EXHIBIT 10.4
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AGREEMENT AND PLAN OF EXCHANGE
by and among
GROUP MAINTENANCE AMERICA CORP.
and
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
K & N PLUMBING, HEATING
AND AIR CONDITIONING, INC.
June 20, 1997
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Confidential information has been omitted from this document and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
TABLE OF CONTENTS
Page
1. THE CLOSING............................................................................................. 1
1.1. The Closing Date................................................................................. 1
1.2. Adjustment for Accounts Receivable............................................................... 1
1.3. Additional Contingent Purchase Price Consideration............................................... 2
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS...................................................... 2
2.1. Exhibit 2........................................................................................ 2
2.2. Stock Ownership.................................................................................. 2
2.3. Authority........................................................................................ 2
2.4. Consents......................................................................................... 2
3. REPRESENTATIONS AND WARRANTIES OF PARENT................................................................ 3
3.1. Representations and Warranties................................................................... 3
3.1.1. Organization............................................................................. 3
3.1.2. Capitalization of Parent................................................................. 3
3.1.3. Authority................................................................................ 3
3.1.4. Consents................................................................................. 3
3.1.5. Defaults................................................................................. 4
3.1.6. Investment Company....................................................................... 4
3.1.7. Financial Statements..................................................................... 4
3.1.8. Taxes.................................................................................... 4
3.1.9. Full Authority........................................................................... 4
3.1.10. Access.................................................................................. 5
3.1.11. Disclosure.............................................................................. 5
3.1.12. Parent Material Adverse Effect.......................................................... 5
4. CERTAIN OTHER ACTIONS, COVENANTS, DOCUMENTS AND DEFINITIONS............................................. 5
4.1. Transfer Restrictions............................................................................ 5
4.2. Adoption of Shareholders Agreement............................................................... 5
4.3. Key Employee Employment Agreements............................................................... 5
4.4. Covenant Not to Compete.......................................................................... 6
4.5. Certain Election................................................................................. 6
4.5.1. Securities Sale Election.................................................................. 7
4.5.2. Rescission Election....................................................................... 7
4.5.3. Other..................................................................................... 8
4.6. Additional Elections............................................................................. 8
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4.6.1. Securities Acquisition Election......................................................... 8
4.6.2. Transfer Transaction Election........................................................... 9
4.6.3. Other................................................................................... 10
4.7. Release......................................................................................... 10
4.8. Release of the Stockholders..................................................................... 10
4.9. Definitions..................................................................................... 11
4.10. Employee Options................................................................................ 11
4.11. Other Closing Documents......................................................................... 11
5. SURVIVAL, INDEMNIFICATIONS............................................................................. 12
5.1. Survival........................................................................................ 12
5.2. Indemnification................................................................................. 12
5.2.1. Parent Indemnified Parties.............................................................. 12
5.2.2. Parent Indemnity........................................................................ 13
5.3. Limitations..................................................................................... 13
5.4. Notice.......................................................................................... 14
6. MISCELLANEOUS.......................................................................................... 15
6.1. Notice.......................................................................................... 15
6.2. Further Documents............................................................................... 15
6.3. Assignability................................................................................... 15
6.4. Exhibits and Schedules.......................................................................... 16
6.5. Sections and Articles........................................................................... 16
6.6. Entire Agreement................................................................................ 16
6.7. Headings........................................................................................ 16
6.8. CONTROLLING LAW AND JURISDICTION................................................................ 16
6.9. Public Announcements............................................................................ 16
6.10. No Third Party Beneficiaries.................................................................... 17
6.11. Amendments and Waivers.......................................................................... 17
6.12. No Employee Rights.............................................................................. 17
6.13. Non-Recourse.................................................................................... 17
6.14. When Effective.................................................................................. 17
6.15. Takeover Statutes............................................................................... 18
6.16. Number and Gender of Words...................................................................... 18
6.17. Invalid Provisions.............................................................................. 18
6.18. Multiple Counterparts........................................................................... 18
6.19. No Rule of Construction......................................................................... 18
6.20. Expenses........................................................................................ 18
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AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") is made this 20th
day of June, 1997, among GROUP MAINTENANCE AMERICA CORP., a Texas corporation (1
"Parent") and the holders (the "Stockholders") of all of the outstanding capital
stock of K & N Plumbing, Heating and Air Conditioning, Inc., a Texas corporation
(the "Company").
WHEREAS, Parent and the Stockholders desire to provide for the transfer by
the Stockholders to Parent of the outstanding shares of capital stock of the
Company in exchange for cash, common stock and preferred stock of Parent and the
additional contingent purchase price consideration, if any;
WHEREAS, for federal income tax purposes, it is intended that such transfer
and exchange shall qualify as an exchange under the provisions of Section 351 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder;
WHEREAS, Parent has adopted and Parent and the Stockholders have executed
and delivered a Section 351 Plan;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. THE CLOSING
1.1. The Closing Date. For purposes of this Agreement, the term "Closing
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Date" shall mean the date hereof. On the Closing Date, as soon as practicable
after the execution of this Agreement, a Closing (the "Closing") shall occur.
At the Closing, the Stockholders shall deliver to Parent the Stockholders' stock
certificates evidencing all of the Stockholders' shares of common stock, $1.00
par value, of the Company ("Company Common Stock") and a completed letter of
transmittal, and Parent shall deliver to the Stockholders $1,568,000 in cash
(the "Cash Consideration"), certificates evidencing 1,568,000 shares of Series D
Preferred Stock, $.001 par value, of Parent ("Parent Preferred Stock") and
certificates evidencing 1,007,778 shares of common stock, $.001 par value, of
Parent ("Parent Common Stock"). The portion of such Cash Consideration and
shares of Parent Common Stock and Parent Preferred Stock to be delivered to each
Stockholder is set forth on Exhibit 1.1 attached hereto. One hundred thousand
dollars ($100,000) of the Cash Consideration shall be allocated as consideration
for the covenant not to compete set forth in Section 4.4.
1.2. Adjustment for Accounts Receivable. In the event any accounts
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receivable of the Company outstanding as of March 31, 1997, are not collected in
full, net of any reserves for bad
debts, by September 30, 1997, the Stockholders shall, upon written notice by
Parent, purchase, without recourse (together with any liens securing the payment
of same), in cash from the Company, within 10 days after receipt of such notice,
such uncollected accounts receivable specified in such notice for the unpaid
balance thereof.
1.3. Additional Contingent Purchase Price Consideration. In the event that
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the EBITDA (as defined below) of the Company for the fifteen months ended June
30, 1998 exceeds $XXX, the Stockholders shall be entitled to receive from
Parent, on or before September 30, 1998, additional purchase price consideration
of a value equal to XXX times such excess amount and the portion of such
additional purchase price consideration shall be delivered to each Stockholder
as set forth on Exhibit 1.1 attached hereto. Such consideration shall be
payable in cash.
2. REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
Each Stockholder, jointly and severally, hereby represents and warrants to
Parent as follows:
2.1. Exhibit 2. The statements in Exhibit 2 attached hereto are true and
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correct.
2.2. Stock Ownership. Each Stockholder owns, beneficially and of record,
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with full power to vote, the number of shares of Company Common Stock set forth
beside such Stockholders name on Exhibit 1.1 and such shares are so held by such
Stockholder free and clear of all liens, encumbrances and claims whatsoever.
2.3. Authority. Each Stockholder has full right, power, legal capacity and
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authority to (i) execute, deliver and perform this Agreement, and all other
documents and instruments referred to herein or contemplated hereby to be
executed, delivered and performed by the Stockholder (each a "Stockholder
Related Document") and (ii) consummate the transactions contemplated herein and
thereby. This Agreement has been duly executed and delivered by each
Stockholder and constitutes, and each Stockholder Related Document, when duly
executed and delivered by each Stockholder who is a party thereto will
constitute, legal, valid and binding obligations of such Stockholder enforceable
against such Stockholder in accordance with their respective terms and
conditions, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
2.4. Consents. No approval, consent, order or action of or filing with any
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court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by the Stockholders of this
Agreement or any Stockholder Related
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Confidential information has been omitted from this page and has been filed
separately with the Securities and Exchange Commission. Each such omission has
been marked by "XXX".
Document. The execution, delivery and performance by each Stockholder of this
Agreement and the Stockholder Related Documents do not violate any mortgage,
indenture, contract, agreement, lease or commitment or other instrument of any
kind to which such Stockholder is a party or by which such Stockholder or such
Stockholder's assets or properties may be bound or affected or any law, rule or
regulation applicable to such Stockholder or any court injunction, order or
decree or any valid and enforceable order of any governmental agency in effect
as of the date hereof having jurisdiction over such Stockholder.
3. REPRESENTATIONS AND WARRANTIES OF PARENT
3.1. Representations and Warranties. Parent hereby represents and warrants
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to the Stockholders as follows:
3.1.1. Organization. Parent is a corporation duly organized, validly
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existing and in good standing under the laws of the State of Texas. Parent is
duly qualified or licensed as a foreign corporation authorized to do business in
all states in which any of its assets or properties may be situated or where its
business is conducted except where the failure to obtain such qualification or
license would not have a Parent Material Adverse Effect (as defined below).
3.1.2. Capitalization of Parent. The total authorized capital stock
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of Parent is 100,000,000 shares of Parent Common Stock, of which 16,359,446
shares are issued and outstanding and none of which are held in the treasury of
Parent, 50,000,000 shares of Parent preferred stock, $.001 par value, of which
45,137 shares of Series A Parent Preferred Stock are issued and outstanding. The
outstanding shares of Parent Common Stock and Parent preferred stock have been
duly and validly issued and are fully paid and non-assessable.
3.1.3. Authority. Parent has full right, power, legal capacity and
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authority to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby and to consummate the
transactions contemplated herein and thereby (the "Parent Related Documents").
This Agreement has been duly executed and delivered by Parent and constitutes,
and all Parent Related Documents, when executed and delivered by Parent will
constitute, legal, valid and binding obligations of Parent, enforceable in
accordance with their respective terms and conditions except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
3.1.4. Consents. No approval, consent, order or action of or filing
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with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by Parent of this
Agreement or the Parent Related Documents or the consummation by Parent of the
transactions contemplated hereby.
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3.1.5. Defaults. Parent is not in default under or in violation of,
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and the execution, delivery and performance of this Agreement and Parent Related
Documents and the consummation by Parent of the transactions contemplated hereby
and thereby will not result in a default under or in violation of (i) any
mortgage, indenture, charter or bylaw provision, contract, agreement, lease,
commitment or other instrument of any kind to which Parent is a party or by
which Parent or any of its properties or assets may be bound or affected or (ii)
any law, rule or regulation applicable to Parent or any court injunction, order
or decree, or any valid and enforceable order of any govern mental agency in
effect as of the date hereof having jurisdiction over Parent, which default or
violation could adversely affect the ability of Parent to consummate the
transactions contemplated hereby or will have a Parent Material Adverse Effect.
3.1.6. Investment Company. Parent is not an "investment company" or a
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company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company", a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
3.1.7. Financial Statements. Parent has provided certain financial
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statements to the Stockholders ("Parent Financial Statements") and such Parent
Financial Statements have been prepared in accordance with GAAP, are true and
correct in all material respects, and are fair presentations of the consolidated
financial position, results of operations and cash flows of Parent and its then
existing consolidated subsidiaries as of the dates and for the periods
indicated. The books and records of Parent have been kept in reasonable detail
and accurately and fairly reflect the transactions of Parent.
3.1.8. Taxes. Parent has either accrued, discharged or caused to be
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discharged, as the same have become due, or the Parent Financial Statements
contain adequate accruals and reserves for, all taxes, interest thereon, fines
and penalties of every kind and character, attributable or relating to the
properties and business of Parent for the period ended December 31, 1996.
3.1.9. Full Authority. Parent has full power, authority and legal
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right and has all licenses, permits, qualifications, and other documentation
(including permits required under applicable Environmental Law, as defined in
Exhibit 2) necessary to own and/or operate its businesses, properties and assets
and to carry on its businesses as being conducted on the date of this Agreement,
and such businesses are now being conducted and such assets and properties are
being owned and/or operated in compliance with all applicable laws (including
Environmental Law), ordinances, rules and regulations of any governmental agency
of the United States, any state or political subdivision thereof, or any foreign
jurisdiction, all applicable court or administrative agency decrees, awards and
orders and all such licenses, permits, qualifications and other documentation,
except where the failure to comply will not have a Parent Material Adverse
Effect, and there is no
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existing condition or state of facts which would give rise to a violation
thereof or a liability or default thereunder, except where a violation,
liability or default will not have a Parent Material Adverse Effect.
3.1.10. Access. Parent has cooperated fully in permitting the
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Stockholders and their representatives to make a full investigation of the
properties, operations and financial condition of Parent; and afforded the
Stockholders and their representatives reasonable access to the offices,
buildings, real properties, machinery and equipment, inventory and supplies,
records, files, books of account, tax returns, agreements and commitments and
personnel of Parent.
3.1.11. Disclosure. No representation or warranty by Parent in this
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Agreement no statement contained any certificate delivered by Parent to the
Stockholders pursuant to this Agreement contains any untrue statement of a
material fact or omits any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they are
or were made, not misleading.
3.1.12. Parent Material Adverse Effect. The term "Parent Material
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Adverse Effect" shall mean an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of Parent and its consolidated
subsidiaries, taken as a whole in an amount of $50,000 or more.
4. CERTAIN OTHER ACTIONS, COVENANTS, DOCUMENTS AND DEFINITIONS
Parent and the Stockholders agree as follows:
4.1. Transfer Restrictions. Contemporaneously herewith, the Stockholders
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and Parent are executing and delivering a Stock Transfer Restriction Agreement
and a Registration Rights Agreement.
4.2. Adoption of Shareholders Agreement. Contemporaneously herewith, the
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Stockholders are executing and delivering to Parent an adoption agreement
pursuant to which the Stockholders agree to be bound by the Shareholders
Agreement among Parent and its existing shareholders, as amended, a copy of
which has been delivered to the Stockholders.
4.3. Key Employee Employment Agreements. Contemporaneously herewith, the
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Company and certain key employees of the Company are executing and delivering
employment agreements.
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4.4. Covenant Not to Compete.
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(i) For the considerations specified in this Agreement and in
recognition that the covenants by the Stockholders in this Section are a
material inducement to Parent to enter into and perform this Agreement, each
Stockholder agrees that, for the period from the date hereof to the date which
is five (5) years after the date hereof, such Stockholder will not represent,
engage in, carry on, or have a financial interest in, directly or indirectly,
individually, as a member of a partnership or limited liability company, equity
owner, stockholder (other than as a stockholder of less than one percent (1%) of
the issued and outstanding stock of a publicly-held company whose gross assets
exceed one hundred million dollars), investor, officer, director, trustee,
manager, employee, agent, associate or consultant engage in any business which
involves indoor air quality, heating, ventilation and air conditioning, plumbing
or electrical contracting services within a 100 mile radius of each of Dallas,
Texas, Austin, Texas and Las Vegas, Nevada.
(ii) Each Stockholder agrees that the limitations set forth herein
on such Stockholder's rights to compete with Parent and its affiliates as set
forth in clause (i) are reasonable and necessary for the protection of Parent
and its affiliates. In this regard, each Stockholder specifically agrees that
the limitations as to period of time and geographic area, as well as all other
restrictions on such Stockholder's activities specified herein, are reasonable
and necessary for the protection of Parent and its affiliates. Each Stockholder
also agrees that, in the event that the provisions of this Section should ever
be deemed to exceed the scope of business, time or geographic limitations
permitted by applicable law, such provisions shall be and are hereby reformed to
the maximum scope of business, time or geographic limitations permitted by
applicable law.
(iii) Each Stockholder agrees that the remedy at law for any
breach by such Stockholder of this Section 4.4 will be inadequate and that
Parent shall be entitled to injunctive relief.
4.5. Certain Election. In the event that (i) Parent has not effected an
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underwritten public offering of Parent Common Stock (other than any offering
pursuant to any registration statement (a) relating to any capital stock of
Parent or options, warrants or other rights to acquire any such capital stock
issued or to be issued primarily to directors, officers or employees of Parent,
or any of its subsidiaries (b) relating to any employee benefit plan or interest
therein, (c) relating principally to any preferred stock or debt securities of
Parent, or (d) filed pursuant to Rule 145 under the Securities Act of 1933, as
amended, or any successor or similar provision) resulting, in net cash proceeds
to Parent of at least $20,000,000 (the "IPO") on or before October 31, 1997,
and (ii) the shares of Parent Common Stock sold in such IPO are not listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc:
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4.5.1. Securities Sale Election. The Stockholders jointly may elect,
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by written notice to Parent delivered on or before November 5, 1997 (the "First
1 Election Notice") to call upon Parent to acquire, for the cash amount of
$8,232,000 (the "Securities Sale Consideration") all of the shares of Parent
Preferred Stock and Parent Common Stock issued by Parent to the Stockholders
pursuant to this Agreement and all of the Stockholders' rights hereunder to
acquire additional shares of capital stock of Parent ("Rights") and all Employee
Options (as defined below) and all shares of capital stock of Parent issued
pursuant to the exercise of Employee Options (the "Option Shares") ("Securities
Sale Transaction"). In the event that Parent determines not to agree to commit
to acquire such shares, Rights, Employee Options and Option Shares on or before
December 31, 1997 in the Securities Sale Transaction, Parent shall, on or before
November 10, 1997, give written notice to the Stockholders ("Parent Rejection
Notice") that it has so determined not to agree to acquire such shares, Rights,
Employee Options and Option Shares. In the event Parent determines to agree to
acquire such shares, Rights, Employee Options and Option Shares in the
Securities Sale Transaction, Parent shall, on or before November 10, 1997, give
written notice to the Stockholders ("Parent Acceptance Notice") that it agrees
to acquire such shares, Rights, Employee Options and Option Shares. The Parent
Acceptance Notice shall also specify the date, time and place of the closing of
the Securities Sale Transaction; provided that such closing shall be held on or
before December 31, 1997. At such closing, the Stockholders shall deliver or
cause to be delivered to Parent or its designee stock certificates evidencing
the Parent Preferred Stock and the Parent Common Stock and the Option Shares
duly endorsed and in proper form for transfer on the stock records of the
Company with customary written warranties of good title, authority to transfer
and absence of liens or other exceptions to title hereto, and a release of all
of the Rights and all Employee Options and Parent or its designee shall deliver
or cause to be delivered to the Stockholders the Securities Sale Consideration
and a letter containing customary representations and warranties evidencing
compliance with applicable securities laws. If the Parent Acceptance Notice is
not delivered to the Stockholders on or before November 10, 1997, Parent will
conclusively be deemed to have delivered a Parent Rejection Notice to the
Stockholders on November 10, 1997. Upon delivery or deemed delivery of the
Parent Rejection Notice, the Stockholders shall have no right to require Parent
to acquire any of Parent Common Stock, Parent Preferred Stock, Rights, Employee
Options or Option Shares pursuant to this Section 4.5.1.
4.5.2. Rescission Election. Within 20 days after the delivery or
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deemed delivery of the Parent Rejection Notice, the Stockholders may, by written
notice to Parent delivered within such 20 day period (the "Second Election
Notice"), require Parent to transfer the Company Common Stock acquired by it
pursuant hereto to the designees named in the Second Election Notice in a
transaction (the "Rescission Transaction") structured to (i) relieve Parent and
its affiliates of any liability on the then remaining indebtedness attributable
to the financing of the transactions contemplated hereby, (ii) take into account
any capital Parent invested in/or withdrew from the Company (other than for debt
service on the foregoing) from the date hereof to the closing of the Rescission
Transaction, (iii) relieve Parent from or otherwise satisfy any income tax
consequences
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to Parent from the Rescission Transaction, and (iv) transfer to Parent all
capital stock of Parent issued to the Stockholders pursuant hereto, all Rights
and all Employee Options and Option Shares. The terms of the Rescission
Transaction will be such that Parent and the Stockholders will receive no
unreasonable benefit or detriment therefrom. The Second Election Notice will
contain the addresses of the designee named therein and all of the proposed
terms of the Rescission Transaction. The proposed terms of the Rescission
Transaction contained in the Second Election Notice shall be final, conclusive
and binding for purposes of this Agreement unless Parent shall deliver to the
Stockholders a written notice of disagreement ("Notice of Objection") with any
such proposed terms within 20 business days following receipt of the Second
Election Notice, specifying in reasonable detail the nature and extent of such
disagreement. If within 10 business days following receipt by the Stockholders
of a Notice of Objection, Parent and the Stockholders are unable to resolve any
disagreement with respect to the proposed terms of the Rescission Transaction as
set forth in the Second Election Notice, the disagreement shall be submitted for
resolution to Parent's firm of independent certified public accountants (the
"Accountants"), who shall resolve the issues in dispute, and giving effect to
such resolution, determine the final terms of the Rescission Transaction. The
Accountants shall determine and resolve only those issues in dispute. The
Accountants' resolution shall (a) be made within 30 days of the submission of
the dispute to them, (b) be in accordance with this Agreement, (c) be set forth
in a written statement delivered to Parent and the Stockholders, (d) set forth
the final terms of the Rescission Transaction, and (e) be final, conclusive and
binding for purposes of this Agreement.
4.5.3. Other. Parent will cooperate fully with the Stockholders in
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obtaining any consent required from Parent's lenders to effect a Securities Sale
Transaction or a Rescission Transaction as contemplated hereby. On the closing
of a Rescission Transaction, all noncompetition agreements between Parent and
any employee of the Company who does not continue employment with Parent or its
affiliates will be terminated. At the closing of a Securities Sale Transaction
or a Rescission Transaction, the parties will enter into mutual releases under
which the parties release all claims against each other which have arisen or
could arise based on events, acts or omissions occurring or existing prior to
such closing.
4.6. Additional Elections. In the event Parent has not effected an IPO on
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or before December 31, 1998, and if neither of the two elections provided in
Section 4.5 have been exercised by the Stockholders:
4.6.1. Securities Acquisition Election. The Stockholders jointly may
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elect, by written notice to Parent delivered on or before January 31, 1999 (the
"Third 1 Election Notice"), to call upon Parent to acquire, for the cash amount
of $8,232,000 plus simple interest thereon at the rate of 8% per annum from the
date hereof to the date of the closing of such acquisition (the "Securities
Acquisition Consideration") all of the shares of Parent Preferred Stock and
Parent Common Stock issued by Parent to the Stockholders pursuant to this
Agreement and all Rights and all Employee
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Options and all Option Shares ("Securities Acquisition Transaction"). In the
event that Parent determines not to agree to acquire such shares, Rights, and
Employee Options and Option Shares in the Securities Acquisition Transaction,
Parent shall, within 90 days of receipt of the Third Election Notice, give
written notice to the Stockholders ("Parent Second Rejection Notice") that it
has so determined not to agree to acquire such shares, Rights, Employee Options
and Option Shares. In the event Parent determines to agree to acquire such
shares, Rights, Employee Options and Option Shares in the Securities Acquisition
Transaction, Parent shall, within 90 days of receipt of the Third Election
Notice, give written notice to the Stockholders ("Parent Second Acceptance
Notice") that it agrees to acquire such shares, Rights, Employee Options and
Option Shares. The Parent Second Acceptance Notice shall also specify the date,
time and place of the closing of the Securities Acquisition Transaction;
provided that such closing shall be held not more than 60 days after delivery of
the Parent Second Acceptance Notice. At such closing, the Stockholders shall
deliver or cause to be delivered to Parent or its designee stock certificates
evidencing the Parent Preferred Stock and the Parent Common Stock and Option
Shares duly endorsed and in proper form for transfer on the stock records of the
Company with customary written warranties of good title, authority to transfer
and absence of liens or other exceptions to title hereto and a release of all of
the Stockholder's Rights and all Employee Options, and Parent or its designee
shall deliver or cause to be delivered to the Stockholders the Securities
Acquisition Consideration and a letter containing customary representations and
warranties evidencing compliance with applicable securities laws. If the Parent
Second Acceptance Notice is not delivered to the Stockholders within 90 days of
Parent's receipt of the Third Election Notice, Parent will conclusively be
deemed to have delivered a Parent Second Rejection Notice to the Stockholders on
the 90th day after Parent's receipt of the Third Election Notice. Upon delivery
or deemed delivery of the Parent Rejection Notice, the Stockholders shall have
no right to request Parent to acquire any shares of Parent Common Stock, Parent
Preferred Stock, Rights, Employee Options or Option Shares pursuant to this
Section 4.6.1.
4.6.2. Transfer Transaction Election. Within 20 days after the
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delivery or deemed delivery of the Parent Second Rejection Notice, the
Stockholders may, by written notice to Parent delivered within such 20 day
period (the "Fourth Election Notice") require Parent to transfer the stock or
assets of the Company to the designees named in the Third Election Notice in a
transaction (the " Transfer Transaction") structured to (i) relieve Parent and
its affiliates of any liability on the then remaining indebtedness attributable
to the financing of the transactions contemplated hereby (ii) take into account
any capital Parent invested in/or withdrew from the Company (other than for debt
service on the foregoing) from the date hereof to the closing of the Transfer
Transaction, and (iii) relieve Parent from or otherwise satisfy any income tax
consequences to Parent from the Transfer Transaction. The terms of the Transfer
Transaction will be such that Parent will receive no economic benefit or
detriment therefrom. The Fourth Election Notice will contain the addresses of
the designee named therein and all of the proposed terms (including the
consideration payable to Parent or the Company) of the Transfer Transaction. The
proposed terms of the Transfer Transaction contained in the Fourth Election
Notice shall be final, conclusive and binding for purposes of this
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Agreement unless Parent shall deliver to the Stockholders a written notice of
disagreement ("Second Notice of Objection") with any such proposed terms
within 20 business days following receipt of the Second Election Notice,
specifying in reasonable detail the nature and extent of such disagreement. If
within 10 business days following receipt by the Stockholders of a Second Notice
of Objection, Parent and the Stockholders are unable to resolve any disagreement
with respect to the proposed terms of the Transfer Transaction as set forth in
the Fourth Election Notice, the disagreement shall be submitted for resolution
to the Accountants, who shall resolve the issues in dispute, and giving effect
to such resolution, determine the final terms of the Transfer Transaction. The
Accountants shall determine and resolve only those issues in dispute. The
Accountants' resolution shall (a) be made within 30 days of the submission of
the dispute to them, (b) be in accordance with this Agreement, (c) be set forth
in a written statement delivered to Parent and the Stockholders, (d) set forth
the final terms of the Transfer Transaction, and (e) be final, conclusive and
binding for purposes of this Agreement.
4.6.3. Other. Parent will cooperate fully with the Stockholders in
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obtaining any consent required from Parent's lenders to effect a Securities
Acquisition Transaction or a Transfer Transaction as contemplated hereby. On
the closing of a Transfer Transaction, all noncompetition agreements between
Parent and any employee of the Company who does not continue employment with
Parent or its affiliates will be terminated. At the closing of a Securities
Acquisition Transaction or a Transfer Transaction, the parties will enter into
mutual releases under which the parties release all claims against each other
which have arisen or could arise based on events, acts or omissions occurring or
existing prior to such closing.
4.7. Release. The Stockholder do hereby (i) release, acquit and forever
-------
discharge the Company from any and all liabilities, obligations, claims,
demands, actions or causes of action arising from or relating to any event,
occurrence, act, omission or condition occurring or existing on or prior to the
Closing Date, including, without limitation, any claim for indemnity or
contribution from the Company in connection with the obligations or liabilities
of the Stockholders hereunder, except for salary and benefits payable to a
Stockholder as an employee in the ordinary course of business; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of the
Closing Date; and (iii) waive any and all pre-emptive or other rights to acquire
any shares of capital stock of the Company and release any and all claims
arising in connection with any prior default, violation or failure to comply
with or satisfy any such pre-emptive or other rights.
4.8. Release of the Stockholders. Contemporaneously herewith Parent is
---------------------------
causing each Stockholder to be released from any liability under his or her
personal guaranties of the indebtedness of the Company described in Section 4.7
of the Disclosure Schedule (as defined in Exhibit 2).
-10-
4.9. Definitions. For purposes of this Agreement: (a) the term "Long-Term
-----------
Debt" shall mean all long-term liabilities of the Company as of the Closing
Date, including deferred taxes and capitalized lease obligations, all as
determined in accordance with U.S. generally accepted accounting principles
consistently applied ("GAAP"); (b) the term "Current Assets" shall mean the
current assets of the Company as of the Closing Date, as determined in
accordance with GAAP; (c) the term "Current Liabilities" shall mean the current
liabilities of the Company as of the Closing Date, as determined in accordance
with GAAP; provided, however, that all expenses of the Company or the
Stockholders (other than the audit fee paid by the Company to KPMG Peat Marwick)
incurred in connection with the transactions contemplated hereby which are
payable by the Company shall be included in Current Liabilities; (d) the term
"EBITDA" shall mean the sum of (1) Net After-Tax Income (as defined below), plus
(2) the amount of income and franchise taxes deducted from Net After-Tax Income,
plus (3) the amount of depreciation and amortization deducted from Net After-Tax
Income, plus (4) the amount of interest expense deducted from Net After-Tax
Income (the amounts in clauses (1) through (4) to the determined in accordance
with GAAP); and (e) the term "Net After-Tax Income" shall mean the net income
(or loss) of the Company for the period in question after deduction for income,
franchise and other taxes and without giving effect to non-recurring gains and
losses, interest income or investment income, determined in accordance with
GAAP.
4.10. Employee Options. Contemporaneously herewith, the existing Company
----------------
options for 150 shares of Company Common Stock will be exchanged for Parent
options to purchase an aggregate of 150,000 shares of Parent Common Stock
(collectively, the "Employee Options"), pursuant to terms of the K&N Plumbing,
Heating and Air Conditioning, Inc. Stock Option Plan and the Nonqualified Stock
Option Agreement (collectively, the "Option Agreements"), each attached hereto
as Exhibit 4.10. Upon the Closing, Parent shall assume all of the rights,
interests and obligations of the Company under the Option Agreements.
4.11. Other Closing Documents. Contemporaneously herewith:
-----------------------
(i) The Stockholders are delivering to Parent an opinion of legal
counsel satisfactory to Parent; and
(ii) Parent is delivering to the Stockholders (a) an opinion of legal
counsel satisfactory to the Stockholders, and (b) certified resolutions of the
Board of Directors of Parent in form satisfactory to the Stockholders.
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5. SURVIVAL, INDEMNIFICATIONS
5.1. Survival. The representations and warranties set forth in this
--------
Agreement and the other documents, instruments and agreements contemplated
hereby shall survive after the date hereof to the extent provided herein. The
representations and warranties of the Stockholders herein and of the
Stockholders and the Company in the Stockholder Related Documents and the
Company Related Documents (as defined in Exhibit 2) other than those of the
Stockholders in Sections 2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2
shall survive for a period of thirty-six (36) months after the date hereof and
the representations and warranties of the Stockholders contained in Sections
2.2, 2.3, 2.4 and in Sections 2 and 3 of Exhibit 2 shall survive for the maximum
period permitted by applicable law. The representations and warranties of
Parent herein and in the Parent Related Documents, other than those in Sections
3.1.3 and 3.1.4, shall survive for a period of thirty-six (36) months after the
date hereof and the representations and warranties of Parent contained in
Sections 3.1.3 and 3.1.4 shall survive for the maximum period permitted by
applicable law. The periods of survival of the representations and warranties
as stated above in this Section 5.1 are referred to herein as the "Survival
Period." The liabilities of the parties under their respective representations
and warranties shall expire as of the expiration of the applicable Survival
Period and no claim for indemnification may be made with respect to any breach
of any representation or warranty, the applicable Survival Period of which shall
have expired, except to the extent that written notice of such breach shall have
been given to the party against which such claim is asserted on or before the
date of such expiration. The covenants and agreements of the parties herein and
in other documents and instruments executed and delivered in connection with the
closing of the transactions contemplated hereby shall survive for the maximum
period permitted by law.
5.2. Indemnification.
---------------
5.2.1. Parent Indemnified Parties. Subject to the provisions of
--------------------------
Sections 5.1 and 5.3 hereof, the Stockholders, jointly and severally, shall
indemnify, save and hold harmless Parent, the Company and any of their assignees
(including lenders) and all of their respective officers, directors, employees,
representatives, agents, advisors and consultants and all of their respective
heirs, legal representatives, successors and assigns (collectively the "Parent
Indemnified Parties") from and against any and all damages, liabilities, losses,
claims, deficiencies, penalties, interest, expenses, fines, assessments, charges
and costs, including reasonable attorneys' fees and court costs (collectively "
Losses") arising from, out of or in any manner connected with or based on:
(i) the breach of any covenant of any Stockholder or the Company or
the failure by any Stockholder or the Company to perform any obligation of
such Stockholder or the Company contained herein or in any Company Related
Document or Stockholder Related Document;
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(ii) any inaccuracy in or breach of any representation or warranty of
any Stockholder contained herein or in any Stockholder Related Document;
(iii) any inaccuracy in or breach of any representation or warranty
of the Company contained in any Company Related Document;
(iv) indemnification payments made by the Company to its present or
former officers, directors, employees, agents, consultants, advisors or
representatives in respect of actions taken or omitted to be taken prior to
the Closing; and
(v) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Closing and involving or
related to the assets, properties, business or operations now or previously
owned or operated by the Company and not (a) disclosed in the Disclosure
Schedule or (b) disclosed in the Company Financial Statements (as defined
in Exhibit 2).
5.2.2. Parent Indemnity. Subject to the provisions of Sections 5.1 and
----------------
5.3, Parent shall indemnify, save and hold harmless the Stockholders and the
Stockholders' heirs, legal representatives, successors and assigns from and
against all Losses arising from, out of or in any manner connected with or based
on:
(i) any breach of any covenant of Parent or the failure by Parent to
perform any obligation of Parent contained herein or in the Parent Related
Documents;
(ii) any inaccuracy in or breach of any representation or warranty of
Parent contained herein or in the Parent Related Documents; and
(iii) any act, omission, event, condition or circumstance occurring
or existing at any time after (but not on or before) the date hereof and
involving or relating to the assets, properties, businesses or operations
of the Company; provided, however, that clause (iii) shall not apply to any
Losses to the extent that such Losses result from the Stockholder's acts or
omissions after the date hereof as an officer, director and/or employee of
Parent or the Company and/or any other affiliate of Parent.
The foregoing indemnities shall not limit or otherwise adversely affect the
Parent Indemnified Parties' rights of indemnity for Losses under Section 5.2.1.
5.3. Limitations. The aggregate liability of the Stockholders under
------------
Sections 5.2.1 shall not exceed $9,800,000. The aggregate liability of Parent
under Section 5.2.2 shall not exceed $9,800,000.
-13-
5.4. Notice. The party (the "Indemnified Party") which may be entitled
------
to indemnity hereunder shall give prompt notice to the party obligated to give
indemnity hereunder (the "Indemnifying Party") of the assertion of any claim,
or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder. Any failure on the part of any Indemnified
Party to give the notice described in this Section 5.4 shall relieve the
Indemnifying Party of its obligations under this Article 5 only to the extent
that such Indemnifying Party has been prejudiced by the lack of timely and
adequate notice. Parent shall have the obligation to assume the defense or
settlement of any third-party claim, suit, action or proceeding in respect of
which indemnity may be sought hereunder, provided that (i) the Stockholders
shall at all times have the right, at his or her option, to participate fully
therein, and (ii) if the Parent does not proceed diligently to defend the third-
party claim, suit action or proceeding within ten (10) days after receipt of
notice of such third-party claim, suit, action or proceeding, the Stockholders
shall have the right, but not the obligation, to undertake the defense of any
such third-party claim, suit, action or proceeding. The Indemnifying Party shall
not be required to indemnify the Indemnified Party with respect to any amounts
paid in settlement of any third-party suit, action, proceeding or investigation
entered into without the written consent of the Indemnifying Party; provided,
however, that if the Indemnified Party is a Parent Indemnified Party, such
third-party suit, action, proceeding or investigation may be settled without the
consent of the Indemnifying Party on ten (10) days' prior written notice to the
Indemnifying Party if such third-party suit, action, proceeding or investigation
is then unreasonably interfering with the business or operations of the Company
and the settlement is commercially reasonable under the circumstances; and
provided further, that if the Indemnifying Party gives ten (10) days' prior
written notice to the Indemnified Party of a settlement offer which the
Indemnifying Party desires to accept and to pay all Losses with respect thereto
("Settlement Notice") and the Indemnified Party fails or refuses to consent to
such settlement within ten (10) days after delivery of the Settlement Notice to
the Indemnified Party, and such settlement otherwise complies with the
provisions of this Section 5.4, the Indemnifying Party shall not be liable for
Losses arising from such third-party suit, action, proceeding or investigation
in excess of the amount proposed in such settlement offer. Notwithstanding the
foregoing, no Indemnifying Party will consent to the entry of any judgment or
enter into any settlement without the consent of the Indemnified Party, if such
judgment or settlement imposes any obligation or liability upon the Indemnified
Party other than the execution, delivery or approval thereof and customary
releases of claims with respect to the subject matter thereof. The parties
shall cooperate in defending any such third-party suit, action, proceeding or
investigation, and the defending party shall have reasonable access to the books
and records, and personnel in the possession or control of the Indemnified Party
which are pertinent to the defense. The parties agree that the Indemnified Party
may join the Indemnifying Party in any suit, action, claim or proceeding brought
by a third party, as to which any right of indemnity created by this Agreement
would or might apply, for the purpose of enforcing any right of the indemnity
granted to such Indemnified Party pursuant to this Agreement.
-14-
6. MISCELLANEOUS
6.1. Notice. Any notice, delivery or communication required or permitted
------
to be given under this Agreement shall be in writing, and shall be mailed,
postage prepaid, or delivered, to the addresses given below, or sent by telecopy
to the telecopy numbers set forth below, as follows:
To the Stockholders:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
c/o ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ & ▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
To Parent:
Group Maintenance America Corp.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
or other such address as shall be furnished in writing by any such party to the
other parties, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 6.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
6.2. Further Documents. The Stockholders shall, at any time and from time
-----------------
to time after the date hereof, upon request by Parent and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by the Stockholders hereunder.
6.3. Assignability. No Stockholder shall assign this Agreement in whole or
-------------
in part without the prior written consent of Parent, except by the operation of
law. Parent may assign its
-15-
rights under this Agreement, the Company Related Documents and the Stockholder
Related Documents without the consent of the Stockholders.
6.4. Exhibits and Schedules. The Exhibits and Schedules (and any
----------------------
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
6.5. Sections and Articles. Unless the context otherwise requires, all
---------------------
Sections and Articles referred to herein are, respectively, sections and
articles of this Agreement and all Exhibits and Schedules referred to herein
are, respectively, exhibits, and schedules constituting a part of the Disclosure
Schedule.
6.6. Entire Agreement. This Agreement constitutes the full understanding
----------------
of the parties, a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement relating to
the subject matter hereof and supersedes any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions of
this Agreement shall be binding unless hereafter made in writing and signed by
the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
any party with respect to any breach or default or of any right or remedy and no
course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
6.7. Headings. Headings as to the contents of particular articles and
--------
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
6.8. CONTROLLING LAW AND JURISDICTION. THE VALIDITY, INTERPRETATION AND
--------------------------------
PERFORMANCE OF THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
6.9. Public Announcements. No press release, public announcement,
--------------------
confirmation or other information regarding this Agreement or the contents
hereof shall be made by any party or the Company without the prior consultation
of the Stockholders and Parent, except as may be necessary in the opinion of
counsel of any party to meet the requirements or regulations of any applicable
law, governmental unit or agency or stock exchange on which the securities of
such party may be listed.
-16-
Notwithstanding the foregoing, the Company may make appropriate disclosures of
the general nature of the transaction contemplated hereby to its employees,
vendors and customers to protect the Company's good will and to facilitate the
consummation of the transactions contemplated hereby, and Parent may disclose
pertinent information regarding the transaction contemplated hereby to its
existing and prospective investors, lenders or investment bankers or financial
advisors for the purposes of obtaining financing (including a contemplated IPO).
Parent may also make appropriate disclosures of the general nature of the
transaction contemplated hereby and the identity, nature and scope of the
Company's operations to prospective acquisition candidates in its efforts to
attract additional acquisitions for Parent. Parent and the Stockholders shall
jointly approve the contents of any press releases, written employee
presentations or other materials of potentially wide distribution that disclose
or refer to the transaction contemplated hereby, except for such press releases
or other communications required by law.
6.10. No Third Party Beneficiaries. Except as set forth in Article 5, no
----------------------------
person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
6.11. Amendments and Waivers. This Agreement may be amended by Parent and
----------------------
the Stockholders; provided that all amendments to this Agreement must be by an
instrument in writing signed on behalf of Parent and by the Stockholders. Any
term or provision of this Agreement may be waived in writing at any time by the
party which is entitled to the benefits thereof.
6.12. No Employee Rights. Nothing herein expressed or implied shall confer
------------------
upon any employee of the Company, any other employee or legal representatives or
beneficiaries of any thereof any rights or remedies, including any right to
employment or continued employment for any specified period, of any nature or
kind whatsoever under or by reason of this Agreement, or shall cause the
employment status of any employee to be other than terminable at will.
6.13. Non-Recourse. No recourse for the payment of any amounts due
------------
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of Parent in this Agreement shall be
had against any incorporator, organizer, promoter, stockholder, officer,
director, employee or representative as such (other than the Stockholders as set
forth herein), past, present or future, of Parent or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement.
6.14. When Effective. This Agreement shall become effective only upon the
--------------
execution and delivery of one or more counterparts of this Agreement by Parent
and the Stockholders.
-17-
6.15. Takeover Statutes. If any "fair price", "moratorium", "control share
------------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, Parent and the Company and
their respective members of their Boards of Directors shall grant such approvals
and take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated herein.
6.16. Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate and words of any
gender shall include each other gender where appropriate.
6.17. Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provisions
shall be fully severable as if such invalid or unenforceable provisions had
never comprised a part of the Agreement; and the remaining provisions of the
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be automatically as a part of this Agreement, a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
6.18. Multiple Counterparts. This Agreement may be executed in a number of
---------------------
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
6.19. No Rule of Construction. All of the parties hereto have been
-----------------------
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship of
this Agreement.
6.20. Expenses. Each of the parties shall bear all of their own expenses
--------
in connection with the negotiation and closing of this Agreement and the
transactions contemplated hereby; provided that the accounting and auditing fees
and expenses of KPMG Peat Marwick shall be borne by Parent.
-18-
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
GROUP MAINTENANCE AMERICA CORP.
By:______________________________________
Name:____________________________________
Title:___________________________________
By:______________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
THE ▇▇▇▇▇ FAMILY IRREVOCABLE TRUST
By:______________________________________
Name:____________________________________
Title:___________________________________
-19-
