1
EXHIBIT 2.6
STOCK PURCHASE AGREEMENT
by and among
GENERAL ROOFING SERVICES, INC.,
CYCLONE ROOFING COMPANY
and
THE SOLE STOCKHOLDER
OF
CYCLONE ROOFING COMPANY
----------------------------
May 13, 1998
----------------------------
2
TABLE OF CONTENTS
Page
----
ARTICLE I - SALE AND PURCHASE OF SHARES...........................................................................1
1.01 Sale and Purchase of Company Common Stock................................................................1
1.02 Purchase Price...........................................................................................2
1.03 Delivery of Purchase Price...............................................................................2
1.04 Purchase Price Adjustment................................................................................3
1.05 Excluded Assets..........................................................................................4
1.06 Stockholders' Representative.............................................................................4
ARTICLE II - CLOSING..............................................................................................5
2.01 Closing..................................................................................................5
2.02 Deliveries by Stockholders to GRS........................................................................5
2.03 Deliveries by GRS........................................................................................6
2.04 Termination in Absence of Closing........................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS..................................7
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...................................................7
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF GRS................................................................7
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING.........................................................................7
6.01 GRS' Access to Information and Assets....................................................................7
6.02 Company's Conduct of Business and Operations.............................................................7
6.03 General Restrictions.....................................................................................8
6.04 Notice Regarding Changes.................................................................................9
6.05 Consents and Best Efforts................................................................................9
6.06 Casualty Loss...........................................................................................10
6.07 Employee Matters........................................................................................10
6.08 No Solicitation.........................................................................................10
6.09 Employment Agreements...................................................................................10
6.10 Lock-Up Agreement.......................................................................................10
ARTICLE VII - CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS...................................................10
7.01 Conditions to Obligations of All Parties................................................................10
7.02 Conditions to Obligations of Stockholders...............................................................11
7.03 Conditions to Obligations of GRS........................................................................12
ARTICLE VIII - SURVIVAL..........................................................................................13
8.01 Survival of Representations and Warranties of the Company and the Stockholders..........................13
ARTICLE IX - INDEMNIFICATION.....................................................................................14
9.01 Obligation of the Stockholders to Indemnify.............................................................14
9.02 Obligation of GRS to Indemnify..........................................................................14
9.03 Notice and Opportunity to Defend........................................................................14
9.04 Limitations on Indemnification..........................................................................15
9.05 Set-Off Rights..........................................................................................16
i
3
Page
----
ARTICLE X - POST-CLOSING OBLIGATIONS.............................................................................17
10.01 Further Assurances......................................................................................17
10.02 Publicity...............................................................................................17
10.03 Access to Records.......................................................................................17
ARTICLE XI - MISCELLANEOUS.......................................................................................17
11.01 Brokers.................................................................................................17
11.02 Costs and Expenses......................................................................................17
11.03 Notices.................................................................................................17
11.04 Governing Law...........................................................................................18
11.05 Representations and Warranties..........................................................................19
11.06 Entire Agreement, Amendments and Waivers................................................................19
11.07 Binding Effect and Assignment...........................................................................19
11.08 Remedies................................................................................................19
11.09 Exhibits and Schedules..................................................................................19
11.10 Multiple Counterparts...................................................................................19
11.11 References..............................................................................................19
11.12 Survival................................................................................................19
11.13 Attorneys' Fees.........................................................................................20
ARTICLE XII - DEFINITIONS........................................................................................20
12.01 Affiliate...............................................................................................20
12.02 Collateral Agreements...................................................................................20
12.03 Company Assets..........................................................................................20
12.04 Contract Retention......................................................................................20
12.05 Current Assets..........................................................................................20
12.06 Current Liabilities.....................................................................................20
12.07 Damages.................................................................................................21
12.08 Environmental Law.......................................................................................21
12.09 GAAP....................................................................................................21
12.10 Governmental Authorities................................................................................21
12.11 Hazardous Substances....................................................................................21
12.14 Knowledge...............................................................................................21
12.13 Legal Requirements......................................................................................21
12.14 Permits.................................................................................................21
12.15 Properties..............................................................................................21
12.16 Proportionate Share.....................................................................................22
12.17 Regulations.............................................................................................22
12.18 Taxes...................................................................................................22
12.19 Tax Returns.............................................................................................22
12.20 Used....................................................................................................22
12.21 Deferred Income Taxes...................................................................................22
ii
4
LIST OF EXHIBITS
Exhibit A - Stockholders
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit D - Representations and Warranties of the Company and the Stockholders
Exhibit E - Representations and Warranties of each Stockholder
Exhibit F - Representations and Warranties of GRS
Exhibit G - Employment Agreement for R. Xxxxx Xxxxx
Exhibit H - Opinion of Xxxxx & XxXxxxxx
Exhibit I - Opinion of Williams, Williams, Ruby & Xxxxxxxx, P.C.
iii
5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of May 13, 1998, by and among (i) General Roofing Services, Inc., a Florida
corporation (the "Buyer" or "GRS"),(ii) Cyclone Roofing Company, a North
Carolina corporation (the "Company"), and (iii) the sole stockholder of the
Company (the "Stockholder" or the "Stockholders").
PRELIMINARY STATEMENTS:
A. The Board of Directors of GRS and the Stockholders deem it advisable
for their welfare and best interests that the Stockholders sell and GRS
purchase all of the issued and outstanding capital stock of the Company,
consisting of 30,000 shares (the "Shares") of common stock, $1.00 par value
("Company Common Stock"), upon the terms and subject to the conditions
hereinafter set forth.
B. Concurrently with the purchase and sale of the Shares hereby, and as
part of an overall plan, GRS is acquiring the issued and outstanding capital
stock of additional commercial roofing companies (the "Founding Companies")
throughout the United States, and all such transactions are intended to conform
to, and are being made, in connection with a Section 351 Plan of Exchange
within the meaning of the Internal Revenue Code.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and the benefits to accrue to the parties hereto, and subject
to the satisfaction or waiver of the conditions contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
Section 1.01 Sale and Purchase of Company Common Stock.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Stockholder
shall sell, transfer, convey and deliver to GRS, and GRS shall purchase,
acquire and accept from each Stockholder, the number of shares of Company
Common Stock set forth opposite the name of each such Stockholder on Exhibit A
hereto under the heading "Number of Shares of Company Common Stock Purchased,"
constituting all of the issued and outstanding shares of Company Common Stock.
The sale and purchase of the Company Common Stock pursuant to this Agreement is
sometimes hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a), at
the Closing, each Stockholder shall deliver, or cause to be delivered, to the
Stockholders' Representative (as defined and provided for in Section 1.06
hereof), for redelivery to GRS, stock certificates representing the Company
Common Stock being sold by such Stockholder hereunder, together with stock
powers duly executed in blank or otherwise in proper form acceptable to GRS for
transfer to GRS on the books of the Company, against payment therefor in
accordance with Section 1.03 hereof.
6
Section 1.02 Purchase Price.
(a) Purchase Price.
The purchase price for the issued and outstanding shares of
Company Common Stock to be purchased by GRS hereunder (the "Purchase Price")
shall be an aggregate amount equal to $12,241,822. The Purchase Price shall be
subject to adjustment as provided in this Agreement and shall be allocated
among the Stockholders in accordance with their respective ownership interests
as set forth on Exhibit A hereof. The Purchase Price, as so adjusted, shall be
delivered to the Stockholders, in accordance with their respective
Proportionate Share, and to the Escrow Agent (as defined in Section 1.03(b)
hereof), subject to and in accordance with Section 1.03 hereof. The amount of
the Purchase Price allocated to each outstanding share of Company Common Stock
is hereinafter referred to as the "Stock Purchase Payment."
(b) The Purchase Price shall be reduced dollar-for-dollar (the
"Purchase Price Adjustment") to the extent that the Net Book Value of the
Company as shown on the Closing Date Unaudited Balance Sheet referred to in
Section 1.02(c), below (the "Closing Net Book Value"), is less than $4,141,822
(the "Target Net Book Value") (such adjustment is referred to herein as the
"Net Book Value Adjustment"); provided, that the Net Book Value as determined
pursuant to the Closing Date Unaudited Balance Sheet shall not be less than $
342,191 (the "Minimum Net Book Value"). For purposes of this Agreement, Net
Book Value shall mean the excess of the Company's total assets over the
Company's total liabilities, determined in accordance with GAAP.
(c) The Stockholders shall cause to be prepared and delivered
to GRS within fifteen days prior to the Closing Date (i) an unaudited balance
sheet of the Company forecasted as of the Closing Date (the "Closing Date
Unaudited Balance Sheet"), (ii) a calculation of the Purchase Price Adjustment,
if any, determined pursuant to Section 1.02(b) above, and (iii) a certificate
executed by the Company's Chief Financial Officer (or another duly authorized
officer of the Company) to the effect that the Closing Date Unaudited Balance
Sheet has been prepared from the books and records of the Company and in a
manner consistent with the preparation of the Company Financial Statements (as
defined in Section 3.06 hereof), except that Deferred Income Taxes have been
reflected in the same manner as if the Company was a "C" corporation.
Section 1.03 Delivery of Purchase Price. At the Closing, the Purchase
Price, as adjusted, shall be paid upon the surrender pursuant to Section
1.01(b) hereof of a certificate or certificates representing all of the issued
and outstanding shares of Company Common Stock, as follows:
(a) An aggregate of the sum of (i) $3,799,631 minus (ii) the
amount of the Purchase Price Adjustment, if any, shall be paid directly to the
holders thereof by wire transfer in New York Clearing House Funds in accordance
with Exhibit A hereto.
(b) An aggregate of $8,442,191 shall be paid by the delivery to
(A) an escrow agent (the "Escrow Agent") selected by GRS and reasonably
acceptable to the Stockholders, on behalf of the Stockholders, of such number
of shares of GRS' common stock, par value $.01 per share ("GRS Common Stock"),
as shall have a value equal to $2,448,364 representing twenty percent (20%) of
the Purchase Price (the "Escrow Fund"), based upon the public offering price of
the GRS Common Stock to be sold in its initial public offering (the "Offering")
and (B) the Stockholders in accordance with Exhibit A hereto, of such number of
shares of GRS Common Stock as shall have a value equal to $5,993,827 based upon
the public offering price of the GRS Common Stock to be sold in the Offering.
The shares of GRS Common Stock to be so held in escrow shall be held by the
Escrow Agent for a period of one year following the Closing in accordance with
the terms of an Escrow Agreement in the form of Exhibit B hereto (the "Escrow
Agreement"), and shall thereafter be restricted from transfer for an additional
one-year period in accordance with the terms, and subject to the conditions, of
a Lock-Up Agreement in the form of Exhibit C hereto (the "Lock-Up Agreement").
The Stockholders shall receive cash in lieu of fractional shares.
2
7
(c) Each certificate evidencing shares of GRS Common Stock
issued in connection with the Stock Purchase shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (the "1933 ACT"), NOR
UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED, SOLD,
ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF
SUCH SHARES, WHICH OPINION IS SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE 1933 ACT OR APPLICABLE
STATE SECURITIES LAWS.
Section 1.04 Purchase Price Adjustment.
(a) Notification of Purchase Price Adjustment. Upon the
calculation of the Purchase Price Adjustment pursuant to Section 1.02(b)
hereof, if any, and within 10 days prior to the Closing, GRS shall notify the
Stockholders in writing of its determination of the Purchase Price Adjustment,
if any, and the cash portion of the Purchase Price to be paid to the
Stockholders on the Closing Date (the "Purchase Price Notice"), subject to
Section 1.04(b) below.
(b) Procedures for Resolving Disputes with Respect to the
Purchase Price Adjustment. The following clauses (i) and (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Purchase Price Adjustment, if any:
(i) Within five (5) business days after delivery by
GRS to the Stockholders of a Purchase Price Notice, the Stockholders may
deliver to GRS a written notice advising GRS either that the Stockholders (A)
agree with the calculation of the Purchase Price Adjustment, or (B) believe
that one or more adjustments are required. If the Stockholders shall concur
with the calculation of the Purchase Price Adjustment, if any, or if the
Stockholders shall not object thereto in a written notice delivered to GRS
within five (5) business days after the Stockholders' receipt of the Purchase
Price Notice, the Purchase Price as set forth in the Purchase Price Notice, if
any, shall become final and shall not be subject to further review, challenge
or adjustment absent fraud.
(ii) In the event that GRS timely submits the Purchase
Price Notice and the Stockholders timely object to the proposed Purchase Price
Adjustment, and the Stockholders and GRS are unable to resolve the
disagreements with respect to the proposed Purchase Price Adjustment prior to
the Closing, then such disagreements shall be referred to a recognized firm of
independent certified public accountants experienced in auditing roofing or
construction companies and selected by mutual agreement of Stockholders and GRS
(the "Settlement Accountants"), and the determination of the Purchase Price
Adjustment, if any, by the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the
event that Stockholders and GRS cannot agree on the selection of Settlement
Accountants, the Settlement Accountants shall be selected by lottery from among
recognized firms of independent certified public accountants, with preference
being given to the "Big Six" accounting firms (except for Deloitte & Touche
LLP), until one such firm is willing to compute the Purchase Price Adjustment,
if any. The Settlement Accountants shall use their best efforts to reach a
determination not more than five (5) days after such referral. The costs and
expenses of the services of the Settlement Accountants shall be paid equally by
the Company and GRS. Pending the final determination by the Settlement
Accountants of the Purchase Price Adjustment if any (the "Final
Determination"), the difference
3
8
between the determination by the Stockholders and GRS of the Purchase Price
Adjustment, if any, shall be withheld from the cash portion of the Purchase
Price to be delivered pursuant to Section 1.03(a) and shall be paid in
accordance with and upon the Final Determination. Any such dispute shall not
delay the Closing.
(c) After the final determination of the Purchase Price
pursuant to Sections 1.04(b)(i) or (ii) above, as applicable, the amount of the
adjustment determined pursuant thereto shall be deducted from the cash portion
of the Purchase Price and allocated among the Stockholders in accordance with
their respective Proportionate Share.
Section 1.05 Excluded Assets and Distribution of Assets.
(a) Prior to the Closing, the Company shall be permitted to
distribute to the Stockholders as a dividend those tangible assets (the
"Excluded Assets") which GRS and the Stockholders have agreed in writing are
not required by the Company in the conduct of its operations and which are
listed in Schedule 1.05 hereto.
(b) The Stockholders may authorize and the Company may make or
authorize distributions prior to the Closing in order to reduce the Company's
Closing Net Book Value to the Target Net Book Value, but in no event shall such
distributions be made to the extent that the Closing Net Book Value would be
less than the Minimum Net Book Value.
Section 1.06 Stockholders' Representative.
(a) As used in this Agreement, the "Stockholders'
Representative" shall mean Xxxxxx Xxxxx Xxxxx, Xx. or any person appointed as a
successor Stockholders' Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all obligations
under this Agreement have been discharged (including all indemnification
obligations hereunder and all obligations under the Escrow Agreement), the
Stockholders who, immediately prior to the Closing, held Company Common Stock
representing an aggregate number of shares of Company Common Stock which
exceeded 50% of the amount of such Company Common Stock outstanding immediately
prior to such time (a "Majority"), may, from time to time upon written notice
to the Stockholders' Representative and GRS, remove the Stockholders'
Representative or appoint a new Stockholders' Representative to fill any
vacancy created by the death, incapacitation, resignation or removal of the
Stockholders' Representative. Furthermore, if the Stockholders' Representative
dies, becomes incapacitated, resigns or is removed by a Majority, the Majority
shall appoint a successor Stockholders' Representative to fill the vacancy so
created. If the Majority is required to but has not appointed a successor
Stockholders' Representative within 20 business days from a request by GRS to
appoint a successor Stockholders' Representative, GRS shall have the right to
appoint a Stockholders' Representative to fill any vacancy so created, and
shall advise all those who were holders of Company Common Stock immediately
prior to the Closing of such appointment by written notice. A copy of any
appointment by the Majority of any successor Stockholders' Representative shall
be provided to GRS promptly after it shall have been effected.
(c) The Stockholders' Representative shall be authorized to
take any action and to make and deliver any certificate, notice, consent or
instrument required or permitted to be made or delivered under this Agreement
or under the documents referred to in this Agreement (an "Instrument") which
the Stockholders' Representative determines to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Stockholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole
and absolute discretion to be necessary, advisable or appropriate in order to
carry out and perform his rights and obligations hereunder. The Stockholders
hereby grant the Stockholders' Representative the right and power to execute
the Escrow Agreement on their behalf with such changes or amendments thereto as
the
4
9
Stockholders' Representative shall determine to be necessary or desirable in
his sole and absolute discretion. Any party receiving an Instrument from the
Stockholders' Representative shall have the right to rely in good faith upon
such Instrument, and to act in accordance with the Instrument without
independent investigation.
(d) GRS shall have no liability to any Stockholder or otherwise
arising out of the acts or omissions of the Stockholders' Representative or any
disputes among the Stockholders or with the Stockholders' Representative. GRS
may rely entirely on its dealings with, and notices to and from, the
Stockholders' Representative to satisfy any obligations it might have to the
Stockholders under this Agreement, any agreement referred to herein or
otherwise.
(e) The Stockholders shall indemnify, defend and hold harmless
the Stockholders' Representative from and against any and all claims, demands,
actions, suits, causes of action, damages, costs and expenses (including,
without limitation, attorneys' fees) (collectively, "Claims") which are
hereafter made, sustained or brought against the Stockholders' Representative
by any person arising out of the acts or omissions of the Stockholders'
Representative or any disputes among the Stockholders, unless such Claims
allegedly occurred as a result of the willful misconduct or negligence by the
Stockholders' Representative.
ARTICLE II
CLOSING
Section 2.01 Closing. Subject to the satisfaction or waiver of the
conditions stated in Article VII hereof, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
the closing date of the Offering, estimated to be July 15, 1998 or, if the
conditions set forth in Sections 7.01 through 7.03 have not been satisfied or
waived on such date, no later than seven (7) days after all such conditions
shall have been satisfied or waived, at the offices of Xxxxx & XxXxxxxx, 000
Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxx, Xxxxxxx 00000, unless another date or place
is agreed to in writing by the parties hereto. The date upon which the Closing
occurs is hereinafter referred to as the "Closing Date." The Closing shall be
deemed completed as of 11:59 p.m. Miami time on the Closing Date.
Section 2.02 Deliveries by Stockholders to GRS. At or prior to the
Closing, the Stockholders shall deliver to GRS:
(i) certificates representing all of the issued and
outstanding shares of Company Common Stock in proper
form for transfer to GRS;
(ii) the resignations of all members of the board
directors of the Company as set forth in Section
7.03(l);
(iii) the stock books, stock ledgers, minute books and
corporate seals of the Company;
(iv) a certificate executed by the Company to the effect
that the conditions set forth in Sections 7.03(b)
through 7.03(i), have been satisfied;
(v) the opinion of counsel set forth in Section 7.03(f);
(vi) the executed Collateral Agreements; and
(vii) evidence of the consents required pursuant to
Section 7.03(n).
5
10
Section 2.03 Deliveries by GRS. At or prior to the Closing, GRS shall
deliver to the Stockholders:
(i) by wire transfer in immediately available funds to
the Stockholders the payment described in Section
1.03(a) as being required to be paid by GRS at
Closing;
(ii) by delivery to the Stockholders the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Stockholders
at Closing;
(iii) by delivery to the Escrow Agent the shares of GRS
Common Stock described in Section 1.03(b) as being
required to be delivered by GRS to the Escrow Agent
at Closing;
(iv) a certified copy of all necessary corporate action
on behalf of GRS approving its execution, delivery
and performance of this Agreement and the Collateral
Agreements to which it is a party pursuant to
Section 7.02(a);
(v) a certificate executed by an authorized officer of
GRS to the effect that the conditions set forth in
Sections 7.02(b) and 7.02(c) have been satisfied;
(vi) the opinion of counsel set forth in Section 7.02(d);
(vii) the executed Collateral Agreements to which it is a
party; and
(viii) evidence that: (a) the Stockholders have been
released from all personal guarantees relating to
any obligations of the Company, including but not
limited to, any bank loans, lines of credit, and/or
performance bonds (the "Personal Guarantees and
Obligations") and (b) GRS shall indemnify and hold
harmless the Stockholders from and against any
personal liability or obligations relating to or
arising out of any Personal Guarantees or
Obligations.
Section 2.04 Termination in Absence of Closing. If by the close of
business on September 30, 1998 (the "Termination Date"), the Closing has not
occurred, then any party hereto may thereafter terminate this Agreement by
written notice to such effect, to the other parties hereto, without liability
of or to any party to this Agreement or any shareholder, director, officer,
employee or representatives of such party unless the reason for Closing having
not occurred is (i) such party's willful breach of the provisions of this
Agreement, or (ii) if all of the conditions to such party's obligations set
forth in Article VII have been satisfied or waived in writing by the date
scheduled for the Closing pursuant to Section 2.01, the failure of such party
to perform its obligations under this Article II on such date; provided,
however, that any termination pursuant to this Section 2.04 shall not relieve
any party hereto who was responsible for Closing having not occurred as
described in clauses (i) or (ii) above of any liability for (x) such party's
willful breach of the provisions of this Agreement, or (y) if all of the
conditions to such party's obligations set forth in Article VII have been
satisfied or waived in writing by the date scheduled for the Closing pursuant
to Section 2.01, the failure of such party to perform its obligations under
this Article II on such date. Notwithstanding the foregoing, the Stockholders
expressly acknowledge and agree that market and economic conditions are
impossible to predict, and although GRS intends to proceed with the Offering in
an expeditious manner at this time, GRS shall not be liable to the Stockholders
or the Company if the Closing has not occurred because the Offering has not
been consummated prior to the Termination Date.
6
11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS as to the matters set forth on Exhibit D hereto, the full text
of which is incorporated herein by reference as if set forth fully herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as to the matters set
forth on Exhibit E hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Stockholders as to the matters set
forth on Exhibit F hereto, the full text of which is incorporated herein by
reference as if set forth fully herein.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
Section 6.01 GRS' Access to Information and Assets. The Stockholders
shall permit GRS and its authorized employees, agents, accountants, legal
counsel and other representatives, at GRS' own expense, to have access to the
books, records, employees, counsel, accountants, and other representatives of
the Company at all times reasonably requested by GRS for the purpose of
conducting an investigation ("GRS' Due Diligence Investigation") of the
Company's financial condition, corporate status, operations, business and
Properties. The Stockholders shall make available to GRS for examination and
reproduction, at GRS' own expense, all documents and data of every kind and
character relating to the Company in possession or control of, or subject to
reasonable access by, the Stockholders or the Company, including, without
limitation, all files, records, data and information relating to the Company
Assets (whether stored in paper, magnetic or other storage media) and all
agreements, instruments, contracts, assignments, certificates, orders, and
amendments thereto. Also, the Company shall allow GRS, at GRS' own expense,
access to, and the right to inspect, the Company Assets.
Section 6.02 Company's Conduct of Business and Operations. The
Stockholders shall keep GRS advised as to all material operations and proposed
material operations relating to the Company or the Company Assets. Except for
distributions permitted pursuant to Sections 1.05 and 3.02, the Company shall
(a) conduct its business in the ordinary course, (b) use its best efforts to
keep available to the Company the services of present employees, (c) maintain
and operate Company Assets in a good and workmanlike manner, (d) pay or cause
to be paid all costs and expenses (including but not limited to insurance
premiums) incurred in connection therewith in a timely manner, (e) use
reasonable efforts to keep all Company Contracts listed or required to be
listed on Schedule 3.12 in full force and effect, (f) comply with all of the
covenants contained in all such Company Contracts, (g) maintain in force until
the
7
12
Closing Date insurance policies (subject to the provisions of Section 6.06)
equivalent to those in effect on the date hereof, and (h) comply in all material
respects with all applicable Legal Requirements. Except as otherwise
contemplated in this Agreement, the Stockholders shall use their best efforts to
preserve the present relationships of the Company with persons having
significant business relations therewith.
Section 6.03 General Restrictions. Except as otherwise expressly permitted
in this Agreement, without the prior written consent of GRS, the Company shall
not:
(i) (A) except as permitted by Sections 1.05 and 3.02
hereof, declare, set aside or pay any dividends on, or make any other
distribution (whether in cash, stock or property) in respect of, any of its
capital stock, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
view of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(ii) except as disclosed on Schedule 6.03 (ii), issue,
deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(iii) amend its Articles of Incorporation or By-laws (or
similar organizational documents);
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business of any corporation, partnership,
joint venture, association or other business organization or division
thereof or (B) any assets that are material, individually or in the
aggregate, to the Company, except purchases of assets in the ordinary
course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
otherwise dispose of, or agree to sell, transfer, lease, mortgage, encumber
or otherwise dispose of, any Properties except (A) in the ordinary course
of business consistent with past practice, or (B) pursuant to any Company
Contract or except as permitted by Sections 1.05 and 3.02 hereof;
(vi) except as permitted by Section 1.05 hereof, (A) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of the foregoing,
except for borrowings incurred in the ordinary course of business
consistent with past practice, or (B) make any loans, advances or capital
contributions to, or investments in, any other person;
(vii) make or agree to make any new capital expenditure or
expenditures which, individually, is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 (other than those required pursuant to
currently outstanding Company Contracts or in the ordinary course of
business consistent with past practice);
(viii) make any material tax election or settle or
compromise any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment,
8
13
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the
Company Financial Statements (or the notes thereto) or incurred in the
ordinary course of business consistent with past practice, or waive any
material benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which the Company is a
party;
(x) except in the ordinary course of business consistent
with past practice, modify, amend or terminate any Company Contract;
(xi) except in the ordinary course of business consistent
with past practice, enter into any contracts, agreements, arrangements or
understandings relating to performance by third parties of the Company's
services;
(xii) except as required to comply with applicable law (A)
adopt, enter into, terminate or amend any benefit plan or other arrangement
for the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except in a
manner consistent with past practice), (C) pay any benefit not provided for
under any benefit plan, (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan
(including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock, or
the removal of existing restrictions in any benefit plans or agreement or
awards made thereunder) or (E) take any action to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP; or
(xiv) authorize any of, or commit or agree to take any of,
the foregoing actions.
Section 6.04 Notice Regarding Changes. The Stockholders shall promptly
inform GRS in writing of any change in facts and circumstances that could render
any of the representations, warranties or covenants made herein by the Company
or the Stockholders inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or circumstance in
question. GRS shall promptly inform the Stockholders in writing of any change in
facts and circumstances that could render any of the representations and
warranties made herein by it inaccurate or misleading if such representations
and warranties had been made upon the occurrence of the fact or circumstance in
question.
Section 6.05 Consents and Best Efforts. Each of the parties hereto shall
use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement, and (ii) taking such actions and doing such things as any other party
hereto may reasonably request in order to cause any of the conditions to such
other party's obligation to consummate the transactions contemplated hereby, as
specified in Article VII of this Agreement, to be fully satisfied.
9
14
Section 6.06 Casualty Loss. If, between the date of this Agreement and the
Closing, any of the Properties of the Company shall be destroyed or damaged in
whole or in part by fire, earthquake, flood, other casualty or any other cause
which materially affects the ability of the Company to conduct its business (a
"Casualty Loss"), then the Stockholders may, if requested by GRS, (i) cause the
Company to cause such Properties to be repaired or replaced prior to the Closing
with Property of substantially the same condition and function, (ii) cause the
Company to deposit in a separate account an amount sufficient to cause such
Property to be so repaired or replaced, or (iii) enter into contractual
arrangements with the Company satisfactory to GRS so that the Company will have
at the Closing the same economic value as if such casualty had not occurred.
Section 6.07 Employee Matters. The Stockholders shall take (or cause the
Company to take) all actions necessary or appropriate to cause each plan or
benefit program or agreement in effect on the date of this Agreement to remain
in full force and effect until the Closing Date; provided, however, that, to the
extent requested in writing by GRS at least ten (10) days prior to the Closing
Date, the Stockholders shall cause the Company to cease to sponsor, maintain or
contribute to any plan or benefit program or agreement specified by GRS in such
written request.
Section 6.08 No Solicitation. The Stockholders and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Stockholders shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
assets of the Company or all or a portion of any class of equity securities of
the Company or any offer to acquire or purchase that if consummated would result
in any person beneficially owning all or a portion of any class of equity
securities of the Company, or any merger, consolidation, business combination,
sale of assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or delay, or dilute
materially the benefits to GRS of the transactions contemplated hereby.
Section 6.09 Employment Agreement. On or before the Closing, R. Xxxxx Xxxxx
shall have entered into an employment agreement in the form of Exhibit G (the
"Employment Agreement"), which shall include non-competition provisions, to take
effect on and after the Closing Date.
Section 6.10 Lock-Up Agreement. On or before the Closing, the Stockholders
shall have entered into the Lock-Up Agreement.
ARTICLE VII
CONDITIONS TO STOCKHOLDERS' AND GRS' OBLIGATIONS
Section 7.01 Conditions to Obligations of All Parties. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
10
15
(a) All filings with all Governmental Authorities required to be made
in connection with the transactions contemplated hereby shall have been made,
and all orders, permits, waivers, authorizations, exemptions, and approvals of
such entities required to be in effect on the date of the Closing in connection
with the transactions contemplated hereby shall have been issued, and all such
orders, permits, waivers, authorizations, exemptions or approvals shall be in
full force and effect on the date of the Closing; provided, however, that no
provision of this Agreement shall be construed as requiring any party to accept,
in connection with obtaining any other requisite approval, clearance or
assurance of non-opposition, avoiding any challenge, or negotiating settlement,
any condition that would materially change or restrict the manner in which the
Company or GRS conducts or proposes to conduct its business, and no transfers of
licenses shall occur prior to the Closing.
(b) None of the parties hereto shall be subject to any statute, rule,
regulation, decree, ruling, injunction or other order issued by any Governmental
Authorities of competent jurisdiction (collectively, an "Injunction") which
prohibits, restrains, enjoins or restricts the consummation of the transactions
contemplated by this Agreement.
Section 7.02 Conditions to Obligations of Stockholders. The obligations of
the Stockholders to carry out the transactions contemplated by this Agreement
are subject, at the option of the Stockholders, to the satisfaction, or waiver
by Stockholders, of the following conditions:
(a) GRS shall have furnished the Stockholders with a certified copy of
all necessary corporate action on its behalf approving its execution, delivery
and performance of this Agreement and each of the Collateral Agreements.
(b) All representations and warranties of GRS contained in this
Agreement qualified by materiality shall be true and correct in all respects at
Closing and all other representations and warranties of GRS contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing, as if such representations and warranties were made at and as of the
Closing, except for changes contemplated by the terms of this Agreement except
as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms thereof, and GRS shall have performed and satisfied in
all material respects all covenants and agreements required by this Agreement to
be performed and satisfied by GRS at or prior to the Closing; provided, however,
that no Stockholder shall be entitled to refuse to consummate the transaction in
reliance upon its own breach or failure to perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of the Stockholders or the
Company) shall be pending or threatened before any Governmental Authority
seeking to restrain the Stockholders from effectuating the Stock Purchase or
prohibit the Closing or seeking Damages against the Stockholders or the Company
as a result of the consummation of the transactions contemplated by this
Agreement.
(d) The Company shall have received the opinion of Xxxxx & XxXxxxxx,
counsel to GRS, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Company, as to the matters set forth on Exhibit H. In
rendering such opinion, Xxxxx & XxXxxxxx may rely as to factual matters on
certificates of officers and directors of GRS and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to the Company.
(e) GRS shall have executed the Escrow Agreement.
(f) GRS shall have executed and delivered to Stockholders and the
Company the documents referred to in Section 2.03 hereof.
(g) The Offering shall have been consummated on or before the
Termination Date.
11
16
(h) The Stockholders shall have had the opportunity to review and
comment upon the registration statement relating to the Offering.
(i) GRS shall have furnished the Stockholders and the Company with an
Opinion Letter from Deloite & Touche which provides that the consummation of the
transactions described in this Agreement will qualify as a Section 351 Plan of
Exchange within the meaning of the Internal Revenue Code.
Section 7.03 Conditions to Obligations of GRS. The obligations of GRS to
carry out the transactions contemplated by this Agreement are subject, at the
option of GRS, to the satisfaction, or waiver by GRS, of the following
conditions:
(a) All of the Company Common Stock shall have been tendered to GRS.
(b) All representations and warranties of Stockholders and the Company
contained in this Agreement qualified by materiality shall be true and correct
in all respects at Closing and all other representations and warranties of the
Stockholders and the Company contained in this Agreement shall be true and
correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Stockholders and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Stockholders and the Company at or prior to the
Closing; provided, however, that GRS shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by or on behalf of GRS) shall be pending or
threatened before any court or governmental agency seeking to restrain GRS or
prohibit the Closing or seeking Damages against GRS, the Stockholders, the
Company or its Properties as a result of the consummation of the transactions
contemplated by this Agreement.
(d) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(e) Except for matters disclosed in the Schedules hereto, from the
date hereof up to and including the Closing there shall not have been:
(i) any change in the business, operations, prospects or
financial condition of the Company that had or would reasonably be likely to
have a material adverse effect on the business, operations, prospects,
Properties, securities or financial condition of the Company; and
(ii) any damage, destruction or loss to the Company (whether or
not covered by insurance) that had or would reasonably be likely to have a
material adverse effect on the business, operations, prospects, Properties,
securities or financial condition of the Company.
(f) GRS shall have received the opinion of: Williams, Williams, Ruby &
Xxxxxxxx, P.C. ("Sellers' Counsel"), counsel to the Company and the
Stockholders, dated as of the Closing Date, in form and substance reasonably
satisfactory to GRS, as to the matters set forth on Exhibit I. In rendering such
opinion, Sellers' Counsel may rely as to factual matters on certificates of
officers, directors and shareholders of the Company and on certificates of
governmental officials, and as to legal matters on opinions of other counsel
reasonably acceptable to GRS.
12
17
(g) GRS shall have received the Company Financial Statements.
(h) The Net Book Value of the Company as determined by reference to
the Closing Date Unaudited Balance Sheet shall be equal to or greater than the
Minimum Net Book Value.
(i) The Modified Working Capital of the Company as determined by
reference to the Closing Date Unaudited Balance Sheet shall not be less than
$3,295,000. For purposes of this Agreement, Modified Working Capital shall mean
the Company's (i) Current Assets less (ii) its Current Liabilities and long-term
indebtedness, determined in accordance with GAAP.
(j) The Stockholders shall have executed and delivered to GRS the
Escrow Agreement.
(k) GRS shall have received the executed Employment Agreement.
(l) GRS shall have received the resignation of all of the members of
the board of directors of the Company effective as of the Closing Date.
(m) All proceedings to be taken by Stockholders and the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to GRS and its counsel, and
GRS and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(n) GRS shall have received written evidence, in form and substance
satisfactory to GRS, of the consent to the transactions contemplated by this
Agreement of all governmental, quasi-governmental and private third parties
(including, without limitation, persons or other entities leasing real or
personal property to the Company), except where the failure to have obtained any
such consent would not have an adverse effect on the Company or GRS following
the Closing.
(o) GRS shall be satisfied in its sole and absolute discretion with
GRS' Due Diligence Investigation of the Company and shall have notified the
Company in writing on or before July 1, 1998 that it has waived this condition
precedent.
(p) GRS shall have determined, in its reasonable discretion, that all
agreements between the Company and the Stockholders shall be on terms as
favorable to the Company as the Company could have obtained pursuant to
agreements with unaffiliated third parties.
(q) The Offering shall have been consummated on or before the
Termination Date.
ARTICLE VIII
SURVIVAL
Section 8.01. Survival of Representations and Warranties of the Company and
the Stockholders. Notwithstanding any right of any party hereto fully to
investigate the affairs of any other party hereto and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each of GRS, on the one hand, and
the Company and the Stockholders, on the other hand, has the right to rely fully
upon the representations, warranties, covenants and agreements of GRS or the
Company and the Stockholders, as the case may be, contained in this Agreement,
or in any certificate delivered pursuant to any of the foregoing; provided, that
no party hereto shall be entitled to rely on any representation or warranty made
by any other party hereto herein to the extent that such party has actual
knowledge, and the other party or parties (or any of them) are not aware, that
such representation or warranty is untrue or incorrect in any material respect.
All such
13
18
representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Stockholders contained in Article IV and
except with respect to the Basket Exclusions (as defined in Section 9.04), shall
thereafter terminate and expire on the first anniversary of the Closing Date.
The Basket Exclusions shall survive the Closing indefinitely, other than Section
3.28, which shall survive for the applicable statute of limitations.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Obligation of the Stockholders to Indemnify. Subject to the
limitations contained in Article VIII and Article IX hereof, the Stockholders,
jointly and severally, agree to indemnify, defend and hold harmless GRS (and its
Affiliates, successors and assigns and their respective officers and directors)
from and against all losses, liabilities, damages, deficiencies, costs or
expenses (including interest, penalties and reasonable attorneys' fees and
disbursements, but offset by any proceeds from insurance and taking into account
the present value of any tax savings to GRS or the Company resulting from such
losses, liabilities, damages, deficiencies, costs or expenses) ("Losses") based
upon, arising out of or otherwise in respect of (i) any inaccuracy in or any
breach of any representation, warranty, covenant or agreement of the Company or
the Stockholders contained in this Agreement, (ii) liabilities for Taxes
incurred by the Company with respect to actions prior to the Closing Date and
(iii) any liability arising out of any subsequent adjustment by any tax
authorities with respect to items attributable to periods prior to the Closing
Date.
Section 9.02 Obligation of GRS to Indemnify. GRS agrees to indemnify,
defend and hold harmless the Company and the Stockholders from and against any
Losses based upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of GRS
contained in this Agreement.
Section 9.03 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt by any party
hereto (the "Indemnitee") of notice of any demand, claim or circumstances which,
with the lapse of time, would or might give rise to a claim or the commencement
(or threatened commencement) of any action, proceeding or investigation (an
"Asserted Liability") that may result in a Loss, the Indemnitee shall give
notice thereof (the "Claims Notice") to any other party (or parties) obligated
to provide indemnification pursuant to Section 9.01 or 9.02 (the "Indemnifying
Party"). The Claims Notice shall describe the Asserted Liability in reasonable
detail, and shall indicate the amount (estimated, if necessary and to the extent
feasible) of the Loss that has been or may be suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the
14
19
claim, the Indemnitee shall make available to the Indemnifying Party any books,
records or other documents within its control that are necessary or appropriate
for such defense.
(c) Disputes with Customers or Suppliers. Anything in Section 9.03(b)
to the contrary notwithstanding, in the case of any Asserted Liability by any
supplier, distributor, sales agent or customer of the Company with respect to
the business conducted by the Company prior to the Closing in connection with
which GRS may make a claim against the Stockholders for indemnification pursuant
to Section 9.01, GRS shall give a Claims Notice with respect thereto but, unless
GRS and the Indemnifying Party otherwise agree, the Stockholders shall have the
exclusive right at its option to defend, at their own expense, any such matter,
subject to the duty of the Stockholders to consult with GRS and its attorneys in
connection with such defense and provided that no such matter shall be
compromised or settled by the Stockholders without the prior consent of GRS,
which consent shall not be unreasonably withheld. GRS shall have the right to
recommend in good faith to the Stockholders proposals to compromise or settle
claims brought by a supplier, distributor or customer, and the Stockholders
agree to present such proposed compromises or settlements to such supplier,
distributor or customer. All amounts required to be paid in connection with any
such Asserted Liability pursuant to the determination of any court, governmental
or regulatory body or arbitrator, and all amounts required to be paid in
connection with any such compromise or settlement consented to by GRS, shall be
borne and paid by the Stockholders. The parties agree to cooperate fully with
one another in the defense, compromise or settlement of any Asserted Liability.
Section 9.04 Limitations on Indemnification. The indemnification provided
for in Sections 9.01 and 9.02 shall be subject to the following limitations:
(i) The Stockholders shall not be obligated to pay any amounts
for indemnification under this Article IX arising out of any Losses based upon,
arising out of or otherwise in respect of any inaccuracy or breach disclosed in
writing to GRS and specifically waived in writing by GRS prior to the Closing.
(ii) Neither GRS, the Company nor the Stockholders shall be
obligated to pay any amounts for indemnification under this Article IX, except
those based upon, arising out of or otherwise in respect of Sections 3.02, 3.21,
3.28, 5.22, 5.29, 9.01 (ii) and (iii), 11.01 and 11.02 and Article IV hereof
(the "Basket Exclusions"), until the aggregate indemnification payments,
exclusive of the Basket Exclusions, equals one percent (1%) of the Purchase
Price (the "Basket Amount"), whereupon GRS, or the Company and Stockholders, as
the case may be, shall be obligated to pay any indemnification payments,
including the Basket Amount in full. It is expressly understood that the Basket
Amount shall serve as a "trigger" for indemnification and not as a "deductible"
(for example, if the indemnity claims for which GRS or the Stockholders would,
but for the provisions of this subparagraph (ii), be liable is in the aggregate
amount of $200,000, and 1% of the Purchase Price is $180,000, the Stockholders
would then be liable for the entire $200,000 and not just $20,000). This Section
9.04(ii) will not apply to any breach of any representations and warranties of
which any party had actual Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional breach by any party of
any covenant or obligation, and GRS or the Stockholders, as the case may be,
will be jointly and severally liable for all damages with respect to such
breaches.
(iii) GRS, the Company and Stockholders shall be obligated to pay
the Basket Exclusions without regard to the individual or aggregate amounts
thereof and without regard to whether the aggregate amount of all other
indemnification payments shall have exceeded, in the aggregate, the Basket
Amount.
(iv) Notwithstanding anything to the contrary in this Agreement,
except with respect to any breach of the representations and warranties set
forth in Article IV hereof, neither GRS nor the Stockholders and the Company
shall have any obligation to indemnify the other parties for any breach
15
20
of any representation, warranty or covenant under this Agreement for any amount
of Losses in excess of the amount of the Escrow Fund.
(v) After the Closing, the indemnification rights set forth in
this Article IX shall be each party's sole and exclusive remedy against the
other party for any breach of any representation, warranty or covenant contained
in this Agreement. Notwithstanding the foregoing, nothing herein shall prevent
any party from bringing an action based on allegations of fraud in connection
with this Agreement. In the event an action based upon allegations of fraud is
brought, the prevailing party's attorneys' fees and costs shall be paid by the
nonprevailing party.
(vi) GRS shall be deemed to have suffered Losses with respect to
accounts receivable reflected on the Closing Date Unaudited Balance Sheet only
if and to the extent that such accounts receivable, except for Contract
Retention, remain uncollected 180 days from the Closing Date. Contract Retention
will be considered uncollectible, and be deemed a Loss, if it remains
uncollected 350 days from the Closing Date. Because the Purchase Price is
predicated upon the Company's adjusted earnings before interest and taxes
("EBIT"), GRS shall be deemed to have suffered Losses in an amount equal to the
amount of such accounts receivable and Contract Retention which have not been
collected within the time periods specified above. Any Losses claimed on such
accounts receivable or Contract Retention will be credited back to the Escrow
Fund based on the foregoing formula to the extent such accounts receivable or
Contract Retention are recovered within the period of the Escrow Agreement. To
the extent that GRS suffers Losses from the failure to collect accounts
receivable of the Company or Contract Retention and such Losses result in a
set-off from the Escrow Fund, the related accounts receivable or Contract
Retention shall be assigned to the Stockholders following, and to the extent of,
such set-off.
Section 9.05 Set-Off Rights.
(a) Each Stockholder specifically agrees that, subject to Section 9.04
and, paragraphs (b) and (c) of this Section 9.05, any claims for indemnification
by GRS against the Stockholders (or any of them) hereunder shall be satisfied
first against the Escrow Fund pursuant to the Escrow Agreement.
(b) GRS shall give Stockholders not less than fifteen (15) days'
notice (the "GRS Notice") of its intention to deduct or set-off any amounts
pursuant to this Section 9.05, including in such notice a description of GRS'
indemnification claim. If none of the Stockholders object in writing to such
deduction or set-off at least two business days prior to the date of the
proposed set-off set forth in the GRS Notice (the "Set-Off Date"), then such
proposed deduction or set-off shall become effective on such date and shall not
be subject to further review, challenge or adjustment, absent fraud.
(c) If any of the Stockholders timely object in writing to the set-off
proposed in the GRS Notice, and if GRS and the objecting Stockholder(s) are
unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in escrow to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. In the event that a dispute among the parties arises pursuant to this
Section 9.05(c), the party who is later determined to have been in error in
attempting to enforce or dispute the payment or set-off shall (i) pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
16
21
ARTICLE X
POST-CLOSING OBLIGATIONS
Section 10.01 Further Assurances. Following the Closing, each of the
Company, the Stockholders and GRS shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
Section 10.02 Publicity. None of the parties hereto shall issue or make, or
cause to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties, and
the parties shall endeavor jointly to agree on the text of any announcement or
circular so approved or required.
Section 10.03 Access to Records. From and after the Closing, (i) each of
the Stockholders shall (A) permit GRS and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Stockholders or their respective Affiliates, and (B) use his or her best efforts
to permit GRS and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Stockholders and their respective Affiliates,
in each case, to the extent and at all times reasonably requested by GRS for the
purpose of investigating or defending any claim made against the Stockholders or
the Company in connection with periods ending on or before the Closing Date and
(ii) GRS shall use its best efforts to permit the Stockholders and their
respective authorized employees, agents, accountants, legal counsel and other
representatives to have access to the employees, counsel, accountants and other
representatives of GRS, the Company and their Affiliates, in each case, to the
extent and at all times reasonably requested by the Stockholders, or any of
them, for the purpose of investigating or defending any claim made against the
Stockholders in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Brokers. Regardless of whether the Closing shall occur, (i)
each Stockholder shall jointly and severally indemnify and hold harmless GRS and
the Company from and against any and all liability for any brokers or finders'
fees arising with respect to brokers or finders retained or engaged by the
Company or any of the Stockholders in respect of the transactions contemplated
by this Agreement, and (ii) GRS shall indemnify and hold harmless the
Stockholders from and against any and all liability for any brokers' or finders'
fees arising with respect to brokers or finders retained or engaged by GRS in
respect of the transactions contemplated by this Agreement.
Section 11.02 Costs and Expenses. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided, that GRS shall pay the costs and expenses of
preparing the Company Financial Statements.
Section 11.03 Notices. Any notice, request, instruction, correspondence or
other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
17
22
GRS: General Roofing Services, Inc.
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, Xxxxxxx 00000
Attention: Xx. Xxxxx Xxxxxxx
Telecopy No.: (000) 000-0000
With a copy to:
Xxxxx & XxXxxxxx
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxx, Esq.
Telecopy No.: (000) 000-0000
THE STOCKHOLDERS: Cyclone Roofing Company
X.X. Xxx 0000
Xxxxxxxx, XX 00000
Attention: R. Xxxxx Xxxxx
Telecopy No.: (000) 000-0000
With a copy to:
Lindsay and Xxxxxxxxxx, P.A.
0000 Xxxxxxxx Xxxx
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Xx., Esq.
Telecopy No.: (000) 000-0000
Williams, Williams, Ruby & Xxxxxxxx, P.C.
000 Xxxxx Xxx Xxxxxxxx Xxx., Xxx. 000
Xxxxxxxxxx, XX 00000
Attention: R. Xxxxxxx Xxxxxxxx, Xx., Esq.
Telecopy No.: (000) 000-0000
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall
be effective upon actual receipt if received during the recipient's normal
business hours, or at the beginning of the recipient's next normal business day
after receipt if not received during the recipient's normal business hours.
All Notices by telecopier shall be confirmed by the sender thereof promptly
after transmission in writing by registered mail or personal delivery.
Anything to the contrary contained herein notwithstanding, Notices to any party
hereto shall not be deemed effective with respect to such party until such
Notice would, but for this sentence, be effective both as to such party and as
to all other persons to whom copies are provided above to be given.
Section 11.04 Governing Law. The provisions of this Agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida (excluding any conflict of law
rule or principle that would refer to the laws of another jurisdiction). Each
party hereto irrevocably submits to the jurisdiction of the Circuit Court
located in Broward County, Florida, in any action or proceeding arising out of
or relating to this Agreement or any of the Collateral Agreements, and each
party hereby irrevocably agrees that all claims in respect of any such action or
proceeding must be brought and/or defended in such court; provided, however,
that matters which are under the exclusive jurisdiction of the Federal courts
shall be brought in the Federal District Court for the Southern District of
Florida. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the Collateral Agreements, and each
party irrevocably waives, to the fullest extent each may effectively do
18
23
so, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
Section 11.05 Representations and Warranties. Each of the representations
and warranties of each of the parties to this Agreement shall be deemed to have
been made at the date hereof and at and as of the Closing Date.
Section 11.06 Entire Agreement, Amendments and Waivers. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.07 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party. Nothing in this Agreement, express or implied, is intended to confer upon
any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
Section 11.08 Remedies. The rights and remedies provided by this Agreement
are cumulative, and the use of any one right or remedy by any party hereto shall
not preclude or constitute a waiver of its right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights and
remedies a party may have by law, statute, or otherwise.
Section 11.09 Exhibits and Schedules. The exhibits and schedules referred
to herein are attached hereto and incorporated herein by this reference.
Disclosure of a specific item in any one schedule shall be deemed restricted
only to the Section to which such disclosure specifically relates except where
(i) there is an explicit cross-reference to another Schedule, and (ii) GRS could
reasonably be expected to ascertain the scope of the modification to a
representation intended by such cross-reference.
Section 11.10 Multiple Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.11 References. Whenever required by the context, and as used in
this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
Section 11.12 Survival. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing for the
time period set forth in
19
24
Section 8.01 hereof and shall be binding upon the party or parties obligated
thereby in accordance with the terms of this Agreement, subject to any
limitations expressly set forth in this Agreement.
Section 11.13 Attorneys' Fees. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective meanings
ascribed to such terms in this Article XII, unless otherwise defined in this
Agreement.
Section 12.01 Affiliate. The term "Affiliate" shall mean, with respect to
any person, any other person controlling, controlled by or under common control
with such person. The term "Control" as used in the preceding sentence means,
with respect to a corporation, the right to exercise, directly or indirectly,
more than fifty percent (50%) of the voting rights attributable to the shares of
the controlled corporation and, with respect to any person other than a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such person.
Section 12.02 Collateral Agreements. The term "Collateral Agreements" shall
mean any or all of the following agreements, the forms of which are attached
hereto as exhibits to this Agreement:
Exhibit B - Escrow Agreement
Exhibit C - Lock-Up Agreement
Exhibit G - Employment Agreement for R. Xxxxx Xxxxx
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
Section 12.03 Company Assets. The term "Company Assets" shall mean, with
respect to the Company, all of the Properties, Company Contracts, and Permits,
that were Used by the Company as of the Balance Sheet Date and those Used by the
Company at any time after that date until the Closing Date.
Section 12.04 Contract Retention. The term "Contract Retention" shall mean
any amounts withheld by customers from contract progress billing until final and
satisfactory contract completion as determined by such customers.
Section 12.05 Current Assets. The term "Current Assets" shall mean, with
respect to the Company, cash and other assets that are expected to be converted
into cash, sold or exchanged within one year from the Closing Date, including
marketable securities, receivables, inventory and current prepayments.
Section 12.06 Current Liabilities. The term "Current Liabilities" shall
mean, with respect to the Company, all obligations of the Company that are
required by their terms to be repaid within one year from the Closing Date.
20
25
Section 12.07 Damages. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation income and
other Taxes, interest, penalties and attorneys' and accountants' fees and
disbursements).
Section 12.08 Environmental Law. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now be in
effect regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land, wetlands and waterways or
relating to the use, storage, emissions, discharge, clean-up or release of
Hazardous Substances on or into the work-place or the environment (including,
without limitation, ambient air, oceans, waterways, wetlands, surface water,
ground water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of contaminants, as all of the
foregoing may be amended, supplemented and reauthorized from time to time.
Section 12.09 GAAP. The term "GAAP" shall mean generally accepted
accounting principles applied on a basis consistent with past practices (except
for the omission of footnotes in any interim financial statements).
Section 12.10 Governmental Authorities. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
Section 12.11 Hazardous Substances. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
Section 12.12 Knowledge. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or GRS, any of their
respective directors or executive officers who are stockholders with respect to
the representation being made, and such knowledge of any such persons as
reasonably should have obtained upon due investigation and inquiry into the
representation being made.
Section 12.13 Legal Requirements. The term "Legal Requirements", when
described as being applicable to any person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or Properties.
Section 12.14 Permits. The term "Permits" shall mean any and all permits or
orders under any Legal Requirement or otherwise granted by any Governmental
Authority.
Section 12.15 Properties. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
21
26
Section 12.16 Proportionate Share. The term "Proportionate Share" shall
mean each Stockholder's respective percentage ownership interest in the Company
as set forth on Exhibit A.
Section 12.17 Regulations. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the Code.
Section 12.18 Taxes. The term "Taxes" means any federal, states, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
Section 12.19 Tax Returns. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Section 12.20 Used. The term "Used" shall mean, with respect to the
Properties, Company Contracts or Permits of the Company, those owned, leased,
licensed or otherwise held by the Company which were acquired for use or held
for use by the Company in connection with the Company's business and operations,
whether or not reflected on the Company's books of account.
Section 12.21 Deferred Income Taxes. The term "Deferred Income Taxes" shall
mean the deferred tax assets and liabilities required to be recorded under GAAP
to reflect the tax effect of temporary differences between the financial
statements carrying values and the tax bases of assets and liabilities.
EXECUTED as of the date first written above.
GENERAL ROOFING SERVICES, INC.
By:/s/ Xxxxx Xxxxxxx
------------------------------
Xxxxx Xxxxxxx, President
CYCLONE ROOFING COMPANY
By:
--------------------------
Name:
-------------------------
Title:
-----------------------
STOCKHOLDER:
/s/ R. Xxxxx Xxxxx
------------------------------
R. Xxxxx Xxxxx
22
27
EXHIBIT A
Number of Shares of Company Percentage (%) of
Name Common Stock Purchased Ownership
---- --------------------------- -----------------
R. Xxxxx Xxxxx .. 30,000 100%
Total 30,000 100%
28
EXHIBIT D
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to GRS that:
Section 3.01 Corporate Existence and Qualification: Corporate Documents
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of North Carolina, and is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company. The Company has all required corporate power and authority to own its
Properties and to carry on its business as presently conducted. The Articles of
Incorporation and By-laws of the Company, copies of which are attached as
Schedule 3.01(a), are complete and reflect all amendments thereto through the
date hereof.
(b) The stock and minute books of the Company that have been made
available to GRS for review contain a complete and accurate record of all
stockholders of the Company and all material actions of the stockholders and
directors (and any committees thereof) taken at meetings of stockholders or
directors of the Company.
(c) The Company does not have any subsidiaries, participate in any
partnership or joint venture, or own any outstanding capital stock of any other
corporation.
Section 3.02 Capitalization and Ownership.
As of the date of this Agreement, the entire authorized capital stock
of the Company consists of 100,000 shares of Company Common Stock. The issued
and outstanding shares of Company Common Stock are owned of record and
beneficially by the Stockholders shown on Exhibit A hereof. All of the presently
outstanding shares of capital stock of the Company have been validly authorized
and issued and are fully paid and nonassessable. The Company has not issued any
other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, except as set forth on Schedule 3.02. Except as
contemplated under this Agreement, there are no agreements to which the Company
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock. Except for possible dividends to be
issued in connection with the Excluded Assets as described in Section 1.05 and
dividends related to the payment of the Stockholders' tax liabilities with
respect to earnings of the Company up to the Closing Date, no dividends are
accrued but unpaid on any capital stock of the Company.
Section 3.03 No Preemptive Rights; Registration Rights. There are no
preemptive rights affecting the issuance or sale of the Company Common Stock.
Section 3.04 No Company Defaults or Consents. Except as otherwise set forth
in Schedule 3.04 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the Articles of Incorporation or bylaws of the Company;
(ii) violate any Legal Requirements applicable to the Company;
29
(iii) violate, conflict with, result in a breach of, constitute a
default under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any Company Contract or Permit
applicable to the Company;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of the Company; or
(v) require any of the Stockholders or the Company to obtain or
make any waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third party or
any Governmental Authority. Any and all consents required to be obtained by the
Company as set forth in Schedule 3.04 shall be obtained and copies thereof
delivered to GRS upon execution of this Agreement.
Section 3.05 No Proceedings. Except as set forth on Schedule 3.05, no suit,
action or other proceeding is pending or, to the Knowledge of the Company or the
Stockholders, threatened before any Governmental Authority seeking to restrain
any of the Stockholders or prohibit their entry into this Agreement or prohibit
the Closing, or seeking damages against the Company or its Properties, as a
result of the consummation of the transactions contemplated by this Agreement.
Section 3.06 Financial Statements. Attached as Schedule 3.06 are true and
correct copies of the Company's (i) Closing Date Unaudited Balance Sheet, (ii)
unaudited balance sheets as of March 31, 1998 (the "Interim Company Balance
Sheet") and the related statements of income and stockholders' equity for the
three (3) months ended March 31, 1998 (the "Interim Company Financial
Statements"), as well as (iii) the Company's balance sheet and statements of
income, stockholders' equity and cash flow as of and for each of the three
fiscal years ended December 31, 1997 (the "Company Financial Statements"). The
Company Financial Statements (i) have been prepared from the books and records
of the Company, (ii) present fairly the financial condition of the Company and
its results of operations as at and for the respective periods then ended, and
(iii) have been prepared in accordance with GAAP.
Section 3.07 Liabilities and Obligations. Except as set forth in Schedule
3.07, the Company Financial Statements reflect all liabilities of the Company as
determined in accordance with generally accepted accounting principles arising
out of transactions effected or events occurring on or prior to the date of the
Interim Company Balance Sheet, except for liabilities not exceeding $10,000 in
the aggregate. All reserves shown in the Company Financial Statements are
appropriate and reasonable to provide for losses thereby contemplated. Except as
set forth in the Company Financial Statements (including the Notes thereto), the
Company is not liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner, any debt,
obligation or dividend of any person, corporation, association, partnership,
joint venture, trust or other entity.
Section 3.08 Accounts Receivable. Except as otherwise set forth in Schedule
3.08, the accounts receivable reflected on the Interim Company Balance Sheet and
all accounts receivable arising between the date of the Interim Company Balance
Sheet (the "Interim Company Balance Sheet Date") and the date hereof, arose from
bona fide transactions in the ordinary course of business, and the goods and
services involved have been sold, delivered and performed to the account of the
obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales, fully render the services and entitle the Company to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim Company Balance Sheet, no defense or setoff
to any such account has been asserted by the account obligor.
2
30
Section 3.09 Employee Matters.
(a) Schedule 3.09(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of the Company,
regardless of compensation levels, and other employees who are currently
compensated at a rate in excess of $50,000 per year (including any reasonably
anticipated bonus) or who earned in excess of $50,000 during the Company's
fiscal year ended December 31, 1997 (collectively, the "Company Key Employees").
In addition, Schedule 3.09(a) contains a complete and accurate description of
(i) all increases in compensation of the Company Key Employees during the fiscal
years of the Company ended December 31, 1997 and December 31, 1996,
respectively, and (ii) any promised increases in compensation of the Company Key
Employees that have not yet been effected.
(b) Schedule 3.09(b) contains a complete and accurate list of all
Compensation Plans sponsored by the Company or to which the Company contributes
on behalf of its employees, other than Employee Benefit Plans listed in Schedule
3.10. As used herein, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.09(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 3.09(c) and in Section 3.09(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which the Company is a party.
(d) The Company has provided GRS with a complete and accurate list of
all significant written employee policies and procedures of the Company.
(e) To the Knowledge of the Company, no unwritten material amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans, Employment Agreements or employee
policies and procedures.
(f) To the Knowledge of the Company, except as set forth in Schedule
3.09(f), the Company (i) has been and is in material compliance with all laws,
rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
To the Knowledge of the Company, there are no (i) material unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, race or
handicap discrimination charges or complaints pending or threatened against the
Company before the National Labor Relations Board or any similar state or
foreign commission or agency or (ii) existing or threatened material labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company.
(g) Except as set forth on Schedule 3.09 (g), (i) the Company has not
ever been a party to any agreement with any union, labor organization or
collective bargaining unit, (ii) the employees of the Company have not been
represented by any union, labor organization or collective bargaining unit and
(iii) the employees of the Company have not threatened to organize or join a
union, labor organization or collective bargaining unit.
(h) Except as disclosed on Schedule 3.09(h), no Company Key Employee
has indicated his or her desire or intent to terminate employment with the
Company, and the Company has no present intent of terminating the employment of
anyCompany Key Employee.
3
31
Section 3.10 Employee Benefit Matters.
(a) Schedule 3.10 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or to which the Company
contributes on behalf of its employees and all Employee Benefit Plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. For purposes of this Agreement an "Employee Benefit Plan"
means each employee benefit plan, as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and maintained in
compliance with all laws, rules and regulations, except for such noncompliance
that would not have a material adverse effect on the Company. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of the Company, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter or
ruling from the Internal Revenue Service for each Employee Benefit Plan intended
to be qualified within the meaning of Section 401 (a) of the Code and/or tax
exempt within the meaning of Section 501(a) of the Code, which letter or ruling
is current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of the
Company, have been threatened that could result in the revocation of any such
favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of Section
412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. Neither
the Company nor any member of a Controlled Group is or ever has been obligated
to contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(e) No reportable event (within the meaning of Section 4043 of ERISA)
for which the notice requirement has not been waived has occurred with respect
to any Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(f) The Company has no obligation or commitment to provide medical,
dental or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired from employment with
the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in Schedule
3.11, from the Interim Company Balance Sheet Date to the date of this Agreement,
the Company has not:
(a) suffered any material adverse change, whether or not caused by any
deliberate act or omission of the Company, or any Stockholder, in its condition
(financial or otherwise), operations, assets, liabilities, business or
prospects;
4
32
(b) contracted for the purchase of any capital assets having a cost in
excess of $25,000 or paid any capital expenditures in excess of $25,000, except
in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold any
debt securities, except in the ordinary course of business consistent with past
practice;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its Properties or Company Assets,
except in the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any Company
Assets (whether or not covered by insurance) that has materially adversely
affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the ordinary
course of business consistent with past practice or as permitted by Section 1.05
hereof;
(i) written up or written down the carrying value of any of the
Company Assets, except in the ordinary course of business consistent with past
practice;
(j) changed any accounting principles methods or practices followed or
changed the costing system or depreciation methods of accounting for the Company
Assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the ordinary
course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or entity
except in the ordinary course of business consistent with past practice;
(p) formed or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of the Company's capital stock;
5
33
(r) entered into any material agreement with any person or group, or
modified or amended in any material respect the terms of any material existing
agreement except in the ordinary course of business consistent with past
practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
Section 3.12 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which the
Company is a party (the "Company Contracts") set forth in Schedule 3.12, the
Company has not entered into, nor is the capital stock, the assets or the
business of the Company bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in the
ordinary course of business;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation relating
to indebtedness for borrowed money or money lent or to be lent to another,
except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 3.15(c);
(x) agreement between the Company and any Affiliate;
(xi) agreement relating to any material matter or transaction in
which an interest is held by a person or entity that is an Affiliate of the
Company;
(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property and involving more than $25,000 in the
aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
6
34
(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $5,000 or that terminates more than thirty
(30) days after the date hereof, except in the ordinary course of business;
(xvi) agreement relating to any material matter or transaction in
which an interest is held by any person or entity referred to in Section 3.23
hereof; or
(xvii) any other agreement or commitment not made in the ordinary
course of business that is material to the business or financial condition of
the Company.
True, correct and complete copies of the written Company Contracts, and true,
correct and complete written descriptions of the oral Company Contracts, have
heretofore been delivered or made available to GRS in accordance with, and
subject to the limitations of, GRS' Due Diligence Investigation. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company, and no material penalties
have been incurred nor are amendments pending, with respect to the Company
Contracts. The Company Contracts are in full force and effect and are valid and
enforceable obligations of the Company, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The Company has not received
notice of any material default with respect to any Company Contracts. For the
purposes of this Section 3.12(a), the term "material" shall mean a condition the
existence or breach of which could result in damage or loss to the Company
valued in excess of $5,000 individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, the Company has not received notice
of any plan or intention of any other party to any Company Contract to exercise
any right to cancel or terminate any Company Contract. The Company does not
currently contemplate, and has no reason to believe any person or entity
currently contemplates, any amendment or change to any Company Contract. None of
the customers, joint venture partners or suppliers of the Company has refused,
or communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, the Company.
Section 3.13 Insurance. The Company has had in effect, and will maintain
through the Closing Date, comprehensive insurance coverage with respect to all
of its completed operations. The Company has previously made available to GRS
all insurance policies of the Company. All of such policies are valid and
enforceable against the Company, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 3.14 Patents, Trade-marks, Service Marks and Copyrights.
(a) The Company owns all patents, trade-marks, service marks and
copyrights (collectively "Proprietary Rights"), if any, necessary to conduct its
business, or possesses adequate licenses or other rights, if any, therefor,
without conflict with the rights of others. Set forth in Schedule 3.14(a) is a
true and correct description of all Proprietary Rights.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties and, upon the consummation of the Xxxxx
0
00
Xxxxxxxx, XXX will have the right to use all Proprietary Rights without any
obligation to pay any additional amounts whatsoever. Use of the Proprietary
Rights does not require the consent of any other person and the Proprietary
Rights are freely transferable. No claim has been asserted by any person to the
ownership of or right to use any Proprietary Right or challenging or questioning
the validity or effectiveness of any license or agreement constituting a part of
any Proprietary Right. Each of the Proprietary Rights is valid and subsisting,
has not been canceled, abandoned or otherwise terminated and, if applicable, has
been duly issued or filed.
Section 3.15 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by the
Company is set forth in Schedule 3.15(a).
(b) Except as disclosed on Schedule 3.15(b), the Company has good and
marketable title to the Company Assets, including, without limitation, those
reflected on the Interim Company Balance Sheet (other than those since disposed
of in the ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for (i) liens for taxes
not yet due and payable or being contested in good faith in appropriate
proceedings, and (ii) encumbrances that are incidental to the conduct of its
businesses or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do not in the aggregate
materially detract from the value of the assets affected or materially impair
their use by the Company. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair, normal wear and tear excepted, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable ordinances, regulations and laws relating to their use and
operation.
(c) A listing of all real property leases, their terms and total lease
payments is attached hereto as Schedule 3.15(c). The Company enjoys peaceful and
undisturbed possession under all real property leases under which the Company is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon the Company.
Section 3.16 Compliance with Laws. The Company has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its properties and to conduct its businesses as presently conducted. The
business and operations of the Company have been and are being conducted in
accordance in all material respects with all applicable laws, rules and
regulations, and the Company is not in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's results of operations, business, assets or financial
condition.
Section 3.17 Litigation: Default. Except as otherwise set forth in Schedule
3.17, there are no claims, actions, suits, investigations or proceedings against
the Company pending or, to the Knowledge of the Company, threatened in any court
or before or by any Governmental Authority, or before any arbitrator, that could
reasonably be expected to have a material adverse effect (whether covered by
insurance or not) on the business, operations, prospects, Properties, securities
or financial condition of the Company. Except as otherwise set forth in Schedule
3.17, the Company is not in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any
Company Contract or any Legal Requirement or Permit applicable to the Company,
or (ii) accelerate or permit the acceleration of the performance required under,
or give any other party the right to terminate, any Company Contract, other than
defaults, breaches, violations or accelerations that would not have a material
adverse effect on the business, operations, prospects, Properties, securities or
financial condition (a "Material Adverse Effect") of the Company.
8
36
Section 3.18 Environmental Matters.
(a) Except as listed in Schedule 3.18(a), to the Knowledge of the
Company, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, or located on any premises at which the Company's business (the
"Company Business") is or was, or at which the business or, to the Knowledge of
the Company, its predecessors was, located which would have a Material Adverse
Effect on the Company.
(b) Except as described in Schedule 3.18(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which Company Business is or was, or, to knowledge of the Company, at which the
business of its predecessors was, located which would have a Material Adverse
Effect on the Company. With respect to underground storage tanks, Schedule
3.18(b) sets forth the size, location, construction, installation date, use and
testing history of all underground storage tanks (whether or not excluded from
regulation under Environmental Law), including all underground storage tanks in
use, out of service, closed, abandoned, decommissioned, or sold to a third
party.
(c) Except as listed in Schedule 3.18(c), to the Knowledge of the
Company, there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the
best knowledge of the Company, threat of a "release" of any Hazardous Substance
on, from or under any premises from which (i) the Company's operations have been
or are being conducted related to the Company Business. or (ii) to the Knowledge
of the Company, the operations of any predecessor of the Company which would
have a Material Adverse Effect on the Company.
(d) Except as listed in Schedule 3.18(d), the Company and its
predecessors have not received written notice alleging any potential liability
with respect to the contamination, investigation, or cleanup of any site at
which Hazardous Substances have been or have alleged to have been generated,
treated, stored, discharged, emitted or disposed of and, to the Knowledge of the
Company, there are no past or present events, facts, conditions or circumstances
which may interfere with or prevent material compliance by the Company with
Environmental Law, or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by the Company
or, to the Knowledge of the Company, by any predecessor of the Company, as a
result of any act or omission of the Company or predecessors related to the
Company Business.
(e) Except as disclosed in Schedule 3.18(e), all of the Company's and,
to the Knowledge of the Company, its predecessor's, Hazardous Substances
disposal and recycling practices related to the Company Business have been
accomplished in material compliance with all applicable Environmental Laws.
The Company's representation(s) with respect to this Section 3.18 shall not
be interpreted to imply that GRS has constructive knowledge regarding any aspect
of the Company Business with respect to environmental matters nor to limit the
scope of any of the Company's or any Stockholders' representations under this
Agreement. No such due diligence examination or related activities of, or on
behalf of, GRS however, shall constitute a waiver or relinquishment by GRS of
its right to rely upon the Company's or any Stockholders' representations,
warranties, covenants and agreements as made herein or pursuant hereto, and no
such disclosure shall constitute an assumption by GRS of any conditions or
liabilities, and such disclosure shall not relieve the Company or any
Stockholder of its duties and obligations hereunder.
Section 3.19 Banks. Schedule 3.19 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company has an account, credit line or
9
37
safe deposit box or vault, (ii) the names of all persons authorized to draw
thereon or to have access to any safe deposit box or vault, (iii) the purpose of
each such account, safe deposit box or vault, and (iv) the names of all persons
authorized by proxies, powers of attorney or other like instrument to act on
behalf of the Company in matters concerning any of its business or affairs.
Except as otherwise set forth in Schedule 3.19, no such proxies, powers of
attorney or other like instruments are irrevocable.
Section 3.20 Suppliers and Customers Sales. Schedule 3.20 sets forth all
the Company's material suppliers, together with the dollar amount of goods
purchased by the Company from each such supplier during the twelve (12) month
period ended December 31, 1997 and the three (3) month period ended March 31,
1998, as well as each of the principal customers of the Company. Except as
otherwise set forth in Schedule 3.20, since December 31, 1997, there has been no
material adverse change in the business relationship of the Company with any
supplier or customer named in Schedule 3.20. No customer or supplier named in
Schedule 3.20 has terminated or materially altered, or notified the Company of
any intention to terminate or materially alter, its relationship with the
Company, and the Company has no reason to believe that any such customer or
supplier will terminate or materially alter its relationship with the Company or
to materially decrease its services or supplies to the Company or its direct or
indirect usage of the services of the Company. For purposes of Sections 3.20 and
3.23, "material suppliers" refers to suppliers from whom the Company purchased
five percent (5%) or more of the total amount of the goods purchased by the
Company during the twelve (12) month period ended December 31, 1997 and the
three (3) month period ended March 31, 1998, and "principal customers" refers to
customers who accounted for 5% or more of the Company's total revenues during
the twelve (12) month period ended December 31, 1997 and the three (3) month
period ended March 31, 1998.
Section 3.21 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company or any Stockholder.
Section 3.22 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by the Company or the Stockholders to GRS or its counsel, do not
contain any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, certain materials provided to GRS contain projections and estimates of
future events, and such projections and estimates have been based upon certain
assumptions that management of the Company made in good faith and believed are
reasonable at the time such materials were prepared.
Section 3.23 Ownership Interests of Interested Persons. Except as set forth
in Schedule 3.23, no director or executive officer of the Company or their
respective spouses or children, owns directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer or director of,
any principal customer or material supplier which has a business relationship
with the Company or any organization that has a material contract or arrangement
with the Company.
Section 3.24 Investments in Competitors. Except as provided in Schedule
3.24, no director or executive officer of the Company owns directly or
indirectly any material interest or has any investment equal to 5% or more of
the outstanding voting securities in any corporation, business or other person
that is a direct competitor of the Company.
Section 3.25 Certain Payments. Neither the Company, nor any director,
officer or employee of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company: (a) to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or (b) any material contribution to any
political party or candidate (other than from personal funds of directors,
officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law).
10
38
Section 3.26 Government Inquiries. Except as set forth on Schedule 3.26,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company from, or any
material statement, report or other document filed by the Company with, the
federal government or any federal administrative agency (including but not
limited to, the Justice Department, Internal Revenue Service, Department of
Labor, Occupational Safety and Health Administration, Federal Trade Commission,
National Labor Relations Board, and Interstate Commerce Commission), any state
securities administrator or any local or state taxing authority.
Section 3.27 Other Transactions. Neither the Company nor any Stockholder
has entered into any agreements or arrangements and there are no pending offers
or discussions concerning or providing for the merger or consolidation of the
Company or all or any substantial portion of its assets, the sale by the Company
or any Stockholder of any securities of the Company or any similar transaction
affecting the Company or the Stockholders.
Section 3.28 Tax Matters.
(a) Except as set forth in Schedule 3.28 hereto:
(i) the Company has timely filed all federal income Tax Returns,
and all other material Tax Returns which it is required to file under applicable
laws and regulations;
(ii) all such Tax Returns are true and accurate in all material
respects;
(iii) has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and has withheld and paid over
to the appropriate taxing authority all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party, except where the amounts of such unpaid Taxes or the amounts that have
not been withheld and paid over do not, in the aggregate, exceed $25,000;
(iv) the accrual for Taxes on the Closing Date Unaudited Balance
Sheet is sufficient to pay in full all liabilities for Taxes of the Company
related to periods prior to the Closing;
(v) the federal income Tax Returns of the Company have been filed
through the date hereof, and, as of the date hereof, none of such Tax Returns
has been audited.
(vi) the Company has been a validly existing S corporation within
the meaning of Sections 1361 and 1362 of the Code) at all times since July 1,
1987, and will continue to be an S corporation up to and including the date
immediately preceding the Closing Date; and
(vii) the Company has disclosed in its federal income Tax
Returns, all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of IRC Section 6662.
(b) To the Knowledge of the Company, no claim has been made by a
taxing authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company:
(i) there are no foreign, federal, state or local Tax audits or
administrative or judicial proceedings pending or being conducted with respect
to the Company;
11
39
(ii) no information related to Tax matters has been requested by
any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by the
Company from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning the
Company's Tax liability.
(d) No waivers of statutes of limitation have been given or requested
with respect to the Company in connection with any Tax Returns covering the
Company, except where such waiver would not have a material adverse effect on
the Company.
(e) The Company has not executed or entered into a closing agreement
pursuant to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has the Company agreed to or is
required to make any adjustments pursuant to IRC Section 481(a) or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company. The Company has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
knowledge with respect to any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company.
(f) The Company has not made an election under IRC Section 341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any Tax sharing agreement.
(I) The Company has not made any payments nor is it obligated to make
payments nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under IRC Section 280G.
(j) The Company shall prepare or cause to be prepared and file or
cause to be filed all federal and state income Tax Returns for the Company for
tax periods ending on or prior to the Closing Date which are filed after the
Closing Date. The Company shall permit GRS to review and comment on each such
Tax Return described in the preceding sentence prior to filing. To the extent
permitted by applicable law, the Stockholders shall include any income, gain,
loss, deduction or other tax items for such period on their individual income
Tax Returns in a manner consistent with the Schedule K-ls furnished by the
Company to the Stockholders for such periods.
(k) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including New York City Transfer Tax, if
applicable, and any similar Tax imposed in other states and subdivisions), shall
be paid by the Stockholders when due, and the Stockholders will, at their
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, GRS will, and will
cause its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
12
40
EXHIBIT E
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder represents and warrants to GRS as follows:
Section 4.01 Title to the Shares. As of the Closing Date, such Stockholder
shall own beneficially and of record, free and clear of any lien, option or
other encumbrance, the shares of Company Common Stock set forth opposite such
Stockholders' name on Exhibit A hereof, and, upon consummation of the Stock
Purchase, GRS will acquire good and valid title thereto, free and clear of any
lien or other encumbrance.
Section 4.02 Authority to Execute and Perform Agreement. Such Stockholder
has the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement and to perform fully such
Stockholders' obligations hereunder. This Agreement has been duly executed and
delivered by such Stockholder and is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity). The execution and delivery by such Stockholder of this Agreement and
the performance by such Stockholder of this Agreement in accordance with its
terms and conditions will not (i) require the approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
or the approval or consent of any other person; or (ii) conflict with or result
in any breach or violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default under, any
statute, regulation, order, judgment or decree applicable to such Stockholder or
to the shares of Company Common Stock held by such Stockholder, or any
instrument, contract or other agreement to which such Stockholder is a party or
by or to which such Stockholder is or the shares of Company Common Stock held by
such Stockholder are bound or subject.
Section 4.03 No Stockholder Defaults or Consents. The execution and
delivery of this Agreement and the Collateral Agreements by such Stockholder and
the performance by such Stockholder who is a party thereto of his or her
obligations hereunder and thereunder will not violate any provision of law or
any judgment, award or decree or any indenture, agreement or other instrument to
which such Stockholder is a party, or by which such Stockholder or any
properties or assets of such Stockholder is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the properties or assets of such
Stockholder. Any and all consents required to be obtained by such Stockholder as
set forth in Schedule 4.03 shall be obtained and copies thereof delivered to GRS
upon execution of this Agreement.
Section 4.04 Investment Representations
(a) Such Stockholder is acquiring the shares of GRS Common Stock to be
issued to it pursuant to the Stock Purchase (the "GRS Shares") for its own
account and not on behalf of any other person; such Stockholder is aware and
acknowledges that the GRS Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be offered or sold
unless the GRS Shares are registered under the Securities Act or an exemption
from the registration requirements of the Securities Act is available;
41
(b) Such Stockholder has been furnished all information that it deems
necessary to enable it to evaluate the merits and risks of an investment in GRS;
such Stockholder has had a reasonable opportunity to ask questions of and
receive answers from GRS concerning GRS and the GRS Shares, and all such
questions, if any, have been answered to the full satisfaction of such
Stockholder;
(c) No person or entity other than such Stockholder has (i) any rights
in and to the GRS Shares, which rights were obtained through or from such
Stockholder or (ii) any rights to acquire the GRS Shares, which rights were
obtained through or from such Stockholder;
(d) Such Stockholder has such knowledge and expertise in financial and
business matters (including knowledge and expertise in the roofing industry)
that it is capable of evaluating the merits and risks involved in an investment
in the GRS Shares: and such Stockholder is financially able to bear the economic
risk of the investment in the GRS Shares, including a total loss of such
investment;
(e) Such Stockholder represents that it has adequate means of
providing for its current needs and has no need for liquidity in its investment
in the GRS Shares; such Stockholder has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) Such Stockholder is aware that the acquisition of the GRS Shares
is an investment involving a risk of loss and that there is no guarantee that
such Stockholder will realize any gain from this investment, and that such
Stockholder could lose the total amount of its investment;
(g) Such Stockholder understands that no United States federal or
state agency has made any finding of determination regarding the fairness of the
offering of the GRS Shares for investment, or any recommendation or endorsement
of the offering of the GRS Shares;
(h) Such Stockholder is acquiring the GRS Shares for investment, with
no present intention of dividing or allowing others to participate in such
investment or of reselling, or otherwise participating, directly or indirectly,
in a distribution of the GRS Shares, and shall not make any sale, transfer or
pledge thereof without registration under the Securities Act and any applicable
securities laws of any state or unless an exemption from registration is
available;
(i) Except as set forth herein, no representations or warranties have
been made to such Stockholder by GRS or any agent, employee or Affiliate of GRS,
and in entering into this transaction such Stockholder is not relying upon any
information, other than from the results of independent investigation by such
Stockholder;
(j) Such Stockholder understands that the GRS Shares are being offered
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that GRS is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Stockholder set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Stockholder to acquire the GRS Shares; and
(k) Such Stockholder will not sell, assign or transfer any of the GRS
Shares except (i) pursuant to an effective registration statement under the
Securities Act, (ii) in a transaction which, in the opinion of the general
counsel of GRS, Sellers' Counsel or other counsel reasonably satisfactory to
GRS, is not required to be registered under the Securities Act.
2
42
EXHIBIT F
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRS
GRS represents and warrants to the Company and the Stockholders that:
Section 5.01 Corporate Existence and Qualification: Corporate Documents.
(a) GRS is a corporation duly organized, validly existing and in good
standing under the laws of Florida, and is not required to be qualified to do
business as a foreign corporation in any other jurisdiction where the failure to
so qualify would have a material adverse effect on GRS. GRS has all required
corporate power and authority to own its properties and to carry on its business
as presently conducted. The Articles of Incorporation and By-laws of GRS, copies
of which are attached as Schedule 5.01(a), are complete and reflect all
amendments thereto through the date hereof.
(b) The stock and minute books of GRS that have been made available to
the Stockholder for review contain a complete and accurate record of all
stockholders of GRS, and all material actions of the stockholders and directors
(and any committees thereof) of GRS.
(c) Except as set forth on Schedule 5.01(c), GRS does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
Section 5.02 Authority, Approval and Enforceability. This Agreement has
been duly executed and delivered by GRS and GRS has all requisite power and
legal authority to execute and deliver this Agreement and all Collateral
Agreements executed and delivered or to be executed and delivered in connection
with the transactions provided for hereby, to consummate the transactions
contemplated hereby and by the Collateral Agreements, and to perform its
obligations hereunder and under the Collateral Agreements. This Agreement and
each Collateral Agreement to which GRS is a party constitutes, or upon execution
and delivery will constitute, the legal, valid and binding obligation of GRS,
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity).
Section 5.03 Capitalization and Ownership.
(a) As of the date of this Agreement, the entire authorized capital
stock of GRS consists of 100,000,000 shares, of which 90,000,000 have been
designated as GRS Common Stock and 10,000,000 have been designated as Preferred
Stock. All of the presently outstanding shares of capital stock of GRS have been
validly authorized and issued and are fully paid and nonassessable. Except as
set forth on Schedule 5.03, GRS has not issued any other shares of its capital
stock and there are no outstanding options, warrants, subscriptions or other
rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. No
dividends are accrued but unpaid on any capital stock of GRS.
Section 5.04 No Preemptive Rights. There are no preemptive rights affecting
the issuance or sale of the capital stock of GRS.
43
Section 5.05 No GRS Defaults or Consents. Except as otherwise set forth in
Schedule 5.05 attached hereto, neither the execution and delivery of this
Agreement nor the carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms, conditions or
provisions of the articles of incorporation or bylaws of GRS;
(ii) violate any Legal Requirements applicable to GRS;
(iii) violate, conflict with, result in a breach of, constitute a
default under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any contract or Permit applicable to
GRS;
(iv) result in the creation of any lien, charge or other
encumbrance on the shares of capital stock or any Property of GRS; or
(v) require GRS to obtain or make any waiver, consent, action,
approval or authorization of, or registration, declaration, notice or filing
with, any private non-governmental third party or any Governmental Authority.
Any and all consents required to be obtained by GRS as set forth in Schedule
5.05 shall be obtained and copies thereof delivered to the Company and the
Stockholders upon execution of this Agreement.
Section 5.06 No Proceedings. Except as set forth on Schedule 5.06, no suit,
action or other proceeding is pending or, to the Knowledge of GRS, threatened
before any Governmental Authority seeking to restrain GRS or prohibit its entry
into this Agreement or prohibit the Closing, or seeking damages against GRS or
its Properties, as a result of the consummation of the transaction contemplated
by this Agreement.
Section 5.07 [Reserved]
Section 5.08 Liabilities and Obligations. Except as set forth in Schedule
5.08, GRS' balance sheet at December 31, 1997 and 1996 (the "GRS Balance
Sheets") and the related statements of income, stockholders' equity and cash
flow for the fiscal years ended December 31, 1997, 1996 and 1995 (the "GRS
Financial Statements") reflect all liabilities of GRS as determined in
accordance with generally accepted accounting principles arising out of
transactions effected or events occurring on or prior to the date of the GRS
Balance Sheet, except for liabilities not exceeding $10,000 in the aggregate.
All reserves shown in the GRS Financial Statements are appropriate and
reasonable to provide for losses thereby contemplated. Except as set forth in
the GRS Financial Statements, GRS is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity.
Section 5.09 Accounts Receivable. Except as otherwise set forth in Schedule
5.09, the accounts receivable reflected on the GRS Balance Sheet and all
accounts receivable arising between December 31, 1997 and the date hereof, arose
from bona fide transactions in the ordinary course of business, and the goods
and services involved have been sold, delivered and performed to the account of
the obligors, and no further filings (with Governmental Authorities, insurers or
others) are required to be made, no further goods are required to be provided
and no further services are required to be rendered in order to complete the
sales and fully render the services and to entitle GRS to collect the accounts
receivable in full. No such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim GRS Balance Sheet, no defense or setoff to
any such account has been asserted by the account obligor.
2
44
Section 5.10 Employee Matters.
(a) Schedule 5.10(a) contains a complete and accurate list of the
names, titles and compensation of all executive officers of GRS, regardless of
compensation levels, and other employees who are currently compensated at a rate
in excess of $50,000 per year (including any reasonably anticipated bonus) or
who earned in excess of $50,000 during GRS' fiscal year ended October 31, 1996
(collectively, the "GRS Key Employees"). In addition, Schedule 5.10(a) contains
a complete and accurate description of (i) all increases in compensation of the
GRS Key Employees during the fiscal years of GRS ending October 31, 1997 and
October 31, 1996, respectively, and (ii) any promised increases in compensation
of the GRS Key Employees that have not yet been effected.
(b) Schedule 5.10(b) contains a complete and accurate list of all
Compensation Plans sponsored by GRS or to which GRS contributes on behalf of its
employees, other than Employee Benefit Plans listed in Schedule 5.11. As used in
this Section 5.10, "Compensation Plans" shall mean and include, without
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 5.10(c) contains a complete and accurate list of all
Employment Agreements. As used in this Section 5.10(c) and in Section 5.10(e)
hereof, "Employment Agreements" shall mean and include, without limitation,
employee leasing agreements, employee services agreements and noncompetition
agreements to which GRS is a party.
(d) GRS has provided the Company and the Stockholders with a complete
and accurate list of all significant written employee policies and procedures.
(e) To the Knowledge of GRS, no unwritten material amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans, Employment Agreements or employee policies
and procedures.
(f) To the Knowledge of GRS, except as set forth in Schedule 5.10(f),
GRS (i) has been and is in material compliance with all laws, rules, regulations
and ordinances respecting employment and employment practices, terms and
conditions of employment and wages and hours, and (ii) is not liable in any
material amount for any arrears of wages or penalties for failure to comply with
any of the foregoing. GRS has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. To the Knowledge of GRS,
there are no (i) material unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, race or handicap discrimination charges
or complaints pending or threatened against GRS before the National Labor
Relations Board or any similar state or foreign commission or agency or (ii)
existing or threatened material labor strikes, disputes, grievances,
controversies or other labor troubles affecting GRS.
(g) GRS has not ever been a party to any agreement with any union,
labor organization or collective bargaining unit. No employees of GRS are
represented by any union, labor organization or collective bargaining unit. The
employees of GRS have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) Except as disclosed on Schedule 5.10(h), no GRS Key Employee has
indicated his or her desire or intent to terminate employment with GRS, and GRS
has no present intent of terminating the employment of any GRS Key Employee.
Section 5.11 Employee Benefit Matters.
(a) Schedule 5.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by GRS or to which GRS contributes on behalf of
its employees and all Employee
3
45
Benefit Plans previously sponsored or contributed to on behalf of its employees
within the three years preceding the date hereof. No unwritten amendment exists
with respect to any Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered and maintained in
compliance with all laws, rules and regulations, except for such noncompliance
that would not have a material adverse effect on GRS. No Employee Benefit Plan
is currently the subject of an audit, investigation, enforcement action or other
similar proceeding conducted by any state or federal agency. No prohibited
transactions (within the meaning of Section 4975 of the Internal Revenue Code of
1986, as amended, and the regulations promulgated thereunder (the "Code")) have
occurred with respect to any Employee Benefit Plan. No pending or, to the
Knowledge of GRS, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(c) GRS has received a favorable determination letter or ruling from
the Internal Revenue Service for each Employee Benefit Plan intended to be
qualified within the meaning of Section 401 (a) of the Code and/or tax exempt
within the meaning of Section 501(a) of the Code, which letter or ruling is
current and covers all required amendments to each such Employee Benefit Plan
through the Closing Date. No proceedings exist or, to the Knowledge of GRS, have
been threatened that could result in the revocation of any such favorable
determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of Section
412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither GRS or any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA. GRS nor
any member of a Controlled Group is or ever has been obligated to contribute to
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of ERISA)
for which the notice requirement has not been waived has occurred with respect
to any Employee Benefit Plan subject to the requirements of Title IV of ERISA.
(f) GRS has no obligation or commitment to provide medical, dental or
life insurance benefits to or on behalf of any of its employees who may retire
or any of its former employees who have retired from employment with GRS.
Section 5.12 Absence of Certain Changes. Except as set forth in Schedule
5.12, from the date of the GRS Balance Sheet to the date of this Agreement, GRS
has not:
(a) suffered any material adverse change, whether or not caused by any
deliberate act or omission of GRS or any stockholder of GRS, in its condition
(financial or otherwise), operations, assets, liabilities, business or
prospects;
(b) contracted for the purchase of any capital assets having a cost in
excess of $25,000 or paid any capital expenditures in excess of $25,000, except
in the ordinary course of business consistent with past practice;
(c) incurred any indebtedness for borrowed money or issued or sold any
debt securities, except in the ordinary course of business consistent with past
practice;
4
46
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business consistent with past practice;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business consistent with past practice;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets, except in
the ordinary course of business consistent with past practice;
(g) suffered any damage or destruction to or loss of any of its assets
(whether or not covered by insurance) that has materially adversely affected, or
could materially adversely affect, its business;
(h) acquired or disposed of any of its assets except in the ordinary
course of business consistent with past practice;
(i) written up or written down the carrying value of any of its
assets, except in the ordinary course of business consistent with past practice;
(j) changed any accounting principles methods or practices followed or
changed the costing system or depreciation methods of accounting for its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost, terminated or experienced any change in the relationship
with any employee, customer, joint venture partner or supplier, which
termination or change has materially and adversely affected, or could reasonably
be expected to materially and adversely affect, its business or its assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the ordinary
course of business consistent with past practice;
(o) made any payments to or loaned any money to any person or entity
except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights, paid any dividends or
made any distribution to the holders of GRS' capital stock;
(r) entered into any material agreement with any person or group, or
modified or amended in any material respect the terms of any material existing
agreement except in the ordinary course of business consistent with past
practice;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any agreement (written or oral) to do any of the
foregoing, except in the ordinary course of business consistent with past
practice.
5
47
Section 5.13 Commitments. (a) Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which GRS is a
party (the "GRS Contracts") set forth in Schedule 5.13, GRS has not entered
into, nor is the capital stock, the assets or the business of GRS bound by,
whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement, except in the
ordinary course of business consistent with past practice;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation relating
to indebtedness for borrowed money or money lent or to be lent to another,
except in the ordinary course of business;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public relations or
advertising agencies, accountants or attorneys, except with respect to
confidentiality agreements;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee, except in the ordinary course of business and
excluding the real estate leases set forth on Schedule 5.16(c);
(x) agreement between GRS and any Affiliate;
(xi) agreement relating to any material matter or transaction in
which an interest is held by a person or entity that is an Affiliate of GRS;
(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property and involving more than $25,000 in the
aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $5,000 or that terminates more than thirty
(30) days after the date hereof, except in the ordinary course of business;
(xvi) agreement relating to any material matter or transaction in
which an interest is held by any person or entity referred to in Section 5.24
hereof; or
6
48
(xvii) any other agreement or commitment not made in the ordinary
course of business that is material to the business or financial condition of
GRS.
True, correct and complete copies of the written GRS Contracts, and true,
correct and complete written descriptions of the oral GRS Contracts, have
heretofore been delivered or made available to the Stockholders. There are no
existing material defaults, material events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by GRS, and no material penalties have been
incurred nor are amendments pending, with respect to the GRS Contracts. The GRS
Contracts are in full force and effect and are valid and enforceable obligations
of GRS, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity). GRS has not received notice of any
material default with respect to any GRS Contracts. For the purposes of this
Section 5.13(a), the term "material" shall mean a condition the existence or
breach of which could result in damage or loss to GRS valued in excess of $5,000
individually or $25,000 in the aggregate.
(b) Except as contemplated hereby, GRS has not received notice of any
plan or intention of any other party to any GRS Contract to exercise any right
to cancel or terminate any GRS Contract. GRS does not currently contemplate, and
has no reason to believe any person or entity currently contemplates, any
amendment or change to any GRS Contract. None of the customers, joint venture
partners or suppliers of GRS has refused, or communicated that it will or may
refuse, to purchase or supply goods or services, as the case may be, or has
communicated that it will or may substantially reduce the amounts of goods or
services that it is willing to purchase from, or sell to, GRS.
Section 5.14 Insurance. GRS has previously delivered or made available to
the Stockholders all insurance policies of GRS. All of such policies are valid
and enforceable against GRS, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
Section 5.15 Patents, Trade-marks, Service Marks and Copyrights.
(a) GRS owns all patents, trade-marks, service marks and copyrights
(collectively "Proprietary Rights"), if any, necessary to conduct its business,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Schedule 5.15(a) is a true and
correct description of all Proprietary Rights.
(b) GRS has the sole and exclusive right to use the Proprietary Rights
without infringing or violating the rights of any third parties. Use of the
Proprietary Rights does not require the consent of any other person and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or right to use any Proprietary Right or challenging
or questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right. Each of the Proprietary Rights is
valid and subsisting, has not been canceled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
Section 5.16 Title to Assets; Condition of Assets.
(a) A description of all interests in real property owned by GRS is
set forth in Schedule 5.16(a).
(b) Except as disclosed on Schedule 5.16(b), GRS has good and
marketable title to its respective assets, (other than those disposed of since
the date of the GRS Balance Sheet in the
7
49
ordinary course of business), free and clear of all security interests, liens,
charges and other encumbrances, except for (i) liens for taxes not yet due and
payable or being contested in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of its businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by GRS. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by GRS are in good operating condition and repair, normal wear
and tear excepted, are adequate and sufficient for GRS' business and conform in
all material respects with all applicable ordinances, regulations and laws
relating to their use and operation.
(c) A listing of all real property leases, their terms and total lease
payments is attached hereto as Schedule 5.16(c). GRS enjoys peaceful and
undisturbed possession under all real property leases under which GRS is
operating, and all such leases are valid and subsisting and none of them is in
default, except for those defaults which, individually or in the aggregate,
would not have a material adverse effect upon GRS.
Section 5.17 Compliance with Laws. GRS has all material franchises,
Permits, licenses and other rights and privileges necessary to permit it to own
its Properties and to conduct its businesses as presently conducted. The
business and operations of GRS have been and are being conducted in accordance
in all material respects with all applicable laws, rules and regulations, and
GRS is not in violation of any judgment, law or regulation except where any such
violation would not have a material adverse effect on GRS' results of
operations, business, assets or financial condition.
Section 5.18 Litigation: Default. Except as otherwise set forth in Schedule
5.18, there are no claims, actions, suits, investigations or proceedings against
GRS pending or, to the Knowledge of GRS, threatened in any court or before or by
any Governmental Authority, or before any arbitrator, that could reasonably be
expected to have a material adverse effect (whether covered by insurance or not)
on the business, operations, prospects, Properties, securities or financial
condition of GRS. Except as otherwise set forth in Schedule 5.18, GRS is not in
default under, and no condition exists (whether covered by insurance or not)
that with or without notice or lapse of time or both would (i) constitute a
default under, or breach or violation of, any Legal Requirement or Permit
applicable to GRS or any GRS Contract applicable to GRS, or (ii) accelerate or
permit the acceleration of the performance required under, or give any other
party the right to terminate, any GRS Contract, other than defaults, breaches,
violations or accelerations that would not have a material adverse effect on the
business, operations, prospects, Properties, securities or financial condition
of GRS.
Section 5.19 Environmental Matters.
(a) Except as listed in Schedule 5.19(a), to the Knowledge of GRS,
there are no PCBs, TCE, PCE, or asbestos containing materials generated, used,
treated, stored, maintained, disposed of, or otherwise deposited in, or located
on any premises at which GRS' business (the "GRS Business") is or was, or at
which the business or, to the Knowledge of GRS, its predecessors was, located,
which would have a Material Adverse Effect on GRS.
(b) Except as described in Schedule 5.19(b), there are and were no
underground storage tanks used, stored, maintained, located on any premises at
which the GRS Business is or was, or, to knowledge of GRS, at which the business
of its predecessors was, located, which would have a Material Adverse Effect on
GRS. With respect to underground storage tanks, Schedule 5.19(b) sets forth the
size, location, construction, installation date, use and testing history of all
underground storage tanks (whether or not excluded from regulation under
Environmental Law), including all underground storage tanks in use, out of
service, closed, abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 5.19(c), to the Knowledge of GRS,
there has been no "release" as defined in 42 U.S.C. 9601(22) or, to the best
knowledge of GRS, threat of a "release" of
8
50
any Hazardous Substance on, from or under any premises from which (i) GRS'
operations have been or are being conducted related to the GRS Business. or (ii)
to the Knowledge of GRS, the operations of any predecessor of GRS, which would
have a Material Adverse Effect on GRS.
(d) Except as listed in Schedule 5.19(d), neither GRS nor their
respective predecessors have received written notice alleging any potential
liability with respect to the contamination, investigation, or cleanup of any
site at which Hazardous Substances have been or have alleged to have been
generated, treated, stored, discharged, emitted or disposed of and, to the
Knowledge of GRS, there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent material compliance by GRS
with Environmental Law, or with any order, decree, judgment, injunction, notice
or demand issued, entered, promulgated or approved thereunder, or which may give
rise to any liability under applicable law including, without limitation, any
Environmental Law, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, study or investigation, based on
or related to the manufacture, process, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment of Hazardous Substances by GRS or, to
the Knowledge of GRS, any predecessor, as a result of any act or omission of GRS
or any predecessors related to the GRS Business.
(e) Except as disclosed in Schedule 5.19(e), all of GRS' and, to the
Knowledge of GRS, their respective predecessor's, Hazardous Substances disposal
and recycling practices related to the GRS Business have been accomplished in
material compliance with all applicable Environmental Laws.
GRS' representation(s) with respect to this Section 5.19 shall not be
interpreted to imply that the Stockholders have constructive knowledge regarding
any aspect of the GRS Business with respect to environmental matters nor to
limit the scope of any of GRS' representations under this Agreement. No such due
diligence examination or related activities of, or on behalf of, the
Stockholders however, shall constitute a waiver or relinquishment by the
Stockholders of their right to rely upon GRS' representations, warranties,
covenants and agreements as made herein or pursuant hereto, and no such
disclosure shall constitute an assumption by the Stockholders of any conditions
or liabilities, and such disclosure shall not relieve GRS of its duties and
obligations hereunder.
Section 5.20 Banks. Schedule 5.20 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which GRS has an account, credit line or safe deposit box or vault, (ii) the
names of all persons authorized to draw thereon or to have access to any safe
deposit box or vault, (iii) the purpose of each such account, safe deposit box
or vault, and (iv) the names of all persons authorized by proxies, powers of
attorney or other like instrument to act on behalf of GRS in matters concerning
any of its business or affairs. Except as otherwise set forth in Schedule 5.20,
no such proxies, powers of attorney or other like instruments are irrevocable.
Section 5.21 Suppliers and Customers Sales. Schedule 5.21 sets forth all of
GRS' material suppliers, together with the dollar amount of goods purchased by
GRS from each such supplier during the twelve month period ended December 31,
1997 and the four month period ended April 30, 1998, as well as each of the
principal customers of GRS. Except as otherwise set forth in Schedule 5.21,
since December 31, 1997, there has been no material adverse change in the
business relationship of GRS with any supplier or customer named in Schedule
5.21. No customer or supplier named in Schedule 5.21 has terminated or
materially altered, or notified GRS of any intention to terminate or materially
alter, its relationship with GRS and GRS has no reason to believe that any such
customer or supplier will terminate or materially alter its relationship with
GRS or to materially decrease its services or supplies to GRS or its direct or
indirect usage of the services or products of GRS. For purposes of Sections 5.21
and 5.24 "material suppliers" refers to suppliers from whom GRS purchased five
percent (5%) or more of the total amount of the goods purchased by GRS during
the twelve month period ended December 31, 1997 and the four month period ended
April 30, 1998, and "principal customers" refers to customers who accounted
9
51
for 5% or more of GRS' revenues during the twelve month period ended December
31, 1997 and the four month period ended April 30, 1998.
Section 5.22 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
GRS.
Section 5.23 Disclosure; Due Diligence. This Agreement and the Exhibits and
Schedules hereto, when taken as a whole with other documents and certificates
furnished by GRS to the Stockholders or their counsel, do not contain any untrue
statement of material fact or omit any material fact necessary in order to make
the statements therein not misleading; provided, however, certain materials
provided to the Stockholders contain projections and estimates of future events,
and such projections and estimates have been based upon certain assumptions that
management of GRS made in good faith and believed are reasonable at the time
such materials were prepared.
Section 5.24 Ownership Interests of Interested Persons. Except as set forth
in Schedule 5.24, no director or executive officer of GRS or their respective
spouses or children, owns directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
principal customer or material supplier which has a business relationship with
GRS or any organization that has a material contract or arrangement with GRS.
Section 5.25 Investments in Competitors. No director or executive officer
of GRS owns directly or indirectly any material interests or has any investment
equal to 5% or more of the outstanding voting securities in any corporation,
business or other person that is a direct competitor of GRS.
Section 5.26 Certain Payments. Neither GRS, nor any director, officer or
employee of GRS has paid or caused to be paid, directly or indirectly, in
connection with the business of GRS: (a) to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or (b), any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
Section 5.27 Government Inquiries. Except as set forth on Schedule 5.27,
there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by GRS from, or any material
statement, report or other document filed by GRS with, the federal government or
any federal administrative agency (including but not limited to, the Justice
Department, Internal Revenue Service, Department of Labor, Occupational Safety
and Health Administration, Federal Trade Commission, National Labor Relations
Board, and Interstate Commerce Commission), any state securities administrator
or any local or state taxing authority.
Section 5.28 Tax Matters.
(a) Except as set forth in Schedule 5.28 hereto, GRS:
(i) has filed all federal income Tax Returns, and all other
material Tax Returns which it is required to file under applicable laws and
regulations;
(ii) all such Tax Returns are true and accurate in all material
respects;
(iii) has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and has withheld and paid over
to the appropriate taxing authority all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party, except where the amounts of such unpaid Taxes or the amounts that have
not been withheld and paid over do not, in the aggregate, exceed $25,000;
10
52
(iv) the accrual for Taxes on the Unaudited GRS Balance Sheet
(excluding any amount recorded which is attributable to timing differences
between book and Tax income) would be adequate to pay all material Tax
liabilities of GRS if its current tax year were treated as ending on the date of
the Unaudited GRS Balance Sheet;
(v) the federal income Tax Returns of GRS have been filed through
the date hereof, and, as of the date hereof, none of such Tax Returns has been
audited.
(b) To the Knowledge of GRS, no claim has been made by a taxing
authority in a jurisdiction where GRS does not file Tax Returns that GRS is or
may be subject to taxation by that jurisdiction.
(c) To the Knowledge of GRS;
(i) there are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with respect
to GRS;
(ii) no information related to Tax matters has been requested by
any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by GRS
from any foreign, federal, state or local taxing authority; and
(iii) there are no material unresolved claims concerning GRS' Tax
liability.
(d) No waivers of statutes of limitation have been given or requested
with respect to GRS in connection with any Tax Returns covering GRS, except
where such waiver would not have a material adverse effect on GRS.
(e) GRS has not executed or entered into a closing agreement pursuant
to IRC Section 7121 or any predecessor provision thereof or any similar
provision of state, local or foreign law; nor has GRS agreed to or is required
to make any adjustments pursuant to IRC Section 481(a) or any similar provision
of state, local or foreign law by reason of a change in accounting method
initiated by GRS. GRS has no knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any knowledge with respect to
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of GRS.
(f) GRS has not made an election under IRC Section 341(f).
(g) GRS is not liable for the Taxes of another person.
(h) GRS is not a party to any tax sharing agreement.
(I) GRS has not made any payments nor is it obligated to make payments
nor is it a party to an agreement that could obligate it to make any payments
that would not be deductible under IRC Section 280G.
Section 5.29 Participation in Secondary Offering. In the event that after
the Offering GRS files a registration statement with the Securities and Exchange
Commission with respect to a subsequent public offering (the "Secondary
Offering") of shares of GRS Common Stock, and any shareholders of GRS
participate in the Secondary Offering through the sale of their respective
shares of GRS Common Stock, then (i) Xxxxx Xxxxxxx shall first be entitled to
participate in the Secondary Offering with respect to 250,000 shares of GRS
Common Stock (in recognition of the fact that Xx. Xxxxxxx is not receiving any
cash proceeds from the sale of the common stock of the Founding Companies owned
by him) and (ii) thereafter the Stockholders shall be entitled to participate in
the Secondary Offering by including therein such
11
53
number of shares of GRS Common Stock owned by the Stockholders as shall equal
(i)(A) the total number of shares of GRS Common Stock owned by such Stockholders
divided by (B) the total number of shares of GRS Common Stock owned by all
shareholders of the Founding Companies, multiplied by (ii) the total number of
shares of GRS Common Stock owned by shareholders of the Company which are to be
included in the Secondary Offering.
12
