each party will have
mutual approval rights with respect to written employee presentations concerning
the prospective Exchange.
4.11 Tax-Free Reorganization. Unless the other parties shall otherwise
agree in writing, none of the Shareholders, the Parent or the Company shall
knowingly take or fail to take any action, which action or failure to act would
jeopardize the qualification of the Exchange as a reorganization within the
meaning of Section 368(a) of the Code.
4.12 Company Stock Options. The Parent and the Company shall take such
actions as shall be necessary or required to permit the Parent to, and the
Parent shall, effective at the Closing Date, (i) assume the obligations of the
Company under each Company Stock Option described in Exhibit 1.2.2A which is
outstanding immediately prior to the Closing Date and which remains unexercised
in whole or in part as of the Closing Date and (ii) substitute shares of Parent
Common Stock and cash (as provided hereinbelow) for the shares of Company Common
Stock purchasable under each such assumed option ("Assumed Option"), which
assumption and substitution shall be effected as follows:
4.12.1 No Change in Terms. The Assumed Option shall not give the
optionee additional benefits which such optionee did not have under the Company
Stock Option before such assumption nor diminish the benefits which such options
did have, and shall be assumed on the same terms and conditions as the Company
Stock Option being assumed (including the applicable provisions for vesting and
forfeiture as provided in the terms of the applicable agreement between the
Company and the option holder in effect prior to the date of this Agreement),
subject to clauses 4122 and 4123 below.
4.12.2 Exercise for Parent Common Stock. Following determination of
the Final Exchange Consideration, Company Stock Options shall be exercisable for
shares of Parent Common Stock as provided in this section and subject to terms
of the applicable Stock Option Agreement. The number of shares of Parent Common
Stock purchasable and cash receivable upon exercise of an Assumed Option in
accordance with its terms shall be equal to the product of (i) the Final Per
Share Common Stock Amount multiplied by (ii) the number of shares of Company
Common Stock for which such option is exercisable, subject to adjustment for any
stock split, stock dividend, merger or recapitalization as provided in the
applicable Stock Option Agreement.
4.12.3 Exercise Price. The exercise price per share of Parent Common
Stock under each Assumed Option after the Closing Date shall be equal to the
quotient of (i) the exercise price per share of Company Common Stock under the
Assumed Option immediately prior to the Closing Date divided by (ii) the Final
Per Share Common Stock Amount, subject to adjustment for any stock split, stock
dividend, merger or recapitalization as provided in the applicable Stock Option
Agreement.
4.13 Property Lease with Four Square Company. The Office and Warehouse
Lease attached as Exhibit 4.13A with Four Square Company, as owner of the
warehouse and office property
12
located at 0000 Xxxx 00xx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxx 00000-0000 (the "Four
Square Lease"), is in full force and effect as of the date hereof, and the Four
Square Lease shall be in full force and effect, in accordance with its terms,
without default or unmatured default of any kind with respect to each party
thereto at and as of the Closing Date. As the sole general partners of Four
Square Company, Shareholders covenant and agree to use their best efforts, upon
request by Parent following the Closing, to obtain the written consent of each
mortgagee of the leased premises subject to the Four Square Lease authorizing a
substitution and novation of the Four Square Lease and replacement thereof with
a lease agreement between Four Square Company and the Company in the form
attached as Exhibit 4.13B (the "Lease Agreement"), and upon obtaining such
consent, shareholders shall cause Four Square Company to execute and deliver the
Lease Agreement and terminate the Four Square Lease. During the continuation of
the Four Square Lease, Shareholders shall indemnify and hold harmless the
Company with respect to all costs related to repair of the roof, exterior walls,
structural components, foundations, sidewalks, plate glass, electrical wiring,
plumbing and HVAC systems of all buildings located on the leased premises.
Notwithstanding any other provision of this Agreement, the representations,
warranties, covenants and agreements of the Shareholders in this Section 4.13
shall survive the closing and remain in full force and effect during the term of
the Four Square Lease and the term of the Lease Agreement.
4.14 Income Tax Distribution. Prior to the Closing, the Shareholders may
cause the Company to pay to the Shareholders as a dividend and as a distribution
of S Corporation earnings of the Company for the period beginning at the
expiration of the Company's prior fiscal year through the Effective Time a cash
amount, which may be reasonably estimated equal to the net taxable income of the
Company as determined for Federal income tax purposes for the Company as an S
Corporation less any prior distributions made by the Company to the Shareholders
with respect to such earnings ("Cash Tax Distribution"). In the event that
there is insufficient cash of the Company to make the Cash Tax Distribution in
whole or in part, the Company may issue short term notes payable to the
Shareholders in amounts equal to the amount of the Cash Tax Distribution less
the amount of cash actually distributed to the Shareholders as part of the Cash
Tax Distribution ("Tax Notes") in the form of Exhibit 4.14. The Tax Notes, if
issued, shall (i) be issued prior to the Closing Date, (ii) bear interest at a
rate not to exceed six percent (6%) per annum, (iii) provide that the principal
and all accrued interest shall be due and payable six (6) months after the date
of the Tax Notes, and (iv) impose no prepayment penalty. Notwithstanding the
actual due date of such notes, the Tax Notes shall be treated as Long Term Debt
for purposes of the determination of the Final Exchange Consideration in Section
1.4.1. All cash payments of the Cash Tax Distribution and all amounts of any Tax
Notes shall be taken into account in calculating the Closing Merger
Consideration (through a reduction of Working Capital or increase in Long Term
Debt, as applicable).
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of the Parent. The
obligations of the Parent to effect the Exchange under this Agreement are
subject to the satisfaction of each of the following conditions, unless waived
by the Parent in writing to the extent permitted by applicable law:
5.1.1 Accuracy of Representations and Warranties. The representations
and warranties of the Shareholders contained in this Agreement, in Exhibit 2 and
the Disclosure Schedule referred to therein and the other Exhibits provided by
the Shareholders pursuant to this Agreement or in any closing certificate or
document delivered to the Parent pursuant hereto shall be true and
13
correct at and as of the Closing Date as though made at and as of that time
other than such representations and warranties as are specifically made as of
another date, and the Shareholders shall have delivered to the Parent a
certificate to that effect.
5.1.2 Performance of Covenants. The Shareholders shall have performed
and complied with all covenants of this Agreement to be performed or complied
with by them at or prior to the Closing Date, and the Shareholders shall each
have delivered to the Parent a certificate to that effect.
5.1.3 Legal Actions or Proceedings. No legal action or proceeding
shall have been instituted after the date hereof against the Company or against
the Parent arising by reason of the acquisition of the Company pursuant to this
Agreement, which is reasonably likely (i) to restrain, prohibit or invalidate
the consummation of the transactions contemplated by this Agreement, (ii) to
have a Company Material Adverse Effect or (iii) to have a Parent Material
Adverse Effect after giving effect to the consummation of the transactions
contemplated by this Agreement, and the Shareholders shall each have delivered
to the Parent a certificate to that effect.
5.1.4 Approvals. The Shareholders shall have procured all of the
consents, approvals and waivers of third parties or any regulatory body or
authority, whether required contractually or by applicable law or otherwise
necessary for the execution, delivery and performance of this Agreement
(including the Company Related Documents and the Shareholder Related Documents)
by the Shareholders prior to the Closing Date, and Shareholders shall have
delivered to the Parent a certificate to that effect.
5.1.5 Closing Deliveries. All documents required to be executed or
delivered at Closing by the Shareholders pursuant to Section 5.3 of this
Agreement shall have been so executed and delivered.
14
5.1.6 No Casualty, Loss or Damage. No casualty, loss or damage shall
have occurred on or prior to the Closing Date to any of the properties or assets
of the Company.
5.1.7 Licenses, etc. The Company shall have obtained all such licenses
and permits as are legally required for the continued operation of the business
after the Closing Date, except such licenses and permits, the absence of which
will not have a Company Material Adverse Effect.
5.1.8 No Material Adverse Change. Since December 31, 1996, there shall
not have been any event that in the reasonable judgment of the Parent adversely
affects the properties, assets, financial condition, results of operations, cash
flows, businesses or prospects of the Company.
5.1.9 IPO. The Parent shall have completed the IPO on terms acceptable
to it, and the net proceeds thereof shall have been received by the Parent.
5.1.10 Certain Corporate Actions. All necessary director and
shareholder resolutions, waivers and consents required to consummate the
transactions contemplated hereunder shall have been executed and delivered.
5.1.11 Financing. The Parent shall have obtained financing on terms
and in amounts reasonably acceptable to it, to finance the ongoing financing
needs of the Company, and such financing shall be available.
5.2 Conditions Precedent to the Obligations of the Shareholders and the
Company. The obligations of the Shareholders under this Agreement are subject
to the satisfaction of each of the following conditions, unless waived by the
Shareholders in writing:
5.2.1 Accuracy of Representations and Warranties. The representations
and warranties of the Parent contained in this Agreement or in any closing
certificate or document delivered to the Shareholders pursuant hereto shall be
true and correct on and as of the Closing Date as though made at and as of that
date other than such representations and warranties as are specifically made as
of another date, and the Parent shall have delivered to the Shareholders a
certificate to that effect.
5.2.2 Performance of Covenants. The Parent shall have performed and
complied with all covenants of this Agreement to be performed or complied with
by them at or prior to the Closing Date and the Parent shall have delivered to
the Shareholders a certificate to such effect.
5.2.3 Approvals. The Parent shall have procured all of the consents,
approvals and waivers specified in Section 3.1.4 prior to the Closing Date, and
the Parent shall deliver to the Shareholders a certificate to that effect.
5.2.4 Closing Deliveries. All documents required to be executed or
delivered at Closing by the Parent pursuant to Section 5.4 of this Agreement
shall have been so executed and delivered.
15
5.3 Deliveries by the Shareholders at the Closing. At the Closing,
simultaneously with the deliveries by the Parent specified in Section 5.4 below,
and in addition to any deliveries required to be made by the Shareholders
pursuant to any other transaction document at the Closing, the Shareholders
shall deliver or cause to be delivered to the Parent the following:
5.3.1 Closing Certificates. The Shareholders shall deliver the
certificates required pursuant to Sections 5.1.1, 5.1.2, 5.1.3 and 5.1.4.
5.3.2 Stock Transfer Restriction Agreement. Each Shareholder shall
execute and deliver a Stock Transfer Restriction Agreement on the Closing Date
substantially in the form set forth in Exhibit 5.3.2.
5.3.3 Employment Agreement. Each Shareholder and certain other
employees of the Company specified on Exhibit 5.3.3 shall execute and deliver an
Employment Agreement with the Company on the Closing Date substantially in the
form set forth in Exhibits 5.3.3A or 5.3.3B as applicable.
5.3.4 Registration Rights Agreement. Each Shareholder shall execute
and deliver a Registration Rights Agreement at the Closing substantially in the
form set forth in Exhibit 5.3.4 attached hereto, as applicable.
5.3.5 Opinion of Counsel for the Shareholders and the Company. The
Shareholders shall deliver the favorable opinion of Xxxxx, Xxxxxxx & Xxxxxx,
counsel to the Shareholders and the Company, dated as of the Closing Date,
substantially in the form and to the effect set forth in Exhibit 5.3.5 attached
hereto.
5.3.6 Documents, Stock Certificates. The Shareholders shall execute
and deliver, and shall cause the Company to execute and deliver, the documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by the Company or its officers or directors or any Shareholder at the
Closing as contemplated hereby or as may be reasonably requested by the Parent
and shall deliver or cause to be delivered the documents and evidence required
under Section 4. Stock Certificates representing all of the outstanding Company
Common Stock and properly executed and completed letters of transmittal shall be
delivered by the Shareholders to the Parent.
5.3.7 Discharge of Indebtedness, Releases, Etc. The indebtedness of
the Company referred to in Exhibit 5.3.7 attached hereto ("Terminated
Obligations") shall be paid in full or refinanced on terms acceptable to the
Parent, and the Shareholders shall cause all holders of any such Terminated
Obligations to deliver to the Parent, in form reasonably satisfactory to the
Parent and the lenders to the Parent such customary releases, termination
statements, consents, approvals or other documents or instruments required, in
the judgment of the Parent, to release and terminate all liens, security
interests, claims, or rights of such holders against the Company or the Parent
or any of their respective assets in connection therewith.
The consummation of the Closing shall not be deemed to be a waiver by
the Parent or the Company of any of their rights or remedies against the
Shareholders hereunder for any breach of warranty, covenant or agreement by the
Shareholders herein irrespective of any knowledge of or
16
investigation made by or on behalf of the Parent; provided, however, that if the
Shareholders shall disclose in writing to the Parent prior to the Closing Date a
specified breach of a specifically identified representation, warranty, covenant
or agreement of the Shareholder herein, and requests a waiver thereof by the
Parent, and the Parent shall waive any such specifically identified breach in
writing prior to the Closing Date, the Parent and the Company, for themselves
and for each Parent Indemnified Party (as defined below) shall be deemed to have
waived their respective rights and remedies hereunder for, and the Shareholders
shall have no liability with respect to, any such specifically identified
breach, to the extent so identified by the Shareholders and so waived by the
Parent.
5.4 Deliveries by the Parent at the Closing. At the Closing,
simultaneously with the deliveries by the Shareholders specified in Section 5.3
above, and in addition to any other deliveries to be made by the Parent pursuant
to any other transaction document at the Closing, the Parent shall deliver or
cause to be delivered to the Shareholders the following:
5.4.1 Closing Certificates. The Parent shall deliver the certificates
required pursuant to Sections 5.2.1, 5.2.2, 5.2.3 and 5.2.4.
5.4.2 Registration Rights Agreement. The Parent shall execute and
deliver to each of the Shareholders a Registration Rights Agreement at the
Closing substantially in the form set forth in Exhibit 5.3.4.
5.4.3 Opinion of Counsel for the Parent. The Parent shall deliver the
favorable opinion of Chamberlain, Hrdlicka, White, Xxxxxxxx & Xxxxxx, counsel to
the Parent, dated as of the Closing Date, substantially in the form and to the
effect set forth in Exhibit 5.4.3.
5.4.4 Closing Exchange Consideration. The Parent shall deliver the
Closing Exchange Consideration to the Shareholders.
The consummation of the Closing shall not be deemed to be a waiver by
the Shareholders of any of their rights or remedies hereunder for breach of any
warranty, covenant or agreement herein by the Parent irrespective of any
knowledge of or investigation with respect thereto made by or on behalf of any
Shareholder; provided, however, that if the Parent shall disclose in writing to
the Shareholders prior to the Closing a specified breach of a specifically
identified representation, warranty, covenant or agreement of the Parent
contained herein by the Parent, and requests a waiver thereof by the
Shareholders, and the Shareholders shall waive any such specifically identified
breach in writing prior to the Closing, the Shareholders shall be deemed to have
waived their rights and remedies hereunder for, and the Parent shall have no
liability or obligation to the Shareholders with respect to, any such
specifically identified breach, to the extent so identified by the Parent and
waived the Shareholders.
17
6. SURVIVAL, INDEMNIFICATIONS
6.1 Survival. The representations and warranties set forth in this
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Shareholders and the Company herein and in
the Shareholder Related Documents and the Company Related Documents (as defined
in Exhibit 2) other than those of the Shareholders in Sections 2.2, 2.3, 2.4 and
in Sections 2, 3, 10, 11 and 12 of Exhibit 2 shall survive for a period of 36
months after the date hereof and the representations and warranties of the
Shareholders and the Company contained in Sections 2.2, 2.3, 2.4 and in Sections
2, 3, 10, 11 and 12 of Exhibit 2 shall survive for the maximum period permitted
by applicable law. The representations and warranties of the Parent herein and
in the Parent Related Documents, other than those in Sections 3.1.3 and 3.1.4,
shall survive for a period of 36 months after the date hereof and the
representations and warranties of the Parent contained in Sections 3.1.3 and
3.1.4 shall survive for the maximum period permitted by applicable law. The
periods of survival of the representations and warranties as stated above in
this Section 6.1 are referred to herein as the "Survival Period." The
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable Survival Period and no claim
for indemnification may be made with respect to any breach of any representation
or warranty, the applicable Survival Period of which shall have expired, except
to the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration. The covenants and agreements of the parties herein (including but
not limited to Exhibit 4.6) and in other documents and instruments executed and
delivered in connection with the closing of the transactions contemplated hereby
shall survive for the maximum period permitted by law.
6.2 Indemnification.
6.2.1 Parent Indemnified Parties. Subject to the provisions of
Sections 6.1 and 6.3 hereof, the Shareholders, jointly and severally, shall
indemnify, save and hold harmless the Parent, the Company and any of their
assignees (including lenders) and all of their respective officers, directors,
employees, representatives, agents, advisors and consultants and all of their
respective heirs, legal representatives, successors and assigns (collectively
the "Parent Indemnified Parties") from and against any and all damages,
liabilities, losses, loss of value (including the value of adverse effects on
cash flow or earnings), claims, deficiencies, penalties, interest, expenses,
fines, assessments, charges and costs, including reasonable attorneys' fees and
court costs (collectively "Losses") arising from, out of or in any manner
connected with or based on:
(i) the breach of any covenant of any Shareholder or the Company or
the failure by any Shareholder or the Company to perform any obligation of
any Shareholder or the Company contained herein or in any Company Related
Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or warranty of
any Shareholder contained herein or in any Shareholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty of
the Company contained herein or in any Company Related Document;
18
(iv) indemnification payments made by the Company to the Company's
present or former officers, directors, employees, agents, consultants,
advisors or representatives in respect of actions taken or omitted to be
taken prior to the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing Date and
involving or related to the assets, properties, business or operations now
or previously owned or operated by the Company and not (a) disclosed in the
Disclosure Schedule or (b) disclosed in the Company Financial Statements
(as defined in Exhibit 2) excluding liability for decisions made in the
exercise of the Company's reasonable business judgement and in the ordinary
course of business.
Notwithstanding the foregoing, the foregoing indemnities shall not apply to the
extent that such Losses are reimbursed to the Parent Indemnified Parties under
provisions of any errors and omissions or professional liability insurance
policy containing waiver of subrogation provisions applicable to claims relating
to such Losses. The foregoing indemnities shall not limit or otherwise
adversely affect the Shareholder Indemnified Parties' rights of indemnity for
Losses under Section 6.2.3.
6.2.2 Minimum Losses. For purposes of this Section 6.2.2, Losses
shall be calculated with respect to any inaccuracy or breach of any
representation or warranty of any Shareholder contained herein or in any
Shareholder Related Document without giving effect to any clause which would
permit such inaccuracy or breach up to an amount which would be deemed a Company
Material Adverse Effect. The Shareholders shall have no obligation under Section
6.2.1 until the aggregate amount of all such Losses equal or exceed $25,000
(whether or not resulting in a Company Material Adverse Effect), at which time
the Shareholders shall be subject to the provisions of Section 6.2.1 with
respect to all Losses of the Parent Indemnified Parties.
6.2.3 Parent Indemnity. Subject to the provisions of Sections 6.1 and
6.3, the Parent shall indemnify, save and hold harmless the Shareholders and the
Shareholders' heirs, legal representatives, successors and assigns (the
"Shareholder Indemnified Parties") from and against all Losses arising from, out
of or in any manner connected with or based on:
(i) any breach of any covenant of the Parent or the failure by the
Parent to perform any of its obligations contained herein or in the Parent
Related Documents;
(ii) any inaccuracy in or breach of any representation or warranty of
the Parent contained herein or in the Parent Related Documents; and
(iii) any act, omission, event, condition or circumstance occurring or
existing at any time after (but not on or before) the Closing Date and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that this clause (iii) shall not apply
to any Losses to the extent that such Losses result from any Shareholder's
acts or omissions after the Closing Date as an officer, director and/or
employee of the Parent, the Surviving Corporation and/or any other
affiliate of the Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 6.2.1.
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6.3 Limitations. The aggregate liability of the Shareholders under
Section 6.2.1 shall not exceed the cash amount equal to the Final Exchange
Consideration with the Parent Common Stock being valued at the IPO Price for
such purpose. The aggregate liability of the Parent under Section 18(v) shall
not exceed the cash amount equal to the Final Exchange Consideration with the
Parent Common Stock being valued at the IPO Price for such purpose.
6.4 Procedures for Indemnification.
6.4.1 Notice. The party (the "Indemnified Party") that may be entitled
to indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim, or
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought hereunder. Any failure on the part of any Indemnified Party to
give the notice described in this Section 6.4.1 shall relieve the Indemnifying
Party of its obligations under this Article 6 only to the extent that such
Indemnifying Party has been prejudiced by the lack of timely and adequate notice
(except that the Indemnifying Party shall not be liable for any expenses
incurred by the Indemnified Party during the period in which the Indemnified
Party failed to give such notice). Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party, promptly (and in any event within 10 days
thereof) after the Indemnified Party's receipt thereof, copies of all notices
and documents (including court papers) received by the Indemnified Party
relating to such claim, action, suit or proceeding.
6.4.2 Legal Defense. The Parent shall have the obligation to assume
the defense or settlement of any third-party claim, suit, action or proceeding
in respect of which indemnity may be sought hereunder, provided that (i) the
Shareholders shall at all times have the right, at their option, to participate
fully therein, and (ii) if the Parent does not proceed diligently to defend the
third-party claim, suit, action or proceeding within 10 days after receipt of
notice of such third-party claim, suit, action or proceeding, the Shareholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding.
6.4.3 Settlement. The Indemnifying Party shall not be required to
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, however, that
if the Indemnified Party is a Parent Indemnified Party, such third-party suit,
action, proceeding or investigation may be settled without the consent of the
Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if
such third-party suit, action, proceeding or investigation is then unreasonably
interfering with the business or operations of the Company and the settlement is
commercially reasonable under the circumstances; and provided further, that if
the Indemnifying Party gives 10 days' prior written notice to the Indemnified
Party of a settlement offer which the Indemnifying Party desires to accept and
to pay all Losses with respect thereto ("Settlement Notice") and the Indemnified
Party fails or refuses to consent to such settlement within 10 days after
delivery of the Settlement Notice to the Indemnified Party, and such settlement
otherwise complies with the provisions of this Section 6.4, the Indemnifying
Party shall not be liable for Losses arising from such third-party suit, action,
proceeding or investigation in excess of the amount proposed in such settlement
offer. Notwithstanding the foregoing, no Indemnifying Party will consent to the
entry of any judgment or enter into any settlement without the consent of the
Indemnified Party, if such judgment or settlement imposes any obligation or
liability upon the Indemnified Party other than the
20
execution, delivery or approval thereof and customary releases of claims with
respect to the subject matter thereof.
6.4.4 Cooperation. The parties shall cooperate in defending any such
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and records, and personnel in the
possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party, as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself and its
affiliates (as defined in Exhibit 2) any rights to subrogation against any
Indemnified Party or its insurers for Losses arising from any third-party claims
for which it is liable or against which it indemnifies any Indemnified Party
and, if necessary, each Indemnifying Party shall obtain waivers of such
subrogation from its, his or her insurers.
7. TERMINATION
7.1 Grounds for Termination. This Agreement may be terminated at any time
prior to the Closing Date:
7.1.1 Mutual Consent. By the written agreement of the Shareholders
and the Parent; or
7.1.2 Optional By the Company. By the Shareholders, by written notice
to the Parent, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if neither the Company nor any
Shareholder has breached this Agreement or has failed to perform any of its, his
or her obligations under this Agreement;
7.1.3 Optional By the Parent. By the Parent, by written notice to the
Shareholders, if the Closing shall have failed to occur by 5:00 p.m. Houston,
Texas time on December 31, 1997, but only if the Parent has not breached this
Agreement or failed to perform any of its obligations under this Agreement;
7.1.4 Breach By the Parent. By the Shareholders, by written notice to
the Parent, if the Parent has breached this Agreement or failed to perform any
of its obligations under this Agreement; or
7.1.5 Breach by the Shareholders. By the Parent, by written notice to
the Shareholders, if any Shareholder has breached this Agreement or has failed
to perform any of his or her obligations under this Agreement.
7.2 Effect of Termination. If this Agreement is terminated as permitted
under Section 7.1, such termination shall be without liability of any party to
any other party, except that such termination shall be without prejudice to any
and all remedies the parties may have against each other for breach of this
Agreement.
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8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Shareholders:
Xx. Xxxxxx X. Xxxxx Xx. Xxxxxxx X. Xxxx
000 Xxxxxxxx Xxxxx 0000 Xxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxx 00000-0000 Xxxxxxxxxxxx, Xxxxxxx 00000
Telecopy: (___) ___-____ Telecopy: (___) ___-____
To the Parent:
Group Maintenance America Corp.
0000 Xxxx Xxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: President
Telecopy: (000) 000-0000
or other such address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been given
as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The Shareholders shall, at any time and from time
to time after the date hereof, upon request by the Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Shareholders hereunder.
8.3 Assignability. No Shareholder shall assign this Agreement in whole or
in part without the prior written consent of the Parent, except by the operation
of law. The Parent may assign its rights under this Agreement, the Company
Related Documents and the Shareholder Related Documents without the consent of
either Shareholder; provided, however, that no such assignment shall affect the
Shareholders right to receive the Final Exchange Consideration. After the
Closing Date, the Company may assign its rights under this Agreement, the
Company Related Documents and the Shareholder Related Documents without the
consent of any of the Shareholders.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
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8.5 Sections and Articles. Unless the context otherwise requires, all
Sections, Articles and Exhibits referred to herein are, respectively, sections
and articles of, and exhibits to, this Agreement and all Schedules referred to
herein are schedules constituting a part of the Disclosure Schedule.
8.6 Entire Agreement. This Agreement constitutes the full understanding
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
8.7 Headings. Headings as to the contents of particular articles and
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
8.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE
APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
8.9 Public Announcements. After the Effective Time, no Shareholder shall
make any press release, public announcement, or public confirmation or disclose
any other information regarding this Agreement or the contents hereof.
8.10 No Third Party Beneficiaries. Except as set forth in Article 6, no
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by the Parent
and the Shareholders; provided that all amendments to this Agreement must be by
an instrument in writing signed on behalf of the Parent and the Shareholders.
Any term or provision of this Agreement (other than the requirements for
shareholder approvals) may be waived in writing at any time by the party which
is, or whose shareholders are, entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified
23
period, of any nature or kind whatsoever under or by reason of this Agreement,
or shall cause the employment status of any employee to be other than terminable
at will.
8.13 Non-Recourse. No recourse for the payment of any amounts due
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Parent in this Agreement shall
be had against any incorporator, organizer, promoter, shareholder, officer,
director, employee or representative as such (other than the Shareholders as set
forth herein), past, present or future, of the Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
8.14 When Effective. This Agreement shall become effective only upon the
execution and delivery of one or more counterparts of this Agreement by each of
the Parent and the Shareholders.
8.15 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, Parent and the Company and
their respective members of their Boards of Directors shall grant such approvals
and take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated herein.
8.16 Number and Gender of Words. Whenever herein the singular number is
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
8.17 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be automatically as a part of this Agreement, a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
8.18 Multiple Counterparts. This Agreement may be executed in a number of
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.19 No Rule of Construction. All of the parties hereto have been
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
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8.20 Expenses. Each of the parties shall bear all of their own expenses in
connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the Company shall pay the costs
of any broker or finder engaged by the Shareholders; and provided further that
all fees, costs and expenses incurred or payable by the Company (other than
accounting and auditing fees and expenses) in connection with the negotiation
and closing of this Agreement and the transactions contemplated hereby and the
costs of any such broker or finder shall be included in current liabilities for
purposes of determining Working Capital.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
PARENT:
GROUP MAINTENANCE AMERICA CORP.
By:
-----------------------------------------
J. Xxxxxxx Xxxxxxxx, Xx., President
SHAREHOLDERS:
--------------------------------------------
XXXXXX X. XXXXX, AS SHAREHOLDER
--------------------------------------------
XXXXXXX X. XXXX, AS SHAREHOLDER
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